Toshiba Information Equipment (Phils.), Inc. vs.

CIR
Topic: Judicial Admissions
Ponente: J. De Castro (si Bar Chair!)
Doctrine:
The admission having been made in a stipulation of facts at pre-trial by the parties, it must be
treated as a judicial admission. Under Section 4, Rule 129 of the Rules of Court, a judicial
admission requires no proof. The admission may be contradicted only by a showing that it was
made through palpable mistake or that no such admission was made. The Court cannot lightly
set aside a judicial admission especially when the opposing party relied upon the same and
accordingly dispensed with further proof of the fact already admitted.
ER:

Toshiba is registered with PEZA as an ECOZONE export enterprise and is VATregistered with the BIR. It filed its VAT returns for the first half of 1997 and
subsequently filed an amended VAT return reporting the same amounts but claiming
that it had zero-rated sales. Thus, Toshiba filed for a tax credit/refund. CIR opposed
saying that Toshiba failed to establish its right to a refund. Also, CIR argues that the
VAT-exemption of Toshiba meant that its sale of goods was not subject to output VAT
and Toshiba as seller was not allowed any tax credit on the input VAT it had previously
paid.
In the CTA (via petition for review), both parties were advised to file a Joint Stipulation
of Facts and Issued. Among the stipulation was a statement that Toshiba is a duly
registered value-added tax entity in accordance with Section 107 of the Tax Code that
is subject to 0% value-added tax on its export sales.
During the trial before the CTA, Toshiba presented documentary evidence in support of
its claim for tax credit/refund, while the CIR did not present any evidence at all. CTA
decided in favor of Toshiba.
On petition for review with the CA, CA reversed the decision of the CTA. CA said that
the export sales of Toshiba were VAT-exempt, not zero-rated, transactions, and
declared that the CIR signed the said pleading through palpable mistake.
Thus Toshiba filed this petition for review with the SC.
Issue: Whether Toshiba is VAT-exempt and its export sales are exempt from VAT?
Nope. The arguments of the CIR that Toshiba was VAT-exempt and the latters export
sales were VAT-exempt transactions are inconsistent with the explicit admissions of the
CIR in the Joint Stipulation of Facts and Issues (Joint Stipulation) that Toshiba was a
registered VAT entity and that it was subject to zero percent (0%) VAT on its export
sales.
The admission having been made in a stipulation of facts at pre-trial by the parties, it
must be treated as a judicial admission. Under Section 4, Rule 129 of the Rules of
Court, a judicial admission requires no proof. The admission may be contradicted only
by a showing that it was made through palpable mistake or that no such admission
was made. The Court cannot lightly set aside a judicial admission especially when the
opposing party relied upon the same and accordingly dispensed with further proof of
the fact already admitted. An admission made by a party in the course of the
proceedings does not require proof.
In the instant case, among the facts expressly admitted by the CIR and Toshiba in
their CTA-approved Joint Stipulation are that Toshiba is a duly registered value-added
tax entity in accordance with Section 107 of the Tax Code, as amended[,] that is
subject to zero percent (0%) value-added tax on its export sales in accordance with
then Section 100(a)(2)(A) of the Tax Code, as amended.
The CIR was bound by these admissions, which he could not eventually contradict in
his Motion for Reconsideration of the CTA Decision dated October 16, 2000, by arguing
that Toshiba was actually a VAT-exempt entity and its export sales were VAT-exempt
transactions. Obviously, Toshiba could not have been subject to VAT and exempt from
VAT at the same time. Similarly, the export sales of Toshiba could not have been
subject to zero percent (0%) VAT and exempt from VAT as well.

Facts:

Toshiba is a domestic corporation principally engaged in the business of manufacturing

and exporting of electric machinery, equipment systems, accessories, parts,
components, materials and goods of all kinds, including those relating to office
automation and information technology and all types of computer hardware and
software, such as but not limited to HDD-CD-ROM and personal computer printed
circuit board.
o It is registered with the Philippine Economic Zone Authority (PEZA) as an
Economic Zone (ECOZONE) export enterprise in the Laguna Technopark, Inc.,
as evidenced by Certificate of Registration No. 95-99.
o It is also registered as a VAT-taxpayer with the BIR.

In its VAT returns for the 1st and 2nd quarters of 1997, Toshiba declared input VAT
payments on its domestic purchases of taxable goods and services amounting to
around P3.9M
o Thereafter, it submitted an amended VAT return for the same periods,
reporting the same amount BUT this time, with zero-rated sales totaling P7.5M

Toshiba then filed with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback
Center of the DOF 2 applications for tax credit/refund of its unutilized input VAT
payments for the first half of 1997 amounting to P3.7M.
o Toshiba also filed a Petition for Review with the CTA to toll the 2-yr prescriptive
period under Sec 230 of the Tax Code.

CIR opposed the claim for tax credit/refund on the following grounds:
o Toshiba failed to show that the P3.9M claimed as VAT input tax were
erroneously collected or that the same are properly documented
o Taxes paid are presumed to have been made in accordance with the law hence
not refundable
o The taxpayer has the burden to establish its right to refund. Toshiba failed to
do so
o Well-established is the rule that claims for refund are construed strictly against
the taxpayer as it partakes the nature of exemption from tax.

[IMPT] Upon being advised by the CTA, Toshiba and the CIR filed a Joint
Stipulation of Facts and Issues wherein they agreed and admitted that:
o [Toshiba] is a duly registered value-added tax entity in accordance
with Section 107 of the Tax Code, as amended.
o [Toshiba] is subject to zero percent (0%) value-added tax on
its export sales in accordance with then Section 100(a)(2)(A) of the
Tax Code, as amended.
o [Toshiba] filed its quarterly VAT returns for the first two quarters of
1997 within the legally prescribed period.
o [Toshiba] is subject to zero percent (0%) value-added tax on
its export sales.
o [Toshiba] has duly filed the instant Petition for Review within the twoyear prescriptive period prescribed by then Section 230 of the Tax
Code.

During the trial before the CTA, Toshiba presented documentary evidence in support of
its claim for tax credit/refund, while the CIR did not present any evidence at all.

CTA decided in favor of Toshiba.

o The CIR himself admitted that the export sales of Toshiba were subject to zero
percent (0%) VAT based on Section 100(a)(2)(A)(i) of the Tax Code of 1977,
as amended. Toshiba could then claim tax credit or refund of input VAT paid
on its purchases of goods, properties, or services, directly attributable to such
zero-rated sales.
o CTA however reduced the amount to be refunded to P1.4M

Toshiba and the CIR filed an MR.

Toshiba argues: it presented proper substantiation for the P1.9 input VAT
disallowed by the CTA
o CIR argues: Toshiba not entitled to refund of its input VAT because as a PEZA
registered ECOZONE export enterprise, Toshiba was not subject to VAT.
Toshiba is exempt from VAT meaning the sale of goods or properties and/or
services and the use or lease of properties is not subject to VAT (output tax)
and the seller is not allowed any tax credit on VAT (input tax) previously paid.
The CTA took note that the pieces of evidence referred to by Toshiba in its Motion for
Reconsideration were insufficient substantiation, being mere schedules of input VAT
payments it had purportedly paid for the first and second quarters of 1997. While the
CTA gives credence to the report of its commissioned certified public accountant (CPA),
it does not render its decision based on the findings of the said CPA alone. The CTA
has its own CPA and the tax court itself conducts an investigation/examination of the
documents presented. The CTA stood by its earlier disallowance of the amount of
P1,9M as tax credit/refund because it was not supported by VAT invoices and/or official
receipts.
The CTA refused to consider the argument that Toshiba was not entitled to a tax
credit/refund under Section 24 of Republic Act No. 7916 because it was only raised by
the CIR for the first time in his Motion for Reconsideration.
o The CTA also pointed out that Toshiba availed itself of the income tax holiday
under the Omnibus Investments Code of 1987, so Toshiba was exempt only
from income tax but not from other taxes such as VAT. As a result, Toshiba
was liable for output VAT on its export sales, but at zero percent (0%) rate,
and entitled to the credit/refund of the input VAT paid on its purchases of
goods and services relative to such zero-rated export sales.
Unsatisfied, CIR filed a Petition for Review with the CA. CA granted the appeal of the
CIR and reversed the decision of the CTA. The appellate court ruled that Toshiba was
not entitled to the refund of its alleged unused input VAT payments because it was a
tax-exempt entity under Section 24 of Republic Act No. 7916. As a PEZA-registered
corporation, Toshiba was liable for remitting to the national government the five
percent (5%) preferential rate on its gross income earned within the ECOZONE, in lieu
of all other national and local taxes, including VAT.
o [RELEVANT] The Court of Appeals further adjudged that the export sales of
Toshiba were VAT-exempt, not zero-rated, transactions. The appellate court
found that the Answer filed by the CIR in CTA Case No. 5762 did not contain
any admission that the export sales of Toshiba were zero-rated transactions
under Section 100(a)(2)(A) of the Tax Code of 1977, as amended. At the
least, what was admitted by the CIR in said Answer was that the Tax Code
provisions cited in the Petition for Review of Toshiba in CTA Case No. 5762
were correct. As to the Joint Stipulation of Facts and Issues filed by the
parties in CTA Case No. 5762, which stated that Toshiba was subject to zero
percent (0%) VAT on its export sales, the appellate court declared that the CIR
signed the said pleading through palpable mistake. This palpable mistake in
the stipulation of facts should not be taken against the CIR, for to do otherwise
would result in suppressing the truth through falsehood. In addition, the State
could not be put in estoppel by the mistakes or errors of its officials or agents.
Toshiba filed a MR but the CA denied.
Thus this Petition for Review with the SC.
o

Issues:
1. Whether Toshiba, being a PEZA-registered enterprise, is exempt from VAT and that its
export sales are exempt transactions? NO.
2. Whether CA erred in ruling that CTAs finding that Toshibas export sales are zero-rated
for VAT were based merely on admissions by CIR and not supported by substantial
evidence? YES, CA erred.
HELD: CA decision is reversed and set aside. CTA decision reinstated. CIR ordered to refund or
issue certificate of tax credit in favor of Toshiba in the amount of P1.4M.

Ratio:
The CIR judicially admitted that Toshiba was VAT-registered and its export sales
were subject to VAT at 0% rate. [IMPORTANT]

The arguments of the CIR that Toshiba was VAT-exempt and the latters export sales
were VAT-exempt transactions are inconsistent with the explicit admissions of the CIR
in the Joint Stipulation of Facts and Issues (Joint Stipulation) that Toshiba was a
registered VAT entity and that it was subject to zero percent (0%) VAT on its export
sales.

The Joint Stipulation was executed and submitted by Toshiba and the CIR upon being
advised to do so by the CTA at the end of the pre-trial conference. When the CTA
approved the Joint Stipulation, it marked the culmination of the pre-trial process. Pretrial is now mandatory and is held as the answer for the call for speedy disposition of
cases.
o Under Rule 18, Sec.2, one of the purposes of pre-trial is to simplify the issues
and for the possibility of obtaining stipulations or admissions of facts and of
documents to avoid unnecessary proof

The admission having been made in a stipulation of facts at pre-trial by the

parties, it must be treated as a judicial admission. Under Section 4, Rule 129
of the Rules of Court, a judicial admission requires no proof. The admission
may be contradicted only by a showing that it was made through palpable mistake or
that no such admission was made. The Court cannot lightly set aside a judicial
admission especially when the opposing party relied upon the same and accordingly
dispensed with further proof of the fact already admitted. An admission made by a
party in the course of the proceedings does not require proof.

In the instant case, among the facts expressly admitted by the CIR and Toshiba in
their CTA-approved Joint Stipulation are that Toshiba is a duly registered value-added
tax entity in accordance with Section 107 of the Tax Code, as amended[,] that is
subject to zero percent (0%) value-added tax on its export sales in accordance with
then Section 100(a)(2)(A) of the Tax Code, as amended.
o The CIR was bound by these admissions, which he could not eventually
contradict in his Motion for Reconsideration of the CTA Decision dated October
16, 2000, by arguing that Toshiba was actually a VAT-exempt entity and its
export sales were VAT-exempt transactions. Obviously, Toshiba could not have
been subject to VAT and exempt from VAT at the same time. Similarly, the
export sales of Toshiba could not have been subject to zero percent (0%) VAT
and exempt from VAT as well.
The CIR cannot escape the binding effect of his judicial admissions

The Court disagrees with the Court of Appeals when it ruled in its Decision dated
August 29, 2002 that the CIR could not be bound by his admissions in the Joint
Stipulation because (1) the said admissions were made through palpable mistake
which, if countenanced, would result in falsehood, unfairness and injustice; and (2)
the State could not be put in estoppel by the mistakes of its officials or agents. This
ruling of the Court of Appeals is rooted in its conclusion that a palpable mistake had
been committed by the CIR in the signing of the Joint Stipulation. However, this Court
finds no evidence of the commission of a mistake, much more, of a palpable one.

The CIR does not deny that his counsel, Atty. Joselito F. Biazon, Revenue Attorney II of
the BIR, signed the Joint Stipulation, together with the counsel of Toshiba, Atty.
Patricia B. Bisda. Considering the presumption of regularity in the performance of
official duty,[51] Atty. Biazon is presumed to have read, studied, and understood the
contents of the Joint Stipulation before he signed the same. It rests on the CIR to
present evidence to the contrary.

Yet, the Court observes that the CIR himself never alleged in his Motion for
Reconsideration of the CTA Decision dated October 16, 2000, nor in his Petition for
Review before the Court of Appeals, that Atty. Biazon committed a mistake in signing
the Joint Stipulation. Since the CIR did not make such an allegation, neither did he

present any proof in support thereof. The CIR began to aver the existence of a
palpable mistake only after the Court of Appeals made such a declaration in its
Decision dated August 29, 2002.
The judicial admissions of the CIR in the Joint Stipulation are not intrinsically false,
wrong or illegal and are consistent with the ruling on the VAT treatment of PEZAregistered enterprises in the previous Toshiba case

There is no basis for believing that to bind the CIR to his judicial admissions in the
Joint Stipulation that Toshiba was a VAT-registered entity and its export sales were
zero-rated VAT transactions would result in falsehood, unfairness and injustice.
The judicial admissions of the CIR are not intrinsically false, wrong, or illegal. On the
contrary, they are consistent with the ruling of this Court in a previous case involving
the same parties, Commissioner of Internal Revenue v. Toshiba Information Equipment
(Phils.) Inc. (Toshiba case), explaining the VAT treatment of PEZA-registered
enterprises.

Despite the difference in the legal bases for the claims for credit/refund in the Toshiba
case and the case at bar, the CIR raised the very same defense or objection in both
that Toshiba and its transactions were VAT-exempt. Hence, the ruling of the Court in
the former case is relevant to the present case.
o An exempt transaction, on the one hand, involves goods or services which, by
their nature, are specifically listed in and expressly exempted from the VAT
under the Tax Code, without regard to the tax status VAT-exempt or not of
the party to the transaction.
o An exempt party, on the other hand, is a person or entity granted VAT
exemption under the Tax Code, a special law or an international agreement to
which the Philippines is a signatory, and by virtue of which its taxable
transactions become exempt from VAT
o In effect, the CIR is opposing the claim for credit/refund of input VAT of
Toshiba on two grounds: (1) that Toshiba was a VAT-exempt entity; and (2)
that its export sales were VAT-exempt transactions.
o It is now a settled rule that based on the Cross Border Doctrine, PEZAregistered enterprises, such as Toshiba, are VAT-exempt and no VAT can be
passed on to them.
In light of the judicial admissions of Toshiba, the CTA correctly confined itself to the
other factual issues submitted for resolution by the parties

In accord with the admitted facts that Toshiba was a VAT-registered entity and that
its export sales were zero-rated transactions the stated issues in the Joint
Stipulation were limited to other factual matters, particularly, on the compliance by
Toshiba with the rest of the requirements for credit/refund of input VAT on zero-rated
transactions. Thus, during trial, Toshiba concentrated on presenting evidence to
establish that it incurred P3.9M of input VAT for the first and second quarters of 1997
which were directly attributable to its export sales; that said amount of input VAT were
not carried over to the succeeding quarters; that said amount of input VAT has not
been applied or offset against any output VAT liability; and that said amount of input
VAT was properly substantiated by official receipts and invoices.
The Court will not lightly set aside the conclusions reached by the CTA which, by the
very nature of its functions, is dedicated exclusively to the resolution of tax problems
and has accordingly developed an expertise on the subject unless there has been an
abuse or improvident exercise of authority.