1 CIR vs.

Seagate Technology (Philippines)

G.R. NO. 153866, February 11, 2005
FACTS:
Seagate Technology is registered with the Philippine Export Zone Authority (PEZA) under Presidential
Decree No. 66, as amended, to engage in the manufacture of recording components primarily used in
computers for export. Also a VAT-registered entity, it filed VAT returns for the period 1 April 1998 to 30
June 1999. However, on 4 October 1999 it filed an administrative claim for refund of VAT input taxes in
the amount of P28,369,226.38 representing the value of the taxes of the capital goods and services it had
purchased. This application for refund was not acted upon by the CIR on the ground that Seagate failed to
prove that it was entitled to the refund/credit sought so the latter filed a Petition for Review with the Court
of Tax Appeal. The Court of Tax Appeal granted the claim for refund and the Court of Appeals affirmed
the grant of refund in the reduced amount to P12, 122,922.66. Seagate had availed itself only of the fiscal
incentives under Executive Order No. (EO) 226 (otherwise known as the Omnibus Investment Code of
1987), not of those under both Presidential Decree No. (PD) 66, as amended, and Section 24 of RA 7916.
Respondent was, therefore, considered exempt only from the payment of income tax when it opted for the
income tax holiday in lieu of the 5% preferential tax on gross income earned. As a VAT-registered entity,
though, it was still subject to the payment of other national internal revenue taxes, like the VAT.

ISSUE:
Whether or not Seagate Technology is entitled to the refund or issuance of Tax Credit Certificate in the
amount of P12,122,922.66 representing its unutilized input VAT paid on capital goods purchased for the
period April 1, 1998 to June 30, 1999.

RULING:
Yes, it is entitled to a refund of or credit for input VAT. Respondent, as a PEZA-registered enterprise
within a special economic zone, is entitled to the fiscal incentives and benefits provided for in PD 66. It
shall also enjoy all privileges, benefits, advantages or exemptions under both Republic Act Nos. (RA)
7227 and 7844.
Special laws expressly grant preferential tax treatment to business establishments registered and operating
within an ecozone, which by law is considered as a separate customs territory. As such, respondent is
exempt from all internal revenue taxes, including the VAT, and regulations pertaining thereto. It has
opted for the income tax holiday regime, instead of the 5% preferential tax regime. As a matter of law and
procedure, its registration status entitling it to such tax holiday can no longer be questioned. Its sales
transactions intended for export may not be exempt, but like its purchase transactions, they are zero-rated.
No prior application for the effective zero rating of its transactions is necessary. Being VAT-registered
and having satisfactorily complied with all the requisites for claiming a tax refund of or credit for the
input VAT paid on capital goods purchased, respondent is entitled to VAT refund or credit.
2. CIR VS. TOURS SPECIALISTS, INC.

FACTS: For the years 1974 to 1976, Tours Specialists had derived income from its activities as travel
agency by servicing the needs of foreign tourists and travelers and Filipino Balikbayans during their stay
in the country. The foreign tour agency entrusts to Tours Specialists the fund for hotel room
accommodation, which in turn is paid by Tours Specialists (TS) to the local hotel when billed. CIR then
assessed TS for deficiency 3% contractor’s tax as independent contractor by including the entrusted
hotel room charges in its gross receipts from services for the years 1974 to 1976. TS formally protested
the assessment. Without deciding on the TS’ written protest, CIR caused the issuance of a warrant of
distraint and levy. And then CIR had TS’ bank deposits garnished. TS then appealed to the SC.

ISSUE: W/N amounts received by a local tourist and travel agency included in a package fee from tourists
or foreign tour agencies intended or earmarked for hotel accommodations form part of the gross
receipts subject to 3% contractor’s tax.

RULING: NO. Gross receipts subject to tax under the Tax Code do not include monies or receipts
entrusted to the taxpayer which do not belong to them and do not redound to the taxpayer’s benefit;
and it is not necessary that there must be a law or regulation which would exempt such monies and
receipts within the meaning of gross receipts.

The room charges entrusted by the foreign travel agencies to TS do not form part of its gross receipts.
The said receipts never belonged to TS. TS never benefited from their payment to the local hotels. This
arrangement was only to accommodate the foreign travel agencies.
3. KANEMATSU VS. CIR

FACTS: Petitioner is a resident foreign corporation organized and existing under the laws of Japan. It
transacts business in the Ph through a Branch with offices located in Makati, Metro Manila. In a letter,
respondent informed petitioner that it had deficiency VAT liability for taxable years 1988 and 1989.
Assessments were based on Revenue Audit Memorandum Order 1-86. According to constructive trading
theory, sales of the Home Office based on the solicitation of the Branch, are in substance sales on the
branch, because the sales are constructively consummated in the Ph.

In its letter, petitioner protested the proposed assessments arguing that RAMO 1-86 applies only to
income tax not to VAT which is a business tax. Respondent then issued deficiency VAT assessments
against petitioner. Petitioner protested against the assessments which the respondent denied with
finality.

ISSUE: W/N the petitioner is liable for 10% VAT on the sale of goods by its Japan Head Office to Ph
customers.

RULING: NO. As correctly argued by the petitioner, RAMO 1-86 applies only to income tax and not to
VAT. RAMO 1-86 was passed in January 1986 while VAT was passed only in Jan. 1988, or 2 years later.
The proper law that should govern is EO No. 273, better known as the VAT Law, which was incorporated
in the Tax Code. Pursuant to Section 99 of the Tax Code, the persons liable for VAT are the seller of the
goods or services and the importer.

Petitioner is not liable for VAT as it is not the actual seller. It acted merely as an agent of the Head Office
in promoting its sales, delivering the samples and the quotation to the possible buyers.
4. CIR vs CTA and Magsaysay Lines

Facts:

Pursuant to a government program of privatization, NDC decided to sell to private enterprise all of its
shares in its wholly-owned subsidiary the National Marine Corporation (NMC). The NDC decided to sell
in one lot its NMC shares and five (5) of its ships.

The NMC shares and the vessels were offered for public bidding. On 3 June 1988, private respondent
Magsaysay Lines, Inc. (Magsaysay Lines) offered to buy the shares and the vessels. The bid was made by
Magsaysay Lines, purportedly for a new company still to be formed composed of itself, Baliwag
Navigation, Inc., and FIM Limited of the Marden Group based in Hongkong (collectively, private
respondents).

On 28 September 1988, the implementing Contract of Sale was executed between NDC, on one hand,
and Magsaysay Lines, Baliwag Navigation, and FIM Limited, on the other. Paragraph 11.02 of the
contract stipulated that “[v]alue-added tax, if any, shall be for the account of the PURCHASER.” By this
time, a formal request for a ruling on whether or not the sale of the vessels was subject to VAT had
already been filed with the Bureau of Internal Revenue (BIR) by the law firm of Sycip Salazar Hernandez
& Gatmaitan, presumably in behalf of private respondents.

In January of 1989, private respondents through counsel received VAT Ruling No. 568-88 dated 14
December 1988 from the BIR, holding that the sale of the vessels was subject to the 10% VAT. The ruling
cited the fact that NDC was a VAT-registered enterprise, and thus its “transactions incident to its normal
VAT registered activity of leasing out personal property including sale of its own assets that are movable,
tangible objects which are appropriable or transferable are subject to the 10% [VAT].”

Private respondents moved for the reconsideration of VAT Ruling No. 568-88, as well as VAT Ruling No.
395-88 (dated 18 August 1988), which made a similar ruling on the sale of the same vessels in response
to an inquiry from the Chairman of the Senate Blue Ribbon Committee. Their motion was denied when
the BIR issued VAT Ruling Nos. 007-89 dated 24 February 1989, reiterating the earlier VAT rulings.

On 10 April 1989, private respondents filed an Appeal and Petition for Refund with the CTA, followed by
a Supplemental Petition for Review on 14 July 1989. They prayed for the reversal of VAT Rulings No.
395-88, 568-88 and 007-89, as well as the refund of the VAT payment made amounting to
P15,120,000.00.8 The Commissioner of Internal Revenue (CIR) opposed the petition.
In a Decision dated 27 April 1992, the CTA rejected the CIR’s arguments and granted the petition. The
CTA ruled that the sale of a vessel was an “isolated transaction,” not done in the ordinary course of
NDC’s business, and was thus not subject to VAT, which under Section 99 of the Tax Code, was applied
only to sales in the course of trade or business.

The CIR appealed the CTA Decision to the Court of Appeals, which initially granted the appeal of the CIR
but reversed itself and affirming the decision of the CTA.

Issue:

Whether transaction of sale of a property not in the course of trade or business or “deemed sale” is
Subject to VAT.

Ruling:

No, The conclusion that the sale was not in the course of trade or business, which the CIR does not
dispute before this Court, should have definitively settled the matter. Any sale, barter or exchange of
goods or services not in the course of trade or business is not subject to VAT. Accordingly, the Court
rules that given the undisputed finding that the transaction in question was not made in the course of
trade or business of the seller, NDC that is, the sale is not subject to VAT pursuant to Section 99 of the
Tax Code, no matter how the said sale may hew to those transactions deemed sale as defined under
Section 100.