MANILA, Philippines - The Supreme Court (SC) has ordered the Bureau of Internal Revenue (BIR) to refund property developer Fort Bonifacio Development Corp. some P359.65 million that was paid as output value-added tax (VAT) for the first quarter of fiscal year 1997 in connection with its sales and lease of lots in Fort Bonifacio Global City in Taguig City.
In a 17-page decision penned by Associate Justice Mariano Del Castillo dated September 4 but released to the media on Thursday, the high court en banc reversed the July 7, 2006 ruling of the Court of Appeals (CA) that affirmed the Court of Tax Appeals (CTA) in denying Fort Bonifacio Development Corp. the refund it had asked the BIR.
The firm noted that it was entitled to P5.70 billion in transitional input tax credit based on its book value of P71.22 billion as of Sept. 19, 1996. For the 1st quarter of 1997, the firm's total sales and lease of lots totalled P3.68 billion; the output VAT payable was P368.54 million. BIR paid the output VAT through cash payments totalling P359.65 million, and credited its unutilized input tax credit on purchases of goods and services of P8.88 million.
In denying the firm's claim for refund, the CTA, on Oct. 12, 2000, held that "the benefit of transitional input tax credit comes with the condition that business taxes should have been paid first." The CTA said that since the firm acquired the Global City property VAT-free, it was not entitled to the 8% transitional input tax credit.
This position was affirmed by the CA in its 2006 decision.
In its ruling reversing the CA, the high court said that prior payment of taxes is not required to avail of the transitional input tax credit. Instead, what is required is for the taxpayer to file with the BIR a beginning inventory, the high court pointed out.
The transitional input tax credit is not a tax refund per se, where prior payment of taxes is a prerequisite to avail of it, but a tax credit, the high court stressed.
"Contrary to the view of the CTA and the CA, there is nothing [in Sec. 105 of the National Internal Revenue Code]... to indicate that prior payment of taxes is necessary for the availment of the 8% transitional input tax credit," the decision read.
The high court further pointed out that to require prior payment of taxes in this case is tantamount to both committing judicial legislation and rendering invalid Sec. 105 of the NIRC which states that the transitional input tax credit shall be "8% of the value of the [beginning] inventory of the actual [VAT] paid on such goods, materials, and supplies, whichever is higher."
Concurring with the decision were Associate Justices Presbitero Velasco, Jr., Teresita Leonardo-De Castro, Diosdado Peralta, Lucas Bersamin, Roberto Abad, Martin Villarama, Jr., Jose Perez, and Jose Mendoza. Associate Justice Antonio Carpio dissented and was joined by Chief Justice Maria Lourdes Sereno and Associate Justices Arturo Brion, Bienvenido Reyes, and Estela Perlas-Bernabe.
In his dissenting opinion, Carpio said: "It is hornbook doctrine that a taxpayer cannot claim a refund or credit of a tax that was never paid because the law never imposed the tax in the first place... [a] tax refund or credit assumes a tax was previously paid, which means there was a law that imposed the tax."