Commissioner Of Internal Revenue V.docx

COMMISSIONER OF INTERNAL REVENUE v. CEBU TOYO CORPORATION. G.R. No. 149073. February 16, 2005 FACTS:

Respondent Cebu Toyo Corporation is a domestic corporation engaged in the manufacture of lenses and various optical components. Its principal office is located at the Mactan Export Processing Zone (MEPZ) in Lapu-Lapu City, Cebu and is a subsidiary of Toyo Lens Corporation, a non-resident corporation organized under the laws of Japan. It is a zone export enterprise registered with the Philippine Economic Zone Authority (PEZA), pursuant PD 66 and is also registered with the BIR as a VAT taxpayer.

The sales of respondent are considered export sales subject to VAT at 0% rate under Section 106 of the NIRC, as amended.

Respondent then filed, an application for tax credit/refund of VAT paid for the period April 1, 1996 to December 31, 1997 amounting to P4,439,827.21 representing excess VAT input payments. Respondents claim that they can avail of the tax credits as they are VAT-registered exporter of goods at the rate of 0%.

The CIR oppose such stating that they are not entitled to the tax credit as the claims for refund are strictly construed against respondents as it is of the nature of tax exemption.

The CTA granted the motion partially to the respondents as they only lowered the tax credits to P2,158,714.46 representing unutilized input tax payments. The CIR filed a petition with the CA which was denied.

ISSUE: Whether Cebu Toyo Corporation can avail of the tax credits.

RULING:

YES. Respondents availed of an income tax holiday as provided in the Omnibus Investments Code ( EO 226). It is one of the fiscal incentives granted to PEZA-registered enterprises and one of the options to its

tax burden. Both the CA and CTA found that respondent availed of the income tax holiday for four (4) years as it was shown in their Annual Corporate Income Tax Returns. In it also is where respondent specified that it was availing of the tax relief under EO 226. Hence, respondent is not exempt from VAT and it correctly registered itself as a VAT taxpayer. In fine, it is engaged in taxable rather than exempt transactions.

Taxable transactions are those transactions which are subject to value-added tax either at the rate of ten percent (10%) or zero percent (0%). In taxable transactions, the seller shall be entitled to tax credit for the value-added tax paid on purchases and leases of goods, properties or services.

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.

The court also held that respondent is subjected to VAT at 0% rate as it is engaged in the export business.