FIRST DIVISION

[G.R. No. 157594. March 9, 2010.]

TOSHIBA INFORMATION EQUIPMENT (PHILS.), INC., petitioner,
vs. COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
LEONARDO-DE CASTRO, J :
p

In this Petition for Review on Certiorari 1 under Rule 45 of the Rules of Court,
petitioner Toshiba Information Equipment (Philippines), Inc. (Toshiba) seeks the
reversal and setting aside of (1) the Decision 2 dated August 29, 2002 of the Court
of Appeals in CA-G.R. SP No. 63047, which found that Toshiba was not entitled to
the credit/refund of its unutilized input Value-Added Tax (VAT) payments
attributable to its export sales, because it was a tax-exempt entity and its export
sales were VAT-exempt transactions; and (2) the Resolution 3 dated February 19,
2003 of the appellate court in the same case, which denied the Motion for
Reconsideration of Toshiba. The herein assailed judgment of the Court of Appeals
reversed and set aside the Decision 4 dated October 16, 2000 of the Court of Tax
Appeals (CTA) in CTA Case No. 5762 granting the claim for credit/refund of Toshiba
in the amount of P1,385,282.08.
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. 5 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 dated September 27, 1995. 6 It
is also registered with Regional District Oce No. 57 of the Bureau of Internal
Revenue (BIR) in San Pedro, Laguna, as a VAT-taxpayer with Taxpayer Identication
No. (TIN) 004-739-137. 7
In its VAT returns for the rst and second quarters of 1997, 8 led on April 14, 1997
and July 21, 1997, respectively, Toshiba declared input VAT payments on its
domestic purchases of taxable goods and services in the aggregate sum of
P3,875,139.65, 9 with no zero-rated sales. Toshiba subsequently submitted to the
BIR on July 23, 1997 its amended VAT returns for the rst and second quarters of
1997, 10 reporting the same amount of input VAT payments but, this time, with
zero-rated sales totaling P7,494,677,000.00. 11
On March 30, 1999, Toshiba led with the One-Stop Shop Inter-Agency Tax Credit

and Duty Drawback Center of the Department of Finance (DOF One-Stop Shop) two
separate applications for tax credit/refund 12 of its unutilized input VAT payments for
the first half of 1997 in the total amount of P3,685,446.73. 13
The next day, on March 31, 1999, Toshiba likewise led with the CTA a Petition for
Review 14 to toll the running of the two-year prescriptive period under Section 230
of the Tax Code of 1977, 15 as amended. 16 In said Petition, docketed as CTA Case
No. 5762, Toshiba prayed that
[A]fter due hearing, judgment be rendered ordering [herein respondent
Commissioner of Internal Revenue (CIR)] to refund or issue to [Toshiba] a
tax refund/tax credit certicate in the amount of P3,875,139.65
representing unutilized input taxes paid on its purchase of taxable goods
and services for the period January 1 to June 30, 1997. 17

The Commissioner of Internal Revenue (CIR) opposed the claim for tax refund/credit
of Toshiba, setting up the following special and armative defenses in his Answer 18

5.[Toshiba's] alleged claim for refund/tax credit is subject to administrative

routinary investigation/examination by [CIR's] Bureau;
6.[Toshiba] failed miserably to show that the total amount of P3,875,139.65
claimed as VAT input taxes, were erroneously or illegally collected, or that
the same are properly documented;
7.Taxes paid and collected are presumed to have been made in accordance
with law; hence, not refundable;
CEcaTH

8.In an action for tax refund, the burden is on the taxpayer to establish its
right to refund, and failure to sustain the burden is fatal to the claim for
refund;
9.It is incumbent upon [Toshiba] to show that it has complied with the
provisions of Section 204 in relation to Section 229 of the Tax Code;
10.Well-established is the rule that claims for refund/tax credit are
construed in strictissimi juris against the taxpayer as it partakes the nature
of exemption from tax. 19

Upon being advised by the CTA, 20 Toshiba and the CIR led a Joint Stipulation of
Facts and Issues, 21 wherein the opposing parties "agreed and admitted" that
1.[Toshiba] is a duly registered value-added tax entity in accordance with
Section 107 of the Tax Code, as amended.
2.[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.
3.[Toshiba] led its quarterly VAT returns for the rst two quarters of 1997

within the legally prescribed period.

xxx xxx xxx
7.[Toshiba] is subject to zero percent (0%) value-added tax on its export
sales.
8.[Toshiba] has duly led the instant Petition for Review within the two-year
prescriptive period prescribed by then Section 230 of the Tax Code. 22

In the same pleading, Toshiba and the CIR jointly submitted the following issues for
determination by the CTA
Whether or not [Toshiba] has incurred input taxes in the amount of
P3,875,139.65 for the period January 1 to June 30, 1997 which are directly
attributable to its export sales[.]
Whether or not the input taxes incurred by [Toshiba] for the period January
1 to June 30, 1997 have not been carried over to the succeeding quarters[.]
Whether or not input taxes incurred by [Toshiba] for the rst two quarters
of 1997 have not been offset against any output tax[.]
Whether or not input taxes incurred by [Toshiba] for the rst two quarters
of 1997 are properly substantiated by official receipts and invoices. 23

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.
With both parties waiving the right to submit their respective memoranda, the CTA
rendered its Decision in CTA Case No. 5762 on October 16, 2000 favoring Toshiba.
According to the CTA, 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, in accordance with Section 4.102-2 of Revenue Regulations
No. 7-95. The CTA, though, reduced the amount to be credited or refunded to
Toshiba to P1,385,292.02.
The dispositive portion of the October 16, 2000 Decision of the CTA fully reads
WHEREFORE, [Toshiba's] claim for refund of unutilized input VAT payments
is hereby GRANTED but in a reduced amount of P1,385,282.08 computed
as follows:

1st Quarter
2nd Quarter Total
Amount of claimed input
taxes filed with the DOF One
Stop Shop Center
P3,268,682.34P416,764.39 P3,685,446.73

Less: 1) Input taxes not

properly supported by VAT
invoices and official receipts
a.) Per SGV's verification
(Exh. I)
b.) Per this court's further
verification
(Annex A)
2) 1998 4th qtr. Output
VAT liability applied against
the claimed input taxes
Subtotal
Amount Refundable

P242,491.45 P154,391.13 P396,882.58

P1,852,437.65P35,108.00

P1,887,545.65

15,736.42

15,736.42

P2,110,665.52P189,499.13

P1,158,016.82P227,265.26

P2,300,164.65

P1,385,282.08

Respondent Commissioner of Internal Revenue is ORDERED to REFUND to

[Toshiba] or in the alternative, ISSUE a TAX CREDIT CERTIFICATE in the
amount of P1,385,282.08 representing unutilized input taxes paid by
[Toshiba] on its purchases of taxable goods and services for the period
January 1 to June 30, 1997. 24

Both Toshiba and the CIR sought reconsideration of the foregoing CTA Decision.
Toshiba asserted in its Motion for Reconsideration 25 that it had presented proper
substantiation for the P1,887,545.65 input VAT disallowed by the CTA.
The CIR, on the other hand, argued in his Motion for Reconsideration 26 that Toshiba
was not entitled to the credit/refund of its input VAT payments because as a PEZAregistered ECOZONE export enterprise, Toshiba was not subject to VAT. The CIR
invoked the following statutory and regulatory provisions
Section 24 of Republic Act No. 7916

27

Sec. 24.Exemption from Taxes Under the National Internal Revenue Code.
Any provision of existing laws, rules and regulations to the contrary
notwithstanding, no taxes, local and national, shall be imposed on business
establishments operating within the ECOZONE. In lieu of paying taxes, ve
percent (5%) of the gross income earned by all businesses and enterprises
within the ECOZONE shall be remitted to the national government. . . . .
AECDHS

Section 103 (q) of the Tax Code of 1977, as amended

Sec. 103.Exempt transactions. The following shall be exempt from the
value-added tax:

xxx xxx xxx

(q)Transactions which are exempt under special laws, except those granted
under Presidential Decree Nos. 66, 529, 972, 1491, and 1950, and nonelectric cooperatives under Republic Act No. 6938, or international
agreements to which the Philippines is a signatory.

Section 4.103-1 of Revenue Regulations No. 7-95

Sec. 4.103-1.Exemptions. (A) In general. An exemption means that 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 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. On the other hand, a VAT-registered purchaser of VATexempt goods, properties or services which are exempt from VAT is not
entitled to any input tax on such purchase despite the issuance of a VAT
invoice or receipt.

The CIR contended that under Section 24 of Republic Act No. 7916, a special law, all
businesses and establishments within the ECOZONE were to remit to the
government ve percent (5%) of their gross income earned within the zone, in lieu
of all taxes, including VAT. This placed Toshiba within the ambit of Section 103 (q)
of the Tax Code of 1977, as amended, which exempted from VAT the transactions
that were exempted under special laws. Following Section 4.103-1 (A) of Revenue
Regulations No. 7-95, 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.
On January 17, 2001, the CTA issued a Resolution
Reconsideration of Toshiba and the CIR.

28

denying both Motions for

The CTA took note that the pieces of evidence referred to by Toshiba in its Motion
for Reconsideration were insucient substantiation, being mere schedules of input
VAT payments it had purportedly paid for the rst and second quarters of 1997.
While the CTA gives credence to the report of its commissioned certied public
accountant (CPA), it does not render its decision based on the ndings 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 P1,887,545.65 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 rst time in his Motion for Reconsideration. Also, contrary to the
assertions of the CIR, the CTA held that Section 23, and not Section 24, of Republic
Act No. 7916, applied to Toshiba. According to Section 23 of Republic Act No. 7916

Sec. 23.Fiscal Incentives. Business establishments operating within the

ECOZONES shall be entitled to the scal incentives as provided for under
Presidential Decree No. 66, the law creating the Export Processing Zone
Authority, or those provided under Book VI of Executive Order No. 226,
otherwise known as the Omnibus Investment Code of 1987.
Furthermore, tax credits for exporters using local materials as inputs shall
enjoy the benefits provided for in the Export Development Act of 1994.

Among the scal incentives granted to PEZA-registered enterprises by the Omnibus

Investments Code of 1987 was the income tax holiday, to wit
Art. 39.Incentives to Registered Enterprises. All registered enterprises
shall be granted the following incentives to the extent engaged in a preferred
area of investment:
(a)Income Tax Holiday.
(1)For six (6) years from commercial operation for pioneer rms and four
(4) years for non-pioneer rms, new registered rms shall be fully exempt
from income taxes levied by the national government. Subject to such
guidelines as may be prescribed by the Board, the income tax exemption will
be extended for another year in each of the following cases:
(i)The project meets the prescribed ratio of capital equipment to number of
workers set by the Board;
(ii)Utilization of indigenous raw materials at rates set by the Board;
(iii)The net foreign exchange savings or earnings amount to at least
US$500,000.00 annually during the first three (3) years of operation.
The preceding paragraph notwithstanding, no registered pioneer rm may
avail of this incentive for a period exceeding eight (8) years.
(2)For a period of three (3) years from commercial operation, registered
expanding rms shall be entitled to an exemption from income taxes levied
by the National Government proportionate to their expansion under such
terms and conditions as the Board may determine: Provided, however, That
during the period within which this incentive is availed of by the expanding
rm it shall not be entitled to additional deduction for incremental labor
expense.
(3)The provision of Article 7(14) notwithstanding, registered rms shall not
be entitled to any extension of this incentive.
TIDcEH

The CTA 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.
Unsatised, the CIR led a Petition for Review
docketed as CA-G.R. SP No. 63047.

29

with the Court of Appeals,

In its Decision dated August 29, 2002, the Court of Appeals granted the appeal of
the CIR, and reversed and set aside the Decision dated October 16, 2000 and the
Resolution dated January 17, 2001 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
PEA-registered corporation, Toshiba was liable for remitting to the national
government the ve percent (5%) preferential rate on its gross income earned
within the ECOZONE, in lieu of all other national and local taxes, including VAT.
The Court of Appeals further adjudged that the export sales of Toshiba were VATexempt, not zero-rated, transactions. The appellate court found that the Answer
led 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
led 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.
Given that Toshiba was a tax-exempt entity under Republic Act No. 7916, a special
law, the Court of Appeals concluded that the export sales of Toshiba were VATexempt transactions under Section 109 (q) of the Tax Code of 1997, formerly
Section 103 (q) of the Tax Code of 1977. Therefore, Toshiba could not claim refund
of its input VAT payments on its domestic purchases of goods and services.
The Court of Appeals decreed at the end of its August 29, 2002 Decision
WHEREFORE, premises considered, the appealed decision of the Court of
Tax Appeals in CTA Case No. 5762, is hereby REVERSED and SET ASIDE,
and a new one is hereby rendered nding [Toshiba], being a tax exempt
entity under R.A. No. 7916, not entitled to refund the VAT payments made in
its domestic purchases of goods and services. 30

Toshiba led a Motion for Reconsideration 31 of the aforementioned Decision,

anchored on the following arguments: (a) the CIR never raised as an issue before
the CTA that Toshiba was tax-exempt under Section 24 of Republic Act No. 7916;
(b) Section 24 of Republic Act No. 7916, subjecting the gross income earned by a
PEZA-registered enterprise within the ECOZONE to a preferential rate of ve
percent (5%), in lieu of all taxes, did not apply to Toshiba, which availed itself of the
income tax holiday under Section 23 of the same statute; (c) the conclusion of the

CTA that the export sales of Toshiba were zero-rated was supported by substantial
evidence, other than the admission of the CIR in the Joint Stipulation of Facts and
Issues; and (d) the judgment of the CTA granting the refund of the input VAT
payments was supported by substantial evidence and should not have been set
aside by the Court of Appeals.
In a Resolution dated February 19, 2003, the Court of Appeals denied the Motion for
Reconsideration of Toshiba since the arguments presented therein were mere
reiterations of those already passed upon and found to be without merit by the
appellate court in its earlier Decision. The Court of Appeals, however, mentioned
that it was incorrect for Toshiba to say that the issue of the applicability of Section
24 of Republic Act No. 7916 was only raised for the rst time on appeal before the
appellate court. The said issue was adequately raised by the CIR in his Motion for
Reconsideration before the CTA, and was even ruled upon by the tax court.
Hence, Toshiba led the instant Petition for Review with the following assignment
of errors
5.1THE HONORABLE COURT OF APPEALS ERRED WHEN IT RULED THAT
[TOSHIBA], BEING A PEZA-REGISTERED ENTERPRISE, IS EXEMPT FROM VAT
UNDER SECTION 24 OF R.A. 7916, AND FURTHER HOLDING THAT
[TOSHIBA'S] EXPORT SALES ARE EXEMPT TRANSACTIONS UNDER SECTION
109 OF THE TAX CODE.
5.2THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED TO
DISMISS OUTRIGHT AND GAVE DUE COURSE TO [CIR'S] PETITION
NOTWITHSTANDING [CIR'S] FAILURE TO ADEQUATELY RAISE IN ISSUE
DURING THE TRIAL IN THE COURT OF TAX APPEALS THE APPLICABILITY OF
SECTION 24 OF R.A. 7916 TO [TOSHIBA'S] CLAIM FOR REFUND.
5.3THE HONORABLE COURT OF APPEALS ERRED WHEN [IT] RULED THAT
THE COURT OF TAX APPEALS' FINDINGS, WITH REGARD [TOSHIBA'S]
EXPORT SALES BEING ZERO RATED SALES FOR VAT PURPOSES, WERE
BASED MERELY ON THE ADMISSIONS MADE BY [CIR'S] COUNSEL AND NOT
SUPPORTED BY SUBSTANTIAL EVIDENCE.
5.4THE HONORABLE COURT OF APPEALS ERRED WHEN IT REVERSED THE
DECISION OF THE COURT OF TAX APPEALS GRANTING [TOSHIBA'S] CLAIM
FOR REFUND[;]32

and the following prayer

WHEREFORE, premises considered, Petitioner TOSHIBA INFORMATION
EQUIPMENT (PHILS.), INC. most respectfully prays that the decision and
resolution of the Honorable Court of Appeals, reversing the decision of the
CTA in CTA Case No. 5762, be set aside and further prays that a new one be
rendered AFFIRMING AND UPHOLDING the Decision of the CTA promulgated
on October 16, 2000 in CTA Case No. 5762.
EICDSA

Other reliefs, which the Honorable Court may deem just and equitable under

the circumstances, are likewise prayed for.

33

The Petition is impressed with merit.

The CIR did not timely raise before

the CTA the issues on the VATexemptions of Toshiba and its export
sales.
Upon the failure of the CIR to timely plead and prove before the CTA the defenses or
objections that Toshiba was VAT-exempt under Section 24 of Republic Act No. 7916,
and that its export sales were VAT-exempt transactions under Section 103 (q) of the
Tax Code of 1977, as amended, the CIR is deemed to have waived the same.
During the pendency of CTA Case No. 5762, the proceedings before the CTA were
governed by the Rules of the Court of Tax Appeals, 34 while the Rules of Court were
applied suppletorily. 35
Rule 9, Section 1 of the Rules of Court provides:
Sec. 1.Defenses and objections not pleaded. Defenses and objections not
pleaded either in a motion to dismiss or in the answer are deemed waived.
However, when it appears from the pleadings or the evidence on record that
the court has no jurisdiction over the subject matter, that there is another
action pending between the same parties for the same cause, or that the
action is barred by a prior judgment or by statute of limitations, the court
shall dismiss the claim.
CaEATI

The CIR did not argue straight away in his Answer in CTA Case No. 5762 that
Toshiba had no right to the credit/refund of its input VAT payments because the
latter was VAT-exempt and its export sales were VAT-exempt transactions. The PreTrial Brief 36 of the CIR was equally bereft of such allegations or arguments. The CIR
passed up the opportunity to prove the supposed VAT-exemptions of Toshiba and its
export sales when the CIR chose not to present any evidence at all during the trial
before the CTA. 37 He missed another opportunity to present the said issues before
the CTA when he waived the submission of a Memorandum. 38 The CIR had waited
until the CTA already rendered its Decision dated October 16, 2000 in CTA Case No.
5762, which granted the claim for credit/refund of Toshiba, before asserting in his
Motion for Reconsideration that Toshiba was VAT-exempt and its export sales were
VAT-exempt transactions.
The CIR did not oer any explanation as to why he did not argue the VATexemptions of Toshiba and its export sales before and during the trial held by the
CTA, only doing so in his Motion for Reconsideration of the adverse CTA judgment.
Surely, said defenses or objections were already available to the CIR when the CIR
filed his Answer to the Petition for Review of Toshiba in CTA Case No. 5762.
It is axiomatic in pleadings and practice that no new issue in a case can be raised in
a pleading which by due diligence could have been raised in previous pleadings. 39
The Court cannot simply grant the plea of the CIR that the procedural rules be

relaxed based on the general averment of the interest of substantive justice. It

should not be forgotten that the rst and fundamental concern of the rules of
procedure is to secure a just determination of every action. 40 Procedural rules are
designed to facilitate the adjudication of cases. Courts and litigants alike are
enjoined to abide strictly by the rules. While in certain instances, the Court allows a
relaxation in the application of the rules, it never intends to forge a weapon for
erring litigants to violate the rules with impunity. The liberal interpretation and
application of rules apply only in proper cases of demonstrable merit and under
justiable causes and circumstances. While it is true that litigation is not a game of
technicalities, it is equally true that every case must be prosecuted in accordance
with the prescribed procedure to ensure an orderly and speedy administration of
justice. Party litigants and their counsel are well advised to abide by, rather than
aunt, procedural rules for these rules illumine the path of the law and rationalize
the pursuit of justice. 41

The CIR judicially admitted that

Toshiba was VAT-registered and
its export sales were subject to VAT at
zero percent (0%) rate.
More importantly, the arguments of the CIR that Toshiba was VAT-exempt and the
latter's 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 held on June
23, 1999. 42 The approval of the Joint Stipulation by the CTA, in its Resolution 43
dated July 12, 1999, marked the culmination of the pre-trial process in CTA Case No.
5762.
Pre-trial is an answer to the clarion call for the speedy disposition of cases. Although
it was discretionary under the 1940 Rules of Court, it was made mandatory under
the 1964 Rules and the subsequent amendments in 1997. It has been hailed as
"the most important procedural innovation in Anglo-Saxon justice in the nineteenth
century." 44
The nature and purpose of a pre-trial have been laid down in Rule 18, Section 2 of
the Rules of Court:
Sec. 2.Nature and purpose. The pre-trial is mandatory. The court shall
consider:
(a)The possibility of an amicable settlement or of a submission to alternative
modes of dispute resolution;
(b)The simplification of the issues;

(c)The necessity or desirability of amendments to the pleadings;

(d)The possibility of obtaining stipulations or admissions of facts
and of documents to avoid unnecessary proof;
(e)The limitation of the number of witnesses;
(f)The advisability of a preliminary reference of issues to a commissioner;
(g)The propriety of rendering judgment on the pleadings, or summary
judgment, or of dismissing the action should a valid ground therefor be
found to exist;
(h)The advisability or necessity of suspending the proceedings; and
(i)Such other matters as may aid in the prompt disposition of the action.
(Emphasis ours.)
HDCTAc

The admission having been made in a stipulation of facts at pre-trial by the parties,
it must be treated as a Judicial admission. 45 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. 46
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 valueadded tax entity in accordance with Section 107 of the Tax Code, as amended [,]" 47
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." 48 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 VATexempt 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"
49 which, if countenanced, "would result in falsehood, unfairness and injustice"; 50
and (2) the State could not be put in estoppel by the mistakes of its ocials 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 nds 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
ocial 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.
Despite the absence of allegation and evidence by the CIR, the Court of Appeals, on
its own, concluded that the admissions of the CIR in the Joint Stipulation were due
to a palpable mistake based on the following deduction
Scrutinizing the Answer led by [the CIR], we rule that the Joint Stipulation of
Facts and Issues signed by [the CIR] was made through palpable mistake.
Quoting paragraph 4 of its Answer, [the CIR] states:
"4.He ADMITS the allegations contained in paragraph 5 of the petition
only insofar as the cited provisions of Tax Code is concerned, but
SPECIFICALLY DENIES the rest of the allegations therein for being
mere opinions, arguments or gratuitous assertions on the part of
[Toshiba] and/or because they are mere erroneous conclusions or
interpretations of the quoted law involved, the truth of the matter
being those stated hereunder.
xxx xxx xxx"
And paragraph 5 of the petition for review led by [Toshiba] before the CTA
states:
"5.Petitioner 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 . . . .
cEHSTC

xxx xxx xxx"

As we see it, nothing in said Answer did [the CIR] admit that the export sales
of [Toshiba] were indeed zero-rated transactions. At the least, what was
admitted only by [the CIR] concerning paragraph 4 of his Answer, is the fact
that the provisions of the Tax Code, as cited by [Toshiba] in its petition for
review filed before the CTA were correct. 52

The Court of Appeals provided no explanation as to why the admissions of the CIR in
his Answer in CTA Case No. 5762 deserved more weight and credence than those he
made in the Joint Stipulation. The appellate court failed to appreciate that the CIR,
through counsel, Atty. Biazon, also signed the Joint Stipulation; and that absent
evidence to the contrary, Atty. Biazon is presumed to have signed the Joint
Stipulation willingly and knowingly, in the regular performance of his ocial duties.
Additionally, the Joint Stipulation 53 of Toshiba and the CIR was a more recent
pleading than the Answer 54 of the CIR. It was submitted by the parties after the
pre-trial conference held by the CTA, and subsequently approved by the tax court. If
there was any discrepancy between the admissions of the CIR in his Answer and in
the Joint Stipulation, the more logical and reasonable explanation would be that the
CIR changed his mind or conceded some points to Toshiba during the pre-trial
conference which immediately preceded the execution of the Joint Stipulation. To
automatically construe that the discrepancy was the result of a palpable mistake is
a wide leap which this Court is not prepared to take without substantial basis.

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. 55 (Toshiba case), explaining the VAT
treatment of PEZA-registered enterprises.
In the Toshiba case, Toshiba sought the refund of its unutilized input VAT on its
purchase of capital goods and services for the rst and second quarters of
1996, based on Section 106 (b) of the Tax Code of 1977, as amended. 56 In the
Petition at bar, Toshiba is claiming refund of its unutilized input VAT on its local
purchase of goods and services which are attributable to its export sales
for the rst and second quarters of 1997, pursuant to Section 106 (a), in relation to
Section 100 (a) (1) (A) (i) of the Tax Code of 1977, as amended, which read
Sec. 106.Refunds or tax credits of creditable input tax. (a) Any VATregistered person, whose sales are zero-rated or eectively zero-rated,
may, within two (2) years after the close of the taxable quarter when the
sales were made, apply for the issuance of a tax credit certicate or refund
of creditable input tax due or paid attributable to such sales, except
transitional input tax, to the extent that such input tax has not been applied
against output tax: Provided, however, That in the case of zero-rated sales
under Section 100(a)(2)(A)(i), (ii) and (b) and Section 102(b)(1) and (2), the

acceptable foreign currency exchange proceeds thereof has been duly

accounted for in accordance with the regulations of the Bangko Sentral ng
Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in
zero-rated or eectively zero-rated sale and also in taxable or exempt sale
of goods or properties of services, and the amount of creditable input tax
due or paid cannot be directly and entirely attributed to any one of the
transactions, it shall be allocated proportionately on the basis of the volume
sales.
DaAETS

Sec. 100.Value-added tax on sale of goods or properties. (a) Rate and

base of tax. . . .
xxx xxx xxx
(2)The following sales by VAT-registered persons shall be subject to 0%:
(A)Export sales. The term "export sales" means:
(i)The sale and actual shipment of goods from the Philippines to a foreign
country, irrespective of any shipping arrangement that may be agreed upon
which may inuence or determine the transfer of ownership of the goods so
exported and paid for in acceptable foreign currency or its equivalent in
goods or services, and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP).

Despite the dierence 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.
At the outset, the Court establishes that there is a basic distinction in the VATexemption of a person and the VAT-exemption of a transaction
It would seem that petitioner CIR failed to dierentiate between VAT-exempt
transactions from VAT-exempt entities. In the case of Commissioner of
Internal Revenue v. Seagate Technology (Philippines), this Court already
made such distinction
An exempt transaction, on the one hand, involves goods or services
which, by their nature, are specically 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. . .
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 . . . . 57

In eect, 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.

It is now a settled rule that based on the Cross Border Doctrine, PEZA-registered
enterprises, such as Toshiba, are VAT-exempt and no VAT can be passed on to them.
The Court explained in the Toshiba case that
PEZA-registered enterprise, which would necessarily be located within
ECOZONES, are VAT-exempt entities, not because of Section 24 of Rep. Act
No. 7916, as amended, which imposes the ve percent (5%) preferential tax
rate on gross income of PEZA-registered enterprises, in lieu of all taxes; but,
rather, because of Section 8 of the same statute which establishes the
fiction that ECOZONES are foreign territory.
xxx xxx xxx
The Philippine VAT system adheres to the Cross Border Doctrine, according
to which, no VAT shall be imposed to form part of the cost of goods
destined for consumption outside of the territorial border of the taxing
authority. Hence, actual export of goods and services from the Philippines
to a foreign country must be free of VAT; while, those destined for use or
consumption within the Philippines shall be imposed with ten percent (10%)
VAT.
Applying said doctrine to the sale of goods, properties, and services to and
from the ECOZONES, the BIR issued Revenue Memorandum Circular (RMC)
No. 74-99, on 15 October 1999. Of particular interest to the present Petition
is Section 3 thereof, which reads
Sec. 3.Tax Treatment of Sales Made by a VAT Registered
Supplier from the Customs Territory, to a PEZA Registered
Enterprise.
(1)If the Buyer is a PEZA registered enterprise which is subject to the
5% special tax regime, in lieu of all taxes, except real property tax,
pursuant to R.A. No. 7916, as amended:
(a)Sale of goods (i.e., merchandise). This shall be treated as
indirect export hence, considered subject to zero percent (0%) VAT,
pursuant to Sec. 106(A)(2)(a)(5), NIRC and Sec. 23 of R.A. No. 7916,
in relation to ART. 77(2) of the Omnibus Investments Code.
(b)Sale of service. This shall be treated subject to zero percent
(0%) VAT under the "cross border doctrine" of the VAT System,
pursuant to VAT Ruling No. 032-98 dated Nov. 5, 1998.
(2)If Buyer is a PEZA registered enterprise which is not embraced by
the 5% special tax regime, hence, subject to taxes under the NIRC,
e.g., Service Establishments which are subject to taxes under the
NIRC rather than the 5% special tax regime:
(a)Sale of goods (i.e., merchandise). This shall be treated as
indirect export hence, considered subject to zero percent (0%) VAT,
pursuant to Sec. 106(A)(2)(a)(5), NIRC and Sec. 23 of R.A. No. 7916

in relation to ART. 77(2) of the Omnibus Investments Code.

(b)Sale of Service. This shall be treated subject to zero percent
(0%) VAT under the "cross border doctrine" of the VAT System,
pursuant to VAT Ruling No. 032-98 dated Nov. 5, 1998.
cASTED

(3)In the nal analysis, any sale of goods, property or services made
by a VAT registered supplier from the Customs Territory to any
registered enterprise operating in the ecozone, regardless of the class
or type of the latter's PEZA registration, is actually qualied and thus
legally entitled to the zero percent (0%) VAT. Accordingly, all sales of
goods or property to such enterprise made by a VAT registered
supplier from the Customs Territory shall be treated subject to 0%
VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC, in relation to ART. 77(2)
of the Omnibus Investments Code, while all sales of services to the
said enterprises, made by VAT registered suppliers from the Customs
Territory, shall be treated eectively subject to the 0% VAT, pursuant
to Section 108(B)(3), NIRC, in relation to the provisions of R.A. No.
7916 and the "Cross Border Doctrine" of the VAT system.
This Circular shall serve as a sucient basis to entitle such supplier of
goods, property or services to the benet of the zero percent (0%)
VAT for sales made to the aforementioned ECOZONE enterprises and
shall serve as sucient compliance to the requirement for prior
approval of zero-rating imposed by Revenue Regulations No. 7-95
effective as of the date of the issuance of this Circular.
Indubitably, no output VAT may be passed on to an ECOZONE enterprise
since it is a VAT-exempt entity. . . . 58

The Court, nevertheless, noted in the Toshiba case that the rule which considers any
sale by a supplier from the Customs Territory to a PEZA-registered enterprise as
export sale, which should not be burdened by output VAT, was only clearly
established on October 15, 1999, upon the issuance by the BIR of RMC No. 7499. Prior to October 15, 1999, whether a PEZA-registered enterprise was exempt or
subject to VAT depended on the type of scal incentives availed of by the said
enterprise. 59 The old rule, then followed by the BIR, and recognized and armed by
the CTA, the Court of Appeals, and this Court, was described as follows
According to the old rule, Section 23 of Rep. Act No. 7916, as amended,
gives the PEZA-registered enterprise the option to choose between two sets
of scal incentives: (a) The ve percent (5%) preferential tax rate on its
gross income under Rep. Act No. 7916, as amended; and (b) the income tax
holiday provided under Executive Order No. 226, otherwise known as the
Omnibus Investment Code of 1987, as amended.
The ve percent (5%) preferential tax rate on gross income under Rep. Act
No. 7916, as amended, is in lieu of all taxes. Except for real property taxes,
no other national or local tax may be imposed on a PEZA-registered
enterprise availing of this particular scal incentive, not even an indirect tax
like VAT.

Alternatively, Book VI of Exec. Order No. 226, as amended, grants income

tax holiday to registered pioneer and non-pioneer enterprises for six-year
and four-year periods, respectively. Those availing of this incentive are
exempt only from income tax, but shall be subject to all other taxes,
including the ten percent (10%) VAT.
This old rule clearly did not take into consideration the Cross Border
Doctrine essential to the VAT system or the ction of the ECOZONE as a
foreign territory. It relied totally on the choice of scal incentives of the
PEZA-registered enterprise. Again, for emphasis, the old VAT rule for PEZAregistered enterprises was based on their choice of scal incentives: (1) If
the PEZA-registered enterprise chose the ve percent (5%) preferential tax
on its gross income, in lieu of all taxes, as provided by Rep. Act No. 7916, as
amended, then it would be VAT-exempt; (2) If the PEZA-registered
enterprise availed of the income tax holiday under Exec. Order No. 226, as
amended, it shall be subject to VAT at ten percent (10%). Such distinction
was abolished by RMC No. 74-99, which categorically declared that all sales
of goods, properties, and services made by a VAT-registered supplier from
the Customs Territory to an ECOZONE enterprise shall be subject to VAT, at
zero percent (0%) rate, regardless of the latter's type or class of PEZA
registration; and, thus, arming the nature of a PEZA-registered or an
ECOZONE enterprise as a VAT-exempt entity. 60

To recall, Toshiba is herein claiming the refund of unutilized input VAT payments on
its local purchases of goods and services attributable to its export sales for the first
and second quarters of 1997. Such export sales took place before October 15,
1999, when the old rule on the VAT treatment of PEZA-registered enterprises still
applied. Under this old rule, it was not only possible, but even acceptable, for
Toshiba, availing itself of the income tax holiday option under Section 23 of
Republic Act No. 7916, in relation to Section 39 of the Omnibus Investments Code
of 1987, to be subject to VAT, both indirectly (as purchaser to whom the seller shifts
the VAT burden) and directly (as seller whose sales were subject to VAT, either at
ten percent [10%] or zero percent [0%]).
A VAT-registered seller of goods and/or services who made zero-rated sales can claim
tax credit or refund of the input VAT paid on its purchases of goods, properties, or
services relative to such zero-rated sales, in accordance with Section 4.102-2 of
Revenue Regulations No. 7-95, which provides
Sec. 4.102-2.Zero-rating. (a) In general. A zero-rated sale by a VATregistered person, which is a taxable transaction for VAT purposes, shall not
result in any output tax. However, the input tax on his purchases of goods,
properties or services related to such zero-rated sale shall be available as
tax credit or refund in accordance with these regulations.

The BIR, as late as July 15, 2003, when it issued RMC No. 42-2003, accepted
applications for credit/refund of input VAT on purchases prior to RMC No. 74-99, led
by PEZA-registered enterprises which availed themselves of the income tax holiday.
The BIR answered Question Q-5(1) of RMC No. 42-2003 in this wise

Q-5:Under Revenue Memorandum Circular (RMC) No. 74-99, purchases by

PEZA-registered rms automatically qualify as zero-rated without
seeking prior approval from the BIR effective October 1999.
1)Will the OSS-DOF Center still accept applications from PEZAregistered claimants who were allegedly billed VAT by their
suppliers before and during the eectivity of the RMC by issuing VAT
invoices/receipts?
ACIDSc

xxx xxx xxx

A-5(1):If the PEZA-registered enterprise is paying the 5% preferential tax in
lieu of all other taxes, the said PEZA-registered taxpayer cannot claim
TCC or refund for the VAT paid on purchases. However, if the
taxpayer is availing of the income tax holiday, it can claim VAT
credit provided:
a.The taxpayer-claimant is VAT-registered;
b.Purchases are evidenced by VAT invoices or receipts, whichever
is applicable, with shifted VAT to the purchaser prior to the
implementation of RMC No. 74-99; and
c .The supplier issues a sworn statement under penalties of
perjury that it shifted the VAT and declared the sales to the
PEZA-registered purchaser as taxable sales in its VAT returns.
For invoices/receipts issued upon the eectivity of RMC No. 74-99, the
claims for input VAT by PEZA-registered companies, regardless of the type
or class of PEZA-registration, should be denied. (Emphases ours.)

Consequently, the CIR cannot herein insist that all PEZA-registered enterprises are
VAT-exempt in every instance. RMC No. 42-2003 contains an express
acknowledgement by the BIR that prior to RMC No. 74-99, there were PEZAregistered enterprises liable for VAT and entitled to credit/refund of input VAT paid
under certain conditions.
This Court already rejected in the Toshiba case the argument that sale transactions
of a PEZA-registered enterprise were VAT-exempt under Section 103 (q) of the Tax
Code of 1977, as amended, ratiocinating that
Section 103(q) of the Tax Code of 1977, as amended, relied upon by
petitioner CIR, relates to VAT-exempt transactions. These are transactions
exempted from VAT by special laws or international agreements to which the
Philippines is a signatory. Since such transactions are not subject to VAT,
the sellers cannot pass on any output VAT to the purchasers of goods,
properties, or services, and they may not claim tax credit/refund of the input
VAT they had paid thereon.
Section 103(q) of the Tax Code of 1977, as amended, cannot apply to
transactions of respondent Toshiba because although the said section

recognizes that transactions covered by special laws may be exempt from

VAT, the very same section provides that those falling under Presidential
Decree No. 66 are not. Presidential Decree No. 66, creating the
Export Processing Zone Authority (EPZA), is the precursor of Rep.
Act No. 7916, as amended, under which the EPZA evolved into the
PEZA. Consequently, the exception of Presidential Decree No. 66
from Section 103(q) of the Tax Code of 1977, as amended,
extends likewise to Rep. Act No. 7916, as amended. 61 (Emphasis
ours.)

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 zerorated transactions. Thus, during trial, Toshiba concentrated on presenting evidence
to establish that it incurred P3,875,139.65 of input VAT for the rst 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 oset against any output VAT liability;
and that said amount of input VAT was properly substantiated by ocial receipts
and invoices.
After what truly appears to be an exhaustive review of the evidence presented by
Toshiba, the CTA made the following findings
(1)The amended quarterly VAT returns of Toshiba for 1997 showed that it made no
other sales, except zero-rated export sales, for the entire year, in the sum of
P2,083,305,000.00 for the rst quarter and P5,411,372,000.00 for the second
quarter. That being the case, all input VAT allegedly incurred by Toshiba for the rst
two quarters of 1997, in the amount of P3,875,139.65, was directly attributable to
its zero-rated sales for the same period.
(2)Toshiba did carry-over the P3,875,139.65 input VAT it reportedly incurred during
the rst two quarters of 1997 to succeeding quarters, until the rst quarter of 1999.
Despite the carry-over of the subject input VAT of P3,875,139.65, the claim of
Toshiba was not aected because it later on deducted the said amount as "VAT
Refund/TCC Claimed" from its total available input VAT of P6,841,468.17 for the
first quarter of 1999.
(3)Still, the CTA could not allow the credit/refund of the total input VAT of
P3,875,139.65 being claimed by Toshiba because not all of said amount was
actually incurred by the company and duly substantiated by invoices and ocial
receipts. From the P3,875,139.65 claim, the CTA deducted the amounts of (a)

P189,692.92, which was in excess of the P3,685,446.23 input VAT Toshiba

originally claimed in its application for credit/refund led with the DOF One-Stop
Shop; (b) P396,882.58, which SGV & Co., the commissioned CPA, disallowed for
being
improperly
substantiated, i.e.,
supported
only
by
provisional
acknowledgement receipts, or by documents other than ocial receipts, or not
supported by TIN or TIN VAT or by any document at all; (c) P1,887,545.65, which
the CTA itself veried as not being substantiated in accordance with Section 4.104-5
62 of Revenue Regulations No. 7-95, in relation to Sections 108 63 and 238 64 of the
Tax Code of 1977, as amended; and (d) P15,736.42, which Toshiba already applied
to its output VAT liability for the fourth quarter of 1998.
AcHSEa

(4)Ultimately, Toshiba was entitled to the credit/refund of unutilized input VAT

payments attributable to its zero-rated sales in the amounts of P1,158,016.82 and
P227,265.26, for the rst and second quarters of 1997, respectively, or in the total
amount of P1,385,282.08.
Since the aforementioned ndings of fact of the CTA are borne by substantial
evidence on record, unrefuted by the CIR, and untouched by the Court of Appeals,
they are given utmost respect by this Court.
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. 65 In Barcelon, Roxas
Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of Internal
Revenue, 66 this Court more explicitly pronounced
Jurisprudence has consistently shown that this Court accords the ndings
of fact by the CTA with the highest respect. In Sea-Land Service Inc. v.
Court of Appeals [G.R. No. 122605, 30 April 2001, 357 SCRA 441, 445-446],
this Court recognizes that the Court of Tax Appeals, which by the very
nature of its function is dedicated exclusively to the consideration of tax
problems, has necessarily developed an expertise on the subject, and its
conclusions will not be overturned unless there has been an abuse or
improvident exercise of authority. Such ndings can only be disturbed on
appeal if they are not supported by substantial evidence or there is a
showing of gross error or abuse on the part of the Tax Court. In the
absence of any clear and convincing proof to the contrary, this Court must
presume that the CTA rendered a decision which is valid in every respect.

WHEREFORE, the assailed Decision dated August 29, 2002 and the Resolution
dated February 19, 2003 of the Court of Appeals in CA-G.R. SP No. 63047 are
REVERSED and SET ASIDE, and the Decision dated October 16, 2000 of the Court
of Tax Appeals in CTA Case No. 5762 is REINSTATED. Respondent Commissioner of
Internal Revenue is ORDERED to REFUND or, in the alternative, to ISSUE a TAX
CREDIT CERTIFICATE in favor of petitioner Toshiba Information Equipment
(Phils.), Inc. in the amount of P1,385,282.08, representing the latter's unutilized
input VAT payments for the rst and second quarters of 1997. No pronouncement as
to costs.

SO ORDERED.

Puno, C.J., Carpio Morales, Bersamin and Villarama, Jr., JJ., concur.

Footnotes

1.Rollo, pp. 11-32.

2.Penned by Associate Justice Rodrigo V. Cosico with Associate Justices Buenaventura J.
Guerrero and Perlita J. Tria Tirona, concurring; rollo, pp. 35-52.
3.Id. at 54-55.
4.Penned by Associate Judge Amancio Q. Saga with Presiding Judge Ernesto D. Acosta
and Associate Judge Ramon O. De Veyra, concurring; rollo, pp. 83-92.
5.Rollo, p. 12.
6.Exhibit "A," Folder of Exhibits "A-I" of Toshiba.
7.Records, p. 7.
8.Exhibits "B" and "C," Folder of Exhibits "A-I" of Toshiba.
9.Toshiba declared P3,320,034.44 and P555,105.21 of input VAT payments for the rst
and second quarters or 1997, respectively.
10.Exhibits "B-1" and "C-1," Folder of Exhibits "A-I" of Toshiba.
11.Toshiba reported P2,083,305,000.00 and P5,411,372,000.00 of zero-rated sales for
the first and second quarters of 1997, respectively.
12.Records, pp. 10-13.
13.Toshiba claimed in its applications for refund/credit P3,268,682.34 and P416,764.39
of local input VAT for the first and second quarters of 1997, respectively.
14.Records, pp. 1-5.
15.Republic Act No. 8424, otherwise known as the Tax Code of 1997, took eect only
on January 1, 1998. Prior to said date, Presidential Decree No. 1158, otherwise
known as the Tax Code of 1977, as amended, was in eect. According to Section
230 of the Tax Code of 1977, as amended:
Sec. 230. Recovery of tax erroneously or illegally collected. No suit or proceeding shall
be maintained in any court for the recovery of any national internal revenue tax
hereafter alleged to have been erroneously or illegally assessed or collected, or of
any penalty claimed to have been collected without authority, or of any sum
alleged to have been excessive or in any manner wrongfully collected, until a claim

for refund or credit has been duly led with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax, penalty, or sum has been
paid under protest or duress.
In any case, no such suit or proceeding shall be begun after the expiration of
two years from the date of payment of the tax or penalty regardless of
any supervening cause that may arise after payment: Provided, however,
That the Commissioner may, even without a written claim therefor, refund or
credit any tax, where on the face of the return upon which payment was made,
such payment appears clearly to have been erroneously paid. (Emphasis ours.)
16.As amended by Republic Act No. 7716, bearing the title "An Act Restructuring the
Value Added Tax (VAT) System, Widening its Tax Base and Enhancing its
Administration and for These Purposes Amending and Repealing the Relevant
Provisions of the National Internal Revenue Code, as Amended, and for Other
Purposes."
17.Records, p. 5.
18.Id. at 20-22.
19.Id. at 21.
20.Id. at 33.
21.Id. at 34-35.
22.Id.
23.Id. at 35.
24.Id. at 91-92.
25.Id. at 99-100.
26.Id. at 89-95.
27.Otherwise known as The Special Economic Zone Act of 1995, as amended by
Republic Act No. 8748.
28.Signed by Presiding Judge Ernesto D. Acosta and Associate Judges Amancio Q. Saga
and Ramon O. de Veyra. Rollo, pp. 103-106.
29.Rollo, pp. 107-118.
30.Id. at 52.
31.Id. at 147-163.
32.Id. at 17-18.
33.Id. at 30.

34.The RCTA was promulgated on September 10, 1955, following the enactment on June
16, 1954 of Republic Act No. 1125, otherwise known as An Act Creating the Court
of Appeals. Republic Act No. 9282, which was enacted on March 30, 2004,
amended Republic Act No. 1125 by expanding the jurisdiction of the CTA, elevating
the same to the level of a collegiate court with special jurisdiction, and enlarging its
membership. Accordingly, the Court approved on November 25, 2005 the Revised
Rules of the Court of Tax Appeals (RRCTA). Thereafter, Republic Act No. 9503,
which was enacted on June 12, 2008, further amended Republic Act No. 1125 by
enlarging the organization structure of the CTA. As a result, the Court approved
on September 16, 2008 the amendments to the 2005 RRCTA.
35.Rule 16 of the RCTA is reproduced in full below:
RULE 16
APPLICABILITY OF THE RULES OF THE
COURT OF FIRST INSTANCE
SECTION 1. The provisions of the Rules of Court applicable to proceedings before the
Courts of First Instance shall, insofar as they may not be inconsistent with the
provisions of Republic Act No. 1125 and of these rules, be applicable to cases
pending before this Court, except that, in any case pending before it, the Court
may, in the exercise of its discretion, x a shorter period for the ling of pleadings
and papers.
Under Batas Pambansa Blg. 129, otherwise known as The Judiciary Reorganization Act of
1980, the Court of First Instance became the Regional Trial Court.
36.Records, pp. 29-32.
37.Resolution dated May 10, 2000, signed by Presiding Judge Ernesto D. Acosta and
Associate Judges Amancio Q. Saga and Ramon O. de Veyra; id. at 72.
38.Rollo, p. 85.
39.Director of Lands v. Court of Appeals, 363 Phil. 117, 128 (1999).
40.Commissioner of Internal Revenue v. A. Soriano Corporation, 334 Phil. 965, 972
(1997).
41.Land Bank of the Philippines v. Natividad, 497 Phil. 738, 744-745 (2005).
42.Records, p. 33.
43.Signed by Presiding Judge Ernesto D. Acosta and Associate Judges Amancio Q. Saga
and Ramon O. de Veyra, id. at 36.
44.Tiu v. Middleton, 369 Phil. 829, 835 (1999).
45.SCC Chemicals Corporation v. Court of Appeals, 405 Phil. 514, 522-523 (2001).
46.Garcia v. Court of Appeals, 327 Phil. 1097, 1113 (1996).

47.Records, p. 34.
48.Id.
49.Rollo, p. 49.
50.Id. at 51.
51.Rule 131, Section 3(m) of the Rules of Court.
52.Rollo, pp. 49-50.
53.Filed by the parties on July 7, 1999.
54.Filed by the CIR on May 11, 1999.
55.G.R. No. 150154, August 9, 2005, 466 SCRA 211, 230-231.
56.SEC. 106. Refunds or tax credits of creditable input tax.
xxx xxx xxx
(b) Capital goods. A VAT-registered person may apply for the issuance of a tax credit
certicate or refund of input taxes paid on capital goods imported or locally
purchased, to the extent that such input taxes have not been applied against
output taxes. The application may be made only within two (2) years after the
close of the taxable quarter when the importation or purchase was made.
57.Commissioner of Internal Revenue v. Toshiba Information Equipment (Phils.) Inc.,
supra note 55 at 222-223, citing Commissioner of Internal Revenue v. Seagate
Technology (Philippines), 491 Phil. 317, 335 (2005).
58.Commissioner of Internal Revenue v. Toshiba Information Equipment (Phils.) Inc., id.
at 223-226.
59.Id. at 229-230.
60.Id. at 230-231.
61.Id. at 223.
62.SECTION 4.104-5. Substantiation of claims for input tax credit. (a) Input taxes shall
be allowed only if the domestic purchase of goods, properties or services is made
in the course of trade or business. The input tax should be supported by an
invoice or receipt showing the information as required under Sections 108 (a) and
237 of the Code. Input tax on purchases of real property should be supported by
a copy of the public instrument, i.e., deed of absolute sale, deed of conditional
sale, contract/agreement to sell, etc., together with the VAT receipt issued by the
seller.
A cash register machine tape issued to a VAT-registered buyer by a VAT-registered seller
from a machine duly registered with the BIR in lieu of the regular sales invoice,
shall constitute valid proof of substantiation of tax credit only if the name and TIN

of the purchaser is indicated in the receipt and authenticated by a duly authorized

representative of the seller.
(b) Input tax on importations shall be supported with the import entry or other
equivalent document showing actual payment of VAT on the imported goods.
(c) Presumptive input tax shall be supported by an inventory of goods as shown in a
detailed list to be submitted to the BIR.
(d) Input tax on "deemed sale" transactions shall be substantiated with the required
invoices.
(e) Input tax from payments made to non-residents shall be supported by a copy of the
VAT declaration/return led by the resident licensee/lessee in behalf of the nonresident licensor/lessor evidencing remittance of the VAT due.
63.SEC. 108. Invoicing and accounting requirements for VAT-registered persons. (a)
Invoicing requirements. A VAT-registered person shall, for every sale, issue an
invoice or receipt. In addition to the information required under Section 238, the
following information shall be indicated in the invoice or receipt:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's
identification number (TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the seller with
the indication that such amount includes the value-added tax.
( b ) Accounting requirements. Notwithstanding the provision of Section 223, all
persons subject to the value-added tax under Sections 100 and 102 shall, in
addition to the regular accounting records required, maintain a subsidiary sales
journal and subsidiary purchase journal on which the daily sales and purchases are
recorded. The subsidiary journals shall contain such information as may be
required by the Secretary of Finance.
64.SEC. 238. Issuance of receipts or sales or commercial invoices. All persons subject
to an internal revenue tax shall, for each sale or transfer of merchandise or for
services rendered valued at P25.00 or more, issue duly registered receipts or
sales or commercial invoices, prepared at least in duplicate, showing the date of
transaction, quantity, unit cost and description of merchandise or nature of
service: Provided, however, That in the case of sales, receipts or transfers in the
amount of P100.00 or more, or, regardless of amount, where the sale or transfer
is made by a person liable to value-added tax to another person also liable to
value-added tax; or where the receipt is issued to cover payment made as rentals,
commissions, compensations or fees, receipts or invoices shall be issued which
shall show the name, business style, if any, and address of the purchaser,
customer, or client: Provided, further, That where the purchaser is a VATregistered person, in addition to the information herein required the invoice or
receipt shall further show the taxpayer's identification number of the purchaser.
The original of each receipt or invoice shall be issued to the purchaser, customer or
client at the time the transaction is eected, who, if engaged in business or in the

exercise of profession, shall keep and preserve the same in his place of business
for a period of 3 years from the close of the taxable year in which such invoice or
receipt was issued while the duplicate shall be kept and preserved by the issuer,
also in his place of business for a like period.
The Commissioner may, in meritorious cases exempt any person subject to an internal
revenue tax from compliance with the provisions of this section.
65.Commissioner of Internal Revenue v. Cebu Toyo Corporation, 491 Phil. 625, 640
(2005).
66.G.R. No. 150764, August 7, 2006, 498 SCRA 126, 135-136.