IN a claim for refund or issuance of a tax credit certificate (TCC) of input value-added tax (VAT) paid on capital goods, which was incurred before July 1, 2005, the taxpayer must, among others, prove that the goods and properties purchased are in the nature of capital goods.

Prior to the effectivity of Republic Act 9337 and the Consolidated VAT Regulations of 2005, Revenue Regulations (RR) 7-95 provides that a VAT-registered person may apply for the issuance of a TCC 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.

To qualify as capital goods, its purchases of goods and properties must: (1) have a useful life greater than one year; (2) be treated as depreciable assets; and (3) be used directly or indirectly in the production or sale of taxable goods or services.

It is not sufficient that a taxpayer presents its various suppliers’ invoices, official receipts, cash vouchers and cash advance liquidating forms, including schedule of importations, schedule of purchases and input VAT, as well as report of the Court-commissioned independent certified public accountant (CPA).

To prove its purchases of capital goods, it must likewise present other documents, such as detailed general ledger and audited financial statements for the Court to determine that the purchases formed part of its “Property, plant and equipment” account and the goods and properties fall squarely within the meaning of “capital goods and properties.” (Specialty Pulp Manufacturing Inc. versus Commissioner of Internal Revenue, CTA Case No. 7349, Aug. 29, 2008)

In the aforementioned Court of Tax Appeals case, the taxpayer’s claim for refund/tax credit of its unutilized input VAT was denied for failure to present its detailed ledger and audited financial statements. (Source: Punongbayan & Araullo)

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