High Court orders P300-M tax refund to Fort Bonifacio

THE Supreme Court (SC) has ordered the Bureau of Internal Revenue to refund real property developer Fort Bonifacio Development Corp. (FBDC) some P359.65 million representing overpayment of output value-added tax (VAT) on its sale of lots in the first quarter of 1997.
 
Voting 9-5, the Court en banc granted the petition filed by FBDC through lawyer Estelito Mendoza seeking to reverse the July 2006 decision of the Court of Appeals and the October 2000 resolution of the Court of Tax Appeals that both denied the company's claim for tax refund.

In a decision penned by Associate Justice Mariano del Castillo, the majority agreed with the contention of FBDC that it is entitled to recover said amount erroneously paid as output VAT since its transitional input tax credit of P5.69-billion is more than sufficient to cover its out VAT liability for the said period.
 
The High Court also said that there was nothing in the old National Internal Revenue Code (NIRC) that supports the claim of the CA and the CTA that prior payment of taxes is required to avail of the eight-percent transitional input tax credit.
 
The SC said that to require prior payment of taxes is not only tantamount to judicial legislation but would also render pointless the provision in Section 105 of the old tax code that the transitional input tax credit shall be "eight-percent of the value of the beginning inventory or actual (VAT) paid on such goods, materials and supplies, whichever is higher" because the actual VAT (now 12-percent) paid on goods would always be higher than the eight-percent (now two-percent) of the beginning inventory.
 
"Clearly, limiting the value of the beginning inventory only to goods, materials and supplies, where prior taxes were paid, was not the intention of the law. Otherwise, it would have specifically stated that the beginning inventory excludes goods, materials and supplies where no taxes were paid," the High Court said.
 
Prior payment of taxes, the SC further said, is not a prerequisite to avail of the transitional input tax credit because it is not a tax refund per se but a tax credit, which is defined as an amount subtracted directly from one’s total tax liability.
 
Concurring with Del Castillo were Associate Justices Presbitero Velasco Jr., Teresita Leonardo-de Castro, Diosdado Peralta, Lucas Bersamin, Martin Villarama Jr., Jose Portugal Perez, Jose Catral Mendoza, and Roberto Abad, who wrote a separate concurring opinion.
 
Senior Associate Justice Antonio Carpio wrote a dissenting opinion. He was joined by Chief Justice Maria Lourdes Sereno, Arturo Brion, Bienvenido Reyes and Estela Perlas-Bernabe.
 
In his dissenting opinion, Carpio said FBDC cannot claim for a refund or credit of tax that was never paid because the law never imposed the tax in the first place.
 
"A tax refund of credit assumes a tax was previously paid, which means there was a law that imposed the tax. The source of the tax refund or credit is the tax that was previously paid, and this previously paid tax is simply being returned to the taxpayer due to double, excessive, erroneous, advance or creditable tax payment," he said.
 
Carpio also warned that any tax refund or credit in favor of a specific taxpayer for a tax that was never paid will have to be sourced from government funds, and will be considered an expenditure of public funds for a private purpose.
 
"If the taxpayer is allowed to keep a part of the tax as a tax credit even in the absence of a prior tax payment as source, it is in fact giving a public fund to a private person for a private benefit. This is a clear violation of the constitutional doctrine that taxes can only be used for a public purpose," he added.
 
FBDC's outstanding capital stock is 45-percent owned by the state-run Bases Conversion Development Authority, while Bonifacio Land Corp., a consortium of private domestic corporations, owns the remaining 55 percent.

Records showed that on February 8, 1995, petitioner purchased from the national government a portion of the Fort Bonifacio reservation, now known as the Bonifacio Global City (BGC) in the city of Taguig.
 
When Republic Act 7716 (e-VAT law) took effect in 1996, it extended the coverage of VAT to real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business.

In September 1996, FBDC submitted to the BIR an inventory of all its real properties, the book value of which aggregated P71.23-billion.

Based on this value, petitioner claimed that it is entitled to a transitional input tax credit of P5.7-billion, pursuant to Section 105 of the National Internal Revenue Code.
 
Petitioner then started selling Global City lots to interested buyers in October of that year.
 
For the first quarter of 1997, it generated an amount of P3.68-billion from its sales and lease of lots, on which the output VAT payable was P368.54-million.

Petitioner paid the output VAT by making cash payments to the BIR totaling P359.65-million, and crediting its unutilized input tax credit on purchases of goods and services of P8.88-million.
 
Realizing that its transitional input tax credit was not applied in computing its output VAT for the first quarter of 1997, FBDC on November 17, 1998, filed with the BIR a claim for refund of the amount P359.65-million erroneously paid as output VAT for said period.
 
Due to the inaction of the BIR, petitioner elevated the matter to the Court of Tax Appeals, which on October 2000, however, denied the claim for refund.
 
According to the CTA, "the benefit of transitional input tax credit comes with the condition that business taxes should have been paid first," before it is passed on as part of the purchase price.
 
Since petitioner acquired the Global City property under a VAT-free sale transaction, it cannot avail of the transitional input tax credit, CTA ruled.
 
The CA affirmed the CTA ruling upon the FBDC’s filing of a petition for review. (JCV/Sunnex)