GR 153205; (January, 2007) (Digest)
G.R. No. 153205; January 22, 2007
COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR MINDANAO, INC., Respondent.
FACTS
Respondent Burmeister and Wain Scandinavian Contractor Mindanao, Inc. (BWSCMI) is a domestic corporation subcontracted by a foreign consortium to operate and maintain power barges for the National Power Corporation (NAPOCOR). The consortium paid BWSCMI in foreign currency inwardly remitted to the Philippines. Seeking clarity, BWSCMI obtained BIR Ruling No. 023-95, which declared that if it registered as a VAT taxpayer and its consideration was paid in acceptable foreign currency accounted for under BSP rules, its services would be subject to VAT at zero percent. BWSCMI duly registered as a VAT taxpayer.
Subsequently, BWSCMI availed of the BIR’s Voluntary Assessment Program (VAP). Allegedly misinterpreting Revenue Regulations No. 5-96, it reclassified its services for April to December 1996 as subject to 10% VAT, instead of zero-rated. Consequently, it paid output VAT amounting to P6,994,659.67. It later secured VAT Ruling No. 003-99, which reconfirmed the zero-rating of its services. BWSCMI then filed a claim for a tax credit certificate for the amount erroneously paid, which the Commissioner of Internal Revenue denied.
ISSUE
Whether the Court of Tax Appeals correctly ordered the issuance of a tax credit certificate for the VAT erroneously paid by BWSCMI, considering its services qualified for zero-rated VAT treatment.
RULING
Yes, the CTA was correct. The Supreme Court affirmed the decisions of the Court of Tax Appeals and the Court of Appeals. The legal logic hinges on the proper application of the VAT provisions for zero-rated services. Under Section 108(B)(2) of the National Internal Revenue Code, services performed by a VAT-registered person in the Philippines, paid for in acceptable foreign currency inwardly remitted and accounted for under BSP rules, are subject to VAT at zero percent. BWSCMI’s services, as confirmed by BIR Ruling No. 023-95 and VAT Ruling No. 003-99, squarely met these conditions. The payments from the foreign consortium were remitted in foreign currency through the banking system, satisfying the legal requirement.
The Court rejected the Commissioner’s argument that BWSCMI’s availment of the VAP and subsequent payment constituted a taxable “sale of services” to a non-resident client. The VAP payment did not alter the fundamental nature of the transaction, which was already definitively established as a zero-rated sale of services. The payment was made under a mistaken interpretation of the law. Since the services were legally zero-rated, BWSCMI had no output VAT liability. Therefore, the amount it paid under the VAP was erroneously collected and should be refunded or credited. The claim was filed within the two-year prescriptive period, having been judicially tolled by the petition filed with the CTA.