G.R. No. 181961; December 5, 2011
LVM CONSTRUCTION CORPORATION, represented by its Managing Director, ANDRES CHUA LAO, Petitioner, vs. F.T. SANCHEZ/SOCOR/KIMWA (JOINT VENTURE), F.T. SANCHEZ CONSTRUCTION CORPORATION, SOCOR CONSTRUCTION CORPORATION AND KIMWA CONSTRUCTION AND DEVELOPMENT CORPORATION all represented by FORTUNATO O. SANCHEZ, JR., Respondents.

FACTS

Petitioner LVM Construction Corporation (LVM) was awarded the Arterial Road Link Development Project in Southern Leyte by the DPWH. LVM sub-contracted approximately 30% of the project to the Joint Venture composed of the respondents. The Sub-Contract Agreement, dated November 27, 1996, stipulated that payment to the sub-contractor would be based on work accomplished at the awarded unit cost less nine percent (9%), with a ten percent (10%) retention to be deducted from every billing, and that payment would be made within seven (7) days after the check issued by DPWH to LVM had been made good. The Joint Venture submitted 27 billings. LVM paid Billings Nos. 1 to 26 in full, retaining 10% (amounting to ₱8,041,469.79). For Billing No. 27 (₱5,903,780.96), LVM made only a partial payment of ₱2,544,934.99, claiming it had not yet been fully paid by the DPWH. After the sub-contracted works were completed, the Joint Venture demanded payment of the unpaid balance and the release of the retention money. In a letter dated May 16, 2001, LVM informed the Joint Venture that its auditors discovered no deductions for E-VAT had been made from payments for Billings Nos. 1 to 26 and that it would deduct 8.5% for said tax from the amount still due. The Joint Venture replied that it had issued Official Receipts for every payment received, was liable to pay 10% VAT thereon, and that LVM could claim an equivalent input tax of 10%. After more than four years of non-payment, the Joint Venture filed a complaint for sum of money and damages with the Construction Industry Arbitration Commission (CIAC). LVM, in its Answer, argued it was justified in withholding the 10% retention to offset the 8.5% E-VAT it claimed the Joint Venture should have paid, and counterclaimed for liquidated damages due to alleged delays by the Joint Venture. The CIAC ruled in favor of the Joint Venture, ordering LVM to pay the retention money, the unpaid balance, and interest. The CIAC found no contractual basis for LVM to withhold the retention for E-VAT, noting that the VAT deductions made by the DPWH from LVM were for the whole project and that LVM had the benefit of the input VAT from the Joint Venture’s receipts. The Court of Appeals affirmed the CIAC decision.

ISSUE

Whether the Court of Appeals erred in affirming the CIAC’s decision which held that LVM was not entitled to withhold the retention money to offset alleged E-VAT liabilities of the Joint Venture, and which denied LVM’s counterclaim for liquidated damages.

RULING

The Supreme Court DENIED the petition and AFFIRMED the Decision of the Court of Appeals. The Court held that the Sub-Contract Agreement contained no provision making the Joint Venture liable for E-VAT on the amounts paid by LVM. The contract only provided for payment of the awarded cost less 9% and a 10% retention. Any other deduction required a clear agreement, which was absent. The Joint Venture fulfilled its obligation by issuing BIR-registered official receipts for all payments, upon which it paid 10% output VAT to the BIR. Under the VAT law, LVM, as the recipient of those official receipts, was entitled to claim a corresponding input tax credit to offset its own output VAT liability. Therefore, LVM had no right to unilaterally withhold the retention money to cover a supposed E-VAT liability of the Joint Venture. Regarding the counterclaim for liquidated damages, the Court upheld the CIAC’s finding that the delays incurred by the Joint Venture were justified, thus LVM’s claim had no contractual basis. The CIAC’s factual findings, affirmed by the CA, are conclusive and not reviewable by the Supreme Court in a Rule 45 petition, absent any showing of grave abuse of discretion.