Legally Yours

CIR v. Seagate Technology

Statutory Construction. Quando aliquid prohibetur ex directo prohibetur et per obliquum. 
Commissioner of Internal Revenue v. Seagate Technology
G.R. No. 153866.  February 11, 2005

Respondent is a resident foreign corporation duly registered with the Securities and Exchange Commission to do business in the Philippines and is registered with the Philippine Export Zone Authority (PEZA). The respondent is Value Added Tax-registered entity and filed for the VAT returns. An administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 with supporting documents (inclusive of the P12,267,981.04 VAT input taxes subject of this Petition for Review) was filed on 4 October 1999 and no final action has been received by the respondent from the petitioner on the claim for VAT refund. Hence, petitioner is sued in his official capacity. The Tax Court rendered a decision granting the claim for refund and CTA affirmed the decision. Hence, the present petition for certiorari.

Whether or not respondent is entitled to the refund or issuance of Tax Credit Certificate in the amount of P12,122,922.66 representing alleged unutilized input VAT paid on capital goods purchased for the period April 1, 1998 to June 30, 1999

The Petition is unmeritorious. As a PEZA-registered enterprise within a special economic zone, respondent is entitled to the fiscal incentives and benefit provided for in either PD 66 or EO 226. It shall, moreover, enjoy all privileges, benefits, advantages or exemptions under both Republic Act Nos. (RA) 7227 and 7844. Respondent as an entity is exempt from internal revenue laws and regulations. This exemption covers both direct and indirect taxes, stemming from the very nature of the VAT as a tax on consumption, for which the direct liability is imposed on one person but the indirect burden is passed on to another. Respondent, as an exempt entity, can neither be directly charged for the VAT on its sales nor indirectly made to bear, as added cost to such sales, the equivalent VAT on its purchases.  The exemption is both express and pervasive, among other reasons, since RA 7916 states that “no taxes, local and national, shall be imposed on business establishments operating within the ecozone”. Even though the VAT is not imposed on the entity but on the transaction, it may still be passed on and, therefore, indirectly imposed on the same entity — a patent circumvention of the law.  That no VAT shall be imposed directly upon business establishments operating within the ecozone under RA 7916 also means that no VAT may be passed on and imposed indirectly. Quando aliquid prohibetur ex directo prohibetur et per obliquum.  When anything is prohibited directly, it is also prohibited indirectly. Special laws expressly grant preferential tax treatment to business establishments registered and operating within an ecozone, which by law is considered as a separate customs territory.  As such, respondent is exempt from all internal revenue taxes, including the VAT, and regulations pertaining thereto. Thus, the petition is denied and the decision of lower courts affirmed.

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