Taganito Mining Corporation vs.

CIR
G.R. No. 216656 promulgated on April 26, 2021 (Uploaded on November 11, 2021

Facts:
Taganito Mining Corporation (TMC) is "an exporter of beneficiated nickel silicate ores and
chromite ores". It alleged that from January 1, 2007 to December 31, 2007, it generated "zero-
rated export sales". During such period, TMC paid input VAT on its "domestic purchases of
taxable goods and services and importation of capital and non-capital goods. On February 11,
2009, TMC filed an application for refund/credit of its VAT input taxes for 2007 before the
Large Taxpayer's Division of the Bureau of Internal Revenue. The BIR disallowed part of the
amount being applied for a refund consisting of deferred input VAT on capital goods and
recommended for amortization over 60 months. In view of the recommendation, TMC filed a
Petition for Review with the CTA "with respect to the deferred input taxes pertaining to capital
goods", alleging that its input VAT being refunded was directly attributable to its zero-rated
export sales. The CTA held that there was nothing in Sections 110 and 112(A) of the Tax Code
which qualified that the amortization of input VAT on capital goods exceeding Pl Million does
not apply to claims for refund or applications for tax credit certificate.

The Court of Tax Appeals emphasized that since the law does not distinguish, the amortization
of input VAT also applied to claims for refund or tax credit. The Court of Tax Appeals affirmed
that only the amortized amount is creditable or refundable as of December 31, 2007. The
remaining amount was to be amortized during the estimated life of the capital goods.

Hence, TMC filed its Petition for Review on Certiorari before the Supreme Court. TMC claims
that the CTA erred in reading Section 110(A) on its own, without considering Section 110(B)
and (C), which stated that the use of "any" in Section 110(B) referring to "input tax attributable
to zero-rated sales" may be refunded or credited at the zero-rated taxpayer's option. It claims that
the terms "creditable input tax" and "input tax credit" are different. The former refers to "input
tax on purchases which can be credited against output tax [,]" while the latter pertains to zero-
rated transactions with no output tax from which input tax may be credited against. TMC avers
that since the rules are silent on the application of the amortization on zero-rated sales, it should
be construed to not apply to taxpayers who are engaged in zero-rated transactions. Here, since all
its input taxes are attributable to its zero-rated sales, petitioner claims that its input tax
credit/refund is not subject to amortization.

Meanwhile, the CIR avers since the law does not distinguish, amortization also applies to zero-
rated transactions involving capital goods with acquisition cost above PhP1 Million. Further,
considering that tax refunds are in the nature of tax exemption, the law is construed strictly
against those who claim exemption.

Issue:
Is the input tax credit for purchase of capital goods above PhP1 Million, which are
directly attributable to zero-rated export sales of TMC, is required to be amortized over
the useful life of the product?

Ruling:
Yes. The output tax is collected by the merchant from the consumer who in turn is allowed to
deduct from it the amount of input tax paid in order to decrease the amount of their VAT
liability. The system of crediting input VAT from output VAT is provided for under Section 110
of the Tax Code.

Under Section 110(B), any input tax attributable to zero-rated sales by a VAT-registered person
may at his option be refunded or credited against other internal revenue taxes, subject to the
provisions of Section 112.

A zero-rated taxpayer is given the option to claim the input tax paid through a refund or tax
credit. This is because a zero-rated taxpayer does not have output tax for its zero-rated
transactions from which it can credit its input tax. Moreover, under Section 112(A) of the Tax
Code, a claim for refund or tax credit of input tax should not have been applied against output
tax. Hence, petitioner insists on the distinction between creditable input VAT subject to
amortization and the input tax attributable to zero-rated transactions which may be claimed for
refund or credit at the option of the VAT registered taxpayer under Section ll0(B) in relation to
Section 112(A).

The use of "any" in Section ll0(B) does not prevent the application of the amortization rule under
Section 110(A) to "input tax attributable to zero-rated sales[.]" The amortization rule does not
preclude the zero-rated taxpayer from claiming its input tax in full. It is not the word "any"
which qualifies a claim for refund or tax credit of input tax. It is the amount of the purchased or
imported goods used for trade or business, and whether depreciation is allowed for it. In Revenue
Regulations No. 16-2005, as amended, if the purchase or importation of depreciable goods are
directly attributable to zero-rated sales, and their acquisition cost exceeds Pl,000,000.00, the
amortization applies. Other than the alleged distinction, TMC did not present a convincing
argument for the piecemeal construction of Section 110(B). TMC cannot be allowed to select
and choose which provisions apply to benefit its purpose.

Hence the ruling of the Court of Appeals is correct. There is nothing in the above-quoted
provisions of law which states that the amortization of VAT paid on capital goods with
acquisition cost exceeding One Million Pesos (Phpl,000,000.00), excluding the VAT component,
applies only when the input VAT is creditable against the output VAT. A perusal of Revenue
Regulations (RR) No. 16-05, implementing the VAT provisions of the Tax Code reveals that,
insofar as the amortization of input VAT paid on capital goods is concerned, there is no
distinction between the input VAT creditable against output VAT and input VAT subject of a
claim for refund or application for issuance of a tax credit certificate. Where the law does not
distinguish, we ought not to distinguish." Thus, the law being silent, the same rule on
amortization of input VAT necessarily applies to claims for refund.

A holistic reading of the provisions reveals that there is no limitation in applying the
amortization rule to input tax credit/refund from zero-rated transactions. Contrary to TMC's
argument, Section ll0(B) does not give a VAT-registered taxpayer vested rights to refund any
and all input VAT which are directly attributable to its zero-rated sales. Being statutory in nature,
its right to refund depends on the limitations provided by law. The burden of proof is upon the
claimant to prove the factual basis of its claim for refund as tax refunds, similar to exemptions,
are strictly construed against the taxpayer. This burden, TMC failed to discharge.