TOSHIBA INFORMATON EQUIPMENT, INC (“TOSHIBA”) v.

COMM’R OF INTERNAL REVENUE (“CIR”)

Facts
1. TOSHIBA is a domestic corporation engaged in the business of manufacturing and exporting electric
machinery, including office automatic and information technology as well as computer hardware
and software. It is registered with PEZA as an ECOZONE export enterprise in Laguna Technopark.
 For the first two quarters of 1997, TOSHIBA declared input VAT of P3.875 million with no zero-
rated sales. In July 1997, it sent amended VAT returns for the same period with the same input
VAT but with zero-rated sales totaling P7.494 billion.
 In March 1999, TOSHIBA filed 2 applications for tax credit/refund amounting a total of P3.685
million with the DOF One-Stop Shop. It then filed a Petition for Review with the CTA to forestall
the end of the 2-year prescriptive period to claim input VAT credit/refund.

2. TOSHIBA and CIR entered into a Joint Stipulation of Facts and Issues, which stated that:
“1. TOSHIBA is a duly registered value-added tax entity in accordance with Section 107 of the Tax
Code, as amended.
2. TOSHIBA is subject to zero percent (0%) value-added tax on its export sales in accordance with
then Section 100(a)(2)(A) of the Tax Code, as amended.
3. TOSHIBA filed its quarterly VAT returns for the first two quarters of 1997 within the legally
prescribed period.
xxx
7. TOSHIBA is subject to zero percent (0%) value-added tax on its export sales.
8. TOSHIBA has duly filed the instant Petition for Review within the two-year prescriptive period
prescribed by then Section 230 of the Tax Code.”

3. The parties also jointly submitted the following issues for determination by the CTA:
 Whether or not TOSHIBA has incurred input taxes in the amount of P3,875,139.65 for the period January
1 to June 30, 1997 which are directly attributable to its export sales.
 Whether or not the input taxes incurred by TOSHIBA for the period 1 January to 30 June 1997 have not
been carried over to the succeeding quarters.
 Whether or not input taxes incurred by TOSHIBA for the first two quarters of 1997 have not been offset
against any output tax.
 Whether or not input taxes incurred by TOSHIBA for the first two quarters of 1997 are properly
substantiated by official receipts and invoices.

4. TOSHIBA presented documentary evidence in support of its claim while CIR did not present any
evidence at all. Both parties waived the filing of memoranda. Hence, CTA partially granted the claim
of TOSHIBA by awarding them with P1.385 million in unutilized input VAT.
 TOSHIBA filed an MR as to the denial of P1.887 million refund. CTA denied MR as the claimed
amount was not substantiated by VAT invoices or receipts.
 CIR filed an MR, contending for the first time that the sales were VAT-exempt and not zero-
rated. It claimed that under RA 7916, TOSHIBA was liable to pay the government 5% of its gross
income in lieu of all taxes. Thus, TOSHIBA was exempt from VAT and could not claim input VAT
credit.
 CTA denied MR as the issue was belatedly raised and TOSHIBA had not availed of the 5% gross
income tax in lieu of all taxes but instead only opted for the Income Tax Holiday. Hence, it was
subject to VAT and entitled to input VAT credit.
5. CIR filed Petition for Review with CA, which reversed the Decision. It found that TOSHIBA was a tax-
exempt entity being taxed 5% on gross income, in lieu of all taxes including VAT. Hence, its sales
were VAT-exempt and not zero-rated.
 Furthermore, it stated that the Answer filed by the CIR did not contain any admissions that the
export sales of TOSHIBA were zero-rated transactions. All it admitted were that the Tax Code
provisions being cited by TOSHIBA were correct.
 As to the Joint Stipulation, CA ruled that CIR signed it through palpable mistake. This palpable
mistake should not be taken against the CIR, for to do otherwise would result in suppressing the
truth through falsehood.
 Moreover, the State could not be put in estoppel by the errors of its officials or agents.

6. Hence, the present Petition for Review with the SC.

Issues
1. WON CIR timely raised the issue of the exemption of TOSHIBA: NO
 Such argument was neither raised in the Answer of CIR nor its pre-trial brief.
 CIR passed up the opportunity to present this issue when it did not present any evidence before
the CTA. It missed another opportunity when it waived the filing of a Memorandum.
 SC cannot simply grant the plea of the CIR that the procedural rules be relaxed on the general
averment of the interest of substantive justice. The first and fundamental concern of the rules of
procedure is to secure a just determination of every action.

2. WON CIR judicially admitted that TOSHIBA sales were zero-rated: YES
 Among the facts expressly admitted by the CIR and TOSHIBA in their CTA-approved Joint
Stipulation are that TOSHIBA "is a duly registered VAT entity in accordance with Section 107 of
the Tax Code, as amended,” and that it is “subject to zero percent (0%) VAT on its export sales in
accordance with then Section 100(a)(2)(A) of the Tax Code, as amended.”
 SC disagreed with CA, which stated that the CIR was not bound to his admissions since (1) these
were made through palpable mistake, which if countenanced would result in “falsehood,
unfairness and injustice;” and (2) the State could not be placed in estoppel by the mistakes of its
officials and agents.

 CIR presented no evidence of the commission of a mistake, much less a palpable one. The Joint
Stipulation was filed by Atty. Biazon, Revenue Attorney II of the BIR. Considering the
presumption of regularity in the performance of official duty. Biazon is presumed to have read,
studied and understood the contents of the pleading before signing it. The burden is on CIR to
present evidence to the contrary.
 CTA only declared the presence of palpable mistake when it found a discrepancy between the
averments of CIR in its Answer and the contents of the Joint Stipulation. It declared that a
mistake had been made but SC found that the more reasonable explanation would be that the
CIR changed its mind or conceded some points to Toshiba during the pre-trial conference

 The admissions of the CIR in this case are not intrinsically wrong but are, in fact, consistent with
the previous ruling of the SC in the case of CIR v. Toshiba Information Equipment (2005),
involving the same parties when TOSHIBA sought the refund of its unutilized input VAT for
purchase of capital goods. The Court held therein:
 “A PEZA-registered enterprise, which would necessarily be located within ECOZONES,
are VAT-exempt entities, not because of Section 24 of Rep. Act No. 7916, which imposes
the five percent (5%) preferential tax rate on gross income, in lieu of all taxes; but,
rather, because of Section 8 which establishes the fiction that ECOZONES are foreign
territory.

The Philippine VAT system adheres to the Cross Border Doctrine, according to which, no
VAT shall be imposed to form part of the cost of goods destined for consumption
outside of the territorial border of the taxing authority. Hence, actual export of goods
and services from the Philippines to a foreign country must be free of VAT….”

Nonetheless, the Court therein also recognized that this rule was only clearly established in
October 1999, upon the issuance by the BIR of Revenue Memorandum Circular No. 74-99. Prior
to this, whether a PEZA-registered enterprise was exempt or subject to VAT depended on the
type of fiscal incentives availed of by the said enterprise. SC impliedly found that TOSHIBA was
availing itself of the income tax holiday, when it stated:

“Hence, it was not only possible, but even acceptable, for TOSHIBA, availing itself of the
income tax holiday option under Section 23 of Republic Act No. 7916… to be subject to
VAT.”

 Furthermore, the BIR accepted applications as late as July 2003 for input VAT credit/refund from
PEZA-registered enterprises who availed of the income tax holiday. In Revenue Memorandum
Circular No. 42-2003, it stated:

“If the PEZA-registered enterprise is paying the 5% preferential tax in lieu of all other
taxes, the said PEZA-registered taxpayer cannot claim TCC or refund for the VAT paid on
purchases. However, if the taxpayer is availing of the income tax holiday, it can claim
VAT credit provided:
a. The taxpayer-claimant is VAT-registered;
b. Purchases are evidenced by VAT invoices or receipts, whichever is applicable, with shifted
VAT to the purchaser prior to the implementation of RMC No. 74-99; and
c. The supplier issues a sworn statement under penalties of perjury that it shifted the VAT
and declared the sales to the PEZA-registered purchaser as taxable sales in its VAT returns.”

Hence, the CIR cannot insist that all PEZA-registered enterprises are VAT-exempt in every
instance.

3. WON TOSHIBA was entitled to input VAT credit: YES, only in the amount found by CTA.
 Considering the admitted facts and stated issues it was proper for the CTA to confine itself to
the compliance by TOSHIBA with the other requirements for input VAT credit.
 Since its findings are borne by substantial evidence on record, unrefuted by the CIR and affirmed
by the CA, these are given utmost respect by the Court.

Dispositive: Petition for review GRANTED. CTA Decision granting P1.385 million REINSTATED.