THE COURT of Tax Appeals (CTA) has ordered the Bureau of Internal Revenue (BIR) to refund P14.59 million to the local branch of United States-based pharmaceutical company Merck Sharp & Dohme (MSD), ruling that value-added tax (VAT) on certain medicine imports was improperly collected.
The court’s second division, in a decision promulgated on Jan. 6, partially granted the firm’s petition for review, acknowledging the company’s claim that the imported medicines were exempt from VAT beginning Jan. 1, 2020.
The tribunal only partially granted the petition for a refund of erroneously paid VAT, as the BIR had already refunded a portion of the claimed amount.
It held that the National Internal Revenue Code (NIRC) of 1997, as amended by Republic Act (RA) No. 11467, which exempts the importation of prescription drugs and medicines for diabetes, high cholesterol, and hypertension from VAT starting Jan. 1, 2020, takes precedence over subsequent administrative issuances that prescribed later effectivity dates.
The court said the VAT exemption should be applied retroactively to Jan. 1, 2020, despite conflicting interpretations in the BIR’s issuances. It added that the law prevails over administrative regulations.
“Considering that RA No. 11467 is clear that the subject VAT exemption shall begin on January 1, 2020, the payments of VAT by petitioner on the subject importations for the period from January 7 to April 1, 2020, are therefore deemed illegal and erroneous,” the 19-page ruling penned by Justice Corazon G. Ferrer-Flores read.
The case stemmed from when Merck Sharp & Dohme, a foreign corporation with a branch in the Philippines, filed administrative claims for a VAT refund totaling P33,730,490.83 for medicines imported between Jan. 1, 2020, and April 30, 2020.
The firm said that the importation of medicines subject to the refund claims was exempt from VAT starting Jan. 1, 2020. It claimed that the erroneously paid VAT subject to the refund claims had not been claimed and utilized as input tax credits.
It said that it was entitled to the refund of P14,589,661.00, representing VAT erroneously paid on the importation from Jan. 6, 2020, to Jan. 26, 2020, of medicines intended for the treatment of persons with diabetes, high cholesterol, and hypertension.
The BIR initially denied the refund for the period of Jan. 1 to Jan. 22, 2020, saying that the VAT exemption for these medicines was not yet in effect.
It later granted a partial refund of P19,140,829.83 but disallowed P8,299,507.00 due to a discrepancy in the effectivity date of the VAT exemption, leaving P14,589,661 from the firm’s original request.
The respondent said that refunds were in the nature of tax exemptions, and thus, strictly construed against the taxpayer.
It said that in case of doubt as to the entitlement to the refund, the refund must be denied. Finally, even assuming, arguendo, that RA No. 11467 can be applied retroactively, the petitioner is still not entitled to the refund sought.
Merck Sharp & Dohme then filed a petition for review with the CTA on Jan. 5, 2022. — Chloe Mari A. Hufana
