Coca-Cola Bottlers Philippines, Inc. vs. Commissioner of Internal Revenue

Section 229 of the NIRC does not apply to claims for refund or credit of unutilized input VAT, because input VAT is not "excessively" collected as understood under that provision — at the time of payment, the amount paid is correct and proper. A claim for refund or tax credit of input VAT may only be made under Sections 110(B) and 112(A) of the NIRC, which require that the claim be attributable to zero-rated or effectively zero-rated sales, or under Section 112(B) upon cancellation of VAT registration.

Petitioner Coca-Cola Bottlers Philippines, Inc. is a VAT-registered domestic corporation engaged in the business of manufacturing and selling beverages. Under the VAT system established by the 1997 National Internal Revenue Code, a VAT-registered person may apply input VAT against output VAT, and any excess input VAT is carried over to succeeding quarters. The NIRC provides specific instances when excess input taxes may be claimed for refund or issuance of tax credit certificate, and Section 229 provides a separate remedy for recovery of taxes erroneously or illegally collected.

Petitioner Coca-Cola Bottlers Philippines, Inc., a VAT-registered domestic corporation engaged in manufacturing and selling beverages, filed its Quarterly VAT Return for the period January 1, 2008 to March 31, 2008 on April 24, 2008, and amended the same a few times thereafter. On May 27, 2009, the BIR issued a Letter of Authority to examine petitioner's books of accounts for all internal revenue taxes for the period January 1, 2008 to December 31, 2008.

On April 20, 2010, petitioner filed with the BIR's Large Taxpayers Service an administrative claim for refund or tax credit of its alleged over/erroneous payment of VAT for the quarter ended March 31, 2008 in the total amount of ₱123,459,647.70. Three days thereafter, on April 23, 2010, petitioner filed with the CTA a judicial claim for refund or issuance of tax credit certificate, presenting its financial employees as witnesses. According to the witnesses, all of petitioner's records and documents, including invoices and official receipts for the period January 1 to March 31, 2008 subject of the instant claim, were completely destroyed. They were, however, able to determine petitioner's input and output VAT through its computerized accounting system.

Petitioner claimed that due to its employees' inadvertence, the input tax amounting to ₱123,459,647.70 was not credited against the corresponding output tax during the quarter. It asserted that since it was already barred from amending its VAT Return because the BIR had already issued an LOA, it was left with no other recourse but to apply for a claim for refund for the undeclared input VAT under Section 229 of the NIRC. The CTA Division found that only ₱48,509,474.01 of the claimed amount was properly supported by official receipts, and that even if the substantiated input taxes were declared in the VAT Return for the first quarter of 2008, they would not be enough to offset petitioner's output tax liabilities for the same period, leaving no balance that may be refunded.

• Applicability of Section 229: Petitioner argued that its claim for refund/tax credit is hinged not on the basis of "excess" input tax per se but on the basis of the inadvertence of applying the undeclared input tax against the output VAT, and that by virtue of Section 229 of the 1997 NIRC, it may claim for refund/tax credit of its erroneous payment of output VAT due to its failure to apply the ₱123,459,674.70 input VAT in the computation of its excess allowable input VAT.

• No Requirement to Report in VAT Return: Petitioner argued that its claim for refund or issuance of tax credit under Sections 229 and 204(C) of the NIRC only requires that the same be in writing and filed with the Commissioner within two (2) years after the payment of tax or penalty, and that nowhere is it provided in said provisions a mandatory requirement that a VAT Return must show the undeclared input tax in order to claim a refund.

• Substantiation of Input Taxes: Petitioner cited the ruling in Fort Bonifacio Development Corporation vs. CIR which adopts the principle that input taxes not reported in the VAT Return may still be credited against output tax due for as long as the same were properly substantiated.

• Strictissimi Juris and Unjust Enrichment: Petitioner maintained that its claim for refund, being based on erroneous payment of output VAT, should not be construed against it and necessitates only a preponderance of evidence, and that it is only just and proper to allow its claim so as not to violate the principle of unjust enrichment.

• Inapplicability of Section 229: The CTA En Banc held that Section 229 is inapplicable to claims for refund or credit of excess input VAT under Sections 110(B) and 112(A), because the input VAT is not "excessively" collected as understood under Section 229 — the term "excess" input VAT simply means that the input VAT available as credit exceeds the output VAT, not that the input VAT is excessively collected because it is more than what is legally due.

• Substantiation and Reporting Requirements: The CTA En Banc held that for input taxes to be available as tax credits, they must be substantiated and reported in the VAT Return of the taxpayer, and that even if the substantiated input taxes were declared in the VAT Return for the first quarter of 2008, they would still not be enough to offset petitioner's output tax liabilities for the same period.

• Applicability of Section 229: Whether petitioner's claim for refund/tax credit falls within the purview of Section 229 of the NIRC of 1997, as amended, in relation to Section 204(C) of the same Code.

• Reporting Requirement: Whether the undeclared input VAT in the amount of ₱123,459,674.70 for the quarter ended March 31, 2008 is required to be reported in the Quarterly VAT Return as a requisite for petitioner's claim for refund of tax under Section 229 of the NIRC of 1997, as amended, in relation to Section 204(C) of the same Code.

• Strictissimi Juris: Whether petitioner's claim for refund shall be construed in strictissimi juris against the petitioner.

• Inclusion of Omitted Input VAT: Whether the omitted input VAT in the amount of ₱123,459,674.70 may be included in the current and available input VAT of the petitioner for the quarter ended March 31, 2008 in order to prevent unjust enrichment of the government.

• Applicability of Section 229: No. Section 229 of the 1997 NIRC is inapplicable to the instant claim for refund or issuance of tax credit, as the claim does not involve a tax that is "erroneously, illegally, excessively, or in any manner wrongfully collected."

• Reporting Requirement: No. The issue of whether input taxes must first be reported in a taxpayer's VAT Return before they can be refunded or credited becomes irrelevant because petitioner failed to properly substantiate its claim — only ₱48,509,474.01 was properly supported by official receipts, which was not enough to offset its output tax liabilities.

• Strictissimi Juris: Yes. Actions for tax refund or credit are in the nature of a claim for exemption, and the law is construed in strictissimi juris against the taxpayer, with the pieces of evidence presented entitling a taxpayer to an exemption strictly scrutinized and must be duly proven.

• Inclusion of Omitted Input VAT: No. Neither the law nor jurisprudence authorizes petitioner's claim for refund or issuance of tax credit, as the claim is not governed by Section 229 nor authorized under Sections 110(B) and 112(A) of the NIRC.

• Applicability of Section 229: The Court relied on the doctrine in Commissioner of Internal Revenue vs. San Roque Power Corporation, which explained that input VAT is not "excessively" collected as understood under Section 229 because at the time the input VAT is collected, the amount paid is correct and proper. The input VAT is a tax liability of, and legally paid by, a VAT-registered seller of goods, properties or services used as input by another VAT-registered person in the sale of his own goods, properties, or services. If the input VAT is in fact "excessively" collected as understood under Section 229, then it is the person legally liable to pay the input VAT, and not the person to whom the tax is passed on and who is applying the input VAT as credit for his own output VAT, who can file the judicial claim for refund or credit outside the VAT system. The Court further cited Mirant for the proposition that Section 229 should "apply only to instances of erroneous payment or illegal collection of internal revenue taxes."

• Reporting Requirement: The Court noted that even assuming petitioner's application for refund or issuance of tax credit is permitted under case law and the provisions of the tax code, the claim must nonetheless fail in view of petitioner's failure to properly substantiate the same. As found by both the CTA En Banc and CTA Division, only ₱48,509,474.01 was properly supported by official receipts out of the claimed ₱123,459,647.70. The CTA Division made a pronouncement that even if the substantiated input taxes were declared in the VAT Return for the first quarter of 2008, they would not have been enough to offset the output taxes payable for the same taxable period. The Court also noted that petitioner did not pay any VAT for the first quarter of 2008, so it did not overpay its taxes due for that quarter, and there was no basis for petitioner to ask for refund of erroneously paid output VAT.

• Strictissimi Juris: The Court reiterated its consistent ruling that actions for tax refund or credit are in the nature of a claim for exemption, and the law is not only construed in strictissimi juris against the taxpayer, but also the pieces of evidence presented entitling a taxpayer to an exemption is strictly scrutinized and must be duly proven. The burden is on the taxpayer to show that he has strictly complied with the conditions for the grant of the tax refund or credit. Since taxes are the lifeblood of the government, tax laws must be faithfully and strictly implemented as they are not intended to be liberally construed.

• Inclusion of Omitted Input VAT: The Court held that when the law is clear and free from any doubt or ambiguity, there is no room for construction or interpretation; there is only room for application. A plain and simple reading of Sections 110(B) and 112(A) reveals that if and when the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters, and it is only when the sales of a VAT-registered person are zero-rated or effectively zero-rated that he may have the option of applying for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales. The Court further held that it is not a trier of facts and does not normally embark in the evaluation of evidence adduced during trial, and in a petition for review on certiorari under Rule 45 of the Rules of Court, only questions of law may be raised.

• Inapplicability of Section 229 to Excess Input VAT — Section 229 of the NIRC applies only to instances of erroneous payment or illegal collection of internal revenue taxes. Input VAT is not "excessively" collected as understood under Section 229 because at the time the input VAT is collected, the amount paid is correct and proper. The term "excess" input VAT simply means that the input VAT available as credit exceeds the output VAT, not that the input VAT is excessively collected because it is more than what is legally due. Only the person legally liable to pay the tax can file the judicial claim for refund under Section 229; the person to whom the tax is passed on as part of the purchase price has no personality to file such claim.

• Strictissimi Juris in Tax Refund Claims — Actions for tax refund or credit are in the nature of a claim for exemption, and the law is not only construed in strictissimi juris against the taxpayer, but also the pieces of evidence presented entitling a taxpayer to an exemption is strictly scrutinized and must be duly proven. The burden is on the taxpayer to show that he has strictly complied with the conditions for the grant of the tax refund or credit.

• Doctrine of Plain Meaning — When the law is clear and free from any doubt or ambiguity, there is no room for construction or interpretation; there is only room for application. Only when the law is ambiguous or of doubtful meaning may the court interpret or construe its true intent.

• Deference to CTA Findings — The Court accords findings and conclusions of the CTA with the highest respect. As a specialized court dedicated exclusively to the resolution of tax problems, the CTA has developed an expertise on the subject of taxation, and its decisions are presumed valid in every aspect and will not be overturned on appeal unless the Court finds that the questioned decision is not supported by substantial evidence or there has been an abuse or improvident exercise of authority on the part of the tax court.

• "The input VAT is not 'excessively' collected as understood under Section 229 because at the time the input VAT is collected the amount paid is correct and proper." — This passage from San Roque, quoted by the Court, articulates the core rationale for why Section 229 is inapplicable to claims for refund of unutilized input VAT.

• "Under the VAT System, there is no claim or issue that the input VAT is 'excessively' collected, that is, that the input VAT paid is more than what is legally due." — This excerpt defines the distinction between "excess" input VAT under the VAT system and "excessively" collected tax under Section 229, which is central to the Court's reasoning.

• "Actions for tax refund or credit, as in the instant case, are in the nature of a claim for exemption and the law is not only construed in strictissimi Juris against the taxpayer, but also the pieces of evidence presented entitling a taxpayer to an exemption is strictissimi scrutinized and must be duly proven." — This passage states the strict construction rule applied to tax refund claims and the burden of proof on the taxpayer.

• "When the law is clear and free from any doubt or ambiguity, there is no room for construction or interpretation; there is only room for application." — This passage states the plain meaning rule applied by the Court in interpreting Sections 110(B) and 112(A) of the NIRC.

• Commissioner of Internal Revenue vs. San Roque Power Corporation, 703 Phil. 300 (2013) — Controlling precedent. The Court relied extensively on this case for the doctrine that input VAT is not "excessively" collected as understood under Section 229, and that only the person legally liable to pay the tax can file a judicial claim for refund under Section 229.

• Commissioner of Internal Revenue vs. Dash Engineering Philippines, Inc., 723 Phil. 433 (2013) — Cited as consistent ruling on the inapplicability of Section 229 to claims for the recovery of unutilized input VAT.

• Commissioner of Internal Revenue vs. Mindanao II Geothermal Partnership, 724 Phil. 534 (2014) — Cited as consistent ruling on the inapplicability of Section 229 to claims for the recovery of unutilized input VAT.

• Fort Bonifacio Development Corporation vs. CIR, 694 Phil. 7 (2012) — Cited by petitioner for the principle that input taxes not reported in the VAT Return may still be credited against output tax due for as long as the same were properly substantiated; the Court noted this principle but found it unavailing due to petitioner's failure to substantiate its claim.

• Nippon Express (Philippines) Corporation vs. Commissioner of Internal Revenue, 706 Phil. 442 (2013) — Cited for the plain meaning rule that when the law is clear and free from any doubt or ambiguity, there is no room for construction or interpretation.

• Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, 569 Phil. 483 (2008) — Cited for the rule that actions for tax refund or credit are in the nature of a claim for exemption and the law is construed in strictissimi juris against the taxpayer.

• Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., 746 Phil. 139 (2014) — Cited for the rule that tax laws must be faithfully and strictly implemented as they are not intended to be liberally construed.

• Section 110(B), 1997 National Internal Revenue Code — Provides that if at the end of any taxable quarter the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters, except that 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 Section 112. The Court held this provision does not authorize petitioner's claim because petitioner's sales were not zero-rated.

• Section 112(A) and (B), 1997 National Internal Revenue Code — Provides for refunds or tax credits of input tax for zero-rated or effectively zero-rated sales, and for cancellation of VAT registration due to retirement from or cessation of business. The Court held that petitioner's claim does not fall under these instances because it does not seek to refund or credit input tax due or paid attributable to zero-rated or effectively zero-rated sales.

• Section 204(C), 1997 National Internal Revenue Code — Authorizes the Commissioner to credit or refund taxes erroneously or illegally received or penalties imposed without authority. The Court held this provision, in relation to Section 229, applies only to instances of erroneous payment or illegal collection of internal revenue taxes.

• Section 229, 1997 National Internal Revenue Code — Provides for recovery of tax erroneously or illegally collected, requiring a claim for refund or credit duly filed with the Commissioner within two (2) years from the date of payment of the tax or penalty. The Court held this provision is inapplicable to claims for recovery of unutilized input VAT because input VAT is not "excessively" collected as understood under this section.

• Rule 45, Rules of Court — Governs petitions for review on certiorari, which may raise only questions of law. The Court held that petitioner cannot seek review of the factual findings of the CTA Division, as affirmed by the CTA En Banc, nor a re-examination of the evidence it presented.

Carpio, J. (Chairperson), Perlas-Bernabe, J. (on official business), Caguioa, J., and Reyes, Jr., J., concurred in the decision.

N/A — The case text does not mention any dissenting opinion.