Commissioner of Internal Revenue vs. Semirara Mining Corporation

Section 16(a) of PD No. 972, a special law, exempts coal operating contract operators from all national taxes except income tax, including VAT; RA No. 9337 did not expressly or impliedly repeal that exemption, and Section 109(K) of the NIRC, as amended, recognizes transactions exempt under special laws. Failure to submit the RMO No. 53-98 checklist at the administrative level does not bar a judicial claim for refund or tax credit, especially where the CTA finds the evidence sufficient.

Semirara Mining Corporation is a domestic corporation registered with the Bureau of Internal Revenue as a non-VAT enterprise engaged in coal mining under Presidential Decree No. 972, the Coal Development Act of 1976. It operates under a Coal Operating Contract executed with the Ministry of Energy, now the Department of Energy, through the Bureau of Energy Development, and sells coal to the National Power Corporation under a Coal Supply Agreement. RA No. 9337 amended the National Internal Revenue Code, including Section 109, and Section 109(K) exempts transactions under special laws; the dispute concerns whether the PD No. 972 exemption survived that amendment.

Semirara Mining Corporation is a duly registered and existing domestic corporation, registered with the Bureau of Internal Revenue as a non-VAT enterprise engaged in the coal mining business. It conducts business by virtue of Presidential Decree No. 972, otherwise known as the Coal Development Act of 1976. On June 8, 1983, Semirara Coal Corporation executed a Coal Operating Contract with the Ministry of Energy, now the Department of Energy, through the Bureau of Energy Development, with a term until the year 2012. In 2002, Semirara Coal Corporation changed its corporate name to Semirara Mining Corporation. As a coal mine operator, SMC sells its coal production under the COC to various customers, among them the National Power Corporation, a government-owned and controlled corporation, in accordance with a Coal Supply Agreement dated May 19, 1995. SMC had been selling coal to NPC for years without paying VAT pursuant to the exemption granted under Section 16 of PD No. 972.

After Republic Act No. 9337, which amended certain provisions of the National Internal Revenue Code of 1997, as amended, took effect on July 1, 2005, NPC started to withhold a tax of five percent representing the final withholding VAT on SMC's coal billings pursuant to Section 114(C) of the same law, on the belief that the sale of coal by SMC was no longer exempt from VAT. In view thereof, SMC requested a BIR pronouncement sustaining its position that its sale of coal to NPC was still exempt from VAT notwithstanding RA No. 9337, which the BIR granted through BIR Ruling No. 006-2007. Consequently, on May 21, 2007, January 21, 2008, and January 29, 2008, SMC filed with the BIR Large Taxpayers Division, Revenue District Office No. 121-Quezon City, letters with supporting documents requesting a refund or issuance of a tax credit certificate in the total amount of P77,253,245.39, representing the final withholding VAT withheld by NPC on its coal billing for the period of July 1, 2006 to December 31, 2006.

Due to the CIR's inaction, SMC filed on August 8 and November 10, 2008 its petitions for review with the CTA Division, docketed as CTA Case No. 7822 and 7849. In a Resolution dated January 27, 2009, the CTA Division consolidated the cases. On March 28, 2011, the CTA Division rendered its Decision granting SMC's refund claim for erroneously paid final VAT withheld by NPC. The CTA Division found that SMC is exempt from VAT pursuant to Section 109(K) of the National Internal Revenue Code of 1997, as amended by RA No. 9337, in relation to Section 16 of PD No. 972. It also found that SMC timely filed its administrative and judicial claims and submitted relevant documents in support thereof. The CIR moved for reconsideration, but this was denied by the CTA Division in a Resolution dated June 3, 2011. The CIR then filed a Petition for Review with the CTA En Banc, docketed as CTA EB No. 793.

In the assailed Decision, the CTA En Banc dismissed the CIR's petition for lack of merit. It noted that the CIR's arguments were a mere rehash of its previous arguments already raised before, discussed, and resolved by the CTA Division; thus, it found no reason to disturb the CTA Division's finding that SMC is entitled to the claimed VAT refund. On July 26, 2012, the CTA En Banc issued the assailed Resolution denying the CIR's motion for reconsideration for lack of merit. Hence, the CIR filed the instant petition for review on certiorari.

The CTA found that SMC submitted various documents in support of its claim for VAT refund and that a scrutiny thereof proved that NPC indeed erroneously withheld and remitted to the BIR a final withholding VAT in the amount of P77,253,245.39 on its gross payments for coal purchases from SMC for the third and fourth quarters of 2006. The CIR claimed that SMC failed to submit complete documents under RMO No. 53-98 at the administrative level, while SMC asserted that both its administrative and judicial claims for refund were supported by documentary evidence and that the CTA, after evaluating all evidence, concluded that SMC had sufficiently substantiated its claim.

• Withdrawal of VAT Exemption: The CIR argued that the provision granting tax exemption to SMC under Section 109(e) of the NIRC of 1997, as amended, was withdrawn by the legislature when RA No. 9337 was passed, deleting the "sale or importation of coal and natural gas, in whatever form or state" from the list of transactions exempt from VAT.
• Incomplete Administrative Claim under RMO No. 53-98: The CIR claimed that the CTA erroneously approved SMC's claim for tax refund or credit because SMC failed to submit complete documents in support of its administrative claim for refund; according to the CIR, SMC's administrative claim was pro forma because it failed to submit the list of documents enumerated under Revenue Memorandum Order No. 53-98, rendering the judicial appeal without foundation.

• Continuing PD No. 972 Exemption: SMC insisted that its sales of coal to NPC are exempt from VAT under RA No. 9337 in relation to PD No. 972; RA No. 9337 did not withdraw the tax exemption granted by PD No. 972 and incorporated into SMC's coal operating contract, considering that Section 109(K) of the NIRC of 1997, as amended by RA No. 9337, expressly recognizes that transactions exempt under special laws are also exempt from VAT.
• No Implied Repeal: SMC asserted that RA No. 9337 could not have impliedly repealed PD No. 972 because no irreconcilable inconsistency and repugnancy exists between the two laws, and the general repealing clause in RA No. 9337 does not prevail over specific provisions of PD No. 972.
• Sufficient Documentary Evidence: SMC maintained that both its administrative and judicial claims for refund were supported by documentary evidence and that the CTA, after evaluating all evidence it had submitted, concluded that SMC had sufficiently substantiated its claim for VAT refund.

• VAT Exemption of Coal Sales: Whether the sale or importation of coal under a coal operating contract pursuant to PD No. 972 is exempt from VAT notwithstanding RA No. 9337.
• RMO No. 53-98 Documentary Requirements: Whether SMC is entitled to a tax credit or refund despite its alleged failure to submit the requisite documents under RMO No. 53-98 to the BIR.

• VAT Exemption of Coal Sales: Yes. Section 16(a) of PD No. 972, a special law, exempts coal operating contract operators from all national taxes except income tax, including VAT; RA No. 9337 did not expressly or impliedly repeal that exemption, and Section 109(K) of the NIRC, as amended, recognizes transactions exempt under special laws.
• RMO No. 53-98 Documentary Requirements: No. Non-submission of the RMO No. 53-98 checklist at the administrative level is not fatal; RMO No. 53-98 is an internal audit guide, not a statutory requirement, and the CTA found SMC submitted sufficient documents showing erroneous withholding.

• VAT Exemption of Coal Sales: SMC's claim for VAT exemption was anchored not on the paragraph deleted by RA No. 9337 from the list of VAT-exempt transactions under Section 109 of the NIRC, but on the tax incentives granted to operators of coal operating contracts executed pursuant to PD No. 972. PD No. 972 declares a policy to accelerate the exploration, development, exploitation, production, and utilization of the country's coal resources through the participation of the private sector with sufficient capital, technical, and managerial resources. Section 16 of PD No. 972 provides incentives to COC operators, including exemption from all taxes except income tax; because VAT is one of the national internal revenue taxes, it falls within that exemption. Section 16 was incorporated in SMC's COC, Section V, 5.2(a), which grants exemption from all taxes, national and local, except income tax. The exemption was not revoked, withdrawn, or repealed expressly or impliedly by Congress with the enactment of RA No. 9337. Under statutory construction, a special law cannot be repealed or modified by a subsequently enacted general law in the absence of any express provision in the latter law to that effect; a special law must be interpreted as an exception to the general law absent special circumstances warranting a contrary conclusion. RA No. 9337's repealing clause did not expressly repeal PD No. 972. Had Congress intended to withdraw or revoke the tax exemptions under PD No. 972, it would have explicitly mentioned Section 16 of PD No. 972, in the same way that it specifically mentioned Section 13 of RA No. 6395 and Section 6, fifth paragraph of RA No. 9136, as among the laws repealed by RA No. 9337. No implied repeal exists: RA No. 9337 does not cover the whole subject matter of PD No. 972 and could not have been intended to substitute the same; there is also no irreconcilable inconsistency or repugnancy between the two laws. Although RA No. 9337 deleted "sale or importation of coal and natural gas, in whatever form or state" from the list of VAT-exempt transactions, Section 109(K) of the NIRC, as amended, exempts transactions under international agreements or special laws, except those under Presidential Decree No. 529. Thus, SMC is exempt from the payment of VAT on the sale of coal produced under its COC because Section 16(a) of PD No. 972, a special law, grants SMC exemption from all national taxes except income tax. Accordingly, SMC is entitled to claim a refund of the 5% final VAT erroneously withheld on its coal billings and remitted by NPC to the BIR. BIR Ruling No. 006-2007 also validated SMC's VAT exemption under PD No. 972.
• RMO No. 53-98 Documentary Requirements: The CIR insisted that SMC's claim for VAT refund should be denied for failure to submit, at the administrative level, the required supporting documents prescribed under RMO No. 53-98. This issue was not novel. In Pilipinas Total Gas, Inc. vs. Commissioner of Internal Revenue, the Court, sitting En Banc, ruled that RMO No. 53-98 provides a checklist of documents for the BIR to consider in granting claims for refund and serves as a guide for the courts in determining whether the taxpayer had submitted complete supporting documents. RMO No. 53-98 is addressed to internal revenue officers and employees, for purposes of equity and uniformity, to guide them as to what documents they may require taxpayers to present upon audit of their tax liabilities. Nothing in it shows that it was intended to be a benchmark in determining whether the documents submitted by a taxpayer are actually complete to support a claim for tax credit or refund of excess unutilized VAT. As expounded in Commissioner of Internal Revenue vs. Team Sual Corporation, the CIR's reliance on RMO No. 53-98 is misplaced; nothing in Section 112 of the NIRC, RR 3-88, or RMO No. 53-98 itself requires submission of the complete documents enumerated in RMO No. 53-98 for a grant of a refund or credit of input VAT. The subject of RMO No. 53-98 states that it is a checklist of documents to be submitted by a taxpayer upon audit of tax liabilities; no audit was alleged. Even assuming that RMO No. 53-98 applies, it specifically states that some documents are required to be submitted by the taxpayer "if applicable." If SMC indeed failed to submit the complete documents in support of its application, the CIR could have informed SMC of its failure, consistent with Revenue Memorandum Circular No. 42-03, but the CIR did not. Taxpayers cannot simply be faulted for failing to submit the complete documents enumerated in RMO No. 53-98 absent notice from a revenue officer or employee that other documents are required. Failure to comply with RMO No. 53-98 is not fatal to a claim for tax credit or refund, especially when the application has arrived at the judicial level, where the Rules of Court govern and the sufficiency of the evidence lies within the sound discretion and judgment of the Court. The CTA found that SMC submitted various documents in support of its claim and that a scrutiny thereof proved that NPC indeed erroneously withheld and remitted to the BIR a final withholding VAT of P77,253,245.39 on its gross payments for coal purchases for the third and fourth quarters of 2006. The Court will not lightly set aside the factual conclusions reached by the CTA because the CTA, by the very nature of its function of being dedicated exclusively to the resolution of tax problems, has developed an expertise on the subject; such findings can be disturbed only for abuse or improvident exercise of authority, lack of substantial evidence, or gross error. In Barcelon, Roxas Securities, Inc. vs. Commissioner of Internal Revenue, the Court ruled that CTA findings of fact are accorded the highest respect and must be presumed valid absent clear and convincing proof to the contrary. No reason existed to depart from that principle because the CTA did not abuse its authority or commit gross error in granting SMC's refund claim.

• Special law not repealed by later general law — A special law cannot be repealed or modified by a subsequently enacted general law in the absence of any express provision in the latter law to that effect; a special law must be interpreted as an exception to the general law absent special circumstances warranting a contrary conclusion. The Court applied this rule to hold that PD No. 972, a special law, was not repealed by RA No. 9337, a general law, because the latter's repealing clause did not expressly mention PD No. 972.
• Repeal by implication — There are two categories of repeal by implication: first, where provisions in the two acts on the same subject matter are in an irreconcilable conflict, the later act impliedly repeals the earlier one to the extent of the conflict; second, where the later act covers the whole subject of the earlier one and is clearly intended as a substitute, it operates to repeal the earlier law. Implied repeal by irreconcilable inconsistency requires that the two statutes cover the same subject matter, are so clearly inconsistent and incompatible that they cannot be reconciled or harmonized, and both cannot be given effect. The Court found neither category present between RA No. 9337 and PD No. 972.
• VAT exemption under special laws — Section 109(K) of the NIRC of 1997, as amended by RA No. 9337, exempts transactions under international agreements or special laws, except those under Presidential Decree No. 529. Section 16(a) of PD No. 972 grants coal operating contract operators exemption from all national taxes except income tax; because VAT is a national internal revenue tax, it falls within that exemption. The Court applied this to hold that SMC is exempt from VAT on its coal sales under its COC and is entitled to a refund of the erroneously withheld final VAT.
• RMO No. 53-98 as internal audit checklist — RMO No. 53-98 is addressed to internal revenue officers and employees to guide them as to what documents they may require taxpayers to present upon audit; it is not a statutory benchmark for determining whether the documents submitted by a taxpayer are complete to support a claim for tax credit or refund. Failure to submit the documents listed under RMO No. 53-98 is not fatal to a refund claim, especially at the judicial level, and taxpayers cannot be faulted absent notice from the BIR that other documents are required. The Court applied this to reject the CIR's argument that SMC's claim should be denied for non-submission of the RMO No. 53-98 checklist.
• Respect for CTA factual findings — The Court will not lightly set aside the factual conclusions reached by the CTA because the CTA, by the very nature of its function of being dedicated exclusively to the resolution of tax problems, has developed an expertise on the subject. Such findings can only be disturbed on appeal if they are not supported by substantial evidence or there is a showing of gross error or abuse on the part of the Tax Court. The Court applied this to affirm the CTA's finding that SMC submitted sufficient documents and that NPC erroneously withheld and remitted the final VAT.

• "It is a fundamental rule in statutory construction that a special law cannot be repealed or modified by a subsequently enacted general law in the absence of any express provision in the latter law to that effect." — This states the ratio decidendi for the holding that RA No. 9337 did not repeal PD No. 972, a special law.
• "Had Congress intended to withdraw or revoke the tax exemptions under PD No. 972, it would have explicitly mentioned Section 16 of PD No. 972, in the same way that it specifically mentioned Section 13 of RA No. 6395 and Section 6, paragraph 5 of RA No. 9136, as among the laws repealed by RA No. 9337." — This demonstrates the Court's express-repeal analysis and explains why the general repealing clause of RA No. 9337 did not affect PD No. 972.
• "Verily, as things stand, SMC is exempt from the payment of VAT on the sale of coal produced under its COC, because Section 16(a) of PD No. 972, a special law, grants SMC exemption from all national taxes except income tax. Accordingly, SMC is entitled to claim for a refund of the 5% final VAT erroneously withheld on SMC's coal billings and remitted by NPC to the BIR." — This is the core holding on the VAT exemption and the refund entitlement.
• "Indeed, a taxpayer's failure with the requirements listed under RMO No. 53-98 is not fatal to its claim for tax credit or refund of excess unutilized excess VAT. This holds especially true when the application for tax credit or refund of excess unutilized excess VAT has arrived at the judicial level." — This articulates the Court's ruling on the RMO No. 53-98 documentary issue.

• Mecano vs. Commission on Audit, 290-A Phil. 272 (1992) — Cited for the categories of repeal by implication; the Court applied these categories to find no implied repeal of PD No. 972 by RA No. 9337.
• Commissioner of Internal Revenue vs. Secretary of Justice, G.R. No. I77387, November 9, 2016 — Cited for the rule that a special law cannot be repealed or modified by a subsequently enacted general law absent an express provision.
• Pilipinas Total Gas, Inc. vs. Commissioner of Internal Revenue, G.R. No. 207112, December 8, 2015, 776 SCRA 395 — En Banc ruling that RMO No. 53-98 is a checklist and guide, not a statutory requirement; failure to submit the enumerated documents is not fatal to a refund claim absent notice from the BIR.
• Commissioner of Internal Revenue vs. Team Sual Corporation (formerly Mirant Sual Corporation) — Quoted in Pilipinas Total Gas; held that the CIR's reliance on RMO No. 53-98 is misplaced because no provision requires submission of the complete documents enumerated for a grant of refund or credit of input VAT. Citation not stated in the provided text.
• Barcelon, Roxas Securities, Inc. vs. Commissioner of Internal Revenue, 529 Phil. 785 (2006) — Cited for the rule that CTA findings of fact are accorded the highest respect and can be disturbed only if not supported by substantial evidence or upon a showing of gross error or abuse.
• Bonifacio Water Corp. vs. Commissioner of Internal Revenue, 714 Phil. 413, 426 (2013) — Cited for the rule that the Court will not lightly set aside the factual conclusions of the CTA unless there has been an abuse or improvident exercise of authority.

• Section 16, Presidential Decree No. 972 (Coal Development Act of 1976) — Grants coal operating contract operators incentives, including exemption from all taxes except income tax and exemption from tariff duties and compensating tax on importation of machinery, equipment, spare parts, and materials required for coal operations. Because VAT is a national internal revenue tax, it falls within the exemption; the provision was incorporated into SMC's COC and was not repealed by RA No. 9337.
• Section 109(K), National Internal Revenue Code of 1997, as amended by RA No. 9337 — Exempts from VAT transactions that are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under Presidential Decree No. 529. This provision is the statutory basis for recognizing the continuing VAT exemption under PD No. 972.
• Section 24, RA No. 9337 — The repealing clause expressly repealed Section 13 of RA No. 6395 and Section 6, fifth paragraph of RA No. 9136, and contained a general clause repealing inconsistent laws. It did not expressly repeal PD No. 972, and the Court held that no implied repeal resulted.
• Section 114(C), National Internal Revenue Code of 1997, as amended — Requires the Government, its political subdivisions, instrumentalities, agencies, and government-owned or controlled corporations to deduct and withhold a final VAT at the rate of five percent of the gross payment on purchases of goods and services subject to VAT. This was the provision under which NPC withheld the 5% final VAT on SMC's coal billings.
• Section 7, RA No. 9337 — Amended Section 109 of the NIRC; while it deleted "sale or importation of coal and natural gas, in whatever form or state" from the list of VAT-exempt transactions, it retained Section 109(K) exempting transactions under special laws.
• Revenue Memorandum Order No. 53-98 — Provides a checklist of documents to be submitted by a taxpayer upon audit of tax liabilities and mandatory reporting requirements for revenue officers. The Court held that it is an internal guide for revenue officers and not a statutory requirement for refund claims; failure to submit the listed documents is not fatal to a judicial claim for tax credit or refund.

Sereno, C.J.; Leonardo-De Castro, J.; Bersamin, J.; and Perlas-Bernabe, J.