Court of Tax Appeals · Second Division

Mirant Sual Corporation Formerly Southern Energy Pangasinan, Incorporated vs. Commissioner of Internal Revenue

CTA Case No. 6259 February 27, 2008 PALANCA-ENRIQUEZ

REPUBLIC OF THE PHILIPPINES

Court Of Tax Appeals

QUEZON CITY

SECOND DIVISION

MIRANT SUAL CORPORATION

C.T.A. CASE NO. 6259

(formerly SOUTHERN ENERGY

PANGASINAN, INC.),

Members:

Petitioner,

-versus-

CASTANEDA, JR., Chairperson

UY, and

PALANCA-ENRIQUEZ, JJ.

COMMISSIONER OF INTERNAL

REVENUE,

Promulgated:

FEB 2 7 2008

x -------------------------~~:~~:~~~~----------------------V--~~!_L_~-~- x

DECISION

PALANCA-ENRIQUEZ, J.:

Only VAT invoices can be used for the sale of goods that are subject to VAT. The corresponding taxes thereon shall be allowed as input tax credits for those subject to VAT. Section 113 of the NIRC of 1997, as amended, expressly provides for the invoicing and accounting requirements for VAT -registered persons. A VAT -registered status, as well as compliance with the invoicing requirements, is sufficient for the effective zero rating of the transactions of a taxpayer. Conversely, non- (#1-

2 compliance with the invoicing requirements will not give rise to effective zero-rating of the transactions of a taxpayer.

THE CASE

This is a Petition for Review filed by Mirant Sual Corporation (hereafter "petitioner") praying for the refund or issuance of a tax credit certificate in the amount of P240,463,818.16, representing the sum of petitioner's (a) unutilized input taxes of P6,4 72,197.86 on domestic purchases and importation of goods and services which are attributable to its zero-rated sales to the National Power Corporation, and (b) unutilized input taxes of P233,991 ,620.30 on purchases of capital goods, both for the calendar year 1999.

THE FACTS

The facts of the case, as culled from the records, are as follows: Petitioner is a corporation duly organized and existing by virtue of Philippine laws, with principal office located at Barrio Pangascasan, Sual, Pangasinan. It was originally registered with the Securities and Exchange Commission under the name "Pangasinan Electric Corporation" which was subsequently changed to "Southern

Energy

Pangasinan, Incorporated" on August 17, 1999. On June 28, 2001, petitioner's name was again changed from "Southern Energy Pangasinan, Incorporated" to tW-~ 3 "Mirant Sual Corporation". It is registered with the Bureau of Internal Revenue ("BIR") as a Value-Added Tax ("VAT") taxpayer engaged in the business of power generation services (Exhibit "C "). Respondent, on the other hand, is the duly appointed Commissioner of Internal Revenue ("CIR") vested with authority to act as such, including, inter alia, the power to decide, approve and grant claims for refunds or tax credits of overpaid internal revenue taxes as provided by law, with office address at the BIR National Office Building, Agham Road, Diliman, Quezon City, where he may be served with summons and other court processes. In connection with petitioner's sales of power generation services to NPC, petitioner filed with respondent CIR an Application for Zero Rate for the sale of power generation services to National Power Corporation ("NPC") under a BOT scheme, which was subsequently approved covering the period May 13, 1999 to December 31, 1999 (Exhibit "H '') .

For the four quarters of calendar year ("CY") 1999, petitioner filed with the BIR its VAT returns declaring zero-rated sales in the amount of P304,767,687.98 and unutilized input taxes in the amount of P240,463,818.16, detailed as follows:

Exhibit

1999

D

1st quarter

E

2nd quarter

F

3rd quarter

G

4th quarter Date filed

with the BIR

04/12/99 07/12/99 10/22/99 01 /25/00

Zero-rated

Sales

Input VAT

p 100,093,399.85 37,028,319.68 41 ,382,566.80 P304,767,687.98 61,959,531.83 P304.767.687.98 P 240.463.818.1 6 On March 1, 2001, pursuant to Revenue Regulations No. 7-95, as amended, petitioner filed an administrative claim for refund of its unutilized input VAT with the BIR. For failure of the respondent to act on petitioner's claim for refund, on March 29, 2001, petitioner elevated its case to this Court by way of a Petition for Review.

In his Answer, respondent, by way of special and affirmative defenses, alleged that the petition states no cause of action because on the assumption that petitioner filed an administrative claim for input VAT refund with the BIR there was no showing that petitioner submitted complete documents in support of the application for respondent to properly act on it, as required by Section 112(D) of the Tax Code. Petitioner presented Ruben Rubio, the Court-commissioned Independent CPA, Rosalinda Sempio, its Senior Accountant, and Vicente Romasanta, its Accounting Manager, as witnesses, and documentary evidence, marked as Exhibits "A" to "FF", inclusive of their m ~ ~

5 submarkings, which were all admitted by the Court in a Resolution dated February 14, 2003.

On the other hand, respondent presented Revenue Officer Bernadette Mangaoang, as witness, and formally offered documentary evidence, marked as Exhibits "1 " and "2 ", inclusive of their submarkings, which were all admitted by the Court in a Resolution dated September 5, 2003.

On rebuttal, petitioner presented Laura Baui, as witness, and formally offered documentary evidence, marked as Exhibits "GG " to "D 5 ", inclusive of their submarkings, which were admitted by the Court, except for Exhibits "FFF" to "ZZZ", "AAAA " to "ZZZZ", "A5 " to "D 5 ", which were denied admission for these documents could not be found in the records of the case. Upon manifestation of counsel for respondent that he will not present sur-rebuttal evidence, respondent was granted thirty days from October 2, 2006 to file his memorandum, while petitioner was granted twenty days from notice.

Petitioner having filed its memorandum, without respondent filing the same, the case was deemed submitted for decision. Hence, this decision.

ISSUES

6 As stipulated upon by the parties, the issues for this Court's consideration are:

I

WHETHER PETITIONER HAS UNUTILIZED VAT

INPUT TAXES FOR CY 1999 ARISING FROM ITS (A)

DOMESTIC PURCHASES AND IMPORTATION OF

GOODS AND SERVICES WHICH ARE ATTRIBUTABLE

TO

ITS

ZERO-RATED

SALES

OF

POWER

GENERATION SERVICES TO NPC DURING CY 1999;

AND (B) PURCHASES OF CAPITAL GOODS DURING

CY 1999.

II

WHETHER PETITIONER'S UNUTILIZED VAT INPUT

TAXES FOR CY 1999 ARE SUBSTANTIATED BY

DOCUMENTARY EVIDENCE IN THE FORM OF

INVOICES AND OFFICIAL RECEIPTS.

III

WHETHER PETITIONER'S VAT INPUT TAXES FOR

CY 1999 WERE APPLIED AGAINST ANY VAT

OUTPUT TAXES IN THE SUBSEQUENT TAXABLE

QUARTERS.

IV

WHETHER PETITIONER'S ADMINISTRATIVE CLAIM

FOR REFUND FILED ON MARCH 1, 2001 WAS SEASONABLY FILED.

The issues being interrelated will be discussed jointly. ()p__

THE COURT'S RULING

The petition is partly meritorious. 7 Records reveal that the subject claim in the amount of P240,463,818.16 represents the sum of petitioner's (a) unutilized input tax credits of P6,472,197.86 arising from domestic purchases of goods and services which are attributable to its zero-rated sales of power generation services to NPC; and (b) unutilized input tax credits of P233,991,620.30 generated from purchases of capital goods for the four quarters of 1999.

Petitioner's claim For

Unutilized Input VAT of

P6,472,197.86 on Domestic

Purchases of Goods and

Services which Are Attributable to its Zero-Rated

Sales of Power Generation

Services to NPC For the

Four Quarters of 1999

Petitioner anchors its claim on Section 112 (A) and (B) of the NIRC of 1997, as amended, which provides, as follows: "SEC. 112. Refunds or Tax Credits of Input Tax.-

(A)

Zero-rated or Effectively Zero-rated Sales. - Any VAT registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales where made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, fML except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(l), (2) and (B) and Section 108(B)(l) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales.

(B) Capital Goods.- A VAT-registered person may apply for the issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locally purchased, to the extent that such input taxes have not been applied against output taxes. The application may be made only within two (2) years after the close of the taxable quarter when the importation or purchase was made.

XXX

XXX."

8 The aforequoted Section 112(A) ofthe NIRC of 1997, as amended, allows the refund/tax credit of unutilized input VAT attributable to zero- rated or effectively zero-rated sales. Petitioner claims that its sale of electricity to NPC is effectively zero-rated, pursuant to Section 1 OB(B) (3) of the NIRC of 1997, in relation to Section 13 of Republic Act No. 6395, otherwise known as the "NPC Charter", which provide, as follows: "SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. (fo(j1

XXX

XXX.

(B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the Philippines by VAT -registered persons shall be subject to zero percent (0%) rate:

XXX

XXX.

(3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate." "Sec. 13. Non-profit Character of the Corporation, Exemption from All Taxes, Duties, Fees, Imposts and

Other Charges by the Government and Government

Instrumentalities. - The corporation shall be non-profit and shall devote all its returns from its capital investments, as well as excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance of effective implementation of the policy enunciated in Section One of this Act, the Corporation, including its subsidiaries, is hereby declared exempt from the payment of all forms of taxes, duties, fees, imposts as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings."

9 Pursuant to Section 13 of RA 6395, the NPC is exempt from payment of all forms of taxes, including VAT. Hence, by virtue of said charter, services rendered by a VAT registered entity, like petitioner to the NPC, are effectively subject to zero percent (0%) VAT in accordance with Section 108(B)(3) of the NIRC of 1997, as amended. (t{fL

10 In the case of Maceda vs. Macaraig, Jr., (223 SCRA 217), the Supreme Court affirmed NPC's tax exemption and ruled as follows: "A chronological review of the NPC laws will show that it has been the lawmaker's intention that the NPC was to be completely tax-exempt from all forms of taxes - direct or indirect.

XXX

XXX.

One common theme in all these laws is that the NPC must be enabled to pay its indebtedness which, as of P.D. No. 938 was P12 Billion in total domestic indebtedness, at any one time, and US$4 Billion in total foreign loans at any one time. The NPC must be and has to be exempt from all forms of taxes if this goal is to be achieved." Likewise, the respondent Commissioner also approved petitioner's application for the zero-rating of its sales to NPC covering the period from May 13, 1999 to December 31, 1999 (Exhibit "H ''). However, Section 108(B)(3) of the NIRC of 1997, as amended, must be read in conjunction with Section 113 of the same Code, as implemented by Section 4.108-1 of Revenue Regulations No. 7-95, thus: "SEC. 113. Invoicing and Accounting Requirements

for VAT-Registered Persons -

(A)

Invoicing Requirements. - A VAT -registered person shall, for every sale, issue an invoice or receipt. In addition to the information required under Section 237, the following information shall be indicated in the invoice or receipt:

{JjiJ_

(1) A statement that the seller is a VAT -registered person, followed by his taxpayer's identification number (TIN); and (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax." 11 The law is very clear. Section 113 provides that a VAT registered person, shall, for every sale issue a duly registered VAT invoice or receipt covering a "zero-rated" sale imprinted on the invoice or receipt, in order that petitioner's sales of electricity to the NPC shall qualify for zero-rating.

Corollary thereto, Section 4.108-1 of Revenue Regulations No. 7-95 provides:

"SEC. 4.108-1.

Invoicing Requirements -

All

VAT -registered persons shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices, which must show: 1.

the name, TIN and address of seller; 2.

date of transaction;

quantity, unit cost and description of merchandise or nature of service; 4.

the name, TIN, business style, if any, and address of the VAT -registered purchaser, customer or client; 5.

the word 'zero rated' imprinted on the invoice covering zero-rated sales; and 6.

the invoice value or consideration. In the case of sale of real property subject to VAT and where the zonal or market value is higher than the actual .

~ consideration, the VAT shall be separately indicated in the invoice or receipt.

Only VAT -registered persons are required to print their TIN followed by the word 'VAT' in their invoice or receipts and this shall be considered as a 'VAT Invoice'. All purchases covered by invoices other than 'VAT Invoice' shall not give rise to any input tax. If the taxable person is also engaged in exempt operations, he should issue separate invoices or receipts for the taxable and exempt operations. A 'VAT Invoice' shall be issued only for sales of goods, properties or services subject to VAT imposed in Sections 1 00 and 1 02 of the Code. The invoice or receipt shall be prepared at least in duplicate, the original to be given to the buyer and the duplicate to be retained by the seller as part of his accounting records."

12 Furthermore, a perusal of the approved Application/Certificate for Zero Rate issued by the respondent to petitioner on May 13, 1999 (Exhibit "H "), shows that the following was indicated: Valid only for sale of services from May 13, 1999 up to December 31, 1999 unless sooner revoked.

Note: Zero-Rated Sales must be indicated in the invoice/receipt. (Emphasis supplied) A careful scrutiny of the official receipts (Exhibits "Z-1 ", "Z-3 ", "Z- 5 ", "Z-7", "Z-9 ", "Z-11 ", "Z-13 ", "Z-15 ") supporting petitioner's reported zero-rated sales for the year 1999 in the amount of P304,767,687.98 shows that while said receipts bear the TIN-VAT number of the petitioner (#1

13 and the printer's BIR Permit number, the word "zero-rated" was not imprinted thereon, in clear violation of Section 4.108.1-1 of Revenue Regulations No. 7-95 and the conditions imposed on petitioner's approved Application/Certificate for Zero-Rate. The law and regulations require strict compliance with the invoicing requirements. Without valid VAT official receipts, petitioner's sales of electricity to the NPC for the year 1999 in the amount of P304,767,687.98 cannot qualify for VAT zero-rating, under Section 108(B)(3) of the NIRC of 1997. Hence, the claimed unutilized input VAT attributable thereto in the amount of P6,4 72,197.86 cannot be granted.

Petitioner's Claim For

Unutilized Input Tax

Credits In the Amount of

P233,991,620.30 Generated

From Purchases of

Capital Goods

We now proceed to petitioner's remaining claim for unutilized input tax credits in the amount of P233,991,620.30 generated from purchases of capital goods.

Pursuant to the aforequoted provisions of Section 112(B) of the NIRC of 1997, as amended, in order to be entitled to a refund/tax credit of input VAT paid on capital goods purchased, petitioner must prove the following:

W

1) That it is a VAT registered entity; 2) That the claimed input taxes were paid on capital goods; 14 3) That it did not offset or apply the claimed input taxes on capital goods purchased against any output VAT liability; and 4) That the claim for refund was filed within the two-year prescriptive period.

As regards the first requisite, the fact that petitioner is a VAT registered entity is not disputed (Joint Stipulation of Facts and Issues, par. 1.2 and Exhibit "C").

Likewise, petitioner complied with the third requisite. Petitioner's claimed input VAT was not applied against any output VAT liability during the four quarters of 1999. Although petitioner carried-over the total claim of P240,463,818.16 (inclusive of the claimed input VAT on capital goods of P233,991,620.30) to the succeeding quarters until the second quarter of 2001, the same remained unutilized as petitioner had no output VAT liability during the said period. Moreover, the total claim of P240,463,818.16 was deducted as "Any VAT Refund/TCC Claimed" from the total available input tax of P487,922,591.54 as reflected in petitioner's VAT return for the second quarter of 2001 (Exhibit "0-2 ''). The resulting net creditable input tax of P246,597,452.38 to be carried-

@JJV

15 over to the succeeding third quarter of 2001 no longer included the subject claim ofP240,463,818.16. As regards the fourth requisite, it was established that the instant claim was filed within the two-year prescriptive period, both in the administrative and judicial levels, reckoned from the respective dates when petitioner filed its 1999 Quarterly VAT Returns on April 12, 1999, July 12, 1999, October 22, 1999 and January 25, 2000. However, as to the second requisite, whether or not petitioner's paid input taxes on the purchases of capital goods in the amount of P233,991 ,620.30, petitioner submitted various suppliers' invoices and official receipts (Exhibits "AA-1" to "AA-2273 "), which were examined by the Court-commissioned auditing firm, SGV & Co. As correctly noted by SGV & Co. in its report dated March 14, 2002 (Exhibit "V''), the Court finds that out of P233,991,620.30 input taxes on purchases of capital goods, the following input taxes amounting to P10,994,181.65 was not properly substantiated by VAT invoices or official receipts in accordance with Sections 11 O{A) and 113 (A) of the NIRC of 1997, as implemented by Sections 4.104-1 and 4.104-5 of Revenue Regulations No. 7-95, and should therefore be disallowed from petitioner's claim:

Over-claimed Input Taxes on Purchases of Services

Supplier

First Quarter

CEPA OPERATION PHILS. CORP.

GEC ALSTHOM TURBINE GENERA TORS

CEPA OPERATION PHILS. CORP.

SUAL CONSTRUCTION CORP.

GEC ALSTHOM TURBINE GENERA TORS

ACCENT-MICRO TECHNOLOGIES, INC.

GEC ALSTHOM ELECTOMECANIQUE

Second Quarter

SPATIAL DESIGN CONCEPTS, INC.

SIEMENS, INC.

SUAL CONSTRUCTION CORPORATION

MUSTARD SEED CUSTOMS BROKERAGE

SPATIAL DESIGN CONCEPTS, INC.

INT'L CONTAINER TERMINAL SERVICES

Third Quarter

GEC ALSTHOM TURBINE GENERA TORS

SPATIAL DESIGNS, INC.

Fourth Quarter

GEC ALSTHOM TURBINE GENERA TORS

Input Taxes Claimed on Purchases of Services

Supported by NV Official Receipts

Second Quarter

MOF COMPANY (SUBIC), INC.

Reference

Disallowed

Invoice.#

OR#

Input VAT

0119 0368 p 69,554.93 122 0368 20,742.91 120 0368 56,837.11 0203 301 334,585.80 0204 301 334,585.80 0123 384 8,262.21 33 0069 I, 142,103.81 0039 0071 I ,523,866.20 40 0072 I ,530,294.54 41 0074 547,888.04 245 302 470,298.87

OOI868B

1,996.14 061 280 I90,253.64 060 280 108,715.86 974 37,037.84 33668 7,597.85 0042 0075 167,503.60 0043 0075 34,288.60 0045 0077 45,961.36 198 193.06 1067 5,290.69 810830 5,248.60 262 303 404,589.72 287 304 287,170.04 288 309 456,093.65 1076 2,734.01 289 305 6I2,982.33 292 306 511 ,220.06 65 308 254,240.00 66 308 254,240.00 67 308 254,240.00 68 308 18I ,600.00 69 308 181,600.00 sub-total Pl 0,043,817.27 168 4239 p 1,400.85

I77

4224 59~ ~~~

Third Quarter

MOF COMPANY (SUBIC), INC.

MOF COMPANY (SUB I C), INC.

MOF COMPANY (SUBIC), INC.

Input Taxes Claimed on Purchases of Services

Supported by ORs with Stamped TIN-VAT

Printed After July 31, 1991

Third Quarter

TCM CONST AND EQUIPMENT

WORLD ISLAND-LINK EXPRESS

Input Taxes Claimed on Purchases of Services

Supported by Documents Other Than VAT ORs

Second Quarter

ERNAL YN ENGINEERING & CONS

Third Quarter

SAN CARLOS MKTG CORP

Input Taxes Claimed on Purchase of Services

Supported by an OR With TIN only

Third Quarter

MOTOR PLAZA, INC.

Input Taxes Claimed on Purchase of Services

Supported by an OR Issued Not in Petitioner's Name

Third Quarter

211 213 208 208 209 209 209 209 212 212 11 12 234 234 234 239 239 2460

246I

2462 2463 21625 55502 17 4313 840.84 4296 859.66 4340 349.10 4340 1,000.59 4361 2,298.47 4361 534.55 4361 765.02 4361 765.02 4361 1,082.82 4361 516.99 subtotal p 11.012.97 026 p 12,820.37 035 65,000.00 0111 471.02 0111 835.01 0111 835.01 0114 613.50 0114 60I .52 p 81,176.43 p 5,112.55 3,381.82 1,372.73 2,727.28 2,650.50 subtotal p 15,244.88 52015 p 720.00 subtotal p 720.00 ~

CARGOHAUS, INC.

Input Taxes Claimed on Purchases of Goods

Supported by Invoices Without BIR Permit

Third Quarter

MANILA MACHINERY & SUPP CO., INC. MANILA MACHINERY & SUPP CO., INC.

TRIBOL TRADING & FABRICATION

Input Taxes Claimed on Purchases of Goods

Supported by Invoices With TIN only

First Quarter

AGP FURNITURE AND INTERIORS

Second Quarter

AGP FURNITURE AND INTERIORS

Third Quarter

AGP FURNITURE AND INTERIORS

Input Taxes Claimed on Purchases of Goods

Supported by Invoices Issued Not in the Name of Petitioner

Third Quarter

DON-DON SHIP SUPP & MARINE SERV

REPUBLIC COMMODITIES CORP.

TOYOTA DAGUPAN CITY, INC.

626021 23445 23902 0256 280 283 284 PO#l35 202 215 149 74500 35338 35374 9.

Input Taxes Claimed on Purchases of Goods/Services

Without Supporting Documents

First Quarter

AGP FURNITURE AND INTERIORS

P0#00129

MANILA BULLETIN PUBLISHING CORP.

M-PEC-

EXECUTIVE EDITORS, INC.

3902A

UNIVERSAL FAR EAST CORPORATION

PO#l31

Third Quarter

INT'L CONTAINER TERMINAL SERVICES

864254

INT'L CONTAINER TERMINAL SERVICES

864253

MIASCOR LOGISTICS CORPORATION

3533

FAMOUS PACIFIC FORWARDING PHILS

207 18 463366 p 14.85 subtotal p 14.85 34587 p 12,000.00 34587 6,000.00 0302 3,036.55 0056 6,436.27 0318 3,150.00 0318 1,822.00 subtotal p 32.444.82 451 p 7,272.73 451 7,272.73 027 863.64 subtotal p 15,409.10 370 55,720.45 04252 20,000.00 13454 447.61 13454 895.22 subtotal p 77,063.28 p 863.64 3351935 752.00 500.00 5,479.92 553.39 553.39 43.85 362.20 (/)jL l~

INT'L CONTAINER TERMINAL SERVICES

IO.

Input Taxes Claimed on Purchases of Services

Supported by ORs with Stamped TIN- V

Printed Before July 3I, I99I

Third Quarter

WOLF DEVELOPMENT CORPORATION

11.

Input Taxes Claimed on Payments to

Transportation Contractors

First Quarter

GERP RENT A CAR

Second Quarter

HARLEY RENT A CAR

Third Quarter

HARLEY RENT A CAR

GERP RENT A CAR

12.

Input Taxes Claimed on Purchases of Goods

Dated Outside the Period of Claim

First Quarter

APPLESEED SYSTEMS AND TECH

0210 47 964 1076 798 906 795 765 916 917 919 930 932 937 1001 1011 1021 935 946 1300 1301 1327 1329 1369 1370 1384 1404 1491 1498 919 19 421.41 subtotal p 9,529.80 455 p 428,105.94 subtotal p 428,105.94 221 p 236.36 226 327.27 2106 390.91 2117 190.00 1635 1,880.00 2125 736.37 2125 190.00 2125 305.00 2131 410.00 2133 2,305.00 2132 185.00 2133 370.00 2145 2,370.00 2145 395.00 2057 150.00 2142 150.00 2142 765.00 380 163.64 380 163.64 379 240.91 379 254.55 397 490.91 403 245.46 396 490.91 411 363.64 445 163.64 445 163.64 subtotal p 14,096.85 852 p 836.37 (ljtL

~1~ I

15359/ 152 CITIMEX, INC.

71 12252 176,063.26

SAN MIGUEL CAMPOCARNE CORP

90010426 15208 272.73 subtotal p 177,172.36 13.

Purchases of Goods Supported by Photocopies

Of Certified True Copy Invoices

First Quarter

ACCENT MICRO TECHNOLOGIES

1894 p 32,832.57 DOTCOM, INC.

278 205 2,060.55

ACCENT MICRO TECHNOLOGIES

1937 33,326.34

Third Quarter

GOLDEN POWER DIESEL SALES CTR

110 309 10,000.00

GOLDEN POWER DIESEL SALES CTR

112 0307 10,000.00 subtotal p 88,219.46 14.

Input Taxes Claimed on Purchases of Goods

Supported by Documents Other Than VAT Invoices

ALAMINOS MARKETING CENTER

16285 p 153.64 p 153.64

Total

~ 1 0,224, J 8 1.65 Records show that the substantiated input VAT amount of P222,997,438.65 [P233,991,620.30 less P10,994,181.65] pertains to purchases of supplies, materials, equipment, plant and machinery as well as civil, architectural, engineering, management, personnel, mobilization, operational and other services which were incurred by petitioner in connection with the installation, erection and commissioning of its 2 x 609-megawatt coal-fired thermal power plants at Sual, Pangasinan (Exhibits "P ", "Q", "R" & "S"; Direct Testimony of Vicente Romasanta, TSN, October 30, 2001, pp. 12-14 & 17-21). Petitioner's power plants and related

(})L

21 facilities fall within the definition of "capital goods or properties" under Section 4.106-1 of Revenue Regulations No. 7-95, which states: "Capital goods or properties" refer to goods or properties with estimated useful life greater than one year and which are treated as depreciable assets under Section 29 (/), used directly or indirectly in the production or sale of taxable goods or services.

Notwithstanding the fact that petitioner's claimed input VAT amount ofP222,997,438.65 is in the nature of input VAT paid on capital goods or properties, respondent however, objects to the refund thereof on the basis of the findings made by Revenue Officer, Ma. Bernadette B. Mangaoang, that the claimed input tax was not properly reflected in the balance sheet of petitioner as an asset or Deferred Input Tax. The revenue officer concluded that the input VAT on capital goods already formed part of the cost of the power plants that benefited petitioner in the form of depreciation expense deductible from its gross income (Exhibit "1 "). Hence, it cannot claim tax refund or credit. On rebuttal, however, petitioner was able to prove that the findings of the revenue officer are bereft of legal and factual bases. Based on the examination and validation made by the Court- commissioned auditing firm, SGV & Co. on the rebuttal evidence submitted by petitioner, except for the amount of P8,275.14, the total

W-

22 claimed input VAT ofP240,463,818.16 (including the substantiated input VAT of P222,997,438.65 on capital goods) was found to have been properly reflected in petitioner's Audited Financial Statements and Account Information Form.

Below are the pertinent portions of the report of SGV & Co. (Exhibit "HHHH", pp. 1 0-12): I.

The input VAT per I999 "Schedule of VAT - Input " was accounted as follows:

ITEM

DESCRIPTION

Input VAT per I999 "Schedule of VAT -Input"

traced to the I999 "Prepaid VAT- Input" account General Ledger b.

Input VAT per I999 "Schedule of VAT -Input"

traced to the 2000 "Prepaid VAT- Input" account General Ledger c.

Total

(please see Annex J)

Input VAT per I999 "Schedule of VAT -Input"

not traced to the I999 "Prepaid VAT -Input" account General Ledger.

(please see Annexes K and L)

AMOUNT

P239,300,564.82 p I,I54,978.20 p 8,275.I4 P240,463,818.16 2.

During I999 and 2000, the ending balance of Prepaid VAT - Input account amounted to P523,408,483.55 (where the I999 input VAT amounting to P239,297,437.45 were included) and P4I9,443,087.24 (where the I999 input VAT amounting toP l,I54,978.20 were included), respectively. This account is presented in its Audited Financial Statements under the "Prepaid Expenses and Other Current Assets" account.

Per I999 and 2000 Audited Financial

Statements, "Prepaid Expenses and Other Current Assets" account has a balance of PI4,684,397.49 and P35,507,250.00, respectively, broken down in the I999 and 2000 Detailed Comparative Balance Sheet as follows:

Deferred Income Tax

Others

Prepayments (net)

TOTAL

1999 p 12,02I,223.65 390,397.25 2.272,776.59 p 14.684.19 7.49 2000 p 9,987,805.I5 25,5I9,444.9I p 15.507.250.06 "Prepayments" account is further broken down in the I999 and 2000 tria~ / 1

(J

balance as follows:

(J/{}A-

Prepaid Genera/Insurance

Prepaid Vehicle Insurance

Prepaid VAT Input

Prepaid Employee Medica/Insurance

Prepaid Employee Life Insurance

Prepayments - Others

p 1999 2000 p 4,951,719.26 644,592.93 578,699.56 523,408,483.55 419,443,087.24 79,082.03 23,987.30 83,914.12 201,014.01 I 465 187.51 19 764 024.78

Total

P525,681,260.14 P444,962,532.15 Less: Allowance for Unrefundab/e Prepaid VAT 523.408.483.55 419.443.087.24 Prepayments (net) P 2.272. 776 59 P 25.519,444 91 The "Allowance for Unrefundab/e Prepaid VAT" account is presented in the Audited Financial Statements under the "Prepaid Expenses and Other Current Assets" account as presented previously.

3. In 200 I, the Company filed a claim for refund/tax credit for its excess input taxes for the calendar year 1999 amounting to P240,463,818.I6. Below are the journal entries made by the Company in connection with the reclassification: Reclassification of Prepaid VAT - Input Account to Accounts Receivable - BIR Account upon filing for Claim {or Refund!TCC ofits Excess Input Taxes for the

Calendar Year 1999

Accounts Receivable - BIR

Prepaid VAT - Input

Reclassification ofthe Related Allowance

Debit

Credit

240,463,818.16 240,463,818.16

Debit

Credit

Allowance for Unrefundab/e Prepaid VAT - input 240,463,818.16

Allowance for Unrefundable VAT - Input

240,463,818.16 Moreover, we noted that the "Accounts Receivable - BIR" account has an ending balance of P841,035,674.08 during 2001. This amount is presented in the audited Financial Statements "Accounts Receivable " account. The "Accounts Receivable " account has a balance in the 2001 audited Financial Statements of P2,295,954,000.00 and is broken down as follows:

Accounts Receivable - Trade

Accounts Receivable- Others (net)

Total

p 2,236,788,000.00 59.166.000.00 p 2,295,954,000.00 23 The item "Accounts Receivable - Others" is broken in the trial balance as follows~

Advances - Employees

Non-business Advances - Employees

Sundry Receivables

Advances- Suppliers

AIR - Employee Associations Receivable

Accounts Receivable- BIR

Allowance for Unrefundable VAT- Input

Deferred Value Added Tax Input

Allowance for Deferred Value Added Tax Input

AIR - SSS

Interest Receivable from Bank

Accumulated Provision for Bad & Doubtful Debts

Total

Accounts Receivable- Others (net)

Debit

Credit

p 61,980.68 34,818.54 101,006,244.28 41,401,527.98 5,850.00 841,035,674.08 ?841,035,674.08 21,372,791.39 21,372,791.39 120,766.67 I7,567,139.52 101,032,541.52 p 1,022,606,793.14 ?963,441,006.99 P59, I65, 786.15 For the additional information of the Honorable Court, Accounts Receivable - BIR is broken down as follows:

CTA Case No.

Administrative Claim with the

BIR

5654 6125 6259

Total

Amount

p 29, 763,958. 71 286,592,786.25 284,2I5,110.96 240,463.818.16 p 841.035.674.08 24 Considering that the above findings of SGV and Co. as regards the input VAT exception amounting to P8,275.14, which was not traced to the "Prepaid Input VAT" account of petitioner, is comprised of both input VAT on capital goods purchases and input VAT on purchases of goods/services attributable to zero-rated sales, only the input VAT of P4, 783.40 (Annex L of Exhibit "HHHH"), pertaining to capital goods, as enumerated below, is hereby disallowed from petitioner's substantiated input VAT claim on capital goods of P222,997,438.65:

Supplier

Inter'! Container Terminal Services, Inc. Inter'! Container Terminal Services, Inc. Inter'! Container Terminal Services, Inc. Carried Lumber Company, Inc.

SK Hardware & Gen. Mdse.

Total

Ref.

9757 9758 9760 6419 1530

Input Tax

Claimed

p 1,102.63 344.60 1,018.42 1,883.65 434.10 p 4.783.40 25 Hence, only the amount of P222,992,655.25 (P222,997,438.65 less P4,783.40) represents petitioner's valid input tax on purchases of capital goods, as reflected in petitioner's Audited Financial Statements and Account Information Form.

Furthermore, petitioner has proven that while the subject input VAT was capitalized and formed part of the cost of its power plants, petitioner did not benefit from the same in the form of deductible depreciation for income tax purposes, contrary to the revenue officer's allegation.

As clearly explained by petitioner's Financial Controller, Laura Baui, in her Affidavit and Supplemental Affidavit dated January 15, 2005 and March 30, 2005, respectively (Exhibits "YY" and "EEE"), the depreciation on the capitalized input VAT of P233,991 ,620.30 amounted to P1,836,834.00 for the year 1999 and P9,359,665.00 for every year thereafter, computed as follows:

For CY 1999

Capitalized Input VAT

Divided by useful life of the power plant (in months) Depreciation per month Multiplied by the number of months elapsed from October 1999 to

December 1999

Depreciation for the year 1999

For Every Year Thereafter

Capitalized Input VAT

Divided by useful life of the power plant (in months) Depreciation per month Multiplied by 12 months Depreciation for every year after 1999 p 233,991 ,620.30 + 300.00 p 779,972.07

X

2.355 p 1.836.834.00 p 233,991,620.30 + 300.00 p 779,972.07

X

12 p 9.359.665.00 26 The depreciation of P1,836,834.00 was not claimed as deductible expense in petitioner's income tax return for the year 1999, but was included in the non-deductible reconciling item of P22,316,013.00, captioned as "Excess of book over tax depreciation" (Exhibit "MM-4 "). The same holds true as regards the full year's depreciation of P9,359,665.00, as clearly shown in the Lapsing Schedule of the Capitalized Provision for Unrefundable Input VAT (Exhibit "TT"), prepared by petitioner based on its declarations in the financial statements (Exhibits "MM-7", "UU-4", "VV-4", "WW-4", "XX-4") and income tax returns from 1999 to 2003 (Exhibits "MM-4", "UU-7", "VV-7", "WW-7" & "XX-5"). The schedule reveals the consistent practice of petitioner in treating the depreciation on the capitalized input VAT as a non-deductible expense for tax purposes.

Evidently, respondent's allegation that petitioner's

(}JJ1

~~v

27 capitalized input VAT was claimed as deduction m the form of depreciation expense is without factual and legal bases. In sum, the Court, therefore, finds that petitioner is entitled to a refund or issuance of a tax credit certificate in the reduced amount of P222,992,655.25, representing unutilized input VAT on capital goods purchased for the four quarters of 1999.

WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED. Respondent is hereby

ORDERED

REFUND

or to

ISSUE

A

TAX CREDIT

CERTIFICATE in favor of petitioner in the reduced amount of TWO

HUNDRED TWENTY TWO MILLION NINE HUNDRED NINETY

TWO THOUSAND SIX HUNDRED FIFTY FIVE & 25/100 PESOS (P222,992,655.25), representing unutilized input VAT on capital goods purchased for the four quarters of 1999.

SO ORDERED.

~-~~EZ

Associate Justice

WE CONCUR:

~'i f.~tiil:m.

Associate Justice

E~.UY

Ass

Justice

/ '

ATTESTATION

28 I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

~Q.~~~ JUANITO c. CASTANEDX,CiR.

Associate Justice

Chairperson, Second Division

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.

L-VI· 0-A---

ERNESTO D. ACOSTA