Mirant Sual Corporation vs. Commissioner of Internal Revenue

Amended Decision

petitioner allegedly failed to show that its purchases of goods and services were made in the course of its trade or business and that said purchases were properly supported by Value-added Tax (VAT) invoices, official receipts, and other pertinent documents. On September 25, 2007, petitioner likewise filed a "Motion for Partial Reconsideration" of the subject Decision based on the following grounds: "I.

The Honorable Court erred in ruling that the petitioner failed to substantiate its claim for input VAT in the amount of P6,824,402.12.

II.

The Honorable Court erred in ruling that the output VAT of P17,793,418.43 shall be deducted from the substantiated input VAT of P114,501,461.30. III.

The Honorable Court erred in ruling that petitioner's sale of electricity to Mirant (Philippines) Energy Corporation (MPEC) is not effectively VAT zero-rated, thus, the input VAT corresponding to or allocable to sales to MPEC should be disallowed."

Both respondent and petitioner filed an "Opposition" to each other's "Motion for Partial Reconsideration" on October 1 and 23, 2007, respectively. During the hearing on October 5, 2007, respondent's counsel submitted her motion without further oral arguments and the Court submitted for resolution petitioner's and respondent's "Motion for

Partial

Reconsideration".

Regarding respondent's "Motion for Partial Reconsideration", this Court finds the same unmeritorious inasmuch as the arguments raised are mere reiterations and in fact had been comprehensively discussed and resolved in the assailed Decision.

On the other hand, after a thorough review an~ examination of the pieces of evidence submitted by petitioner and the applicable laws and jurisprudence, the Court partially grants petitioner's claim. In its first argument, petitioner submits that out of the allegedly unsupported input VAT of P18,333,332.17, it is entitled to the amount of P6,824,402.12.

A review of the Independent Certified Public Accountant's Report shows his observations and the breakdown of the amount of P6,824,402.12, as follows:

Reference

Amount

Input taxes on purchases of goods Invoices issued in the former name of

Annex 6

p 169,726.88 the company Input taxes on purchases of services ORs issued in the former name of the company

Annex 7

3,589.24 ln(lut taxes claimed on importations Supported by bank or BOC Ors issued in the former name of the

Annex 18

21 ,292.00 company Supported by informal lEOs certified

Annex 16

43,967.00 by the BOC and bank or BOC ORs Supported by lEOs certified by BOC

Annex 25

17,566.00 only Supported by lEOs certified by BOC, photocopied BOC ORs and original

Annex 26

6,568,261 .00 bank debit advices

TOTAL

p 6,824,402.12 The Court noticed that petitioner's claimed amount of 6,824,402.12 did not pass the substantiation requirement, except the amount of P39,987.00. The invoices issued for the amount mentioned in Annexes 6, 7, and 18 were issued in petitioner's former name. And records indicate that the name of petitioner was changed to Mirant Sual Corporation effective April 26, 2001. Thus, the aforesaid invoices should have been issued in petitioner's present name.~

The Court also cannot allow the amount stated in Annex 25. While they are supported by Import Entry Declarations (IEDs) certified by the Bureau of Customs (BOC), no machine validation was found to exist. Hence, there is no way of finding out whether petitioner actually made payments. Similarly, Annex 26 is supported by invalidated !ED's certified by BOC, thus it cannot be considered. Even the photocopied BOC official receipts (ORs) and original bank debit advices cannot be considered, for there is no way of determining their veracity. Nevertheless, the amount stated in Annex 16 should be allowed in part. From the input tax of P43,967.00, only the amount of P39,987.00 was found to be supported by proper BOC official receipts, broken down as follows:

Exh.

OR Date

Payee

BOC OR Number

Input Tax

00-170 1/14/2002

Bureau of Customs

92417437 p 1,757.00 00-174 2/6/2002

Bureau of Customs

92708603 2,818.00 00-301 2/13/2002

Bureau of Customs

93027697 1,072.00 00-313 2/21/2002

Bureau of Customs

93131997 1,382.00 00-317 2/21/2002

Bureau of Customs

93132006 2,469.00

EE-249

5/7/2002

Bureau of Customs

95011436 5,164.00

FF-217

6/4/2002

Bureau of Customs

95686613 1,018.00

EE-48

6/14/2002

Bureau of Customs

93701623 2,382.00

FF-239A

6/27/2002

Bureau of Customs

96144063 3,149.00

FF-536

7/11/2002

Bureau of Customs

96520182 1,120.00

FF-607

8/7/2002

Bureau of Customs

97335341 2,789.00

GG-327

9/2/2002

Bureau of Customs

97789964 1,514.00

GG-486

9/8/2002

Bureau of Customs

97857365 2,400.00

GG-403

9/12/2002

Bureau of Customs

98091883 3,440.00

GG-427

10/10/2002

Bureau of Customs

98737667 2,918.00

GG-447

10/16/2002

Bureau of Customs

98644786 1,522.00

GG-431

10/24/2002

Bureau of Customs

99088796 1,339.00

GG-490

10/24/2002

Bureau of Customs

99088814 1,734.00

Total

E!

3~Ml8Z.OO ~

Bureau of Customs OR No. 92802193 in the amount of P3,980.001 was disallowed because it was issued in the former name of petitioner. Anent the second issue, petitioner claims that the output VAT in the amount of P17,793,418.43 should not have been deducted from the substantiated input VAT of P114,501,461.30. The aforesaid output VAT had already been set off with the existing input VAT for the First Quarter of 2002 as testified to by Ms. Maria Corazon Juliana Brillantes. In addition to this, the Amended First Quarterly VAT Return shows that an unutilized input VAT in the amount of P346,034,254.80 has been accumulated from the previous quarter from which this amount of output VAT can be applied based on the principle of "first in, first out". Contrary to petitioner's allegation, records prove that the output VAT of P17,793,418.43 was not deducted from the amount of the whole claimed amount of P132,847,793.47. Accordingly, the output VAT of P17,793,418.43 should be deducted from the substantiated input VAT of P114,501,461.30. As regards the amount of P346,034,254.80 allegedly carried-over from the previous quarter against which the amount of output VAT can be applied based on the principle of "first in, first out", the same cannot be done under the present circumstances. The amount of P346,034,254.80 allegedly carried- over from the previous quarter was not substantiated, which means that the output VAT will be charged against the substantitated input VAT. Regarding the issue on the sale of electricity to MPEC, the Court agrees that it is zero-rated pursuant to Paragraph 5, Section 6 of Republic Act No. ~

9136, also known as the Electric Power Industry Reform Act (EPIRA) of 2001, which provides:

"SEC. 6.

Generation Sector ...

XXX

XXX

XXX

Pursuant to the objective of lowering electricity rates to end-users, sales of generated power by generation companies shall be value added tax zero-rated." The Court affirmed the foregoing in Mindanao 1 Geothermal Partnership vs. Commissioner of Internal Revenue2, thus: " ... it is undisputed that Republic Act No. 9136 otherwise known as the 'Electric Power Industry Reform Act of 2001' provided for VAT zero-rating of sales of generated power by generation companies beginning June 26, 2001. Thus, the pertinent provisions of the National Internal Revenue Code of 1997 are deemed amended by the provisions of RA No. 9136 by modifying the VAT rate applicable to sales of generated power by generation companies from ten (10%) percent to zero (0%) percent.

To qualify for VAT zero-rating under R.A. No. 9136, petitioner must prove that: 1) it is a generation company and 2) it derived sales from power generation." It is a stipulated fact that petitioner is engaged in the business of power generation and the subsequent sale thereof to the National Power Corporation (NPC) under a Build, Operate, and Transfer (BOT) scheme.3 Thus, petitioner's declared zero-rated sales of P 13,385,579,184.65 was fully substantiated.

All valid input VAT were attributable to the substantiated zero-rated sales. To recapitulate, petitioner's valid creditable input tax is P96,747,998.87, computed as follows:;:a

Claimed Input VAT

Less: Disallowances (See Annex A)

Net Creditable Input VAT

Less: Output VAT

Refundable Excess Input VAT

P132,834,793.47 18.293.376.17 P114,541 ,417.30 17,793,418.43 p 96.747.998.87 In the light of the foregoing considerations, the Court finds legal basis to render this Amended Decision pursuant to Section 3, Rule 14 of the Revised Rules of Court of Tax Appeals partially granting petitioner's "Motion for Partial Reconsideration" of the questioned Decision dated August 29, 2007.

WHEREFORE, respondent's "Motion for Partial Reconsideration" is hereby DENIED for lack of merit and petitioner's "Motion for Partial Reconsideration" is hereby PARTIALLY GRANTED. The Court's Decision promulgated on August 29, 2007 in the instant case is hereby MODIFIED. Accordingly, respondent is hereby ORDERED to REFUND or in the alternative, to ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the increased amount of P96,747,998.87 representing unutilized input VAT paid on its domestic purchases of goods and services attributable to effectively zero-rated sale of services for the four quarters of 2002.

J2

CAESAR A. CASANOVA

Associate Justice

WE CONCUR:

~\p. Q_;- ERNE TO D. ACOSTA

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, 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's Division.

L~- CL-A_

ERNESTO D. ACOSTA

Presiding Justice

Chairman, First Division

SUMMARY OF INPUT VAT DISALLOWANCES

Reference

Input taxes on purchases of goods Erroneously computed Annex 2-1 , Exhibit V Supported by VAT invoices without BIR Annex 2-2, Exhibit V permit number Supported by photocopied VAT invoices Annex 2-3, Exhibit V Supported by documents other than Annex 2-4, Exhibit V VAT invoices Supported by VAT invoices with pre- Annex 2-5, Exhibit V printed TIN only Supported by non-VAT invoices Annex 2-6, Exhibit V Supported by invoices not in the name Annex 2-7, Exhibit V of the company Supported by single invoices erroneously presented twice in the Annex 2-8, Exhibit V summary Input taxes on purchases of services Erroneously computed Annex 3-1, Exhibit V Supported by VAT ORs without BIR Annex 3-2, Exhibit V permit number Supported by documents other than Annex 3-3, Exhibit V

VATORs

Supported by photocopied VAT ORs Annex 3-4, Exhibit V Supported by ORs with pre-printed TIN Annex 3-5, Exhibit V only Supported by non-VAT ORs Annex 3-6, Exhibit V Supported by Ors issued not in the Annex 3-7, Exhibit V name of the company Supported by single ORs erroneously Annex 3-8, Exhibit V presented twice in the summarY' Input taxes on local purchases ofg_oods and services Without suJJporting documents Annex 4, Exhibit V Input taxes claimed on importations Erroneously computed Annex 5-1, Exhibit V Without supporting documents Annex 5-2, Exhibit V

SUBTOTAL

Input taxes on purchases of goods Invoices issued in the former name of Annex 6, Exhibit V the company Supported by undated VAT invoices Annex 8, Exhibit V Invoices dated outside the period of Annex 10, Exhibit V claim Supported by VAT invoices with Annex 28, Exhibit V preprinted "TIN-V" Input taxes on purchases of services ORs issued in the former name of the company Annex 7, Exhibit V

ANNEXA

Page 1 of2

Amount

p 31 .00 320,782.74 18,338.29 32,313.21 143,026.64 10,101 .65 16,030.54 5,190.92 68,013.75 26,946.38 863,520.12 2,155.00 280,485.82 105,800.77 15,807.78 2,318.18 751 ,976.37 165,994.55 142,745.00 p 2,971 ,578. 71 p 169,726.88 136,031.51 3,450,664.98 89,720.10 3,589.24 •

Supported by undated VAT ORs Invoices dated outside the period of claim Supported by VAT ORs with preprinted

"TIN-V"

Input taxes claimed on importations Supported by photocopied lEOs and bank or BOC ORs dated outside the period of claim Supported by original bank or BOC ORs only that are dated outside the period of claim Supported by informal lED certified by the BOC dated outside the period of claim Supported by informal lEOs certified by the BOC and bank or BOC ORs Supported by photocopied I EDs dated outside the period of claim and bank or BOC ORs issued in the former name of the company Supported by bank or BOC ORs issued in the former name of the company Supported by BOC OR issued in the former name of the company & dated outside the period of claim Supported by informal lED certified by the BOC dated outside the period of claim and bank or BOC Ors issued in the former name of the company Supported by a photocopied bank OR only Supported by undated lED and bank OR Supported by undated lED and original bank or BOC Ors Supported by lED certified by the BOC and photocopied bank OR dated outside the period of claim Supported by lEOs certified by BOC only Supported by lEOs certified by BOC, photocopied BOC ORs and original bank debit advices Different VAT amounts reflected on the lEOs

SUBTOTAL

TOTAL

Annex 9, Exhibit V Annex 11 , Exhibit V Annex 29, Exhibit V Annex 12, Exhibit V Annex 13, Exhibit V Annex 15, Exhibit V Annex 16, Exhibit DD-193 Annex 17, Exhibit V Annex 18, Exhibit V Annex 19, Exhibit V Annex 20, Exhibit V Annex 21 , Exhibit V Annex 22, Exhibit V Annex 23, Exhibit V Annex 24, Exhibit V Annex 25, Exhibit V Annex 26, Exhibit V Annex 27, Exhibit V p p

ANNEXA

Page 2 of2

22,817.55 1,160,993.39 202,996.93 2,144,317.00 658,315.66 2,173.00 3,980.00 21 ,522.00 21 ,292.00 323.00 257,872.22 3,217.00 9,175.00 233,251 .00 99,643.00 17,566.00 6,568,261 .00 44,349.00 15,321,797.46 18,293,376.17