Mirant Sual Corporation vs. Commissioner of Internal Revenue

DECISION

ACOSTA, PJ:

The Case

Before Us is a consolidated Petition for Review seeking the refund or issuance of a tax credit certificate in the aggregate amount of P 166,158,823.50 allegedly representing unutilized input value-added tax (VAT) paid on domestic purchases of goods and services, and importation of goods attributable to zero-rated sales for the four quarters of taxable year 2003.

C.T.A. Case Nos. 7230 & 7299

The Facts

Petitioner is a domestic corporation organized and existing under and by virtue of Philippine laws, with principal office at Barangay Pangascasan, Sual, Pangasinan. It is principally engaged in the business of power generation and the subsequent sale thereof to the National Power Corporation (NPC) under a Build Operate Transfer (BOT) Scheme. It is registered as a VAT taxpayer in accordance with Section 107 of the Tax Code [now Section 236 of the National Internal Revenue Code], with BIR Cet1ificate of Registration bearing RDO Co.ntrol No. 05-0181 and Taxpayer Identification No. 003-841-103. It was originally registered with the Securities and Exchange Commission ("SEC") under the name "Pangasinan Electric Corporation" which was subsequently changed to "Southern Energy Pangasinan, Inc." on August 17, 1999. On June 28, 2001, its name was again changed from "Southem Energy Pangasinan Inc." to "Mirant Sual Corporation.' Respondent is the duly appointed Commissioner of Internal Revenue empowered to perform the duties of his office, including, among others, the duty to act on and approve claims for refund or issuance of tax credit certificate of overpaid internal revenue taxes as provided by law, with office address at the BIR National Office Building, Agham Road, Quezon City, where he may be served with summons and other court processes.2 On November 13, 2002, petitioner filed with the BIR Revenue District Office No. 5 at Alaminos, Pangasinan, an Application for Effective Zero-Rate of its supply of electricity to NPC, which was subsequently approved.3 Petitioner filed its quarterly VAT returns for first, second, third and fourth quarters of taxable year 2003 on April 24, 2003, July 25, 2003, October 27, 2003 and January 26, 2004, respectively, declaring among others the following: 4 1 Par. I, 3, 4 and 5, Stipulation of Facts, Joint Stipulation of Facts and Issues. 2 Par. 2, Stipulation of Facts, Joint Stipulation of Facts and Issues. 3 Par. 6, Stipulation of Facts, Joint Stipulation of Facts and Issues; and Exhibit A. 4 Exhibits "C". "E", "G", and "H".

DECISION

C.T.A. Case Nos. 7230 & 7299

Page 3 of'9

Taxable sales

Zero Rated Sales

Total Sales

Output Tax

Less: Input Tax

Input Tax Carried Over

Input Tax on:

Domestic Purchases-Capital Goods

Goods other than Capital Goods

Domestic Purchases-Services

Services rendered by Non-Resident

Importations-Capital Goods

Importations-other than Capital Goods

Total Available Input Tax

Deduction: VAT Refund

Net Creditable Input Tax

Tax Overpayment

1st Quarter 2nd Quarter 6,488.86 31 ,55 1,939.57 3 596 438 393.77 3 465 050 084.39 3 596 444 882 63

W-6 602 023 96

648.89 _11_55.193.96 296,371 ,388.03 379,051 ,038.85

I

991,877.66 230,88 1.17 5.575,693.02 6, I 06,804.23 47,424,330.03 6,826,88 1. II 2,240,609.43 2,155,495.32 94,818 00 174,170.00 II 199 697.61 12 730 245.00 363,898,413.78 407,275,5 15 68 176 602 366.25 363 898 413.78 230 673 149.43

363 82Z ZM 82

22Z 51Z 255 4Z

(Underlines supplied) 3rd Quarter 4th Quarter 324,678.18 19,332.30 3 601 959 563.07 3 614 577 820.66 3 602 284 24 1 25 3 614 597 152 96 32 467.82 I 933.23 237,399,953.93 258,658,515.95 155,740.92 186,660.22 5,743,795.37 5,426,308.15 6,192,825.27 27,508,664.15 2,749,133.28 735,256.51 I, 148,164.00 5 301 371.00 8,628 585.00 258,690,983.77 301 ,143,989.98 258,690 983.77 30 I 143 989.98 258 658 s 1 s 25 3Q1 1~ 2 Q56 zs Petitioner filed its amended quarterly VAT returns for the first, second and fourth quarters ofthe year 2003 on July 25,2003, August 19, 2003 and July 26,2004, respectively, declaring among others the following: 5

1' 1 Quarter

2nd Quarter 4th Quarter Taxable sales 6,488.86 3 1,551,939.57 19,332.30

Zero Rated Sales

3,596,438 393.77 3,465,050,084.39 3,6 14,577,820.66

Total Sales

3 596 444 882 63 3 496 602 023 96 3 6 14 597 152 96

Output Tax

648 8~ 3,155, 193.96 I 933.23

Less: Input Tax

Input Tax Carried Over

31 1,524,661.99 379,051 ,038.85 258,658,515.95

Input Tax on:

Domestic Purchases-Capital Goods

99 1,877.66 230,88 1.17 186,660.22 Goods other than Capital Goods 5,575,693 .02 6,106,804 .23 9,994,299.22

Domestic Purchases-Services

47,424,330.03 6,826,88 1.11 29,049,761.1 3 Services rendered by Non-Resident 2,240,609.43 2,155,495.32 735,256.5 I

Importations-Capital Goods

94,818.00 I 74, 170.00 Importations-other than Capital Goods II 199 697.6 1 I 2,730,245.00 9 150314.00

Total Available Input Tax

379,05 1,687.74 407,275,515.68 307,774,807.03

Deduction: VAT Refund

166,720,367.79

Net Creditable Input Tax

379 05 1 687.74 240 555,147.89 307,774,807.03

Tax Overpayment

372 Q5! Q38 85 23Z 322,.253 23 3Q:Z :z:zz 8:Z3 8Q (Underlines supplied)

C.T.A. Case Nos. 7230 & 7299

Pursuant to the procedure prescribed in Revenue Regulations No. 7-95, as amended, petitioner filed an administrative claim for refund of its tmutilized input VAT with the Bureau of Internal Revenue on December 20, 2004 in the total amount ofP166,158,823.50 for the four quarters ofCY 2003. 6 Petitioner filed a Petition for Review (docketed as CT A Case No. 7230) with this Court on April 22, 2005 claiming for refund or issuance of tax credit certificate in the amount of P67,527,025.75 representing its alleged unutilized input VAT paid on domestic purchases of goods and services and impmiation of goods attributable to zero-rated sales for the first quarter of 2003. In response thereto, respondent filed an Answer on June 21,2005 praying for the dismissal of the petition for lack of merit. On July 22, 2005, petitioner filed another Petition for Review (docketed as CTA Case No. 7299) before this Court, praying for a refund or issuance of tax credit certificate in the total amount of P98,631 ,797.75, representing the alleged unutilized input VAT paid on domestic purchases of goods and services and importation of goods attributable to zero-rated sales for the second, third, and fourth quarters of 2003.

I

On September 6, 2005, respondent filed her Answer to the said Petition praying that the same be dismissed for lack of merit.

On August 24, 2005, relying on Rule 31 , Section 1 of the Revised Rules of Court, petitioner filed a Mo~ion for Consolidation of CTA Case Nos. 7230 and 7299, due to the fact that both cases involve the same parties and issues. This Court granted petitioner's Motion and ordered the consolidation of the said cases in a Resolution dated October 12, 2005.

After trial, this consolidated case was submitted for decision on November 13, 2008 taking into consideration petitioner's Memorandum filed on November 10, 2008 and respondent's Memorandum filed on November 5, 2008.

C.T.A. Case Nos. 7230 & 7299 to wit:

The Issues

The parties jointly stipulated the following issues7 to be resolved by this Court, I.

Whether or not the power generation services rendered by Petitioner to NPC are subject to zero percent (0%) VAT pursuant to Section l 08(8)(3) of the National Internal Revenue Code of 1997 ("Tax Code");

2.

Whether or not Petitioner had unutilized creditable input VAT for the four quarters of CY 2003 arising from its domestic purchases of goods and services and importation of goods amounting to Pl66,158,823.50 that can be a proper object of a claim for refund pursuant to Seotion I 08(8)(3) and Section 112(A) of the Tax Code;

3.

Whether or not the unutilized creditable input taxes for the first, second, third, and fourth quarters of CY 2003 are substantiated by proper invoices and official receipts;

4.

Whether or not the unutilized creditable input VAT for the four quarters of CY 2003 was carried over to the succeeding taxable quarter(s) and applied against any of the output VAT liability of the Petitioner; and, 5.

Whether or not Petitioner is entitled to a refund and/or issuance of tax credit certificate for the unutilized input VAT payments for the four quarters of CY 2003 in the amount ofP166,158,823.50.

6.

Whether or not the unutilized input taxes are all attributable to zero- rated sales.

The above issues boil down into a single point of whether or not petitioner is entitled to a refund or tax credit certificate in the amount ofP 166,158,823.50 allegedly representing excess input taxes attributable to zero-rated sales for the four quarters of taxable year 2003.

The Court's Ruling

Refunds or tax credits of input tax attributable to zero-rated sales is governed by Section 112 (A) of the National Internal Revenue Code (NIRC) which provides: "Section I 12. Refunds or tax credits of input tax. -

I

(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 7 Stipulation of Issues, Joint Stipulation of Facts and Issues.

C.T.A. Case Nos. 7230 & 7299 after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, 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)(1), (2) and (B) and Section 108(B)(l) and (2), the acceptable foreign currenc~ exchange proceeds thereof had been duly accounted for in accordance with the 1rules 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 attributable to any one of the transactions, it shall be allocated proportionately on the basis ofthe volume of sales."

Pursuant to the abov.e provision, in order to be entitled to the issuance of tax credit certificate/refund of unutilized input VAT, petitioner must prove compliance with the following requisites: 8 I. There must be zero-rated or effectively zero-rated sales;

2. That input taxes were incurred or paid;

3. That such input taxes are directly attributable to zero-rated sales or effectively zero-rated sales;

4. That the input taxes were not applied against any output VAT liability during and in the succeeding quarters; and

5. That the claim for refund was filed within the two-year prescriptive period. We will now determine petitioner's compliance with the above requirements. It is petitioner's stand that its sale of power generation services to NPC, Mirant Philippines Energy Corporation, Mirant Philippines Industrial Power Corporation, and Mirant Philippines Industrial Power II Corporation are subject to zero percent (0%) VAT.

The said stance of the petitioner is meritorious.

Section 6 of Republic Act No. 6136, otherwise known as the "Electric Power Industry Reform Act of 2001" (EPIRA) provides that sale of generated power by generation companies shall be subject to value added tax at zero percent rate. Rule 5, Section 6 of the Rules and Regulations to Implement EPIRA, which was promulgated

C.T.A. Case Nos. 7230 & 7299 by the Depatiment of Energy, provides that sale of generated power by generation company shall be zero-rated for the purpose of imposition of value-added tax, and that the imposition of zero percent (0%) VAT shall apply to the sale of generated power by a generation company through all stages of sale until it reaches the end-user. In an earlier case,9 this Court stressed that "the provisions of EPIRA, the regulations implementing the same, the interpretative rulings issued by the BIR and the CTA Decision on the case of Mindanao I Geothermal Partnership are unanimous in declaring that the sales of generated power by generation companies are VAT zero- rated."

From the foregoing quoted provisions of law and its implementing rules and regulations, and decision of this Court, the benefits of zero-rating are clearly granted. In fact, even the BIR itself had earlier approved petitioner's application for VAT zero rate covering the taxable year 2003.

10 However, to qualify for VAT zero-rating under RA 6136, petitioner must prove l that: 1) it is a generation company, and 2) it derived sales from power generation. 11 It is undisputed that petitioner is principally engaged in the business of power generation. 12 However, petitioner has failed to prove compliance with the second requirement in order to qual!fy for VAT zero-rating under RA 6136. While petitioner declared the total amount of P14,278,025,861.89 13 as zero-rated sales in its 2001 quarterly VAT returns, the same could not be taken plainly as it is because there is still a need to produce the suppmiing documents proving the existence of such zero- rated sales. Noteworthy, that the photocopies of supporting documents of such zero- rated sales offered by petitioner 14 were not admitted as evidence for failure of 9 Toledo Power Co., vs. Commissioner oflnternal Revenue, CTA Case Nos. 6805 & 6851, May 17,2007. 10 Par. 6, Stipulation of Facts, Joint Stipulation of Facts and Issues; and Exhibit "A". 11 Note 9 citing Mindanao l Geothermal Partnership vs. Commissioner of Internal Revenue, CTA Case No. 6788, October 13, 2005.

12 Par. 3. Stipulation of Facts Joint Stipulation of Facts and Issues. (.

13 Exhibits "C", "D", "E", "F", "G", " f-1", and "F'. /~

C.T.A. Case Nos. 7230 & 7299 petitioner's counsel/witness to identify the same during trial. 15 Moreover, the report of the Commissioned Independent CPA that the zero-rated sales are supported by zero rated VAT invoices and official receipts, has no probative value and is therefore, not binding to this Court in the absence of the supporting documents which became the basis of such a report.

Considering that there are no zero-rated sales to speak of during the four quarters of taxable year 2003, petitioner is, therefore, not entitled to a refund of input taxes allegedly attributable thereto since it is a basic requirement under Section 112(A) of the NIRC that there should exists a zero-rated sales in order to be entitled to refund of unutilized input taxes.

It is settled that tax refunds, like tax exemptions, are construed strictly against the taxpayer and that the claimant has the burden of proof to establish the factual basis of its claim for tax credit or refund. 16 Failure in this regard, petitioner's claim must fail.

WHEREFORE, the instant Petition for Review IS hereby DENIED for insufficiency of evidence.

L~- Ci-r-L-

ERNESTO D. ACOSTA

Presiding Justice

CAES~VA

Associate Justice

16 Silicon Philippines, Inc. vs. Comtnissioner of Internal Revenue, CTA EB Case No. 298, January 18, 2008 citing Citibank, N.A. vs. Court of Appeals and the Commissioner of lntemnl Revenue, 280 SCRA 459.

C.T.A. Case Nos. 7230 & 7299

CERTIFICATION

I h~eby cetiify that the above decision was reached after due consultation with the members of the Court of Tax Appeals, First Division in accordance with Section 13, Article VIII ofthe Constitution.

~~-~ ERNESTO D. ACOSTA

Presiding Justice