Panay Power Corporation vs. Commissioner of Internal Revenue

DECISION

2 amended, commences from the close of the taxable quarter when the relevant sales were made, regardless of whether said tax was paid or not.

THE CASE

Before the Court are two consolidated Petitions for Review filed by Panay Power Corporation (hereafter "petitioner") praying for the refund or issuance of a tax credit certificate for its unutilized input value-added

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taxes (hereafter "VAT"), to wit:

1) C.T.A. Case No. 7231 filed on April 22, 2005, the amount of P5,025,430.46, representing unutilized input VAT paid on its domestic purchases of goods and services, which are attributable to zero-rated s~les for the first quarter of taxable year 2003; and 2) C.T.A. Case No. 7296 filed on July 22, 2005, the amount of P3,739, 119.84, representing unutilized input VAT paid on its domestic purchases of goods and services, which are attributable to zero-rated sales for the second quarter of taxable year 2003.

THE PARTIES

Petitioner Panay Power Corporation ts a corporation duly organized and existing under Philippine laws, with principal office at 2nd ...... ------. ---~- 425 •

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3 Floor, Benpres Building, Meralco Aventle, Pasig City.. It is principally engaged in the business of generating power for lighting and power purposes and wholesale of electric power to the NPC, private electric utilities and electric cooperatives, and for the carrying on of all businesses incident thereto, including but not limited to the sale of by-products of power generation. Petitioner is registered with and authorized by the Energy Regulatory Commission ("ERC") to operate facilities used in the generation of electricity and is likewise registered with the Bureau of Internal Revenue ("BIR"), as a value-added tax ("VAT") taxpayer, with Tax Identification Number ("TIN") 004-964-861-000. Respondent, on the other hand, 1s the duly appointed Commissioner of Internal Revenue empowered to perform the duties of said office including, among others, the power to decide, approve and grant refunds or tax credit of erroneously or excessively paid taxes. He holds office at the BIR National Office Building, BIR Road, Diliman, Quezon City.

THE FACTS

The facts of the case, as jointly stipulated by the parties, are as follows:

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4 On April 23, 2003, petitionei· filed its quarterly VAT return for the first quarter of taxable year 2003, which reflected an excess or ~mutilized input VAT credits ofP5,025,430.46.

On July 25, 2003, petitioner filed its quarterly VAT return for the second quarter of taxable year 2003, which reflected an excess or unutilized input VAT credits ofP3,739,119.84. The amounts of P5,025,430.46 and P3,739,119.84 for the first and second quarters of 2003, respectively, represent accumulated input VAT on · petitioner's domestic purchases of taxable goods and services and importation of goods, which purchases and importation are all attributable to its zero-rated sale of power generation services. These input taxes remain unutilized.

On December 22, 2004, petitioner filed an administrative claim for refund of unutilized excess input VAT in the total amount of Pl8,002,410.37 for the four (4) quarters of CY 2003 with the BIR Revenue District Office No. 043.

Since respondent has not acted on petitioner's administrative claim for refund, petitioner elevated its claim before this Cowi by way of two separate Petitions for Review, docketed as C.T.A. Case Nos. 7231 and 7296.

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5 In his Answer, respondent alleged by way of special and affirmative defenses:

"6.

The claim for refund is still under examination by the respondent's Bureau;

7.

8.

The burd~n of proof is upon the petitioner to prove that it is entitled to the claim for refund; The grant of a claim for refund [is] tantamount to an exemption from taxation which is construed strictly against the claimant and in favor of the taxing authority;

9.

The taxes sought to be refunded were paid in accordance with law; the burden of proof to the contrary is upon the petitioner-claimant to show with clear and -pnambiguous· provision of law supporting the same."

C. TA. Case No. 7296 In his Answer, respondent alleged the following: "2.

He SPECIFICALLY DENIES the allegations in 3.

paragraphs 1, 3, 4, 5, 10, 11 and 12 of the petition for lack of knowledge or information sufficient to form a belief as to the truth thereof;

He SPECIFICALLY DENIES the allegations in paragraphs 6, 7, 8, 9, 13 and 14 of the petition for being, as a whole, mere opinions, gratuitous assertions and erroneous conclusions or interpretations of fact and/or the law, the truth of the matter being those stated heretmder;

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4.

Petitioner's alleged claim for refund is subject to administrative routinary investigation/examination by the Bureau of Internal Revenue;

5.

The amount of P3,739, 119.84 being claimed by petitioner as alleged unutilized input VAT on domestic purchases of goods and services for the second quarter of 2003 is not properly documented;

6.

Iri an action for refund/credit, the burden of proof is on the taxpayer to establish its right to refund, and failure to sustain the burden is fatal to the claim for refund/credit;

7.

Petitioner must show that it has complied with the provisions of Sections 204 (C) and 229 of the 1997 Tax Code on the prescriptive period for claiming tax refund/credit;

8.

Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95) and as such, they are looked upon with disfavor

(Western

Minolco

Corpor·ation vs.

Commissioner

of Interna l Revenue, 124 SCRA 1211)."

6 On October 5, 2005, petitioner filed a Motion for Consolidation, praying for the consolidation of C.T.A. Case No. 7296 with C.T.A. Case · No. 7231, the case bearing the lower docket number, which the Court granted in a Resolution elated December 7, 2005. Petitioner presented Cherry Liez Rafal, Emmanuel Mendoza, Reymonda Aida Obrero and Ceara Cecilio, as witnesses, and ~ -~ r' () ~:.:.~

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' 7 documentary evidence, marked as Exhibits "A" to "LLL ", inclusive of their submarkings, which were all admitted by the Court. On December 8, 2008, counsel for respondent manifested that he has no witness to present, and he is submitting the case for decision based on the pleadings.

Both parties were ordered to file their simultaneous memoranda, within thirty (30) days from December 8, 2008, afterwhich, the case shall be deemed submitted for decision.

Petitioner having filed its l\!Iemorandum on January 7, 2009, without respondent's Memorandum, the case was deemed submitted for decision on June 22, 2009.

Hence, this decision.

ISSUES

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

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WHETHER

OR

NOT

PETITIONER'S

POWER

GENERATION SERVICES FOR THE QUARTERS OF CY

2003 ARE SUBJECT TO ZERO PERCENT (0%) VAT

PURSUANT TO THE EPIRA AND ITS IMPLEMENTING

RULES AND REGULATIONS.

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II

WHETHER OR NOT PETITIONER HAS UNUTILIZJ:;:D

INPUT

VAT

FOR

THE

FIRST

AND

SECOND

QUARTERS OF CY 2003 IN THE TOTAL AMOUNT OF P8,764,550.30

ARISING

FROM

ITS · DOMESTIC

PURCHASES OF TAXABLE GOODS AND SERVICES

AND IMPORTATION OF GOODS.

III

WHETHER OR NOT THE UNUTILIZED INPUT VAT

ARE ATTRIBUTABLE TO ITS ZERO-RATED SALES OF

POWER GENERATION SERVICES.

IV

WHETHER OR NOT TI-ffi UNUTILIZED CREDITABLE

INPUT TAXES

FOR THE FIRST AND SECOND

QUARTERS

OF

CY

2003

ARE

PROPERLY

SUBSTANTIATED BY INVOICES AND OFFICIAL

RECEIPTS.

: · v

WI-IETHER OR NOT THE UNUTILIZED INPUT VAT

PAYMENTS

FOR

THE

FIRST

AND

SECOND

QUARTERS OF CY 2003 WERE CARRIED OVER TO

AND UTILIZED IN THE SUCCEEDING TAXABLE

QUARTER(S) OR APPLIED AGAINST ANY OF THE

OUTPUT VAT LIABILITY OF THE PETITIONER.

VI

WI-IETI-fER OR NOT PETITIONER IS ENTITLED TO A

REFUND

AND/OR ISSUANCE

OF

TAX

CREDIT

CERTIFICATE FOR THE UNUTILIZED INPUT VAT

PAYMENTS IN THE AMOUNT OF P8,764,550.30.

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Principal Issue

9 The foregoing Issues raised by both pa1iies boil down to the principal issue of whether or not petitioner is entitled to refund or issuance of a TCC in the amount P8,764,550.30, representing unutilized input VAT incurred from its domestic purchases of taxable goods and services attributable to its zero-rated sales of electricity for the first and second quarters of calendar year 2003.

THE COURT'S RULING

We deny the petition.

Being a holder of a Certificate of Compliance issued by the Energy Regulatory Commission, as a Generation Company (Exhibit "B ") , petitioner cited as basis of its claim for refund R.A. No. 9136, otherwise known as the "Electric Power Industry Reform Act of 2001 " ("EPIRA Law"), particularly Sections 4(x) and 6 thereof, which provide: "SEC. 4. Definition ofTerms:

(x) 'Generation Company' refers to any person or entity authorized by the ERC to operate facilities used in the generation of electricity."

"SEC. 6. Generation Sector. -

Generation of

electric power, a business affected with public interest, shall be competitive and open.

Upon the effectivity of this Act, any new generation company shall, before it operates, secure from the Energy • • • •

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Regulatory Commission (ERC) a certificate of compliance pursuant to the standards set forth in this Act, as well as health, safety and environmental clearances from . the appropriate government agencies under existing laws. Any law to the contrary notwithstanding, power generation shall not be considered a public utility operation. For this purpose, any person or entity engaged or wl~ich shall engage in power generation and supply of electr~city shall not be required to secure a national franchise.

Upon implementation of retail competition and open access, the prices charged by a generation company for supply of electricity shall not be subject to regulation by the ERC except as otherwise provided in this Act. 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 ERC shall, in determining the existence of market power abuse or anti-competitive behavior, require from generation companies the submission of their financial statements."

10 However, in order for petitioner to be entitled to a refund or tssuance of a TCC of its unutilized input VAT, it must satisfy the requirements prescribed by Section 112(A) of the NIRC of 1997, as amended, to wit:

"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) yea rs after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund (}f)

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l 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 t~x;

Provided, however, That in the case of zero-rated sales under Section 1 06(A)(2)(a)(l ), (2) and (B) and Section 1 08(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." (Emphasis supplied) 11 Pursuant to the above provision, to be entitled to a refund or issuance of a TCC, petitioner must prove compliance with the following requisites:

1) that there must be zero-rated or effectively zero-rated sales;

2) that the input taxes were incurred or paid; 3) that such input taxes are directly attributable to zero- rated or effectively zero-rated sales; 4) that the input taxes were not applied against any output VAT liability; and 5) that the claim for refund was filed within the two-year prescriptive .period.

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C.T.A. CASE NOS. 723l & 7296

DECISION

Prescription

12 We deem it necessary to first resolve the issue on the tin:eliness of the filing of the instant claim.

Under Section 112(A) ofthe NIRC of 1997, as amended, a VAT registered taxpayer whose sale is zero-rated or ·effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for refund or issuanc~ of a TCC of its creditable input tax due or paid attributable to such sales.

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In the recent case of Comn1issioner of Internal Revenue vs. Mirant Pagbilao Corporation (Formerly Southern Energy Quezon, Inc.), G.R. No. 17212 9, September 12, 2008 (hereafter i·eferred to as the "Mirant Case"), the Supreme Court settled the . issue on the reckoning of the prescriptive period and the applicable provisions on claims for refund of input VAT attributable to zero-tated or effectively zero-rated sales, as follows:

"The claim for refund or tax credit for the creditable input VAT payment made by MPC embodied in OR No. 0189 was filed beyond the period provided by law for such claim. Sec. 112(A) of the NIRC pertinently reads:

(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 th e taxable quarter when the sales were made,

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' . C.T.A. CASE NOS. 7231 & 7296

DECISION

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: x x x. (Emphasis ours.)

The above proviso clearly provides in no unce1iain terms that unutilized input VAT payments not otherwise used for any internal revenue tax due the taxpayer must be claimed within two years reckoned fr·om the close of the taxable qua..ter when the relevant sales were made pedaining to the input VAT rega rdless of whether said tax was paid or not. As the CA aptly puts it, albeit it erroneously applied the aforequoted Sec.

112(A), '[PJrescriptive period commences from the close of the taxable quarter when the sales were made and not from the '·time the input VAT was paid nor from the time the official receipt was issued.' Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the pertinent transaction, said taxpayer only has a year to file a claim for refund or tax credit of the unutilized creditable input VAT. The reckoning frame would always be the end of the quarter when the pertinent sales or transaction was made, regardless when the input VAT was paid. Be that as it may, and given that the last creditable input VAT due for the period covering the progress billing of September 6, 1996 is the third quarter of 1996 ending on September 30, 1996, any claim for unutilized creditable input VAT refund or tax credit for said quarter prescribed two years after September 30, 1996 or, to be precise, on September 30, 1998. Consequently, MPC's claim for refund or tax credit filed

on December

10, 1999 had already prescribed."

13 From the foregoing, it is clear that the two-year prescriptive·. period provided in Section 112(A) of the NIRC of 1997, as amended, should be reckoned not from the payment of the tax, but from the close of the

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14 taxable quarter when the sales were made. Applying the aforesaid ruling of the Supreme Court and the provision of Section 112 (A) of the NIRC of 1997, as amended, the following are the pertinent dates to petitioner's claim for refund:

Period (2003)

Close of Taxable Quarter Last D~ for Filin_g_ theClaim 1st Quarter March 31, 2003 March 31 , 2005 2

110 Quarter

June 30, 2003 June 30, 2005 Records show that petitioner filed its administrative claim for refund or issuance of a TCC for the four (4) quarters of 2003 on December 22, 2004, which is well within the prescriptive period. As to its judicial claim, records show that in C.T.A. Case No. 7231 for the first quarter of 2003, petitioner filed the Petition for Review on April 22, 2005, and in C.T.A. Case No. 7296 for the second quarter of 2003, petitioner t!led the Petition for Review on July 22, 2005. Evidently, petitioner's judicial claim for refund/issuance of a TCC for its unutilized input VAT for the first and second quarters of calendar year 2003 was filed beyond the prescriptive period. Petitioner, therefore, is · barred from claiming refund or issuance of a TCC of its input VAT for the first and second quarters of 2003 in the aggregate amount of P8,764,550.30 due to prescription.

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15 In view of the foregoing discussion, the Court finds it no longer necessary to discuss petitioner's compliance with the other requisites for i refund of input taxes on its domestic purchases of taxable goods and services attributable to its zero-rated sales.

WHEREFORE, prem1ses considered, the above-captioned Petitions For Review are hereby DENIED DUE COURSE, and accordingly, DISMISSED.

OLGA/PALANCA~ENRIQUEZ

Associate Justice

WE CONCUR:

Ou~·t;-Q . ~ Q.

JtfANITO C. CASTANEDA¥JR.

(On Leave)

ERLINDA P. UY

Associate Justice

Associate Justice

ATTESTATION

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.

54.~J;: e . ~ '1-.

JtJANITO c. CASTANEDR,JR.

Associate Justice

Chairperson

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CERTIFICATION

16 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 opiriion of the Court. ~~\Q - c~ ERNESTO D. ACOSTA

Presiding Justice

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