Toledo Power Company vs. Commissioner of Internal Revenue

AMENDED DECISION

This is an Amended Decision rendered only in CTA Case No. 7233 pursuant to the Decision¹ of the Special First Division of Supreme Court in the case of "Toledo Power Company vs. Commissioner of Internal Revenue", docketed as G.R. No. 199645, promulgated on August 10, 2015, to wit:

"WHEREFORE, premises considered, the Petition in G.R. No. 195175 is DENIED, while the Petition in G.R. No. 199645 is PARTLY GRANTED. Accordingly, the case in G.R. No. 199645 is hereby REMANDED to the Court of Tax Appeals insofar as the Petition in C.T.A. Case No. 7233, for the purpose of the computation of the refundable input VAT attributable to the zero-rated or effectively zero-rated sales of Toledo Power Corporation for the first quarter of 2003.

DISMISSED

for being prematurely filed.

Likewise, petitioner's claim for refund or issuance of tax credit certificate for its unutilized input VAT for the second quarter of taxable year 2003 filed on July 22, 2005 and docketed as CTA Case No. 7294 is hereby DISMISSED for having been filed beyond the period provided by law.

WHEREFORE, premises considered, the Petition in G.R. No. 195175 is DENIED, while the Petition in G.R. No. 199645 is PARTLY GRANTED. Accordingly, the case in G.R. No. 199645 is hereby REMANDED to the Court of Tax Appeals insofar as the Petition in C.T.A. Case No. 7233, for the purpose of the computation of the refundable input VAT attributable to the zero-rated or effectively zero-rated sales of Toledo Power Corporation for the first quarter of 2003.

WHEREFORE, premises considered, this court 1) GRANTS the prayer for clarification in the Motion for Partial Reconsideration and/or Clarification (of the Decision dated August 10, 2015) filed by the CIR in G.R. No. 195175;

2) GRANTS the Motion for Clarification (of the

Decision dated 10 August 2015) filed by the TPC in G.R. No. 195175; and

3) DENIES

both the

Motion

for

Partial

Reconsideration (Re: Decision dated August 10, 2015) filed by the CIR and the Motion for Partial Reconsideration (Re: Decision dated 10 August 2015) filed by the TPC in G.R. No. 199645.

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

2. that input taxes were incurred or paid;

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

4. that the input taxes were not applied against any output VAT liability; and .II'

5. that the claim for refund was filed within the two-year prescriptive period.

It is clear that effective June 26, 2001, the sale of generated power by generation companies shall be VAT zero-rated by virtue of Section 619 of the Electric Power Industry Reform Act of 2001 ("EPIRA Law"). In relation thereto, Section 4(x) of the EPIRA Law defines a Generation Company as any person or entity authorized by the Energy Regulatory Commission ("ERC") to operate facilities used in the generation of electricity.

Thus, to be entitled to a refund or credit of unutilized input VAT attributable to the sale of electricity under the EPIRA Law, a taxpayer must establish: (i) that it is a generation company and, (ii) that it derived sales from power generation.20 Further, for an entity to be considered a generation company, it should be authorized by the ERC to operate the generation facility. Specifically, both new and existing generation facilities are required to secure a Certificate of Compliance ("COC") from the ERC before it can operate the facilities used for generation of electricity, as provided under Rule 5, Section 4 (a) of the Implementing Rules and Regulations of RA No. 9136, to wit:

"SECTION 4.

Obligations of a Generation Company. - (a) A COC shall be secured from the ERC before commercial operation of a new Generation Facility. The COC shall stipulate all obligations of a Generation Company consistent with this Section and such other operating guidelines as ERC may establish. The ERC shall establish and publish the standards and requirements for issuance of a COC. A COC shall be issued upon compliance with such standards and requirements . .&

(i) A Person owning an existing Generation Facility or a Generation Facility under construction, shall submit within ninety (90) days from effectivity of these Rules to ERC, when applicable, a certificate of DOE/NPC accreditation, a three (3) year operational history, a general company profile and other information that ERC may require. Upon making a complete submission to the ERC, such Person shall be issued a COC by the ERC to operate such existing Generation Facility."

To recall, in the December 15, 2009 Decision of the CTA Special First Division, the Court found that TPC failed to submit the approved COC; and, that only the Letter for the Submission of Documents to the ERC for the Issuance of COC dated June 20, 2002 was presented by TPC which merely proved that it filed an application with the ERC for the issuance of coc.z1 The CT A Special First Division further noted that the ERC Registration and Compliance attached to TPC's Application for VAT Refund or Issuance of TCC dated December 20, 2004 was not made part of the record nor offered to the Court.zz Thus, out of the reported zero-rated sales of P132,824,216.20 for the first quarter of taxable year 2003, PTC's sales of generated power to the following companies, by virtue of the EPIRA Law, shall be denied VAT zero-rating:

Invoice/

Exhibit

O.R.No.

Date

Sold to

Amount

NN-3

1443 2/3/2003

CEBECO III

p 13,567,687.60 00-2 462 3/5/2003

Visayan Electric Company

8,517,748.84 - 1417 12/4/2002

CEBECO III

13,843,696.34 - 1454 3/5/2003

CEBECO III

13,081,237.94

Total

_P 49,010,370.72 - - On the other hand, TPC's sale of power generation services to National Power Corporation ("NPC") qualifies for zero-rating under Section 108 (⁸)(3)23 of the NIRC of 1997, as amended since NPC is an ,e. 21 Par. 2, December 15,2009, Annex "B" to the Petition for Review, En Bane Rollo (CTA EB No. 708), pp. 852.

22 Par. 3, December 15,2009, Annex "B" to the Petition for Review, Ibid. 23 "Section 108. Value-Added Tax on Sale of Services and Use or Lease of Properties.-

XXX

XXX

XXX

entity enjoying exemption from payment of all taxes pursuant to Section 13 of Republic Act No. 639524, which provides: "Sec. 13.

Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts and other Charges by Government and Governmental Instrumentalities. The Corporation shall be non-profit and shall devote all its returns from its capital investment, as well as excess revenues from its operation, for expansion. To enable the Corporation to pay its indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Section one of this Act, the Corporation is hereby declared exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in any court or administrative proceedings in which it may be a party, restrictions and duties to the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces, cities, municipalities and other government agencies and instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees on import of foreign goods required for its operations and projects; and

(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities, on all~

(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

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; ... "

24 An Act Revising the Charter of the National Power Corporation.

petroleum products used by the Corporation in the generation, transmission, utilization, and sale of electric power." Moreover, no less than the Supreme Court has ruled in the case of CBK Power Company Limited vs. Commissioner of Internal Revenue25 that NPC is exempt from payment of VAT and that the services rendered thereto by a VAT -registered entity are effectively zero-rated, viz.: "Petitioner's sales to NPC are effectively zero-rated. As aptly ruled by the CT A Special Second Division, petitioner's sales to NPC are effectively subject to zero percent (Oo/o) VAT. The NPC is an entity with a special charter, which categorically exempts it from the payment of any tax, whether direct or indirect, including VAT. Thus, services rendered to NPC by a VAT-registered entity are effectively zero-rated. In fact, the BIR itself approved the application for zero-rating on 29 December 2004, filed by petitioner for its sales to NPC covering January to October 2005. As a consequence, petitioner claims for the refund of the alleged excess input tax attributable to its effectively zero-rated sales to NPC." (Emphasis supplied) Since NPC is exempt from the payment of all taxes, including VAT, TPC should therefore be allowed to claim a refund or credit of its unutilized input VAT attributable to its zero-rated sales of electricity to NPC.

However, upon review of the records, the sales of P56,034,845.48 to NPC shall be denied VAT zero-rating for the following reasons:

Exhibit

O.R.No. I

Sold to

I

Amount

1) Supported by an undated official receipt

NN-2

1438

I NPC

I

p 28,695,523.97 2) Without supporting official receipt SS, Annex C-4 -

I NPC

I

27,339,321.51 --

I Total

I

p 56,034,845.48 Thus, only the remaining sales of P27,779,000.0026, duly covered by official receipt, qualify for VAT zero-rating . ....-·

Having resolved that TPC had valid zero-rated sales of P27,779,000.00 for the first quarter of 2003, the Court shall now determine the amount of unutilized excess input VAT attributable thereto.

Records show that for the first quarter of 2003, TPC had a reported input VAT attributable to zero-rated sales in the amount of P3,963,690.00.

To substantiate the existence of such input VAT, TPC offered various suppliers' invoices, official receipts, Bureau of Customs (BOC) Import Entries and Internal Revenue Declarations (IEIRDs ), BOC and bank official receipts,27 which were duly examined by the Court- commissioned ICPA, Mr. Emmanuel Y. Mendoza. Based on the Report submitted by the ICPA,2S the following input VAT in the amount of P1,416,094.99 should be disallowed for the grounds stated below:

ICPA Findings

Exhibit "SS"

1 Input VAT on domestic purchases of services supported by documents other than ORs

AnnexA-3

2 Input VAT on domestic purchases of goods supported by documents other than invoices.

AnnexA-4

3 Input VAT on domestic purchases of goods supported by invoices with no BIR permit number on the authority to print

AnnexA-5

4 Input VAT on domestic purchases of services supported by ORs with pre-printed "TIN" only

AnnexA-6

5 Input VAT on domestic purchases of services supported by ORs dated before the taxable year of claim

AnnexA-7

6 Input VAT on domestic purchases of goods supported by invoices dated before the taxable year of claim

AnnexA-8

7 Input VAT on domestic purchases of services supported by photocopied ORs

AnnexA-9

8 Input VAT on domestic purchases of goods supported by photocopied invoices

Annex -10

9

Input

VAT

on domestic purchases of goods/services with no available supporting documents

AnnexA-11

10 Input VAT on Importation of goods with no available supporting documents

AnnexA-15

27 Exhibits "HH-1" to "HH-794", as summarized in Exhibit "SS", Annexes A-1 to A-15. 28 Exhibit "SS".

Disallowed Input

VAT

p 30,724.20 7,785.27 33,447.51 1,400.00 340,762.67 816,802.84 19,709.27 13,909.84 151,018.39 535.00 ~

I TOTAL

P 1,416,094.99 I Upon further verification, the input VAT claim should be further decreased by P581,251.91 due to the following reasons:

Exhibit

Findings

No.

Input VAT

Total

1 Input VAT on domestic purchases of goods/services supported by "TIN V"

Invoice/ORs

Stitches & Wear Industries

HH-76

p 24,243.64 Liang Chi Industry Phils. Inc.

HH-174

8,480.91

Mic's Parts Supply

HH-181

3,990.91 Philippine Packings & Seals Corp.

HH-189

164.50 p 36,879.96 2 Input VAT on domestic purchases of services/goods supported by ORs/invoices issued not in the name of the petitioner

Globe Telecom

HH-31

4,585.16

Globe Telecom

HH-32

4,585.16

Globe Telecom

HH-34

4,600.00

Traders Hotel Manila

HH-81

577.27 United Bearing Industrial Corp.

HH-214

396.36 14,743.95 3 Input VAT on importation of goods supported by ORs issued by BOC but dated outside the period of claim OR No.98131792

HH-779

5,545.00 OR No.98143911

HH-780

11,081.00 OR No.96765121

HH-769

10,872.00 OR No.98164981

HH-770

9,440.00 OR No.98150385

HH-771

28,047.00 OR No.98122753

HH-772

195,081.00 SN No.37288386

HH-773

62,339.00 SN No.37288422

HH-775

91,292.00 SN No.37288377

HH-776

76,551.00 SN No.37288431

HH-777

39,380.00 529,628.00

TOTAL

p 581,251.91 Thus, TPC was able to support, by proper VAT invoices and/or official receipts, the input taxes in the amount of P1,966,343.20, computed as follows:

Input VAT for the 1st Quarter p 3,963,690.10

Less: Disallowances

Per CPA Findings

p 1,416,094.99 Per this Court's Findings 581,251.91 1,997,346.90

Substantiated Input VAT

p 1,966,343.20 However, a portion of the substantiated input VAT shall be applied against the reported output VAT liability of P55,906.30. Hence, only the remaining input VAT of P1,910,436.90 can be attributed to the,- entire zero-rated sales declared by TPC in the amount of P132,824,216.20; and, only the input VAT ofP399,550.84 is attributable to the valid zero-rated sales ofP27,779,000.00, as computed below:

Substantiated Input VAT

p 1,966,343.20

Less: Output VAT

55,906.30

Excess Input VAT

p 1,910,436.90

Excess Input VAT

p 1,910,436.90

Divided by Total Reported Zero-rated Sales

p 132,824,216.20

Multiply by Valid Zero-rated Sales

p 27,779,000.00 Input VAT attributable to Valid Zero-rated Sales p 399,550.84 As evidenced by its Quarterly VAT Returns29 from the 3rd quarter of 2003 to 4th quarter of 2005, TPC was able to prove that the input VAT of P399,550.84 was not applied against any output VAT in the succeeding quarters.

Thus, the Court finds TPC entitled to a refundable input VAT amounting to P399,550.84, covering the first quarter of taxable year 2003 under CTA Case No. 7233.

WHEREFORE, in light of the foregoing considerations, the Petition for Review filed by Toledo Power Company vs. Commissioner of Internal Revenue in CTA Case No. 7233 is hereby PARTIALLY GRANTED. Accordingly, the Commissioner of Internal Revenue is hereby ORDERED TO REFUND or TO ISSUE A TAX CREDIT CERTIFICATE in favor of Toledo Power Company in the amount of

THREE HUNDRED NINETY-NINE THOUSAND FIVE HUNDRED FIFTY

PESOS AND EIGHTY-FOUR CENTAVOS (P399,550.84), representing its unutilized input VAT first quarter of taxable year 2003.

I CONCUR:

LOVEL~. BAUTISTA

Associate Justice

29 Exhibits "D" to "0".

~ CAESAR A. CASANOVA

Associate Justice

ATTESTATION

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

LOVELL ~BAUTISTA

Associate Justice

Acting Chairperson, Special First 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 Amended Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.

Presiding Justice