Kepco Ilijan Corporation vs. Commissioner of Internal Revenue

DECISION

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business at the 181h Floor, Citibank Tower, 18741 Paseo de Roxas, Salcedo Village, Makati City.

1 On the other hand, re~>pondent is the duly appointed Commissioner of the Bureau of Internal Reve11ue (BIR), vested under the appropriate laws with the authority to carry out 2dl the functio·ns, duties and :responsibilities of the said office, including, inter alia, the power ' to decide, approve, and grant refunds and tax credits of erroneously paid or illegally collected internal revenue taxes.

He holds office at 51h Floor, BIR National Office Building, Agham Road, Quezon City.

2 Petitioner alleges that it is likewise a value-added tax (VAT)-registered taxpayer engaged in the production and sale of electricity (as an independent power producer) solely to NPC as its only customer. 3 In the course of its operation, petitioner made domestic purchases of goods and services and accumulates therefrom creditable input taxes. In its VAT Returns for the four quarters of calendar year 2004, petitioner declared the following zero-rated sales/receipts:

Zero-rated

Exhibit

Year2004

Sa Ies/Rece i pts

D

1st quarter p 1,637,748,690.31

E

2nd quarter 1,820,980,585 .76

F

3'd quarter 1,706,051 '141 .96

G

4 1 " quarter ·1 698 793 509.30

Total:

p 6,863,573,927.33 For the four quarters of calendar year 2004, petitioner allegedly incurred · expenses representing domestic purcha~es and importations of goods and ~ 1 Annex '"A", Petition for Review, Docket, p. 13. 2 Par. I, Joint Stipulation of Facts and Issues, Docket, pp. 55-56. 3 Annex "F", Petition for Review, Docket. p. 18. 21

. C.T.A. CASE NO. 7473 services for which it incurred an input VAT in the aggregate 1 amount of P45,357,998.44. The aforementioned amount represents the costs incurred by petitioner for the production and sale of electricity to NPC from January 1, 2004 to December 31 , 2004.

4 On December 22, 2003, petitioner filed an Application for VAT Zero-rate with respondent for its sales of electricity to NPC from January 1, 2004 to December 31, 2004, which was subsequently approved 5 .

On October 28, 2005, petitioner files a claim for refund of the input VAT incurred from its importations and domestic purchases of goods and services from its actual production and sale of electricity to NPC for calendar year 2004, which remains unacted up to this date 6 Hence, this Petition for Review filed on April 25, 2006.

Respondent, in his Answer interposed the following Special and

Affirmative Defenses:

"7.

Assuming but without admitting that Petitioner filed a claim for refund , the same is still subject to investigation by the Bureau of Internal Revenue;

8.

Petitioner failed to demonstrate that the tax, which is the subject of this case, was erroneously or illegally collected; 9.

Taxes paid and collected are presumed to be made in accordance witll the laws and regulations, hence, not creditable or refundable;

10. It is incumbent upon the Petitioner to show that it has complied with . the provisions of Sections 112, 204(C) and 229 of the Tax Code, as amended;

11 . In an action for tax credit or refund, the burden is upon the taxpayer to prove that he is entitled thereto, and failure to ~ 4 Annexes "B", "C", "D", and "'E", Petition for Review, Docket, pp. I 4, I 5, I 6, and I 7, respecti vely. 5 Annex "F", Petition for Review, Docket, p. 20. 6 Annex "G", Petiti on for Review, Docket, p. 19.

•, discharge said. burden is fatal to the claim (Emmanuel & Zenaida Agw/ar v. Commissioner, CA-GR No. Sp. 16432, March 30, 1990 cited in Aban, Law of Basic Taxation in the Philippines, 1 51 Edition, p. 206);

12. Claims for refund are construed strictly against the claimant the same partake the nature of. exemption from taxation (Commissioner of Internal revenue vs. Ledesma, 31 SCRA 95) and as such, they are lo9ked upon' with disfavor. (Western Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 121)."

7 After trial on the meri ts, this case was submitted for decision on March 19, 2008 considering the Memoranda filed by the parties. The parties submitted the following issues for this Court's resolution: "1. Whether Petitioner, as a VAT -registered entity and during the calendar (taxable) year of 2004, actually incurred expenses from importation and domestic purchases of goods and services which represents costs attributable to Petitioner's production and sale of electricity solely to the NPC. 2.

Whether Petitioner's sale of electricity to NPC for taxable year 2004 is subject to VAT at zero percent. 3.

Whether Petitioner's claim for tax credit certificate of the alleged input VAT for taxable year 2004 is duly substantiated by documentary evidence.

4.

Whether Petitioner is entitled to the refund of the amount of P45,357,998.44 representing the input VAT incurred for the four (4) taxable quarters of the calendar (taxable) year of 2004 from its sale of electricity solely to the NPC." 8 These issues boil down into one major issue: ' "Whether or not petitioner is entitled to a refund or issuance of tax credit certificate in the amount of P45,357,998.44, representing unutilized input VAT yt- 7 Answer, Docket, pp. 30-31.

8 Joint Stipulation of Facts and Issues, pp. 56-57. 23 on importations and domestic r )Urchases of goods and services attributable to zero-rated sales for calendar yE ~ ar 2004." The petition is partly merit. 1rious.

Section 112(A). of the NI'1~C of 1997 lays down the requisites for refunds or issuance of a tax credit certtficate ·of input tax, due or paid attributable to zero-rated or effectively zer•o-rated sales, which reads as follows: "SEC. 112. R£;funds or Tax Credits of Input Tax.- (A) Zero-rat£~ d or Effectively Zero-rated Sales. -

Any

VAT-registered perE;on, whose sales are 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 the issuance of a tax credit certificate c.r 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. xxx."

From the foregoing , petitioner must comply with the following requisites to be entitled to a refund :

1.

there must be zero-rated or effectively zero-rated sales; 2.

that input taxes were incurred or paid;

3.

that such input VAT payments are directly attributable to zero-rated sales or effectively zero-rated sales;

4.

that the input VAT payments were not applied against any output VAT liability; and 5.

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

Anent the first requisite, this Court and the Honorable Supreme Court have consistently held in a long line of cases, that NPC is an entity with a

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special charter9, which categorically makes 1 it exempt from payment of all taxes, whether direct or indirect, including VAT.10 Hence, by virtue of the fk-- 9 Section 13, R.A. No. 6395, otherwise known as the NPC Revised Charter, as amended by P.O. Nos. 380 and 938 .

. 10 Ernest aM Maceda vs. Hon. Catalina A!acaraig, CJ .I,Z. No. 88291, May 3 1, 199 1, 197 SCRA 795. 24

C.'r.A. CASE NO. 7473 t.

said charter, services rendered by a VAT-registered entity to NPC are effectively subject to zero percent (0%) VAT, in accordance with Section 108(8)(3) of the NIRC of 1997.

Moreover, Republic Act (R.A.) No. 9136, otherwise known as the "Electric Power Industry Reform Act cif 2001 ", which took effect on June 26, 2001 , as well as its Implementing Rules and Regulations, which took effect on March 22, 2002, confirm the zero-rated nature 'of the sale of generated power by generation companies to NPC.

Petitioner is an Independent Power Producer (IPP) engaged in the business of generating . electricity for sale solely to National Power Corporation, pursuant to the Amended and Restated Energy Conversion

Agreement (ECA) 11

for the 1200 MW llijan Natural Gas Power Project it ·executed with NPC.

Thus. the power generation services rendered by petitioner to NPC are subject to zero percent (0%) VAT. Respondent even recognized this when he approved petitioner's Application for VAT Zero-rate for petitioner's sale of electricity from January 1, 2004 to December 31, 2004.12 In its VAT Returns for the four quarters of calendar year 2004,

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petitioner declared the following zero-rated sales/receipts with the aggregate amount of P6,863,573,927.33:

Exhibit

D

E

F

11 Exhibit "C"; Exhibit "K", page 4.

12 Exhibit "B"

Year 2004

1 sl quarter 2nd quarter · 3'd quarter

Zero-rated

Sales/Receipts

p 1,637,748,690.31 1,820,980,585.76 1,706,051,141 .96 25 t t.

As per verification, the abovementioned zero-rated sales/receipts were derived from petitioner's sale of electricity to NPC, as seen in the official re~eipts issued by petitioner to NPC for calendar year 2004. 13 However, this Court noted that the total amount of zero-rated sales as reflected in the official receipts is higher by P484, 973,811.49 when compared with the total amount of zero-rated sales declared in the Quarterly VAT Returns. Such discrepancy was explained by the Court-commissioned Independent CPA in his Report14 , in the following manner: "3. We have determined based on the Company's OR's that it has no receipts that are subject to the 10% VAT or exempt from VAT.

Our comparison of the amount of zero-rated sales supported with OR's and the amount of zero-rated sales reported in

the VAT

returns showed a discrepancy of P484,973,811.49, as follows:

Zero-rated sales per ORs Zero-rated sales per VAT returns

Difference

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p 7,348,547,738.82 6,863,573,927.33

P

484 973 811 A9

Our examination of the Company's documents showed that the above difference pertains to accruals of revenue made by the Company duririg the year, adjustments of energy fees by the NPC and revenues earned for the period November 25 - December 25, 2003 in the amount of P562,969,796.74 which was received in the year 2004. The Company and the NPC has a 30-day credit term for collection. We have verified that the amount of P562,969,796.74 was reported by the Company in its 2003 VAT returns. The accrued revenue reported in the VAT returns amounted to P52,968,91 3.56 which pertain to a 6.5 days accrual to make up for the 36~ calendar year in 2004, while the adjustment of energy fees by the NPC amounted to P25,027,071.56." ~ 13 Exhibits "J-1" to "J-14", "J-19" to" J-24", .. J-26", .. J-27", ·"J-3 1" to ·'J-34" as summarized in Exhibit "BBB".

14 Exhibit "M".

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From the foregoing, the rE!porting of the amount of P484,973,811.49 was made earlier, i.e., in calendar year 2003 when it was earned, rather than in calendar year 2004 when it w 3S collected. However, such early reporting does not affect the present clair11. What is important is that the gross receipts in the amount of P484,973,81.1 :49 was act~ally reported by p~titioner in its VAT Returns, and was duly supported by zero-rated VAT official receipts. Respondent, in oppos.ition to petitioner's claim, argues that the official · receipts submitted by petitioner in support of its zero-rated sales/receipts failed to comply with the invoicing requirements under Section 4.108-1 of Revenue Regulations No. 7-95, because the word "zero-rated" was merely stamped and not imprinted thereon. Section 4.108-1 states as follows: {, "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~

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1. the name, TIN and address of tlie seller;

2. date of transaction;

3. 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." This Court finds that the official receipts presented substantially complied with the VAT invoicing requirements.

In Revenue Memorandum

Order No. 9-00, it is stated that:

"SECTION 3.

Sales of goods, properties or services made by a VAT -registered supplier to a BOI registered exporter shall be accorded automatic zero-rating, i.e., without necessity of applying for and securing approval of the application for zero- ft--- 27 t rating as provided in Revenue Regulations No. 7-95, subject to the following conditio ns.

XXX

XXX

XXX

(5) The VAT· re:gistered supplier shall issue for each sale to SOl-registered rT ton ufacturer/exporters a duly-registered VAT invoice with the wo rds 'zero-rated' stamped thereon in compliance with Sec. 4108-1 (5) of RR 7-95. The supplier must likewise indicate in the VAT invoice the name and 801-registry number of the buyer." (Emphasis supplied) Although the sai d order refers to sales of goods made by a VAT- registered supplier to a Board of Investments-registered exporter, the same shows that the Bureau of Internal Revenue prescribes the practice of stamping the word "zero-rated" on invoices. ,

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Moreover, Revenue Memorandum Order No. 22-04 states that duly- registered non-VAT receipts/sales or commercial invoices must bear the following information: "the word 'ZERO-RATED' (to be promin~ntly written or rubber stamped on the face of the invoice/receipt) 15." Accordingly, the mere stamping by petitioner of the word "zero-rated" should be treated as substantial compliance with the provisions of the law. And the records show that the official receipts presented substantially complied with the said VAT invoicing requirement. Anent the second requisite, pethioner presented its schedules of input VAT on domestic purchases and importation 16, Import Entry and

Internal

Revenue

Declarations 17, and SL!PPiiers' invoices and official f-' 15 Revenue Regulations No. 2-88.

16 Exhibits "N" "Q" "V" " W" "X" "Y" ··z" '"AA'. ··BIJ" '·CC" ··DD" "EE"

' · I~ F" ··G"G" '·HH"

' ' ' ' ' ' ' ' ' ' ' --' ' ' ' ) "11", "JJ", "KK", "LL", "MM", ~~NN", ~-OO ", ··PP", ··QQ ~' , "·RR", and ·~SS". 17 Exhibits " HH- 1" to "HH-5", "Il- l " to ··11-5", '"JJ-1 " to '·JJ-8", "KK-1 " to "KK- 16", "LL-1 " to "LL- 12", "MM-1 " to "MM-4", "NN- 1" to "NNc.J", ··00- 1" to "00- 10", " PP-1 " to '·PP-6", "QQ-1 " to "QQ-7", "RR-1 " to "RR-11 ",and "SS- 1 ". 28 ..

receipts 18 in support of the reported unutilized input taxes for the four quarters of calendar year 2004 in the amount of P45,357,998.44, broken down as follows:

Exhibit

Year 2004

Input VAT.

[ l f-----.= 1st quarter p 11 ,822,153.20

E:

2nd· quarter 11 ,683,307.06

F

f------'- 3rd quarter 10,475,297.25

Gi

4th quarter 11 377 240.93

Total

'------ · E..A.5. .J..51. Cl Cl R 44 In his Report, the Independent CPA r~commended the disallowance of . petitioner's input VAT claim of P2,332,067.1519, to wit: "1. The company provided us with the summary of its unutilized input taxes wh1ich showed the details of the import-entry declarations, official receipts and sales invoices issued by various suppliers for the taxable year 2004. We were able to account for the existence and compliance of the original copies of the import-entry declarations, sales invoices1 and official receipts issued by thes~ suppliers with existing regulations except for the items which we propose to be disallowed due to certain exceptions as detailed below: Details of the above disallowed input taxes (Exhibits P and S) are as follows:

Description

Amount

Domestic Purchases

Supported by non-VAT Official Receipts and Invoices p 76,149.28 Invoices and ORs are not issued in the name of KEILCO 29 ,876.08 Invoices and ORs do not bear BIR authority to print 71,818.25 Discrepancy with the amounts per Invoice anp per Summary list 606,786.44 Invoices and ORs that do not fall within the period covered 998,111 .71 Missing Official Receipts for services rendered or invoices for goods sold 382,018.50 Miscellaneous Income due to penalty charqes for late deliveries which should be deducted from the total 18 ExJ1ibils "V-1 " to " V-53", '·W- 1" to ··W-62", ··X- I" to ··X-82", " Y-1" to '"Y-93", "Z-1 " to ·'Z-60", "AA-1 " to "AA-77", "138-1 " to "813-82", ··CC- I'. to ·'CC-77", " DD- 1" to ''DD- 103", ·'EE-l " to "EE- 124", "FF-1" to " FF-89", and "GG- 1" to '·GG-84". 19 Exhibit " M", pages 6 to 7.

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· ~· Input taxes claimed ·- 50,711 .29 ::

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Importations

:.:

'i Invoices and ORs that do not fall within the period covered 18,188.00 Missinq Official Rece ipts for services rendered or invoices for qoods s ·~)d 98,407.00 Discrepancv betwee _n amount claimed and import VAT schedule ·.

' 0.60 ..

TOTAL

P2,332,067.15

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This Court, however, finds it proper to tabulate the disallowances by [\ !\ the Independent CPA per quarter, the details of which are as follows: 1.'

Reason for Disallowance

1st 2nd 3rd 4th

Total

H

Quarter

Quarter

Quarter

Quarter

Supported

by non-VAT :•

Official

Receipts

and

Invoices

p 66,733.84 p 508.62 p 7,379.55 p 1,527.27 p 76,149.28 .. , Invoices and ORs are not !

issued in the name of .,

KEILCO

12,978.60 3,568.18 5,820.00 7,509.30 29,876.08 Invoices and ORs do not bear BIR authority to print - 44,814.14 10,175.70 16,828.41 71,818.25

Discrepancy

with the amounts per Invoice and per

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Summary list 38,226.52 298,876.35' 306,648.31 (36,964 74) 606,786.44 Invoices and ORs that do i,· not fall within the period lr:, covered 998,111 .71 - - - 998, 11 1.71 :r.

Missing Official Receipts for

services rendered or ·~· invoices for goods sold 107, 387.59 58,241 .23 135,941.49 80,448.19 382,018.50 invoices for goods sold ..

Miscellaneous Income due ..

to penalty charges for late deliveries which should be deducted from the total Input 9 taxes claimed 18,744.50 3,942.32 18,463.95 9,560.52 50,711 .29

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Importations

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Invoices and ORs that do not fall within the period covered 18, 188.00 18,188. 00 "' Input taxes, the original ' ,, official receipts of which were missing 19,661.00 26,091 00 35,2 11 .00 17,444.00 98,407.00 '\l

Discrepancy

between ':'• amount claimed and import VAT schedule 0.60 0.60 !!

TOTAL

P1 ,280,031. 76 P436,041 .84 P519,640.00 r f' P96,353.55 P2,332,067.15 f.i 30 ll:

- k' ' L:....

t In addition to the ~xceptions amounting to P2,332,067.15 noted by the Independent CPA, this Court finds li1at the /allowing input taxes in the total

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. amount of P412,640.85 supported by invoices/official receipts with pre-printed "TIN-V" instead of "TIN-VAT" must be disallowed:

SUPPLIER'S NAME

Exhibit

1st 2nd 3rd 4th

Total

Quarter

Quarter

Quarter

Quarter

Balisong Intelligence &

Security Aqency, Inc.

\1-005 p 68,380.41 p 68,380.41

Balisong Intelligence &

Security Agency, Inc.

\/-022 68,265.74 68,265.74

Balisong Intelligence &

Security Aqency, Inc.

X -048

68,265.74 68,265.74

Balisong Intelligence &

Security Agency, Inc.

Z-004

p 6 7, 978~ 88 67,978.88 GAD Bt.1ilders &

Enterprises

BB-01 4

54 ,773.89 54,773.89 SHUR ~WA Y Industries.

BEl-043

P22,01 2.16 22,012.16

STANDPHIL

Corporation

GG-016

P52,699.50 52,699.50

SHUR-WA Y Industries

GG-043

10,264.55 10,264.55

TOTAL

P204,911.88 P122, 752.76 P22,012.16 P62,964.05 P412,640.85 Petitioner in its Memorandum, objects to the disallowance made by the Independent CPA involving (1) invoices and official receipts which do not bear the BIR authority to print in the amount of P71 ,818.25 and ·(2) invoices and official receipts that do not fall within the period covered for domestic purchases in the amount of P998, 111 .71 and for importations in the amount of P18, 188.00.20 Petitioner argues that the issue on the disallowed input VAT of · P7.1 ,818.25 supported by invoices and officia·l receipts which do not bear the BIR authority to print has already been squarely ruled upon by the Supreme ' Court in the case of Intel Technology Philippines, Inc. vs. Commissioner of

Internal Revenue

21 , where the High Court held that there is no law requiring r 20 Docket, pp. 206- 208.

21 G.R. No. 166732, Apri l 27,2007.

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• petitioner's BIR authority to print to be reflected or indicated in the sales invoices.

However, notwithstanding the said ruling , the High Tribunal also held that entities engaged in business are required to secure from the BIR an authority to print receipts -or invoices and to issue duly registered receipts or invoices, to wit:

"It is clear from the foregoing that while entities engaged in business are required to secure from the BIR an authority to print receipts or invoices and to issue.duly register~d receipts or invoices, it is not required that the BIR authority to print be reflected or indicated therein.

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XXX

It bears reiterating that while the pertinent provisions of the Tax Code and the rules and regulations implementing them require entities engaged in business to secure a BIR authority to print invoices or receipts and to issue duly registered invoices or receipts, it is not specifically requ~red that the BIR authority to print be reflected or indicated therein. Indeed, what is important with respect to the SIR authority to print is that it has been secured or obtained by the taxpayer, and that invoices or receipts are duly registered."(Emphasis supplied) In the present case, petitioner failed to show that (1) the BIR authority to print has been secured by petitioner's suppliers as to the invoices and official receipts covering the input taxes of P71 ,818.25; or (2) that the said invoices and official receipts were duly registered with the BIR. Thus, the disallowance of.the input VAT claim of P71,818.25 in order. With respect to the disallowance for invoices and official receipts , in the amounts of P998, 111 .71 and P18, 188.0022 which do not fall within the · period covered , petitioner contends that said invoice.s and official receipts~ 32 22 aggregate amount of P I ,0 16,299.70, . Page 14 of20 should be admitted to sL Jpport petitioner's claim for refund since the Independent CPA categoric: 311y stated that although said invoices and official receipts fall outside the pe ~ riod of claim, he was able to verify that these values were nonetheless m~ver claimed by petitioner in calendar year 2003; ' and that there was no doub'ie-claiming in ·relation to these invoices and official receipts. Since there wa:; no double-claiming, said values should not be disallowed and must form part of the present claim. This Court disagrees.

The input taxes C>f P1 ,016,299.70 should have been declared in the corresponding taxable quarters when the purchases of goods were consummated as evidenced by VAT invoices and for purchase of services, upon payment of comp.ensation or fee as evidenced by VAT official receipts, as held by this Court in th'e case of Lepanto Consolidated Mining Co. vs. Commissioner of Internal Revenue 23 , to wit:

"The alleged unutilized input VAT of P5,820,863.87 should be denied since the supporting invoices and official receipts thereof bore dates which were earlier than the period of petitioner's claim. Section 11 O(A)(2) of . the 1997 Tax Code provides:

'Sec. 110. Tax Credits. - A. Creditable Input Tax.-

2. The input tax on domestic purchase of goods or properties shall be creditable: (a) To the purchaser upon consummation of saie and on importation of goods or properties; and However, in the case of purchase of services, lease or use of properties, the input tax shall be creditable to tre purchaser, lessee~ -------------------- 23

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CTA Case Nos. 6368 and 6480, dated December 15, 2004.

l or licensee upon payment of the cornpensation , rental , royalty or fee.' It is clea1· from the above-quote.d provisions of law that for purchases of goods, the corresponding input value added taxes of which is creditable to the purchaser upon consummation of sale, that is, upon the issuance of the corresponding invoice. On the other hand, for purchases of services, the corresponding input value added taxes of which· is .creditable to the purchaser upon payment of compensatio'n, rental, royalty, or fee, that is, upon the date of official receipt. Section 11 O(A) is expli~it. It states 'upon consummation', in the case of domestic purchases of goods, and 'upon payment', in the case of purchases of services. It does not provide any qualification, such as 'upon delivery of invoice or official receipt' which is the main thesis of petitioner's contention.

In a resolution of the case entitled Telecommunications Technologies Philippines1 Inc. vs. Commissioner of Internal Revenue, CTA Case No. 6168, promulgated on July 28, 2004, this Court elucidated that 'the input VAT on domestic purchases of goods or properties shall be allowed as tax credit to the purchaser upon consummation of sale, which means upon issuance by the seller of the VAT sales invoices evidencing the sale of goods/properties. On the other hand, the input VAT on purchases of services shall be available as tax credit to the purchaser only upon payment of t11e compensation or fee, i.e., upon issuance by the seller of the VAT official receipt evidencing receipts of the payment for services performed or yet to be performed.' Thus, it is indubitable on the part of the petitioner to declare the input value added taxes on domestic purchases of goods and services at the end of the corresponding taxable quarter where purchases of goods were consummated, as evidenced by VAT invoice and for payment of services, as evidenced by VAT official receipt.

Therefore, the amount of input VAT of P5,820,863.87 which is supported by VAT invoices and official receipts dated earlier than the period of petitioner's claims can no longer be claimed for refund pursuant to Section 11 O(A) in relation with Section 112(A) of the 1997 National frlternal Revenue Code." Thus, out of the total claimed input taxes of P45,357,998.44, only the . amount of P42,613,290.44 is duly subst~ntiated by the required documentary r 34 f l

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l evidence under Sections 110(A) and 113(1\-) of the NIRC of 1997, as implemented by Sections 4.104-1, 4.104-5, and 4.108-1 of Revenue Regulations No. 7-95, which is computed as follows: 1st 2nd 3rd 4th

Total

Quarter

Quarter

Qu arter

Quarter

Input VAT Claim

P11 ,822, 153.20 P11 ,683,307.06 P10,4 7 ~ . 29 7 25 P11 ,377,240.93 P45,357,998.44

Less:

Disallowances

Per CPA report p 1,280,031 .76 p 436,041 .84 p 519,640.00 p 96,353.55 p 2,332,067.15 Per this Court's further verification 204,911.88 122, 752.76 22,012.16 62,964.05 412,640.85 p 1 ,484, 943 64 p 558,794.60 p ,, 541,652.16 p 159,317.60 p 2,744,708.00

Substantiated Input VAT

P10,337,209.56 P11, 124,512.46 p 9,933,645.09 P11 ,217,923.33 P42,613,290.44 As to the third requisite, petitioner's 2004 Quarterly VAT Returns showed that it had no taxable or exempt sales/receipts but only zero-rated sales/receipts. Accordingly, the substantiated input VAT of P42,613,290.44 is entirely attributable to the reported zero-rated sales/receipts of P6,863,573,927.33.

Anent the fourth requisite, the input tax of P42,613,290.44 was not applied against any output VAT since petitioner had no taxable sales/receipts for the four quarters of calendar year 2004. Although the claimed input tax was carried-over to the succeeding quarters of calendar year 2005, the same was deducted as any "Any VAT Refund/TCC Claimed"24 from the Total Available Input Tax as of the fourth quarte'r of calendar year 2005. Ergo, petitioner could not have possibly utilized the input VAT of P42,613,290.44 in the succeeding quarters. fjt-

Regarding the fifth requ.irement, the Supreme Court in the recent case of Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation 25 held that the reckoning of the two-yc..;ar prescriptive period for the filing of a claim for input VAT refund under Section 112(A) of the NIRC of 1997 starts from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whet her said tax was paid or not. The pertinent portion of the said Decision is quoted hereunder for easy reference, thus: zs G "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 pmvided 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 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: xxx. (Emphasis ours) The above proviso clearly provides in no uncertain terms that unutilized input VAT payments not otherwise used for any internal revenue tax due the taxpayer must be claimed within two years reckoned from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whether said tax was paid or not. As the CA aptly puts it, albeit it erroneQusly applied the aforequoted Sec. 112(A), '[P]rescriptive 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, ft- .R. No. 172129, September 12,2008.

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1 regardless \Nhen the input VAT was paid." (Emphasis supplied) Hence, based 1on the aforecited jurisprudence, the reckoning of the prescriptive period sl1all commence from the close of the taxable quarter when the relevant ~ak:: s were.made :pertaining to the input VAT, regardless of whether said tax was paid or not.

The present daim involves petitioner's input VAT incurred for the four quarters of calendar year 2004. Counting from the close of each of the said taxable quarters, petitioner had until the following dates within which to file its claim both in the administrative and judicial levels:

Taxable Quarter

Last Day to File

2004

End Date

Claim for Refund

1st quarter March 31 , 2004 March 31 , 2006 2nd quarter June 30, 2004 June 30, 2006 3rd quarter Sef!tember 30, 2004" September 30, 2006 4th quarter December 31 , 2004 December 31, 2006 Perusal of the records of the case reveals that the administrative claim was filed on October 28, 200526 and the Petition for Review filed ~m April 25, 2006.

While the administrative claim falls within the two-year prescriptive period, the Petition for Review falls outside of the two-year prescriptive period insofar as the input VAT claim for the first quarter of calendar year 2004 is concerned. Thus, this Court denies petitioner's substantiated input VAT claim in the amount of P1 0,337,209.56, covering the first quarter of calendar year 2004 due to prescription. ~ 26 Exhibit " H-I " .

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However, tho remaining substantiated input VAT claim covering the second, third, and tourth quarters of calendar year 2004 in the amount of P32,276,080.88 fall within the two-year prescriptive period. Considering all the foregoing, this Court finds petitioner to have sufficiently proven that it is entitled to a refund or issuance of tax credit certificate representing unutilized input VAT attributable to zero-rated sales for the four quarters of calendar year 2004, but in the reduced amount of P32,276,080.88.

WHEREFORE, the Petition for Review is hereby PARTIALLY GRANTED. ACCORDINGLY, respondent Commissioner of Internal Revenue

I

I

is hereby ORDERED TO REFUND or ISSUE A TAX CREDIT CERTIFICATE amounting to THIRTY TWO MILLION TWO HUNDRED SEVENTY SIX THOUSAND EIGHTY AND 88/100 PESOS (P32,276,080.88) tp petitioner Kepco llijan Corporation, representing its unutilized input VAT for the second, third, and fourth quarters of calendar year 2004.

WE CONCUR:

\

E~UY

~~s~~stice 38 ~~;to c.Q.Y--~~ Q :ru.ANITO c. CASTANEDA, SR. · · . Associate Justice ~~- - ]~ OLGA PALAN~tilUEZ

Associate Justice

ATTESTATION

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.

~~c~~~~~. ·

CERTIFICATION

Associate Justice

Chairperson

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 react1ed in consultation before the case was assigned to the writer of the opinion of the Court.

39 L~. c~ ERNESTO D. ACOSTA

Presiding Justice