CE Luzon Geothermal Power Company, Inc. vs. Commissioner of Internal Revenue

DECISION

PALANCA-ENRIQUEZ, J.:

THE CASE

This is a Petition for Review filed by CE Luzon Geothermal Power Company, Inc. (hereafter "petitioner") praying for the refund or issuance of a tax credit certificate (TCC) for its unutilized input value-added taxes (hereafter "input VAT") in the aggregate amount of P20,546,004.87, representing unutilized input VAT paid on its domestic purchases of non- capital goods and services, services rendered by non-residents, and ~ 84 2

2 importation of non-capital goods, which are attributable to zero-rated sales for the four quarters of taxable year 2005.

THE PARTIES

Petitioner is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal office at the 24th Floor, 6750 Bldg., 6750 Ayala Avenue, Makati City. Respondent, on the other hand, is the duly appointed Commissioner of Internal Revenue, vested with authority to act as such, including, among others, the power to decide, approve and grant refunds or tax credits of erroneously or excessively paid taxes. He may be served with summons, pleadings and other legal processes at his office at the BIR National Office Building, BIR Road, Diliman, Quezon City.

THE FACTS

The antecedent facts of the case are as follows: Petitioner is engaged in the business of power generation for which it was accredited and certified to as such by the Department of Energy, as evidenced by its DOE Certificate of Accreditation (OSAC94- 12) issued on June 15, 1994 (Exhibit "B'') . Petitioner is a registered value added tax (VAT) taxpayer with the Bureau of Internal Revenue

@Aa

84 3

3 evidenced by its Certificate of Registration with Tax Identification Number 003-924-356-000 (Exhibit "C').

On the following dates, petitioner filed with the BIR its Original Quarterly VAT Returns for the first to fourth quarters of 2005, respectively:

Taxable Quarter

Date of Filing of Original Return

1st April 25, 2005 2nd July 25, 2005 3rd October 25, 2005 4th January 25, 2006 On the following dates, petitioner filed with the BIR its Amended Quarterly VAT Returns for the first to fourth quarters of 2005, reflecting excess or unutilized VAT credits arising from petitioner's domestic purchases of non-capital goods and services, services rendered by non- residents and importation of non-capital goods: 2005

Date of

Excess/Unutilized VAT Credits

Total

Taxable

Filing of

Domestic

Domestic

Services

Importation-

(P)

Quarter

Amended

Purchases-

Purchases-

Rendered by

Goods Other

Return

Goods Other

Services

Non-

than Capital than Capital

(P)

Residents

Goods

Goods

(P)

(P)

(P)

1s1

January

534,507.06 5,957,152.09 460,519.69 176,684.00 7' 128,862.84 12,2006 2nd

January

1,213,592.81 2,179,539.80 30,471.40 319,222.00 3,742,826.01 12,2006 3rd

January

1,091,122.97 2,690,938.31 0 1,306,800.00 5,088,861.28 12,2006 41h

April

10, 965,895.81 2,514,421 .72 337,660.21 767,477.00 4,585,454.74 2006

Total

3,805,118.65 13,342,051.92 828,651 .30 2,570,183.00 20,546,004.87 844

4 On November 30, 2006, petitioner filed its administrative claim for refund of unutilized input VAT for the four quarters of taxable year 2005.

In view of respondent's inaction, on January 3, 2007, petitioner filed its judicial claim for refund with this Court, docketed as C.T.A. Case No. 7558.

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

"4.

Petitioner's claim for refund is subject to administrative investigation/examination by the Bureau; 5.

The amount of P20,546,004.87 being claimed by petitioner as alleged unutilized input VAT from its domestic purchases of non-capital goods and services, services rendered by non-residents and importation of non-capital goods for the first to fourth quarters of taxable year 2005 was not properly documented;

6. In an action for refund, 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.

To support its claim, it is imperative for petitioner to prove, the following, viz:

a. The registration requirements of a value-added taxpayer in compliance with Section 6 (a) and (b) of the Revenue Regulations No. 6-97 in relation to Section 4.107-l(a) of Revenue Regulations No. 7-95, and Section 84 5 C.I.A. CASE NO. 7558

DECISION

236 of the National Internal Revenue Code of 1997 (NIRC of 1997);

b. The invoicing and accounting requirements for VAT registered persons, as well as the filing and payments of VAT in compliance with the provisions of Sections 113 and 114 of the NIRC of 1997;

c. Proof of compliance with the prescribed checklist of requirements to be submitted involving claim for VAT refund in pursuance to Revenue Memorandum Order No. 53-98, otherwise, there would be no sufficient compliance with the filing of administrative claim for refund which is a condition sine qua non prior to the filing of judicial claim in accordance with the provision of Section 229 of the Tax Code, as amended. It is worthy of emphasis that Section 112 (D) of the Tax Code, as amended, requires the submission of complete documents in support of the application filed with the Bureau of Internal Revenue before the 120-day audit period shall apply, and before the taxpayer could avail ofjudicial remedies as provided for in the law. Hence, petitioner's failure to submit proof of compliance with the above-stated requirements warrants immediate dismissal of the petition for review;

d. That the input taxes of P20,546,004.87 allegedly paid by the petitioner on its purchases of non-capital goods and services, services rendered by non-residents and importation of non-capital goods for the first to fourth quarters of 2005 were attributable to its zero-rated sales and such have not been applied against any output tax and were not carried over in the succeeding taxable quarter or quarters;

e. That petitioner's administrative and judicial claims for tax credit or refund of the unutilized input tax (VAT) was filed within two (2) years after the close of the taxable quarter when the sales were made in accordance with Sections 112 (A) and (D) and 229 of the NIRC of 1997; ~ 84 6 5 f. That petitioner's domestic purchases of goods and services were made in the course of its trade or business, properly supported by VAT invoices and/or official receipts and other documents, such as subsidiary purchase journal, showing that it actually paid VAT in accordance with Sections llO(A) (2) and 113 of the NIRC of 1997, and in pursuance to Section 4.104-5 (a) and (b) of Revenue Regulations No. 7-95 (Re: Substantiation of Claims of Input Tax Credit);

g. The requirements as enumerated under Section 4.104-2 of the Revenue Regulations 7-95 (Re: Persons who can avail of the Input Tax Credits);

8. The petition for review is premature. Since petitioner did not submit complete documents in support of its administrative claim for refund as indicated under Section 112 (D) of the NIRC of 1997, the 120-day period starts to run on 30 November 2006, the date when it filed its administrative claim for refund. The said period is yet to expire on 10 March 2007. Hence, the 30-day period within which to file the petition for review before this Honorable Court is yet to expire on 9 April 2007. This being so, this Honorable Court has no jurisdiction to act on the instant petition for review.

9.

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 such, they were looked upon with disfavor (Western Minolco Corp., vs. Commissioner of Internal Revenue, 124 SCRA 1211)."

6 Petitioner presented Leilah YasminE. Alpad and Jerome Antonio B. Constantino, as witnesses, and documentary evidence, marked as

B47

7 Exhibits "A " to "AAA ", inclusive of their submarkings, which were all admitted by the Court.

On the other hand, respondent's counsel manifested that he will not be presenting evidence and submitted the case for decision. Thereafter, both parties were ordered to file their simultaneous memoranda, within thirty (30) days from notice, afterwhich the case shall be deemed submitted for decision.

Both parties having complied thereto, the petition was deemed submitted for decision on July 25, 2008. However, on August 29, 2008, petitioner filed a "Motion to Admit Reply Memorandum" and its "Reply Memorandum (To Respondent's Memorandum dated July 18, 2008)", which the Court granted in a Resolution dated September 4, 2008.

Hence, this decision.

ISSUES

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

I

WHETHER OR NOT UNUTILIZED INPUT VAT OF THE

PETITIONER FOR THE FIRST TO FOURTH QUARTERS

OF

2005

AMOUNTING

TO

P20,546,004.87

IS

84 8

SUBSTANTIATED BY DOCUMENTARY EVIDENCE IN

THE FORM OF INVOICES AND OFFICIAL RECEIPTS.

II

WHETHER OR NOT THE SAID UNUTILIZED INPUT

VAT OF THE PETITIONER FOR THE FIRST TO

FOURTH QUARTERS OF

2005

AMOUNTING TO

P20,546,004.87 WAS APPLIED AGAINST ANY OUTPUT

TAX OF THE PETITIONER IN THE SUBSEQUENT

QUARTERS.

III

WHETHER OR NOT THE PETITIONER IS ENTITLED

TO A REFUND AND/OR ISSUANCE OF TAX CREDIT

CERTIFICATE

IN

THE

TOTAL

AMOUNT

OF

P20,546,004.87,

REPRESENTING

ITS

UNUTILIZED

INPUT VAT FROM PURCHASES OF TAXABLE GOODS

AND SERVICES AND IMPORTATION OF GOODS FOR

THE FIRST TO FOURTH QUARTERS OF 2005.

Principal Issue

8 The foregoing Issues raised by both parties boil down to the principal issue of whether or not petitioner is entitled to a refund or the issuance of a TCC in the amount of P20,546,004.87, representing unutilized input VAT paid on its domestic purchases of non-capital goods and services rendered by non-residents and importation of non-capital goods which are attributable to zero-rated sales for calendar year 2005.

THE COURT'S RULING-

The petition is partly meritorious.

84 9

9 Petitioner anchors its claim on Sections 11 O(B) and 112 {A) of the National Internal Revenue Code of 1997 (NIRC of 1997), as amended, which provide, as follows:

"SEC. 110. Tax Credits.- (A) Creditable Input Tax.- "(1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on the following transactions shall be creditable against the output tax:

XXX

XXX

(B) Excess Output or Input Tax. -If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT -registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters. Any input tax attributable to the purchase of capital goods or to zero-rated sales by a VAT -registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions ofSection 112."

"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) 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: Provided, however, That in the case of zero-rated sales under Section 1 06(A)(2)(a)(1),(2) and (B) and Section 108(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 volume of sales."

850

10 Pursuant to the above provisions, in order to be entitled to a refund or the issuance of a TCC of input VAT paid attributable to zero-rated or effectively zero-rated sales, the following requisites must be complied with:

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

First Requisite:

There must be zero-rated or effectively zero rated sales As regards the first requisite, petitioner contends that its sales of electricity as a power generation company, qualify for VAT zero-rating, under paragraph 5, Section 6 of RA 913 6, also known as the Electric Power Industry Reform Act of2001, which states: "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.

XXX

XXX."

11 Notwithstanding the repeal of RA 913 6 under RA 9 3 3 7, which took effect on November 1, 2005, petitioner's sale of generated power continued to be VAT zero-rated under Section 108 (B) (7) of the NIRC of 1997, as amended by RA 9337.

To qualify for VAT zero-rating, petitioner must be able to establish that: (1) it is a generation company; and (2) it derives sales from power generation.

The Court finds that the prescribed requisites were duly established by petitioner.

As to the first requisite, records show that petitioner owns and operates a 180-megawatt power plant facility located in Mahanagdong, Province of Leyte, which has been accredited by the Department of Energy, as a Block Power Production Facility (BPPF), since June 15, 1994 (Exhibit "B ").

As such, it is engaged in the business of power generation and the subsequent sale of generated power to the Philippine National Oil Company-Energy Development Corporation [PNOC-EDC] (Exhibit "D ").

Hence, petitioner was able to establish that it is a generation company.

85 2

12 As regards the second requisite, records show that for the four quarters of taxable year 2005, petitioner generated sales of power generation services to PNOC-EDC in the amount of P4,318,484,466.77, which was declared in its Quarterly VAT Returns for the same period, as follows:

Zero-Rated

Exhibit

Year 2005

Sales/Receipts

X

1

51 Quarter

p 7 42,366,072.39 z 2"d Quarter 1 '120,564,388.92 cc 3rd Quarter 1,343,514,348.00

FF

4th Quarter 1 '112,039,657.46 p 4,318,484,466.77 However, We find that there is a marked discrepancy between the total zero-rated receipts of P4,232,115,860.06 reflected in the official receipts (ORs) issued by petitioner to PNOC-EDC {Exhibits "SS-1 " to "SS- 37", as summarized in Exhibit "RR "), and the total zero-rated receipts of P4,318,484,466. 77 declared by petitioner in its 2005 Quarterly VAT Returns.

The Court-Commissioned Independent CPA explained the discrepancy and clarified that it was merely brought about by the 2% expanded withholding tax deducted by PNOC-EDC and the foreign exchange rates differential, thus:

OR Amount

Withholding tax

Forex

Total Sales

p 4,232,115,860.06 86,369,689.34 (1,083.84) p 4,318,484,465.56 * *Difference due to rounding. {Exhibit "00 '') 853 13 Thus, petitioner's sales of electricity as a power generation company amounting to P4,318,484,466.77 qualify for VAT zero-rating.

Second and Third Requisites:

Input taxes were incurred or paid and that such input taxes are attributable to zero-rated sales or effectively zero-rated sales Having resolved that petitioner's gross receipts from power generation services rendered to PNOC-EDC for the four quarters of 2005 in the amount of P4,318,484,466.77 qualify for VAT zero-rating, We now proceed to the determination of the amount of input VAT attributable thereto.

Petitioner submitted various suppliers' invoices, official receipts, Bureau of Customs (BOC) Import Entries and Internal Revenue Declarations (IEIRDs), BOC and bank official receipts (Exhibit "UU" as summarized in Exhibit "TT'), in support of its claimed unutilized input taxes reflected in its Quarterly VAT Returns for the four quarters of 2005, in the amount ofP20,546,004.87, broken down as follows:

Exhibit

Year2005

Input VAT

X

1st Quarter p 7' 128,862.84 z 2nd Quarter 3,742,826.01 cc 3rd Quarter 5,088,861 .28

FF

4th Quarter 4,585,454.74 p 20,546,004.87 85 4 ..

14 Upon perusal of the said documents, the Court-Commissioned Independent CPA, Jerome Antonio B. Constantino of CG & Co., summarized his findings, as follows {Exhibit "00 '') :

Findings

Annex

A. Properly supported by VAT invoices/receipts/IEIRDs/BIR Form 1600

1. Domestic purchase of goods and services supported by VAT invoices and ORs, and importation of goods supported by

IEIRDs

2. Domestic purchase of goods and services supported by TIN No. VAT No., VAT No. TIN No., VAT Reg. TIN, TIN VAT No. invoice or OR

3. Domestic purchase of goods supported by a VAT invoice issued in the Company's name but without the Company's TIN and/or address or with TIN and/or address changed/added on the support but without countersign

4. Domestic purchase of services supported by a VAT OR issued in the Company's name but without the Company's TIN and/or address or with TIN and/or address changed/added on the support but without countersign

5. Importation of goods supported by a 80C/L8P OR issued in the Company's name but without the Company's TIN and/or address or with TIN and/or address changed/added on the support but without countersign

6. Domestic purchase of goods supported by a VAT invoice not dated within the VAT-taxable quarter but within the VAT-taxable year

7. Domestic purchase of goods supported by TIN-V invoice

8. Domestic purchase of goods supported by non VAT invoice but stamped as "VAT registered as of November 1, 2005" issued within the period November 1, 2005 to December 1, 2005

9. Domestic purchase of goods supported only by a certified true copy of the VAT invoice

10. Domestic purchase of service supported by a VAT OR not dated within the VAT-taxable quarter but within the VAT- taxable year

11. Domestic purchase of services supported by TIN-V OR

12. Domestic purchase of services supported by a certified true copy VAT OR

13. Importation of goods supported by an original IEIRD and 80C/L8P OR not dated within the VAT-taxable quarter but within the VAT-taxable year

Subtotal

B. Other findings

1. Domestic purchase of goods supported by documents other than a VAT invoice

2. Domestic purchase of goods supported by a VAT invoice but not an original copy

3. Domestic purchase of goods supported by a VAT invoice not issued in the name of the Company

4. Domestic purchase of goods supported by a VAT invoice issued in the name of Calenergy/CE Visayas/CE Cebu 85 5

OK

OK-1

A13

813

C13

A2

A12

A12-1

AlB

82 812 818

C2

A1

A3

A4

AS

Input Tax

p 13,836,590.38 300,764.55 92,212.69 2,795,106.46 3,440.00 574,689.78 26,533.05 8,842.67 14,719.09 101,896.41 350,944.47 61,500.00 1,028,358.01 p 19,195,597.56 p 84,591.79 104,218.30 336.03 10,575.87 ..

5.

6.

7.

8.

9.

(whichever is applicable) Domestic purchase of goods supported by TIN# only; TIN- NV/NON-VAT invoice; stamped/handwritten TIN-v/VAT Domestic purchase of goods supported by a VAT invoice but without invoice date Domestic purchase of goods supported by a VAT invoice not dated within the VAT-taxable year Domestic purchase of goods supported by a VAT invoice with changes in the name of the Company Domestic purchases of services supported by documents other than a VAT official receipt

10. Domestic purchase of services supported by a VAT OR but not an original copy

11. Domestic purchase of services supported by a VAT OR not issued in the name of the Company

12. Domestic purchase of services supported by a VAT OR issued in the name of calenergy/CE Visayas/CE Cebu (whichever is applicable)

13. Domestic purchase of services supported by TIN # only; TIN-NV/NON-vAT OR; stamped/handwritten TIN-V/VAT

14. Domestic purchase of services supported by a VAT OR but without OR date

15. Domestic purchase of services supported by a VAT OR not dated within the VAT-taxable year

16. Domestic purchase of services supported by a TIN# only; TAN-V; TAN VAT;TIN-NV/Non VAT stamped/handwritten TIN-vjVAT tape receipt

17. Importation of goods supported by an original IEIRD and 80C OR not dated within the year

18. Importation of goods supported by documents other than an original copy of the IEIRD

19. Importation of goods supported by an original IEIRD and 80C OR not dated within the year

20. Importation of goods with supporting documents not issued in the name of the Company

21. Importation of goods supported by a photocopy of IEIRD and original 80C OR

22. Importation of goods supported by a photocopy (any other than original) of IEIRD and an original 80C/L8P OR

23. Importation of goods supported by original 80C OR and/or LBP OR only

24. Overclaimed input tax on domestic purchases of goods/services due to erroneous computation

25. Effect of forex on foreign currency denominated purchases of goods and services - overstatement

26. Supporting documents not available

Subtotal

TOTAL

15

A7

33,833.47

A10

100.00

A14

96,987.29

A15

5,090.73 81 23,011.64 83 24,499.57 84 3,369.13 85 21,471.51 87 69,594.95 810 5,131.07 814 20,009.57 816 2,333.33 817 1,630.90

C1

50.00 0 257,620.00

C4

56,446.00

C5

35,796.00

C6

58,498.00

C7

51,480.00

E1

16,411.24

J1

20,006.11

F

347,314.81 p 1,350,407.31 p 20,546,004.87 After a careful examination of the report of the Court- Commissioned Independent CPA, the Court finds the same to be in order. Hence, the items under the heading "A. Properly supported by VAT

SSG

16 .

invoiceslreceipts/IEIRDs/BIR Form 1600", particularly A.3, A.4, A.7, A.9, A.ll, A.12, and all 26 items under the heading "B. Other Findings'~ except B.21, B.22 and B.23, should be denied for the grounds above-stated.

To recapitulate, the said disallowances amounting to P4,545,649.07 are, as follows:

DISALLOWANCES PER INDEPENDENT CPA'S REPORT

FindinQs

Inp_utVAT Domesitc purchase of goods supported by a VAT invoice issued in the petitioner's name but without the petitioner's TIN and/or address or with TIN and/or address changed/added on the support but without countersign 92 212.69 Domestic purchase of services supoprted by a VAT OR issued in the petitioner's name but without the petitioner's TIN and/or address or with TIN and/or address chanqed/added on the support but without countersiqn 2 795 106.46 Domestic purchase of goods supported by TIN-V invoice 26 533.05 Domestic purchase of goods supported only by a certified true copy of the VAT invoice 14 719.09 Domestic purchase of services supported by TIN-V OR 350 944.47 Domestic purchase of services supported by a certified true copy VAT OR 61 500.00 Domestic purchase of goods supported by documents other than a VAT invoice 84 591.79 Domestic purchase of goods supported by a VAT invoice but not an original copy 104 218.30 Domestic purchase of goods supported by a VAT invoice not issued in the name of the Company 336.03 Domestic purchase of goods supported by a VAT invoice issued in the name of Calenergy/CE Visayas/CE Cebu (whichever is applicable) 10 575.87 Domestic purchase of goods supported by TIN# only; TIN-NV/NON-VAT invoice· stamped/handwritten TIN-v/VAT 33 833.47 Domestic purchase of goods supported by a VAT invoice but without invoice date 100.00 Domestic purchase of goods supported by a VAT invoice not dated within the VAT-taxable year 96 987.29 Domestic purchase of goods supported by a VAT invoice with changes in the name of the Company 5 090.73 Domestic purchases of services supported by documents other than a VAT official receipt 23 011.64 Domestic purchase of services supported by a VAT OR but not an original copy 24 499.57 Domestic purchase of services supported by a VAT OR not issued in the name of the Company 3 369.13 Domestic purchase of services supported by a VAT OR issued in the name of Calenergy/CE Visayas/CE Cebu (whichever is applicable) 21471.51 Domestic purchase of services supported by TIN# only; TIN-NV/NON-vAT OR· stamped/handwritten TIN-vfVAT 69 594.95 857

Domestic purchase of services supported by a VAT OR but without OR date Domestic purchase of services supported by a VAT OR not dated within the VAT-taxable year Domestic purchase of services supported by a TIN# only; TAN-V; TAN VAT·TIN-NV/Non VAT stamped/handwritten TIN-V/VAT tape receipt Importation of goods supported by an original IEIRD and BOC OR not dated within the year Importation of goods supported by documents other than an original copy

of the IEIRD

Importation of goods supported by an original IEIRD and BOC OR not dated within the year Importation of goods with supporting documents not issued in the name of

the Company

OVerclaimed input tax on domestic purchases of goods/services due to erroneous computation Effect of forex on foreign currency denominated purchases of goods and services - overstatement Suppartinq documents not available

TOTAL

17 5 131.07 20 009.57 2 333.33 1 630.90 50.00 257 620.00 56 446.00 16 411.24 20 006.11 347 314.81 4,545 649.07 Upon a careful examination of the evidence on record, the Court also finds that the input VAT claim should be further decreased by Pl,121,043.15 for the following reasons: Exh.

Inv/OR #

Inv/OR Date

Suoolier

Input VAT

1) Withholding VAT remitted in behalf of non-resident supplier of services with supporting documents not properly marked

Fulkerson & Associates

P

65,598.15 ABB Industry pte. Ltd.

394,921.54 John Gilden Ltd.

30,471.40 Kokusai Commerce Co. Ltd.

74,826.01 Parsons Brinckerhoff ?te. Ltd.

262,834.20

Subroml

~P ____ 8~2~

~c6.~ 51~.3~0~ 2) Purchase of goods/ services supported by documents other than a VAT invoice/ OR

UU-L-4Q-

548 Harnwell Chemicals Corp.

P

51,271.03

UU-L-4Q-

549 Industrial Inspection (Intrnat'l) Inc. 38,981.25

UU-L-4Q-

135 Nalco Philippines, Inc.

48 727.27 3) Input VAT claimed twice

UU-L-1Q-

338B

31496

UU-L-2Q-

0346A

6001 2/3/2005 3/17/2005

Subwml

~P ____ =

13~~~9~ 79~ . s.=s~ Nalco Philippines, Inc.

Joaquin Cunanan & Co.

Subtotal

85 8 - p 48,727.27 20,500.00 p 69,227.27

4) Purchase of goods/ services with no supporting documents Isla Lipana & Co.

Trane Philippines

Trane Philippines

Subtotal

5) Purchase of services supported by ORs that are not legible

UU-L-2Q-

0312 to

BM2000000

18 p 10,037.00 17,500.00 21,403.50 p 48,940.50 0313 00057196 6/30/2005 Innove Communications Inc.

p 11,168.89

UU-L-4Q-

BM2000000

089 to 090 00000071076 11/9/2005 Innove Communications Inc.

10!067.46

Subtotal

6) Importation of goods supported by undated Ors

UU-L-1Q-

617 121628963

Bureau of Customs

UU-L-2Q-

00821 122263504

Bureau of Customs

UU-L-2Q-

00842 122822567

Bureau of Customs

UU-L-2Q-

00921 123662551

Bureau of Customs

Subtotal

7) Purchase of goods supported by an invoice bearing erasures countersign

UU-L-3Q-

p 21£236.35 2,306.00 1,433.00 2,573.00 3!678.00 p 9£990.00 01015 12612 7/25/2005 Richworld Electrical and Sales Co.

P

4m8.18

Subtotal

p 4£018.18

TOTAL

p 1,121,043.15 Based on the foregoing, out of petitioner's claimed input VAT of P20,546,004.87, only the amount of P14,879,312.65 has been duly substantiated, in accordance with Sections II O(A) and II3(A) of the NIRC of I997, as amended, and as implemented by Sections 4.I 04-5 and 4.I08-I of Revenue Regulations No. 7-95, broken down as follows: Claimed input VAT

Less:

Disallowances

Per ICPA

Per Court's verification Valid input VAT P4,545,649.07 1.121.043.15 85 9 p 20,546,004.87 5.666,692.22 p 14.879.312.65

Fourth Requisite:

Input taxes were not applied against any output VAT liability 19 As regards the fourth requisite, a perusal of petitioner's Quarterly VAT Returns for the four quarters of 2005 {Exhibits "X ", "Z ", "CC " and "FF') , shows that it has no output tax liability against which the substantiated input VAT of Pl4,879,312.65 may be applied or credited. Although petitioner carried-over the amount of Pl4,879,312.65 to the succeeding four quarters of 2006 {Exhibits "GG" to "KK') , the same remained unutilized as petitioner had no output VAT liability for the said period.

Moreover, the substantiated input VAT of Pl4,879,312.65 formed part of the P20,546,004.87 input VAT deducted as "Any VAT Refund!TCC Claimed" in the Quarterly VAT Return for the fourth quarter of 2006 {Exhibits "JJ" and "KK'). Consequently, the input VAT of P14,879,312.65 was no longer carried over to the succeeding first quarter of 2007 {Exhibit "LL ').

Fifth Requisite:

The claim for refund was filed within the two-year prescriptive period Finally, as to the two-year prescriptive period, We rule that petitioner's claim was timely filed. In the recent case of Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation (Formerly 86 0

20 Southern Energy Quezon, Inc.), G.R. No. 172129, September 12, 2008, the Supreme Court settled the issue on the reckoning of the prescriptive period and the applicable provisions on claims for refund for input VAT, as follows:

"Claim for refund or tax credit filed out of time 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 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: x x x. (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 erroneously 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 861

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. Reckoning for prescriptive period under Sees. 204(C) and 229 of the NIRC inapplicable To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of the NIRC which, for the purpose of refund, prescribes a different starting point for the two-year prescriptive limit for the filing of a claim therefor. Sees. 204(C) and 229 respectively provide: Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes.- The Commissioner may - xxxx (c) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund.

xxxx 862 21

Sec. 229.

Recovery of Tax Erroneously or

Illegally Collected.- No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. (Emphasis ours.) Notably, the above provisions also set a two-year prescriptive period, reckoned from date of payment of the tax or penalty, for the filing of a claim of refund or tax credit. Notably too, both provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes."

22 Section 112 (A) of the NIRC of 1997, as amended, clearly provides in no uncertain terms that unutilized input VAT payments not otherwise used for internal revenue tax due the taxpayer must be claimed within two

(2) 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. The reckonip.g of the two-year prescriptive period 86 3

23 for the filing of a claim for input VAT refund commences from the close of the taxable quarter when the relevant sales or transaction was made regardless when the input VAT was paid. Counting from March 31, 2005, June 30, 2005, September 30, 2005 and December 31, 2005, the close of the first, second, third and fourth quarters of 2005, respectively, petitioner's administrative claim {Exhibit "L '') and Petition for Review {docketed as C.T.A. Case No. 7558) filed on November 30, 2006 and January 3, 2007, respectively, were both filed within the two-year prescriptive period. In sum, the Court finds that petitioner is entitled to a refund or issuance of a TCC, representing unutilized input VAT paid on its domestic purchases of non-capital goods and services rendered by non- residents and importation of non-capital goods attributable to zero-rated sales for all the four quarters of 2005, but in the reduced amount of P14,879,312.65.

WHEREFORE, premtses considered, the present Petition for Review is PARTLY GRANTED. Accordingly, respondent is hereby

ORDERED

TO

REFUND

OR

ISSUE

A

TAX

CREDIT

CERTIFICATE in -favor of petitioner in the reduced amount of

FOURTEEN MILLION EIGHT HUNDRED SEVENTY NINE

864

24

THOUSAND

THREE

HUNDRED

TWELVE

and 65/100 (P14,879,312.65), representing unutilized input VAT paid on its domestic purchases of non-capital goods and services rendered by non-residents and importation of non-capital goods which are attributable to zero-rated sales for calendar year 2005.

WE CONCUR:

~G . ~~~ · JUANITO C. CASTANEDA, JR.

Associate Justice

;;, __ L~ ~~ ,~ ~fPALANCA-ENi«QUEZ

Associate Justice

ERL~UY

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.

~~ C!. ~...~.,~ .

f6ANITO C. CASTANEDA, JR.

86 5

Associate Justice

Chairperson, Second Division

CERTIFICATION

25 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 opinion of the Court. 866 l~G. o~ ERNESTO D. A COST A

Presiding Justice