Mindanao II Geothermal Partnership vs. Commissioner of Internal Revenue

DECISION

CASANOVA, J.:

These Petitions for Review filed by petitioner Mindanao II Geothermal Partnership against respondent Commissioner of Internal Revenue seek the refund or issuance of tax credit certificate (TCC) of its excess and unutilized creditable input taxes for the 1st and 2nd to 4th quarters of taxable year (TY) 2008 in the amount of P¹,624,603.33 and P4,524,652.92, respectively, or in the aggregate amount of P6,149,256.25 forTY 2008.

Petitioner was a partnership previously registered with Securities and Exchange Commission (SEC), with principal address at Barangay, Ilomavis, Kidapawan City. 1 It was a registered taxpayer in the Regional District Office (RDO) No. 108, BIR, Kidapawan City with Tax Identification No. (TIN) 004-766-953-000 and engaged in the line of business of generation, collection, and distribution of electricity. 2 Respondent is the duly appointed Commissioner of the Bureau of Internal Revenue (BIR) who is empowered to perform the duties of ~

his office, including, among others, the duty to act upon and approve claims for refund or tax credit as provided by law, with office address at the 4th Floor, BIR National Office Building, Agham Road, Diliman, Quezon City. 3 Petitioner had an Operations and Maintenance Agreement with Marubeni Energy Services Corporation (MESC).4 On March 11, 1997, petitioner entered into a Build-Operate- Transfer (BOT) contract with the Philippine National Oil Company- Energy Development Corporation (PNOC-EDC) for the finance, engineering, supply, installation, testing, commissioning, operation and maintenance of 48.25 megawatt geothermal power plant provided that PNOC-EDC shall supply and deliver steam to petitioner at no cost. In turn, petitioner shall convert the steam into electric capacity and energy for PNOC-EDC and shall deliver the same to the National Power Corporation (NPC) for and in behalf of PNOC-EDC.5 Petitioner filed with the BIR its 1st, 2nd, 3rd, and 4th Quarterly VAT Returns for TY 2008 on April 24, 2008, July 25, 2008, October 24, 2008, and January 26, 2009, respectively.6 On December 28, 2009, petitioner filed its administrative claim for refund or tax credit of its unapplied and unutilized input taxes for TY 2008 in the total amount of P6,149,256.257 with the RDO No. 108, BIR, Kidapawan City.

Consequently, respondent issued a Letter of Authority for the examination of petitioner's books of accounts and other accounting records for VAT covering the period of January 1, 2008 to December 31, 2008.8 On March 29, 2010, petitioner's partnership was dissolved.!_

On April 15, 2010, petitioner filed this Petition for Review 10 before the lapse of the 120-day period within which respondent should act on the former's administrative claim for refund, representing excess and unutilized creditable input tax covering the 1st quarter of TY 2008. Petitioner filed, through registered mail on May 27, 2010, another Petition for Review with Motion to Consolidate with CTA Case No. 8082 11 for refund or issuance of TCC representing excess and unutilized creditable input tax covering the 2nd to 4th quarters of TY 2008.

Respondent interposed the following special and affirmative defenses in the Answer12 filed on June 8, 2010 for CTA Case No. 8082: "4.

Petitioner is not entitled to refund or tax credit in the amount of P1,624,603.33 representing alleged unutilized input tax for the 1st Quarter of 2008 because it failed to submit all necessary and relevant documents pertaining to the above-mentioned amount with respondent in the administrative claim for refund or tax credit of excess input tax attributable to zero-rated sales to National Power Corporation (NPC).

5.

In an administrative claim for refund or tax credit of input taxes attributable to zero-rated sales, a VAT registered person must submit complete documents to support its application for refund pursuant to Section 112 (D) of the Tax Code of 1997. Otherwise, there will be no sufficient compliance with the filing of an administrative claim for refund, which is a condition sine qua non prior to the filing of judicial claim.

6.

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

The registration requirements of a value-added taxpayer in compliance with Section 6(a) and (b) of Revenue Regulations No. 6-97 in relation to Section 4.107-a (a) of~

Revenue Regulations No. 7-95, and Section

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 payment 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 pursuant to Revenue Memorandum Order No. 53-98. It is worthy of emphasis that Section 112(D) of the NIRC of 1997 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 of judicial 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 P1,624,603.33 allegedly paid by petitioner on its domestic purchases of non-capital goods and services, services rendered by non- residents and importation of non-capital goods for the period from 1st quarter of 2008 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 claim for tax credit or refund of the unutilized input tax (VAT) was filed within two (²) year (sic) after the close of the taxable quarter when.,.

the sales were made in accordance with Sections 112 (A) and (D) of the NIRC of 1997; f.

The judicial claim was filed within the period prescribed in Section 112 (D) of the NIRC of 1997;

h.

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 110 (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 for Input Tax Credit); i.

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

7.

The case of Ang Tibay vs. Court of Industrial Relations GR No. L-46496, states the primary rights which must be respected even in an administrative proceeding: 1) The first of these rights is the right to a hearing, which includes the right of the party interested or affected to present his own case and submit evidence in support thereof. In the language of Chief Hughes, in Morgan v. U.S., 304 U.S. 1, 58 S. Ct. 773, 999, 82 Law. ed. 1129, 'the liberty and property of the citizen shall be protected by the rudimentary requirements of fair play.

(2) Not only must the party be given an opportunity to present his case and to adduce evidence tending to establish the rights which he asserts but the tribunal must consider the <iiL evidence presented. (Chief Justice Hughes in Morgan v. U.S. 298 U.S. 468, 56 S. Ct. 906, 80 law. ed. 1288.) In the language of this court in Edwards vs. McCoy, 22 Phil., 598, 'the right to adduce evidence, without the corresponding duty on the part of the board to consider it, is vain. Such right is conspicuously futile if the person or persons to whom the evidence is presented can thrust it aside without notice or consideration.'

(³) 'While the duty to deliberate does not impose the obligation to decide right, it does imply a necessity which cannot be disregarded, namely, that of having something to support it is a nullity, a place when directly attached.' (Edwards vs. McCoy, supra.)

This principle emanates from the more fundamental is contrary to the vesting of unlimited power anywhere. Law is both a grant and a limitation upon power.

(⁴) Not only must there be some evidence to support a finding or conclusion (City of

Manila

vs.

Agustin, G.R.

No.

45844, promulgated November 29, 1937, XXXVI O.G. 1335), but the evidence must be 'substantial.' (Washington,

Virginia

and Maryland Coach Co. v. national (sic) labor (sic) Relations Board, 301 U.S. 142, 147, 57 S. Ct. 648, 650, 81 Law. ed. 965.) It means such relevant evidence as a reasonable mind accept as adequate to support a conclusion.' (Appalachian Electric Power v. National Labor Relations Board, 4 Cir., 93 F. 2d 985, 989; National Labor Relations Board v. Thompson Products, 6 Cir., 97 F. 2d 13, 15; Ballston- Stillwater Knitting Co.

v.

National Labor

Relations Board, 2 Cir., 98 F. 2d 758, 760.) ... The statute provides that 'the rules of evidence prevailing in courts of law and equity shall not be controlling.' The obvious purpose of this and similar provisions is to free administrative boards from the compulsion of technical rules so that the mere admission of matter which would be deemed incompetent inn (sic) judiciak_ proceedings would not invalidate the administrative order.

(Interstate Commerce

Commission v. Baird, 194 U.S. 25, 44, 24 S. Ct. 563, 568, 48 Law.

ed.

860; Interstate

Commerce

Commission

v.

Louisville

and Nashville R. Co., 227 U.S. 88, 93 33 S. Ct. 185, 187, 57 Law. ed. 431; United States v. Abilene and Southern Ry. Co. S. Ct. 220, 225, 74 Law. ed. 624.)

But this assurance of a desirable flexibility in administrative procedure does not go far as to justify orders without a basis in evidence having rational probative force. Mere uncorroborated hearsay or rumor does not constitute substantial evidence. (Consolidated Edison Co. v. National Labor Relations Board, 59 S. Ct. 206, 83 Law. ed. No. 4, Adv. Op., p. 131.)'

(⁵) The decision must be rendered on the evidence presented at the hearing, or at least contained in the record and disclosed to the parties affected.

(Interstate Commerce Commission vs. L. & N. R. Co., 227 U.S. 88, 33 S. Ct. 185, 57 Law. ed. 431.) Only by confining the administrative tribunal to the evidence disclosed to the parties, can the latter be protected in their right to know and meet the case against them.

It should not, however, detract from their duty actively to see that the law is enforced, and for that purpose, to use the authorized legal methods of securing evidence and informing itself of facts material and relevant to the controversy.

Boards of

inquiry may be appointed for the purpose of investigating and determining the facts in any given case, but their report and decision are only advisory. (Section 9, Commonwealth Act No. 103.) The Court of Industrial Relations may refer any industrial or agricultural dispute or any matter under its consideration or advisement to a local board of inquiry, a provincial fiscal. (sic) a justice of the peace or any public official in any part of the Philippines for investigation, report and recommendation, -- and may delegate to such board or public official such powers and functions as the said Court of Industrial Relations may deem necessary, but such delegation shall not affect the exercise of the Court itself of any of its powers. (Section 10, ibid)

(⁶) The Court of Industrial Relations or any of its judges, therefore, must act on its or his own independent consideration of the law and facts of the controversy, and not simply accept the views of a subordinate in arriving at a decision. It may be that the volume of work is such that it is literally Relations (sic) personally to decide all controversies coming before them. In the United States the difficulty is solved with the enactment of statutory authority authorizing examiners or other subordinates to render final decision, with the right to appeal to board or commission, but in our case there is no such statutory authority.

(⁷) The Court of Industrial Relations should, in all controversial questions, render its decision in such a manner that the parties to the proceeding can know the various issues involved, and the reasons for the decision rendered.

The performance of this duty is inseparable from the authority conferred upon it. (Emphasis supplied) Petitioner is mandated to present evidence to support its administrative claim and such evidence will be used as basis for the decision of the quasi-judicial body. If there is lack of evidence, then the decision will probably be contrary to petitioner. Only the evidence presented will be reviewed by the quasi-judicial body.

An administrative claim is meant to expedite the proceedings where all the relevant evidence is presented.

Petitioner, however, instead chose not to submit any evidence to support its claim.

8.

Furthermore, 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 fora_ refund/credit. This is so because exemptions from taxation are highly disfavored in law and he who claims exemption must be able to justify his claim by the clearest grant of organic or statutory law. An exemption from the common burden cannot be permitted to exist upon vague implications (Asiatic Petroleum Co. vs. Llanes, 49 Phil. 466 cited in Collector of Internal Revenue v Manila Jockey Club, Inc., 98 Phil. 670)."

As to CTA Case No. 8106, respondent interposed the following special and affirmative defenses in his Answer13 filed on July 5, 2010: "4.

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

5.

The amount of P4,524,652.92 being claimed by petitioner as alleged excess and unutilized creditable input taxes for the 2nd and 4th quarters of the year 2008 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 Revenue Regulations No. 6-97 in relation to Section 4.107-a (a) of Revenue Regulations No. 7-95, and Section

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 payment 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. It is worthy of emphasis that Section 112 (D) of the NIRC of 1997 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 of judicial 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 P4,524,652.92 allegedly paid by petitioner on its domestic purchases of non-capital goods and services, services rendered by non- residents and importation of non-capital goods for the third and fourth quarters of taxable year 2007 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 the periods prescribed in Section 112 of the NIRC of 1997;

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 110 (A) (2) and 113 of the NIRC of 1997, and pursuant to Section 4.104-5 (a) and (b) of

Revenue

Regulations

No.

7-95

(RE:

Substantiation of Claims for Input Tax Credit); g.

The requirements as enumerated under Section 4.104-2 of Revenue Regulations 7-95 (Re: Persons who can avail of the Input Tax Credits); and 8.

The petition for review was filed out of time, Section 112 (D) of the NIRC of 1997 categorically provides, thus:

'SEC. 112. Refunds or Tax Credits of Input Tax.

XXX

(D)

Period within which Refund or Tax Credit of Input Taxes shall be Made. -- In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one ca- hundred twenty day-period appeal the decision or the unacted claim with the Court of Tax Appeals.' There was likewise no proof of compliance with the prescribed checklist of requirements to be submitted involving a claim for VAT refund pursuant to Revenue Memorandum Order No. 53-98, hence, there was 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 112 of the NIRC of 1997. It is worthy of emphasis that Section 112(D) of the NIRC of 1997 requires the submission of complete documents in support of the application filed with the BIR before the 120-day audit period shall apply, and before the taxpayer could avail of judicial remedies as provided for in the law. 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 28 December 2009, the date when it filed its administrative claim for refund. The said period expired on 27 April 2010. Hence, the 30-day period within which to file the petition for review expired on 27 May 2010.

This being so, the Honorable Court has no jurisdiction to act on the instant petition for review. Moreover, petitioner's failure to submit documents supporting its claim for refund makes its administrative claim for refund pro-forma. This pro-forma administrative claim should not be taken as proper compliance with the requirements of the law that an administrative claim for refund should have been filed prior to the institution of a judicial claim for refund. Thus, without a validly and duly filed administrative claim for refund, the Honorable Court is without jurisdiction to entertain the Petition for Review. Petitioner's failure to comply with a condition precedent prior to the institution of its petition for review makes it dismissible for absence of jurisdiction on the part of the Honorable Court. e.-

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 are looked upon with disfavor (Western Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 1211).

10.

Respondent has no objection to petitioner's motion to consolidate the instant case with CTA Case No. 8082 entitled Mindanao II Geothermal Partnership vs. Commissioner of Internal Revenue as stated in the allegations in paragraphs 15-22 of the petition." On July 1, 2010, respondent filed his Pre-Trial Brief14 for CTA Case No. 8082.

On August 9, 2010, CTA Case No. 8082 was consolidated with CTA Case No. 8106. 15 Then, petitioner filed its Consolidated Pre-Trial Brief16 on September 2, 2010.

The parties submitted their Joint Stipulation of Facts and Issues17 on September 27, 2010 which the Court approved on September 28, 2010.18 On even date, the Pre-Trial was deemed terminated. 19 Upon motion20 of petitioner, the Court approved the commission of Mr. Michael L. Aguirre as Independent Certified Public Accountant on October 4, 2010.21 To prove its claim, petitioner initially presented Ms. Ma. Daisy C. Abenes as its witness. __

In the midst of petitioner's presentation of evidence, respondent filed a Motion to Dismiss 22 on December 7, 2010 claiming that petitioner prematurely filed its Petition for Review in CTA Case No. 8082. Respondent propounds that only 107 days had lapsed from the filing of petitioner's administrative claim on December 28, 2009 and the filing of the Petition for Review on April 15, 2010 which is in clear violation of Sec. 112 of the National Internal Revenue Code (NIRC) of 1997, as amended.

In the Resolution23 dated January 20, 2011, the Court granted respondent's Motion to Dismiss, thereby dismissing petitioner's claim for refund for the 1st quarter of TY 2008 for being filed prematurely. On February 7, 2011, petitioner filed a Motion for Reconsideration24, which was then denied by the court in the Resolution25 dated March 15, 2011 for lack of merit.

On April 14, 2011, petitioner elevated the matter in the CTA En Bane via a Petition for Review26 which was docketed as CTA EB No. 750, praying that the Resolutions dated January 20, 2011 and March 15, 2011, respectively, issued by the CTA Second Division be reversed and set aside. Accordingly, the CTA En Bane gave due course to the Petition. 27 On July 5, 2012, a Decision28 was rendered by the Court En Bane dismissing the Petition for Review. Thereafter, petitioner filed a Motion for Reconsideration29 on July 26, 2012, but was subsequently denied by the Court En Bane in the Resolution30 dated November 29, 2012. Undaunted, petitioner filed a Petition for Review31 on January 24, 2013 with the Supreme Court which was docketed as G.R. No. 204745. Petitioner prays that the Decision dated July 5, 2012 and Resolution dated November 29, 2012 both rendered by the CTA En Bane be reversed and set aside and judgment be rendered reinstating its Petition for Review in CTA Case No. 8082.~

On December 8, 2014, the Supreme Court promulgated a Decision 32 granting petitioner's Petition for Review. The decision reversed and set aside the CTA En Banes Decision dated July 5, 2012 and Resolution dated November 29, 2012, and, further, remanded CTA Case No. 8082 to the CTA Second Division for its resolution on the merits.

Consequently, the proceedings of the instant case continued, and petitioner presented its witnesses, namely: Ms. Ivy P. Acosta, and Mr. Michael L. Aguirre.

Thereafter, petitioner formally offered its documentary exhibits which the Court admitted in its Resolution 33 dated May 23, 2016.

On the other hand, on June 6, 2016, respondent's counsel manifested in open Court that she has no witness to present in this case. 34 Considering petitioner's Memorandum35, filed through registered mail on July 8, 2016, and respondent's Manifestation36, filed on August 5, 2016, stating that he is adopting the arguments raised in his Answer, filed on June 8, 2010, as his Memorandum, these Petitions for Review were deemed submitted for decision on August 11, 2016.37 The following stipulated issues38 are set forth by the parties for the Court's determination:

1.

Whether or not petitioner's administrative and judicial claims were timely filed;

2.

Whether or not petitioner has exhausted all administrative remedies before filing the present petition;?

3.

Whether or not the Court has jurisdiction over the present case;

4.

Whether or not the amount of P6,149,256.25 represents the accumulated excess and unutilized creditable input taxes paid by petitioner within the 1st to 4th Quarters of TY 2008 directly attributable to its primary source of revenue which is VAT zero-rated; 5.

Whether or not petitioner's excess and unutilized creditable input taxes forTY 2008 is duly supported by pertinent documents, such as VAT compliant invoices and official receipts; and 6.

Whether or not petitioner's excess and unutilized creditable input taxes paid by petitioner for the 1st to 4th Quarters of TY 2008 in the total amount of P6,149,256.25 remains unutilized and will not be utilized because of petitioner's corporate dissolution. The aforementioned issues may be summarized into a main issue of whether or not petitioner is entitled to the claim for refund or tax credit in the accumulated amount of P6,149,256.25 representing its excess and unutilized creditable input taxes for the 1st to 4th Quarters of TY 2008 directly attributable to its primary source of revenue which is VAT zero-rated.39 Petitioner claims the refund or issuance of tax credit certificates (TCC) in the total amount of P6,149,256.25, representing its excess and unutilized creditable input taxes attributable to its zero-rated sales for the four quarters of calendar year (CY) 2008. The amount of P6,149,256.25 is broken down as follows: Case No.

Period covered

Amount

8082 1st quarter of 2008 p 1,624,603.33 8106 2nd to 4th quarter of 2008 4,524,652.92

Total

P6, 149,256.25

Pertinent provision of Section 112(A) and (C) of the National Internal Revenue Code (NIRC) of 1997, as amended, provides: "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 106(A)(2)(a)(1), (2) and (b) and Section 108(⁸)(1) 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 (8SP): 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: Provided, final/~ That for a person making sales that are zero-rated under Section 108(8)(6), the input taxes shall be allocated ratably between his zero-rated and non-zero-rated sales.

XXX

XXX

XXX

(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty- day period, appeal the decision or the unacted claim with the Court of Tax Appeals."

Pursuant to foregoing, in order to be entitled to a refund or tax credit of unutilized input VAT attributable to zero-rated or effectively zero-rated sales, the following requisites must be met:~

(1) the taxpayer is VAT registered;

(2) the taxpayer is engaged in zero-rated or effectively zero- rated sales;

(3) the input taxes were incurred or paid; (4) the input taxes claimed are attributable to zero-rated or effectively zero-rated sales;

(5) the input taxes have not been applied against any output VAT liability; and (6) the claim was filed within the prescribed periods both in the administrative and judicial levels. The Court shall determine first the last requisite which is the timeliness of filing of the administrative and judicial claims.

Petitioner's

administrative and judicial claims were timely filed Applying Section 112(A) of the NIRC of 1997, as amended, petitioner has two years to file a claim for refund or tax credit of input VAT attributable to zero-rated or effectively zero-rated sales reckoned from the close of the taxable quarter when such sales were made; thus, petitioner's last day for filing of its administrative claim for the four taxable quarters of CY 2008 fell on the following dates: Period covered Last day of the Two- ear eriod

March 31 2010

June 30 2010

December 31, 2010 Since petitioner filed its administrative claim40 on December 28, 2009, it is clear that it was timely filed. On the other hand, Section 112 (D) of the 1997 Tax Code (now Section 112 (C) of the NIRC of 1997, as amended) states the time requirement for filing a judicial claim for the refund or tax credit of input VAT. The legal provision speaks of two periods: the period of 120 days, which serves as a waiting period to give time for the CIR toGL.

act on the administrative claim for a refund or credit; and the period of 30 days, which refers to the period for filing a judicial claim with the CTA.41 Thus, from the filing of petitioner's administrative claim, together with the supporting documents, on December 28, 2009, respondent had one hundred twenty (120) days or until April 27, 2010 to act on the said claim. After the lapse of the 120-day period, petitioner had thirty (30) days or until May 27, 2010 within which to file a judicial claim before this Court. Due to respondent's inaction on said claim, petitioner filed a Petition for Review before this Court on March 30, 2010 covering its claim for the first quarter of 2008 (docketed as CTA Case No. 8082) and another Petition for Review on May 27, 2010 (docketed as CTA Case No. 8106) covering its claim for the second to fourth quarters of 2008.

Although the judicial claim for the first quarter of 2008 was filed before the expiration of the 120-day period, the same was deemed timely filed as ruled by the Supreme Court in the case of Mindanao II Geothermal Partnership vs Commissioner of Internal Revenue42, thus: "Recently, in Taganito Mining Corporation v. CIR, the Court reconciled the pronouncements in the Aichi and San Roque cases in the following manner:

Reconciling the pronouncements in the Aichi and San Roque cases, the rule must therefore be that during the period December 10. 2003 (when BIR Ruling No. DA-489-03 was issued) to October 6. 2010 (when the Aichi case was promulgated), taxpayers-claimants need not observe the 120-day period before it could file a judicial claim for refund of excess input VAT before the CTA. Before and after the aforementioned period (i.e., December 10. 2003 to October 6. 2010), the observance of the 120-day period is mandatory and jurisdictional to the filing of such claim. (Emphases and underscoring supplied) In this case, records disclose that petitioner filed its administrative and judicial claims for refund/credit of its input VAT in CTA Case No. 8082 on December 28, 2009 and March 30, 2010, respectively, or during the period when BIR Ruling No. DA-489-03 was in place, i.e., from December 10, 2003 to October 6, 2010. As-e...

such, it need not wait for the expiration of the 120-day period before filing its judicial claim before the CTA, and hence, is deemed timely filed."

As to the judicial claim for the second to fourth quarters of 2008, the same was filed within the "120+30-day" periods prescribed by law. Respondent had 120 days from December 28, 2009 or until April 27, 2010 within which to act on petitioner's administrative claim. Due to inaction of respondent, petitioner had thirty days from April 27, 2010 or until May 27, 2010 to appeal such inaction. Considering that the Petition for Review docketed as CTA Case No. 8106 was filed on May 27, 2010, the same was timely filed.

Clearly, both the administrative and judicial claims were seasonably filed.

The Court shall now proceed to make a determination of petitioner's compliance with the other requisites. Petitioner is VAT-registered Petitioner is registered with the Regional District Office (RDO) No. 108, Kidapawan City of the BIR with TIN 004-766-953-000 as a VAT entity engaged in the business of generation, collection, and distribution of electricity.43 Petitioner had zero-rated sales On March 11, 1997, petitioner entered into a Build-Operate- Transfer (BOT) contract with the Philippine National Oil Company- Energy Development Corporation (PNOC-EDC) for the finance, engineering, supply, installation, testing, commissioning, operation and maintenance of 48.25 megawatt geothermal power plant provided that PNOC-EDC shall supply and deliver steam to petitioner at no cost. In turn, petitioner shall convert the steam into electric capacity and energy for PNOC-EDC and shall deliver the same to the National Power Corporation (NPC) for and in behalf of PNOC-EDC. 4~ 43 See footnote no. 2.

44 See footnote no. 5.

Petitioner's 48.25 megawatt geothermal power plant was accredited45 by the Department of Energy (DOE) as a Block Power Production Facility pursuant to Executive Order (EO) No. 215, as amended and was certified by the Energy Regulatory Commission (ERC) as complaint with the requirements set forth by the latter for its generation facility, as evidenced by the Certificate of Compliance (COC) No. 03-10-GXT25-002546 dated October 15, 2003, which was renewed by COC No. 08-12-GXT25-002547 on December 8, 2008. As a power generation company utilizing geothermal energy, petitioner's sales of generated power and delivery of electric capacity and energy to the NPC for and in behalf of PNOC-EDC (pursuant to the BOT Contract), qualify for VAT zero-rating under Section 108(B)(7) of the NIRC of 1997, as amended by R.A. No. 9337, as implemented by Section 4.108-5(b)(7) of Revenue Regulations (RR) No. 16-2005, to wit:

"SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -

XXX

XXX

XXX

(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

(7) Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels." (Emphasis supplied) "SEC. 4.108-5. Zero-rated Sale of Services.-

XXX

XXX

XXX

(b)

Transactions Subject to Zero Percent (0%) VAT

Rate. - The following services performed in the Philippines by a e:...--

VAT-registered person shall be subject to zero percent (0%) VAT rate:

XXX

XXX

XXX

(7) Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal and steam, ocean energy, and other emerging sources using technologies such as fuel cells and hydrogen fuels; Provided, however, That zero-rating shall apply strictly to the sale of power or fuel generated through renewable sources of energy, and shall not extend to the sale of services related to the maintenance or operation of plants generating said power." (Emphasis supplied) Corollary thereto is the provision of Section 4.108-3(f) of RR No. 16-2005, as amended by RR No. 4-2007, which states: "SEC. 4.108-3. Definitions and Specific Rules on Selected Services.-

XXX

XXX

XXX

(f) Sale of electricity by generation, transmission, and distribution companies shall be subject to twelve percent (12°/o) on their gross receipts starting Feb. 1, 2006; Provided, that sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels shall be subject to 0°/o VAT.

'Generation companies' refer to persons or entities authorized by the Energy Regulatory Commission {ERC) to operate facilities used in the generation of electricity. For this purpose, generation of electricity refers to the production of electricity by a generation company or a co-generation facility pursuant to the provisions of RA No. 9136 (EPIRA). They shall include all Independent Power Producers (IPPs) and NPC/Power Sector Assets and Liabilities Management Corporation (PSALM)-owned generation facilities." (Emphasis supplied) In its Quarterly VAT Returns for the four quarters of TY 2008, petitioner reported zero-rated sales/receipts of P316,642,501.23, as shown below:~

Period Covered

1st Quarter 2008 2nd Quarter 2008 3rd Quarter 2008 4th Quarter 2008

Total

Amount

Exhibit

p 88,760,859.62

"F-2"48

94 266,762.38

"G-2"49

72l116l424.84

"H-2"50

61 498,454.39 "1-2"51 p 316,642,501.23 As verified from the supporting Schedule of Zero-Rated Sales52 and the corresponding VAT zero-rated official receipts 53 (ORs), petitioner's zero-rated sales/receipts of P316,642,501.23 were duly substantiated, hence, the amount of input VAT attributable to the entire zero-rated sales shall be considered for refund. Input taxes were incurred or paid and are attributable to zero-rated sales Having resolved that petitioner's sale of generated power and delivery of electric capacity and energy to NPC for and in behalf of PNOC-EDC for the four quarters of 2008, in the amount of P316,642,501.23, qualifies for VAT zero-rating, the Court shall now determine the amount of input VAT attributable thereto. Per its Quarterly VAT Returns for the four quarters of 2008, petitioner reflected its input VAT in the total amount of P6,149,256.25, broken down as follows:

1st Quarter 2nd Quarter 3n1 Quarter 4th Quarter

Particulars

_{Exhibit Fl

(§xhibitG)

_{Exhibit H)

{§xhibiti)

Total

Domestic Purchases of Goods

Other than Capital Goods (Line

21F)

p 1 754.88 p 11412.43

Domestic Purchases of Services

(Line21J)

~622 848.45 1 732-'171.87

Total Input Taxes for the

period P1,624t603.33 P~743 584.30 48 CTA Case No. 8082 Docket (Vol. III), p.855. 49 CTA Case No. 8082 Docket (Vol. III), p.859. so CTA Case No. 8082 Docket (Vol. III), p.863. 51 CTA Case No. 8082 Docket (Vol. III), p.866. 52 Annex B of Exhibit "CC".

p 41 083.83 p 50 684.92 p 104 936.06 1 042 044.18 1 647 L255.69 6 044 320.19 P1,083,128.01 P1,697,940.61 P6,149,256.25

To prove that it incurred/paid the aforementioned input VAT, petitioner submitted various suppliers' invoices and official receipts (ORs) 54 which upon examination thereof, the Court-commissioned Independent CPA (!CPA), Mr. Michael L. Aguirre, noted a few exceptions, to wit: 55

ICPA Report

Input VAT

Reference

Findings

Amount

(Exhibit "CC")

Purchase of service supported by OR dated outside Annex D (Docket, Vol.

the 2008 covered period p 14,035.71 IV, p.1617) Purchase of goods without original/valid sales Annex E.1 (Docket, Vol.

invoices but with original/valid ORs 765.28 IV, p.1618)

Total

p 14,800.99 Further review of the !CPA's report and petitioner's supporting documents reveals that, in addition to the disallowance of P14,800.99 input VAT, the amount of P5,913,754.37 should also be disallowed for the supporting invoices and ORs failed to meet the substantiation requirements under Sections 110(A) and 113(A) and (B) of the NIRC of 1997, as amended, in relation to Sections 4.110-1, 4.110-8 and 4.113-1 of Revenue Regulations (RR) No. 16-05, as amended.

Exhibit Reference

Per Per

Supplier

lnv/OR No.

Amount

Summary

lnv/OR

1. Purchases oF goods/services supported by invoices/DRs but input VAT amount was not separately shown

Jetour Philippines Inc

Marubeni Energy Services Corp

Plumas Transport Corporation

Triple Eight Int'l Travel & Tours Inc

TriQie Eight Int'l Travel & Tours Inc

House of Travel Inc

Julieto Marco

Marubeni Energy_ Services Corp

Plumas Transport Corporation

Arnica Corporation

General Electric Philippines Inc

Julieto Marco

Marubeni Energy Services Corp

Marubeni Energy Services Corp

Triple Eight Int'l Travel & Tours Inc

General Electric Philippines Inc

Mabuhay Vinyl Corporation

Marubeni Energy Services Corp

54 Exhibits "P-1" to "S-63".

55 Exhibit "CC".

14775 0276 0577 28053 28244 20773 2231 0278 0584 028 66455 2244 0289 0292 29528 66604 002356 0298 p 8 104.93

"F-9"

P.1 360 191.83

"F-9"

P.6 300.00

"F-9"

P.7 2]16.00

"F-9"

P.8 1,358.00

"F-9"

P.⁹ 643.00

"F-9"

P.lO 60.00

"F-9"

P.ll 274,702.36

"F-9"

P.12 9,107.14

"F-9"

P.13 1811_209.60

"F-9"

P.16 231357.14

"F-9"

P.21 60.00

"G-9"

Q.4 737 713.61

"G-9"

Q.18 258 541.27

"G-9"

Q.19 1 358.00

"G-9"

Q.23 23 357.14

"G-9"

Q.29 11 615.73

"G-9"

.Q.35 378 432.51

"G-9"

Q.36

Marubeni Energy Services Corp 0289 128,055.79 Aviatica Travel & Management Corporation 54423 1,519.00 General Electric Philippines Inc 66631 11,678.57 | oso” =| RE Marubeni Energy Services Corp 0300 275,642.09 Davao Sweet Temptations Inc 04412 15.32 | Aviatica Travel & Management Corporation | 54586 | == 1519.00] *F9" |General Electric Philippinesinc_ sss | c6866 | 31,678.57] 9” | 6 | Plumas Transport Corporation =| 0645 | 3,600.00] 9” | S14 American Packing Industries (Phils 05-888 22,002.95 Marubeni Energy Services Corp 0312 319,172.82 | Marubeni Energy Services Corp ss || Sota | 394,458.49] 9" | SS | oro” | s32 [Prime Travel ToursInc S| tongs | 86.00 |” | S37

[Basilican Ventures | | 8” |

| org” | sao

2326 5,400.00

1455 36,624.00

a ee [TricOhms —“‘té‘“sé~*rSCidBS S| rang | oo” | Sc | subtotal tCidLC( CCC‘dL®:—S Cop op85a; |

2. Purchases of goods/services supported by invoices/ORs without TIN and/or address of petitioner Davao Diamond Industrial Supp! 255843 250.71 [KuplerIndustriesInc |S 7a3 | 003.56] 9” | S.t0 Villanueva Cafia & Associates 0687 54,600.00 Columbia Computer Center (Davao) Inc 30891 P 267.86 Cebu Power Exponents Services Inc 1633 9,604.80 | Simplex Industrial Corporation _-—Ss——s | —92409,s | 584 OH] OO” | SS W &L Trading Corporation | 756 | tt] TO” | S40 [Minevay.chua = s—“‘«é‘dLS~SCidtS SCO] Ci t92.00] 9” — | SSS | Tomas Electrical Supply Corporation _—s|_— 185026 —| 377.14] OO” =| SS

W &L Trading Corporation

| subtotal sc ss —“‘(LSCCCCC«dP tt asap; |

3. Purchases of goods/services supported by invoices/ORs without TIN and/or address of petitioner and input VAT amount was not separately shown Mabuhay Vinyl Corporation 2141 P 22,235.79 Mabuhay Vinyl Corporation 2140 11,227.01 Mabuhay Viny! Corporation 2138 44,546.59] "FO" | Pa

Qn

| Plumas Transport Corporation _—=—Ss_—s§s | ~S sot ~S| SC CGO. | GD” — |

Cifra Industrial Services Corp

| Kidapawan Supplies Center | S965 | BST] GO” | QB [Jewealt Marketing ss “ss —“‘(;SS aI SCO|CCttC*éi Z| HO” | RC

Plumas Transport Corporation “H-9"

| Marubeni Energy ServicesCorp sss ssi| ~S 0806 S| SS 286,341.19| HO” | RAO | Davao Central Warehouse ClubInc =| 8219 | 88857 | OO” |S |Dawn'sCafé st si‘(LSC(‘éaBOBSSCO|SCCCitBO| OCT O” O| SS [Mabuhay Vinyl Corporation sss | S786 | S23, 382.58] TO” | S28 | Mabuhay Vinyl Corporation =| 2706 S| 23,203.63] I-90" | S29 | Mindanao Electrical Services sss | S343 | 367.86] TO” =| S33 |NCH PhilippinesInc sss CidTCsseSs| 0.80] TO” | SS | Plumas Transport Corporation _—S§s—s—s| ~Ston9—s| St 7974] =O” — | S36

American Packing Industries (Phils

“ec

House of Travel Inc

Mabuhay Vinyl Corporation

Plumas Transport Corporation

subtotal 22987 2755 1032 621.00

"I-9"

35 577.97

"I-9"

9 107.14

"I-9"

p 1,008,665.48

4. Purchase of' goods/services supported by documents other than VAT invoices/ORs

Kidapawan Megacenter Corp

78199 p 216.84

"F-9"

Tokio Marine Malay_an Insurance

14096 360 406.35

"F-9"

Mang !nasal 106 16.50

"G-9"

Ayala Property Mgmt Corp

316477 2.68

"G-9"

Somoutori

41559 28.93

"G-9"

MOF Com~anyJSubicl Inc 4029 960.00

"I-9"

Hyman's Bahay Kainan

372684 26.79

"I-9"

Proheart Food Corp

3048946 26.79

"I-9"

World Chicken

222847 18.75

"I-9"

subtotal p 361_,703.63 S.46 S.51 S.56 P.24 P.29 Q.17 Q.26 Q.39 S.34 S.47 S.57 S.63

5. Purchase of' goods/services supported by documents with notation "Not valid source of' /not allowed f'or claiming input tax"

Matsuko Rubber Industries Inc

7766 p 5,785.71

"H-9"

R.17

Marco Polo Davao

125324 1 027.49

"H-9"

R.39

Marco Polo Davao

127061 1,060.29

"I-9"

S.13

Marco Polo Davao

127161 GC

851.24

"I-9"

S.30

Marco Polo Davao

127244 494.91

"I-9"

S.52

Marco Polo Davao

127243 1,179.16

"I-9"

S.53 subtotal p 10,398.80

6. Purchase of' service supported by OR not issued in petitioner's name and without petitioner's TIN and address PGA Sumpo Japan Insurance Inc.

28641 p 144.00

"H-9"

R.18 subtotal p 144.00

7. Purchases of' services supported by ORs dated outside the period of' claim and input VAT amount was not separately shown

Marubeni Energy_ Services

0305 p 307 308.77

"H-9"

subtotal p 307,308.77

Total

p 5,913,754.37 Therefore, out of petitioner's reported input VAT forTY 2008 in the amount of P6,149,256.25, only the amount of P220,700.89 represents petitioner's valid input VAT, computed as follows:

Total InQut VATper Returns

p 6L149_L256.25

Less: Disallowances

Per !CPA's report p 14 800.99 Per this Court's findings 5 913,754.37 5,928,555.36

Valid Input VAT

p 220,700.89 Considering that petitioner had no other sales reported per Quarterly VAT Returns for CY 2008, the valid input VAT of P220,700.89 is entirely attributable to its zero-rated sales . .et- R.32

Input taxes were not applied against any output VAT liability A perusal of petitioner's Quarterly VAT Returns56 for the four quarters of 2008 shows that it had no output tax liability against which the valid inputVATofP220,700.89 may be applied or credited. Further, the input VAT of P220,700.89 was not carried over to the succeeding quarters of 200957• In sum, petitioner has sufficiently proven its entitlement to the refund or issuance of a TCC, representing unutilized input VAT paid on its domestic purchases of goods and services for the four quarters of 2008 which is attributable to its zero-rated sales for the same period, in the reduced amount of P220,700.89.

WHEREFORE, premises considered, the instant Petitions for Review are PARTIALLY GRANTED.

Accordingly, respondent is ORDERED TO REFUND the amount of P220,700.89 in favor of petitioner, representing the latter's unutilized input VAT attributable to its zero-rated sales forTY 2008.

WE CONCUR:

~~h> c .Q..d-~~ .Q.

J6ANITO C. CASTANEiSA~ JR.

Associate Justice

56 Exhibits "F-3", "G-3", "H-3", and "I-3", respectively. 57 Exhibits "J-2", "K-2", "L-2" and "M-2".

CAESA~ANOVA

Associate Justice

/Y~, 1-A~ C'ATHERINE T. MANAHAN

Associate Justice

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, 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.

~c.a-~~".l..

JO'ANITO C. CASTANE6'A, JR.

Acting Presiding Justice