Commissioner of Internal Revenue vs. San Roque Power Corporation

DECISION

MINDARO-GRULLA, J.:

Submitted for decision is a Petition For Review 1 for the Court en bane under Rule 8 of the 2005 Revised Rules o f the Court o f Tax Appeals, as amended, of the Decision 2 dated April 23, 2009, rendered by the former Second Division of this Court in C.T.A Case No. 7173, and its Resolution3 dated August 6, 2009.

1 Rollo, pp. 7-58 2 Ibid. pp.2 1-52, Penned by Associate Jus tice .Juanito C. Castaneda ,Jr., conc urred in by Assocciate .Justice Erlinda P. Uy and Associa te Justice Olga f>alo nca-Enriquez 3 Rollo, pp. 53-58 ( Commissioner of Internal Revenue vs. Son Roque Power Corporation

The petitioner Commissioner of Internal Revenue (CIR) seeks reversal of both the aforesaid Decision and Resolution, the dispositive portions of which, respectively read as follows:

Decision dated April 23, 2009:

"WHEREFORE, premises considered, the instant PETITION FOR REVIEW is hereby PARTIALLY GRANTED. Accordingly, respondent Commissioner of Internal Revenue is hereby ORDERED TO REFUND or TO ISSUE TAX CREDIT CERTIFICATE in the amount of ONE HUNDRED

FOURTEEN MILLION ONE HUNDRED NINETY ONE THOUSAND ONE

HUNDRED SIXTEEN PESOS AND 15/100 (P114, 191 , 116. 15) in favor of petitioner, representing unutilized excess input taxes attributable to capital goods purchases and effectively zero-rated sales to NPC for the period covering January 1, 2003 to December 31, 2003.

Exh

F

L

0 s Commissioner of Internal Revenue vs. Son Roque Power Corporation

2003 1st Qtr 2nd Qtr 3rd Qtr 41h Otr

Zero-rated

Output

Input VAT

Sales/Receipts

VAT

Domestic

Importation

Excess

Purchases of Goods

P83,676.97 p 18,856, 186.54 P365,795.00 p 19, 138,304.57 p 1,081 ,634,328.00 0.00 27, 126,8 14.46 208,366.00 27,335, 180.46 1,951 ,602,941 .92 0.00 9, 925,652.31 3,352, 178.50 13,277,830.81 1,837,486, 111 . 10 0.00 82,281,037.38 224,085.00 82,505, 122.38 P4,870, 723,381 .02 P83,676. 97 P138, 189,690.69 P4, 150,424.00 p 142,256,438.22 On November 5, 2004, San Roque Power Corporation filed with the BIR four (4) letters claiming refund of the total amount of P 142,256,438.22, representing unutilized excess input VAT, as declared in its VAT Returns for the four quarters of 2003 in the sum of p 142,256,438.22.

On February 24, 2005, San Roque Power Corporation filed with the BIR an additional claim in the amount of P5,723, 120.48, allegedly representing unutilized input VAT for the first quarter of 2003 which was erroneously included in its previous claim for refund covering the period October 1, 2002 to December 31 , 2002. However, upon verification that such error was already corrected in its records and that there was no basis for the said additional claim, respondent filed a letter with the BIR on March 22, 2005 to withdraw the refund claim of P5,753, 120.48. As the two-year prescriptive period within which to file a judicial claim for refund was about to lapse without action on the part of C/R, San Roque Power Corporation elevated its claims before this Court via a Petition for Review filed on March 21 , 2005, praying for the refund or issuance of tax credit certificate in the amount of P 142,256,438.22, representing unutilized input VAT on purchases of capital goods and other taxable goods and services for the period covering January 1, 2003 to December 31, 2003. In his Answer filed on May 19,2005, CIR, raised the following

Special and Affirmative Defenses:

'4.

San Roque Power Corporation's alleged claim for refund/ tax credit

IS

subject to administrative routinary examination/inves tigation by the Bureau 's Revenue District No. 8 in

Urdaneta City

Pangasinan.

5.

San Roque Power Corporation failed miserably to show that the total amount of Php 142,256,438.22 represent[ing) excess input VAT on purchases of c apital goods and services for the period January I to December 31, 2003. 6.

Taxes paid and collected are presumed to have been paid in accordance with law;

hence, not refundable.[.

Commissioner of Internal Revenue vs. San Roque Power Corporation

7.

In on action for refund/credit, the taxpayer has the burden to establish its right to refund, and failure to sustain the burden is fatal to the claim for refund.

8.

It

is incumbent upon Son

Roque Power

Corporation to show that it has complied with the provisions of Section 204 (c) in relation to section 229 of the Tax Code.

9.

Well-established is the rule that refund/tax credits ore construed strictly against the taxpayer as they partake the nature of exemption from tax.' During the trial on the merits, Son Roque Power Corporation presented documentary and testimonial evidence. CIR, on the other hand, submitted this case for decision without presenting any witness."

Thus, this Court's former Second Division rendered the assailed Decision6. Not satisfied, the CIR moved for a partial reconsideration of the same, which was denied in a Resolution 7 dated August 06, 2009. Hence, the CIR filed this petition .

In assailing the Decision and Resolution of the Court's former Second Division, promulgated on April 30, 2009 and August 6, 2009, respectively, the Commissioner of Internal Revenue (CIR) raised the sole issue:

"WHETHER OR NOT THE

(FORMER)

SECOND DIVISION OF THE

HONORABLE COURT ERRED IN PARTIALLY GRANTING RESPONDENT'S CLAIM FOR REFUND IN THE AMOUNT OF P 114, 191, 116.15 ALLEGEDLY REPRESENTING UNUTILIZED EXCESS INPUT TAXES ATTRIBUTABLE TO CAPITAL GOODS PURCHASES AND EFFECTIVELY ZERO-RATED SALES TO NPC FOR THE PERIOD COVERING 1 JANUARY 2003 TO 31

DECEMBER

2003

BECAUSE

THE

CLAIM

WAS

NOT

FILED

IN

ACCORDANCE WITH THE PROCEDURE PRESCRIBED BY LAW." 6 Supra, Note 2 7 Supra, Note 3 ( Commissioner of Internal Revenue vs. San Roque Power Corporation In support thereof, the CIR contends that San Roque Power Corporation's claim for refund was not properly documented in the administrative proceedings and thus, San Roque Power Corporation is not entitled to the relief sought.

The CIR's argument that the denial by inaction of San Roque Power Corporation's claim for refund should be sustained for non-compliance with the legal procedure - submission of complete documents, is totally without merit.

Suffice it to say that San Roque Power Corporation did not elevate to this Court's former Second Division its claim for refund on the ground of denial for insufficiency of evidence due to non-submission of complete documents but rather from the CIR's inaction or failure to act on it. Admittedly, the submission of relevant and complete supporting documents is necessary for the granting of refund or tax credit certificate, in both administrative and judicial level. However, submission of the complete supporting documents in the administrative level is not a condition precedent before a taxpayer can elevate its claim before this Court.

A perusal of the records would reveal that on November 5, 2004, San Roque Power Corporation filed a claim for refunds with the Bureau of Internal Revenue, Revenue Distric t Office No. 6, Urdaneta, Pangasinan . 8 Exhibits "U", "V", "W" & "X", admitted in Resolution dated Jul 14, 2006, Second Division Docket pp.140-141 C.

~/ Commissioner of Internal Revenue vs. Son Roque f.)ower Corporation

Pursuant to section 112 (C) of the NIRC as amended, San Roque Power Corporation has thirty (30) days from the d ecision of the CIR denying its claim or after the expiration of one hundred twenty ( 120) days from the filing of refund, to appeal the decision or the unacted claim to this Court. We quote:

SEC. 112. Refunds or Tax credits of Input Tax.-

XXX

XXX

(C)

Period within which Refund or Tax Credit of Input Taxes shall be made.- In proper c ases, the Commissioner shall grant a refund or issue the tax credit certific ate 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 d enial of the claim for tax refund or credit, or the failure on the part of th e Commissioner to act on the application within 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. (Italics supplied) The above provision clearly provides that the taxpayer must elevate its claim before this Court within 30 days from receipt of the denial of its claim for refund/tax credit or after the expiration of the 120-day period granted to the CIR to decide on the taxpayer's c laim. Having filed the claim for refund on November 5, 2004, San Roque Power Corporation has 30 days from the expiration of th e 120-day period, specifically until April 5, 2005 to petition to this Court. The petition having been filed on Marc h 21 , 2005 and raffled to the Second Division of this Court, was w ell within the period prescribed by law. C Commissioner of Internal Revenue vs. Son Roque Pow er Corporation

The alleged non-submission of c omplete documents at the administrative level will not bar this Court from receiving evidence, evaluating and appreciating its materiality, relevancy, probative value and sufficiency concerning the San Roque Power Corporation's claim for refund considering that the CIR failed to state and identify what documents did San Roque Power Corporation fail to submit in order to warrant their denial. The CIR ought to know that mere allegation is not evidence.9 Thus, mere allegation in the total absence of evidence is just that- an allegation- undeserving of credence. Records reveal that the CIR failed to controvert the documentary and testimonial evidence presented by San Roque Power Corporation. Likewise, neither a speck of evidence was presented nor to say the least any action/opposition from the CIR was made before submitting the c ase for resolution . After a thorough examination of the documentary and testimonial evidence presented before this Court's former Second Division, we find them sufficient for adjudic ation on

San

Roque

Power

Corporation 's claim.

Respondent anchored its claim for refund of Php 142,256,438.22 10 under Section ll2(A) and (B) 11 of the NIRC , as amended by RA 9224 broken down as follows.

9 1ndustriol Textile Manufacturing Co. of the Phils. Inc vs. LP J Ent. Inc., G .R. No. 66 140; January 31, 1993, 217 SCRA 322 1o Rollo. p . 27 11 SEC. 112. Refunds or Tax Credits of Input Tax. - (A) Zero-rated or Effectively Zero-ra ted Sales-Any VAT-registered person, whose soles ore zero-ra ted or effec tively zero-rated may, within two (2) years a fter the c lose of the taxable quarter w hen the soles w ere mode, C..

Commissioner of Internal Revenue vs. Son Roque Power Corporation

2003

Per Return

Capital Goods

Non-Capital Goods/

Services

January

Php

8,376,552.05

Php

7,107,311 .52

Php

1,269,240.53

February

5' 941 '941 . 02 5,389,717.61 552,223.41

March

4,819,81 1.50 3,514,692.90 1,305,118.60

Subtotal

Php

19,138,304.57

Php

16,011,722.03

Php

3,126,582.54

April

10,771 ,389.83 9,693,940.97 1,077,448.86

May

11 ,521,557.23 1,432,711 .11 10,088,846.12

June

5,042,233.40 2,969,322.23 2,072,911 .17

Subtotal

Php

27,335,180.46

Php

14,095,974.31 Php 13,239,206.15

July

Php

4,409,756.66

Php

3,749,735.35

Php

660,021 .31

August

5,255,289.60 2,898,474.21 2,356,824.39

September

3,612,775.55 2,591 ,365.69 1,021,409.86

Subtotal

Php

13,277,830.81

Php

9,239,575.25

Php

4,038,255.56

October

Php

2,440,219.14

Php

1,205,337.58

Php

1,234,881 .56

November

78,160,805.76 76,922,800.49 1,238,005.27

December

1,904,097.48 1,315,615.27 588,482.21

Subtotal

82,505,122.38 79,443,753.34 3,061 ,369.04

Total

Php 142,256,438.22 Php 118,791,024.93 Php 23,465,413.29 Of the ~ 118,791 ,024.93, representing alleged input tax on capital goods, the amount of ~700 , 133.45 and ~4,584,028.12 or a total of ~5,284, 161 .57 shall be disallowed. Thus, the valid input VAT attributable to capital goods amounts to~ 1 13,506,863.36. We agree with the findings of this Court's former Second Division, the pertinent portion of which reads: apply for the issuance of a tax c redit certificate or re fund o f creditable input tax due or paid attributable to such soles, except transitional input tax, to the extent that such input tax has not been applied against ou tput tax: Provided, however, That in the case of zero-rated soles under Section l06(A)(2)(o)(1) , (2) and (B) and Section 108 (B)(1) and (2) , the acceptable foreign currency exchange proceeds thereof hod been duly accounted for in accordance with the rules and regulations of the Bongko Sentrof ng Pilipinos (BSP) : Provided, furth er, That where the taxpayer is engaged in zero-rated or effectively zero-rated sole and also in taxable or exempt sole of goods or properties or services. and the amount of c reditable input tax due or paid cannot be direc tly and en tirely attributed to any one of the transac tions, it shall be a llocated proportionately on the basis of the volume of soles.

(B) Capitol Goods-A VAT-registered person may apply for the issuance of a tax c redit certificate or refund of input taxes paid on capitol goods imported or locally purchased, to the extent the such input taxes hove not been applied against output taxes. The applica tion may be mode only within two (2) years after the close o f the taxable quarter when the importation or purchase was mode. ( Commissioner of Internal Revenue vs. San Roque Power Corporation

"xxx, records disclose that out of the total input tax claim of ~ 118,791,024.93, only ~ 114,206,996.82 is properly attributable to petitioner's purchases of capital goods and formed part of the Property plant and equipment account shown in its 2003 audited Financial statements. The purchases related to the remaining balance of ~,584,028.12 , although recorded under property, plant and equipment account, are not in the nature of capital goods as these pertain to non-capitalizable transactions such as payments for curtain rods, security guards services, advertising expenses, lease and service of portalets, safety shoes, etc. Nonetheless, out of the remaining balance of ~,584,028.12, petitioner may claim the amount of ~,579,228.12 which was incurred during its commercial operations that started May 1, 2003. Thus, petitioner's entitlement to the input tax of ~,579,228. 12 shall be evaluated together with petitioner's claimed amount of ~23,465,4 13.29, allegedly representing input tax on non capital goods/services attributable to effectively zero rated sales to NPC. " As aptly found by this Court's former Second Division, the amount of ,j27QO, 133.45 is disallowed for the following reasons:

Name of Supplier

lnv. No. Exhibit I OR No.

Exhibit

Input Vat

1. Purchases of services supported by official receipts not in the name of petitioner in violation of Sections 113 and 237 of the NIRC of 1997 & Section 4.108.1 of Rev. Reg. 7-95 F. Gutierrez Corporation 239

PP-4-E112

300

PP-4-E111

P35,243.57 F. Gutierrez Corporation 270

PP-4G 175

417

PP-4G 174

14,440.91 ·-----· F. Gutierrez Cor[_2oration 269

PP-4G 177

417

PP-4G 174

20,023.47 F. Gutierrez Corporation 337

PP-4K 155

450

PP-4K 154

2,052.55 F. Gutierrez Corporation 331

PP-4K 156

450

PP-4K 154

3,662.01 F. Gutierrez Corporation 335

PP-4K 157

450

PP-4K 154

3,528.83 F. Gutierrez Corporation 336

PP-4K 158

450 ___ PP-4K 154

5,533.52 F. Gutierrez Corporation 343

PP-4K 160

451

PP-4K 159

10,633.2 F. Gutierrez Corporation 348

PP-4K161

451

PP-4K 159

9,449.09 F. Gutierrez Corporation 333

PP-4K162

451

--~-4K 159

7,086.02 F. Gutierrez Corporation 349

PP-4K 163

- 1-451

PP-4K 159

1,866.25 F. Gutierrez Cor[_2oration 338

PP-4K 165

451

PP-4K 159

1,6301.72 F. Gutierrez Corporation 365

PP-4L 171

458

PP-4L 170

4,730.71 F. Gutierrez Corporation 223

PP-40 151

292

PP-40149

12,171.00 subtotal P146,722.85

2. Purchases of services without supporting official receipts in violation of Section 11 O(A)(1 )(b) in relation to Sections 113 and 237 of the NIRC of 1997 and Section 4.108 of RR 7-95

Harza Enqineerinq

·-=r= P176,332.78

Harza Engineering

178,567.37

Subtotal

P354, 900.13

3. Not included per "Schedule of Input VAT Paid on Local Purchases with original and appropriate supporting documents" (Exhibit PP -~ F. Gutierrez Construction 267

PP-4-G 175

417

PP-4-G 174

P5,562.07

Raytheon

Ebasco

233

PP-4-8208

460

PP-4-8207

8,533.34 Overseas Ltd.

F. Gutierrez Construction 121

PP-4-C138

291

PP-4-C 137

3,596.55 ------- F. Gutierrez Construction 220

PP-4-C 140

288

PP-4-C 139

'--···--· ·-·--- ----·-· ------- 180,818.51 subtotal P198,51 0.47 ----··---------- ··-

Total

P700, 133.45 Commissioner of Internal Revenue vs. Son Roque Power Corporation

Regarding the refund of ~23,465,413.29 1 2 input tax for non-capital goods/services, ~684,252.79 13 of it were proven to be attributable to substantiated zero-rated sales. In the recent case of San Roque Power Corporation vs. Commissioner of Internal Revenue G.R. No. 180345, November 25, 2009, on claim for refund or tax credit under Section 112(A) 14, the Supreme Court set the following criteria: ( 1) The taxpayer is VAT registered;

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

(3) The input taxes are due or paid;

(4) The input taxes are not transitional input taxes; (5) The input taxes have not been applied against output taxes during and in the succeeding quarters; ( 6) The input taxes claimed are attributable to zero-rated or effectively zero-rated sales;

(7) For zero-rated sales under Section 1 06(A)(2) ( 1) and (2); 106(8); and 108(8)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with 8SP rules and regulations;

12 Total claimed input tax Less: Input Tax Claim on Capitol Goods Purc hases Input Tax Claim on Non-Capitol Goods/ Servic es

13 See Note 18

14 Supra, Note 12 C.

p 142,256,438.22 118,791 ,024.93 p 23,465,413.29 ------------- ------------- Commissioner of Internal Revenue vs. Son Roque Power Corporation

(8) Where there are both zero-rated or effectively zero- rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume; and (9) The claim is filed within two years after the close of the taxable quarter when such sales were made. Records reveal that San Roque Power Corporation complied with the criteria set by the Supreme Court, as follows: First and Second criteria. - Based on the joint stipulation of facts of the parties, San Roque Power Corporation is a VAT registered taxpayer with Certificate of Registration No. OCN 98-006-007394 and TIN No. 005- 017-501 15 ; and it was granted a Certificate for Zero Rate by the CIR through the Chief of Regulatory Operations Monitoring Division (now the Audit Information, Tax Exemption & Incentive Division) and thus, is engaged in zero-rated sales.

Third criterion. - Various suppliers' VAT invoices, official receipts, confirmation letters and bank's official receipt, Bureau of Customs (BOC) Import Entries and Internal Revenue Declarations were presented to prove the input taxes claimed.

15 First Division Docket. P .7 5 ( Commissioner of Internal Revenue vs. San Roque Power Corporation

Fourth and Fifth criteria . - There is no transitional input tax on the c laimed input tax and th a t the same was already net of the output tax for the 1st quarter of 2003 16.

Sixth criterion. - As correctly found by this Court's former Second Division, San Roque Pow er Corporation was able to prove that the amount of ~6 8 4 ,252. 79 1 7 of claimed input tax taxes were a ttributable to substantiated zero-rated or effec tively zero-rated sales of~ 170,000,000.00. Seventh criterion. - Foreign currency exchange proceeds are inapplicable considering that

San

Roque

Power

Corporation's

substantiated zero-rated sale of ~ 170,000,000.00 as operating fee did not involve foreign exchange.

Eighth criterion. - Similarly, the eighth criterion is inapplicable to this case, w here the only sale transaction consisted of an effectively zero- rated sale.

16 Findings of the Court a quo, Rollo, p . 28 ci ting Exhibit "F" 11 Rollo, pp. 40-41

Capitol Goods

Non-Capitol

Goods/Services

Amount of c laim p l 18,791,024.93 P23,465,413.29

Add/(Less)

a. Input val claim on capito l goods purchases which (700, 133.45) ore not duly supported by vAT o ffic ial receipls

b. Input Vat, the related purchases of which ore nol (0811,02812) in the nature of capitol Qoods c . Input Vat, the reloled purchases of which ore nol 11,579,228. 12 in the nature of capitol goods but ore a ttributable lo effectively zero-soles 1-- d.lnput VAT claim on non-capitol goods/services ( 4,204,031.40) which could nol be otlribuloble to effeclively Lero- soles e.lnput VAT claim on non-capitol goods/services (4,235,868.33) which ore not duly subston lio ted by VAT invoices, official receipls, BOC imporl declorolions/ e lc.

Valid Input VAT

PI 13,506,863.36 p 19,604,7 41.68 Less: Input VAT attribu table lo unsubslonlioled Lero- ( 18,920,1188.89) rated soles (Pl9,604,7 4l.68-P684,252.79*l p l 13,506,863.36 P P684 ,252.79

Substantiated Zero Rated Sales

P170,000,000.00 divided by Total reported Zero - Rated Sales 4,870, 723,381 .02

Multiplied by the Substantiated Excess Input VAT

19 604 741.68 Input VAT attributable to substantiated Zero-Rated SaJes P p 684,252.79

Total

p 142,256,438.22 (700, 133.45) (4,584,028.12) 4,579,228.12 (4,204,031.40) (4,235,868.33) P 133, I II ,605.04 ( 18,920,488.89) p 114,19 1,116.15 Commissioner of Internal Revenue vs. San Roque Power Corporation

Ninth criterion. - Lastly, the claim was filed within two years after the close of the taxable quarter when such sales were made. The claim for refund, for the four quarters of 2003 having been filed with the BIR on November 5, 2004, is within the two year period to file a claim for refund. 2003 Close of taxable Last day within quarter which to file a claim for refund 1st Qtr March 3 1,2003 March 3 I ,2005 2nd Qtr June 30,2003 June 30,2005 Jrd Qtr September 30,2003 September 30,2005 4 th Qtr December 3 I ,2003 December 3 I ,2005 In fine, the Court En Bane finds no cogent justification to disturb the findings and conclusion in the assailed Decision and Resolution of the Court's former Second Division, promulgated on April 30, 2009 and August 6, 2009, respectively.

WHEREFORE, the instant Petition for Review is hereby DISMISSED for LACK OF MERIT. Accordingly, the April 30, 2009 Decision and August 6, 2009 Resolution of this Court's former Second Division are AFFIRMED.

WE CONCUR:

~N

. Mh-~~,6~ CIELITO N. MINDARO-GRULLA

Associate Justice

L.;;i:: ca o~ ERNESTO D. ACOSTA

Presiding Justice

Commissioner of Internal Revenue vs. Son Roque Power Corporation

~~(2.

G.;t--~10,.

Jt'iANITO C. CASTANEDA, JR.

Associate Justice

..

_a_

Page 15 of 15

CAESAR A. CASANOVA

Associate Justice

~tt~

OLGA PALANCA-ENRIQUEZ

ESPERAN

Associate Justice

~~-- r: ~~?-- AMELIA R. COT ANGCO-MANALASTAS

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 among the members of the Court En Bane before the case was assigned to the writer of the opinion of the Court En Bane.

L"'. o ~ ERNESTO D. AC<5SJA

Presiding Justice