Northern Mini Hydro Corporation vs. Commissioner of Internal Revenue

DECISION

MINDARO-GRULLA, J.:

Submitted for decision is a Petition for Review for the Court en bone under Section 18 of Republic Act No. 1125 1, as amended by Republic Act No. 92822, of the Decision3 doted May 28, 2009, rendered 1 An Ac l Crealing lhe Courl of Tax Appeals. 2 An Act Expanding lhe .Jurisdiction of lhe Courl of Tax Appeals (CTA). Eleva ling ils Rank to lhe Level of a Collegiale Courl wilh Special .Juriscjiclion and l:nlorging ils Membership. Amending for the Purpose Cerlain Seclions or Republic Acl No. I 12:J, as ornencjed, o lherwise known as lhe Law Crealing I he Courl of Tax Appeals, and for Olr1er Purposes. A porly adversely affecled by a resolution of a Division o f lhe CTA on a molion for reconsidera lion or new !rial, may file a petilion for review with I he CTA en bane. C. 96 1 Northern Mini Hydro v. CIR by the former First Division o f this Cou rt ~ in CTA C ase No . 7257, and its Resolutions dated September 16, 2009, the dispositive portions of which, respectively, read a s fo llows:

Decision doted May 28, 2009:

"WHEREFORE, premises considered, the instant Pe titio n for Review is hereby DISMISSED for lac k of merit.

Mini Hydro

Corporation

(Petitioner]

is a domestic c orporation duly organized and existing under and by virtue of the lows of the Philippines, with principal office address at 214 Obulan, Ambuklao Road, Beckel, La Trinidad, Benguet. It is registered as a VAT taxpayer with the Bureau of Internal

Revenue

{BIR}

under Revenue District No. 9 -

Cordillera

Administrative Region, with Tax Identific ation Number (TIN} 001- 946-904-000 and Certificate of Registration dated April 10, 2003. Pe titioner is duly registered with the Securities and Exc hange Commission (SEC} a nd the Department of Energ y. It also has a duly approved Application for VAT Zero-Rate issued by respondent.

Respondent is the Commissioner of the BIR, who is duly appointed and empowered to perform the duties of his offic e, including, among others, the duty to a c t and approve c laims for refund or tax credit as provided by law. He holds offic e at the BIR Notional Office Building, Agham Rood, Dilimon, Q uezon City. 3 En bane Docke t, pp. 38-48 4 Penned b y Associa te Jus tice Lovell R. l~aulis l o ancj concurred in by Associa te Jus tice Caesar A. Casanova. Presiding Jus lice Erneslo D. Acos lo has o concurring and dissenting opinion. s En Bane Dockel, pp . 76-79 L.

96 2 North ern Mini Hydro v. CIR

Poge 3 of 13

O n Marc h 4, 2004, petitioner filed its Q uarterly VA T Re turns for the second, third a nd fo urth quarters of taxable year 2003. However, on Marc h 2 1, 2005, pe titioner wittingly or unwittingly filed onc e again the som e set of re turns, having exactly the some informa tion and fig ures as tha t w hic h were filed earlie r. O n M arc h 3 1, 2005, petitio ner filed on administrative c la im for refund.

O n May 26, 2005, the Instan t Petition for Review was filed before this Co urt, seeking refund or issua nce of tax credit c ertific ate of alleged un utilized input VAT paym ents for taxable year 2003 in the sum o f PI , 174,708.46 This amo unt actua lly referred to tha t w hic h was decla red for the fourth q uarter o f taxa ble year 2003.

O n July 29, 2005, respondent filed his Answer to the said Pe tition for Review.

Th e parties' Joint Stipula tio n of Facts a nd Issues filed on Octo ber 7, 2005 was admitted by this Court thro ug h a Resolution doted October 14, 2005.

Tria l o n the m erits the n proceeded.

On June 20, 2006, responden t, through Regiona l Director Norberta D. Vitug, partia lly gra nted the said c la im by issuing a tax credit certificate with seria l number 006402, in the a m o unt of P457,678. 17 in favor o f p e titio ner.

By virtue of such development, on A ug ust 9, 2006, p e titio ner filed a Motion for Leave of Court To File Supple m ental Pe titio n for Review, attaching a copy of the said supple m ental pleading.

At the hearing held on A ug ust 10, 2006, resp ondent interposed no objectio n a nd said Mo tion was thus granted. Resp ondent however reserved the rig ht to file a Supple menta l Answer.

The Co urt the n required responde nt to file his Supple m enta l Answer within ten ( 1 0) days from suc h dote. By way o f Amended Answer filed on August 17, 2006, responden t alleged the following Specia l a nd Affirma tive

Defenses:

'5.

Petitioner's alleged claim for refund is subject to administrative routinary investigation/examination by the Bureau of Internal Revenue: C..

963 Northern Mini Hydro v. CIR

6.

The amount of PI, 174,708.46 being claimed by petitioner as alleged unutilized input VAT for the period January 2003 to December 2003 is not properly documen ted; 7.

The decision of the Supreme Court in the case of Macedo vs. Mocaraig 223 SCRA 217 ( 1993) which states that the NPC is exempt from all taxes. duties. fees. imposts. c harges and restrictions of the Republic of the Philippines and its provinces. c ities and municipalities. is not applicable to the instant petition.

What is being exempted in said decision is NPC per se and such exemption does not extend to the supplier such as the petitioner in the instant case.

8. In on action for refund /credit. the burden o f 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.

9. Petitioner must show that it has complied with the provisions of Sections 204{C) and 229 of the 1997 Tax Code on the prescriptive period for claiming lox refund/credit.

10. Claims for refund ore construed strictly against the claimant for the some partake the nature of exemption from taxation (Commissioner of Infernal Revenue vs. Ledesma, 31 SCRA 95) and as such, they are looked upon with disfavour {Western Minolco Corp. Vs. Commissioner of Infernal Revenue, 124 SCRA 1211 ). ' Th e parties' Additional Joint Stipula tion o f Facts and Issues filed on February I. 2007 was approved per this Court 's Resolution dated February 13, 2007.

Th e tria l of the case continued; after which the parties were ordered to file their respective Mem orandum. On June 26, 2008, the case was submitted for decision, considering the Memorandum filed by petitioner o n March 7, 2008 and the Memorandum filed by respondent o n Marc h 28, 2008.

Thereafter, this Court's former First Division rendered the assailed

Decision

doted May 28, 2009.

Petitioner

filed its motion for reconsideration there from, which was denied by this Court' s former First Division on September 16. 2009. Hence. petitioner filed the instant Petition for the Court en bone. C..

96 4 Northern Mini Hydro v. CIR

Petitioner Northern Mini Hydro Corporation prays for the reversal of both the aforesaid Decision and Resolution, and for respondent to grant a cosh refund or issue a tax credit certificate to petitioner in the amount of P717,030.29 representing unutilized inpu t VAT paid on domestic purchases and importations o f goods and services attributable to zero-rated soles of power generation services for taxable year 2003.

Originally, the instant case involves a c laim for re fund or issuance of tax c redit certificate of unutilized input value-added tax (VAT) in the amount o f P1 , 17 4,708.46 from January to December, 2003, allegedly arising from petitioner's domestic purchases of goods and services which ore attributable to its VAT zero-rated soles o f power generation services to the Notional Power Corporation (NPC ). This Court' s former First Division held that without va lid VAT o ffic ial receipts, petitioner's alleged soles of electricity to NPC for taxable year 2003 cannot qualify for VAT zero-rating under Sec tion 1 08(B) (3) o f the NIRC of 1997 6 Thus, from the aforesaid amount of P 1,1 7 4, 708.46, th e c laimed unutilized input VAT attributable thereto in the amount of P71 7,030.29 cannot be granted.

The issues submitted to this Court en bone for consideration ore substantially the some issues raised in petitioner's motion for reconsideration, as fo llows:

6 En Bone Dockel p.47 C.

96 5

Northern Mini Hydro v_ CIR

Poge 6 of 13

1.

Whether or not the Court of Tax Appeals' former First Division erred in requiring the term "zero-rated" to be imprinted in the Charge Invoices and Official Receipts as a condition for the grant of petitioner's claim for tax credit or refund;

2.

Whether or not the Court of Tax Appeals' former First Division erred in sanctioning petitioner for its failure to imprint the word "zero-rated" in its invoices by disallowing the claim for refund notwithstanding the fact that petitioner already established by sufficient evidence that its soles

to the Notional Power

Corporation ore zero-rated;

3.

Whether or not the Court of Tax Appeals' former First

Division

erred in to tally disregarding petitioner's documentary evidence; and 4.

Whether or not the Court of Tax Appeals' former First Division erred in declaring that the petitioner foiled to comply with the substantiation/invoicing requirements

of the Tax Code _7

We find that no error was committed by the Court of Tax Appeals' former First Division.

7 En Bane Doc ket p.l3 {

96G

Northern Mini Hydro v. CIR CT A EB Cose No. 547

The aforesaid issues, however, ore joined as the sole issue on whether petitioner is entitled to the refund of its unutilized input VAT although petitioner's Charge invoices and Official Receipts w hic h support its zero-rated soles were not imprinted/stomped with the word "zero-ra ted ".

This sole issue is answered negatively, as the some has been raised time and again but jurisprudence is clear on the mandatory invoicing requirements presc ribed by low.

Consequently, the instant Petition for Review is without merit. Petitioner maintains that for the year 2003, the low governing the issuance of official receipts and invoices is the Tax Reform Act of 1997 or Republic Act No . 8424 which took effect on January 1, 1998. There was then no express nor implied requirement o f the imprinting o f the word "zero-rated" in the invoices or offic ial receipts. Petitioner maintains further that the amendment incorporated th erein by Republic Act No. 9337 which took effect on July 1, 2005, on the requirement of imprinting the term "zero-rated" in o ffic ial receipts and soles invoices, is a clear recognition o f the fa c t that prior to the amendment, there was no such requirement imposed. At the time when the zero-rated soles in question were mode a nd on administrative claim for tax refund was filed, the additional requirement of imprinting the word "zero-rated" was imposed only by Section 4.108- ( 96 7 Northern Mini Hydro v. CIR

1 o f Revenue Regula tio ns No. 7-95B (RR 7-95) a nd no t b y the Tax Cod e . RR 7-95 c anno t expand th e low itself and it is th ere fo re void fo r being unconstitutional.

No ne the less, we agree w ith responden t that this Court 's fo rm er First Division correctly fo und that petitioner is not e ntitled to the re fund o f its unutilized input VAT w he n p e titi o ne r's C harge· invoic e s and O ffic ial Receip ts which support its zero-ra ted sales were imprinted/sto m ped w ith the word "zero-rated" . We quote:

"It is explicit from the provisions o f Sec tions 113 and 237 o f the NIRC of 1997, in rela tion to Sec tion 4. 108-1 o f Revenue Regula tions No. 7-95, tha t a VAT-registered person like herein petitioner must issue a duly registered VAT invoice or receipt for every sale transac tion. Suc h VAT invoice or receipt m ust show the taxpayer's identifica tion number (TIN) followed by the word 'VAT', printer's BIR permit number and the word 'zero-ra led' imprinted on the invoice or receipt covering a zero-ra ted sale. Accordingly, the zero-ra ted sales o f services referred to under Section 1 08(8) (3) o f the NIRC o f 1997 as subject to zero percent (0%) VAT are those covered by duly registered VAT official receipts bearing a ll the required information.

As to the documenta tion of petitioner' s sales to NPC for the subject period of c laim, the former submitted Charge Invoices and Officia l Receipts as part o f the supporting documents in substan tiating its zero-rated sales to NPC. A scrutiny of the said supporting documen ts shows tha t all the Charge Invoices and Official Receipts issued by the Company, w hic h support the foregoing sales, are not imprinted/sta mped w ith the word 'zero-rated '.

The Court also noted tho I ( 1) a ll Charge Invoices used were pre-printed with 'NON-VAT', and (2) a ll the Officia l Receipts used were pre-printed with 'TAN' and not 'TIN '. no t 8 AnActamendingSections27.28.34. 106, 107.108.109.1 10,1 11 ,1 12.113.1 14. 116.117, 119, 121. 148. 151. 236. 237 and 288 of lhe National lnlernol Revenue Code of 1997, as amended, and for other purposes. Section 113 of lhe 1997 NIRC was ornencjed lo read. ol Section 113(B)(2) (c) of the new law. lo inclucje lt1e provision I hoi "if I he sole is subjec t lo zero percen t (0%) value-added lax, lt1e lerm 'zero-raled sale' st1all be written or printed prominen tly on the invoice or receip t. "

{....

968 Northern Mini Hydro v. CIR

The low and regulations ore explicit in emphasizing stric t compliance w ith the invoicing requirements because for the some transactions the output VAT of lhe seller becomes the input VAT o f the purc haser. Pursuan t to Sections 106(0)(1), 108 (C), and 110 o f the NIRC o f 1997, os amended, the outpu t or input tax on the sole or purc hase o f goods is determined by the to tal amount indicated in the invoice, while the output or input tax on the sole or purchase o f services is determined by the total amount indica ted in the o fficial receipt. In the case of zero-rated soles transac tions, the regulations further require that the word 'zero-rated' be imprinted o n the face o f the covering invoices or o fficial receipts. The rationale for the requirement of imprinting the word 'zero-rated' on the face of the covering invoice or official receipt of the seller is for the buyer or purchaser not to claim any input VAT from such purchase, os elucidated by the Court En Bone in the case o f J.R.A. Philippines, Inc. vs. Commissioner of Internal Revenue, to w it: 'Furthermore, Section 110 of the NIRC of 1997, os amended, provides that: 'Any input lox evidenced by o VAT invoice or official receipt issued in accordance with Sec tion 1 13 hereof on the following transactions sholl be creditable against the ou tput tax: ... ' If the invoice or official receipt was not imprinted with 'zero-rated,' there is a danger that the purchaser of the goods or services may be able to claim input tax on the sale to it by the taxpayer of the goods or services, as the case may be, notwithstanding the fact that no VAT was actually paid on such goods or services since the taxpayer is zero-rated. This is the rationale for the mandatory requirement in

Revenue

Regulations No. 7-95 that the words 'zero-ra ted' be imprinted in the invoice receipt, as the case may be. The zero-rated taxpayer should be entitled to a tax credit/ refund on input taxes paid on its purchase of goods or services subject to the mandatory compliance with the invoicing requirements under the regulations. Otherwise, there may result the absurd situation where the government would be crediting/ refunding non- existent input tax to purchasers of goods and services of such zero-rated taxpayer.' (Emphasis supplied} " 9 Suffice it to say that the sole issue raised herein was squarely met and that further the above-mentioned rationale was reiterated in the case of Panasonic Communications Imaging Corporation of the Philippines (formerly Matsushita Business Machine Corporation of the 9 En Bone Docket p.46 { 969 Northern Mini Hydro v. CIR Philippines) v. Commissioner of Internal Revenue lo. In the Panasonic case. the Supreme Court, citing Commissioner of Internal Revenue v. Seagate Technology (Philippines} 11 , held that VAT is a tax on consumption, on indirect tax that the provider of goods or services may pass on to his custo mers. Under the VAT method of taxation. which is invoice-based , on e ntity con subtract from the VAT c harged on its soles or outputs the VAT it paid on its purchases, inputs and impo rts. 12 We quote:

"For the effective zero rating of suc h transactions, however, the taxpayer has to be VAT-registered and must comply with invo1c1ng requirements.

Interpreting

these requirements, respondent CIR ruled that under Revenue Memorandum Circ ular (RMC) 42-2003, the taxpayer' s failure to comply with invoic ing requirements w ill result in the d isallowance o f his claim for refund. RMC 42-2003 provides:

A- 13 . Failure by the supplier to comply with the invoicing requirements on the documents supporting the sole of goods and services will result lo the disallowance of the claim for input tax by the purchaser-claiman t.

If the claim for refund/TCC is based on the existence of zero- rated soles by the taxpayer but it foils to comply with lhe invoicing requirements in the issuance of soles invoices (e.g., failure to indica te the TIN) , its claim for lox c redit/re fund o f VAT on its purchases shall be denied considering that the invoice it is issuing to its customers does not depict its being a VAT-registered taxpayer whose soles ore classified as zero-rated soles. Nonetheless. this treatment is without prejudice lo the right o f the taxpayer to c harge the input taxes to the appropriate expense account or asset account subject to depreciation. whichever is applicable. Moreover, the case shol·l be referred by lhe processing o ffice to the concerned BIR o ffice for verifica tion o f other lox liabilities o f the taxpayer.

10 G.R. No. 178090, February 8. 2010 II 491 Phil. 317,332 (2005).

12 Commissioner of Internal Revenue v. Seogo le Technology (Philippines), 491 Phil. 3 17, 332 (2005) . L 970 Northern Mini Hydro v. CIR

Petitioner Panasonic points out, however, that in requiring the printing on its sales invoices of the word 'zero-rated ,' the Secretary of Finance unduly expanded, amended, and modified by a mere regulation (Section 4.108-1 of RR 7 -95) the letter and spirit of Sections 113 and 237 of the 1997 NIRC, prior to their amendment by R.A. 9337. Panosonic argues that the 1997 NIRC, whic h applied to its payments-specifically Sec tions 113 and 237- required the VAT-registered taxpayer's receipts or invoices to indicate only the following information:

(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN);

(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indica tion that such amount inc ludes the value-added tax;

(3) The date o f transaction, quantity, unit cost and description of the goods or properties or nature of the service; and

(4) The name, business style, if any, address and taxpayer's iden tification number (TIN) o f lhe purchaser, customer or c lient.

Petitioner Panosonic points out that Sections 113 and 237 did not require the inclusion of the word 'zero-rated' for zero-rated sales covered by its receipts or invoices. The BIR incorporated this require~ent only after the enactment of R.A. 9337 on November 1, 2005, a law that did not yet exist at the time it issued its invoices. But when petitio ner Panosonic made the export sales subject of this case, i.e ., from April 1998 to Marc h 1999, the rule that applied was Section 4.108-1 of RR 7-95, o therwise known as the Consolidated Value-Added Tax Regulations, whic h the Secretary o f Finance issued on December 9, 1995 and took effect on January 1, 1996. It already required the printing o f the word 'zero-rated' on the invoices covering !he zero-rated sales. Whe n R.A. 9337 amended the 1997 NIRC on November 1, 2005, it made this particular revenue regulation a pari of the tax code.

This

conversion from regulation to law did not diminish the binding force of such regulation with respect to acts committed prior to the enactment of the law.

Section 4.108 -1 of RR 7-95 proceeds from the rule-making authority granted to the Secretary of Finance under Section 245 of the 1977

NIRC

{Presidential

Decree

1158) for the efficient enforcement of the tax code and of course its amendments. The requirement is reasonable and is in accord with the efficient collection of VAT from the covered sales of goods and services. As aptly explained by the CTA's First Division, the appearance of the word 'zero-rated ' on the face of invoices covering zero -rated sales L 97 2 Northern Mini Hydro v. CIR

Poge 12 o f 13 prevents buyers from falsely claiming input VAT from their purchases when no VAT was actually paid. If, absent such word, a successful claim for input VAT is made, the government would be refunding money it did not collect.

Further, the printing of the word 'zero-rated' on the invoice helps segregate soles tha t ore subject to 10% (now 12%) VAT from those soles tha t ore zero-ra ted .

Unable to submit the proper invoices, petitioner Ponosonic has been unable to substantiate its claim for refund."

In fine, we find no cogent reason to reverse the findings of this Court's former First Division.

WHEREFORE, the instant Petitio n for Review is DENIED. The Decision of the former First Division of this Court in CTA Case No. 7257, doted May 28, 2009, and its Resolution doted September 16, 2009, ore AFFIRMED. No pronouncem ent as to costs.

WE CONCUR:

~N . M.,.,.~,C~ CIELITO N. MINDARO-GRULLA

L

....

· c~ ERNESTO D. ACOSTA

Presiding Justice

Associate Justice

~~ -~ c... a,:::t--~ Q..

fuANITO C . CASTANEDA, JJf. .

-~ .tkiSTA

Associate Justice

97 1 Northern Mini Hydro v. CIR

(On Leave)

ERliNDA P. UY

Associate Justice

~~~ OLGA P~lANCA - EN'RTmJ:eZ

Associate Justice

CAES~OVA

Associate Justice

(On Leave)

AMEliA R. COTANGCO-MANALASTAS

Associate Justice

CERTIFICATION

Pursuant to Artic le VIII. Sec tion 13 o f the Constitution, it is hereby certified that the conc lusions in the above Decision were rea c hed 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~ . ~~ ERNESTO D. ACOSTA

Presiding Justice

973