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

DECISION

PALANCA-ENRIQUEZ, J.:

THE CASE

T ERE: •. \ .J •. ~; •• ~U·!AC!A~ M.Mi&tcant Clotk ... r Court (EC~., '"' c, ,,,, , t ,·ox K;'),: ~.~ ls Before us are consolidated Petitions for Review separately filed by CE Luzon Geothermal Power Company, Inc. (hereafter "CE Luzon"), C.T.A. EB NOS. 553 and 554 2 docketed as C.T.A. EB No. 553, and by the Commissioner of Internal Revenue (hereafter "CIR"), docketed as C.T.A. EB No. 554, both under Section 3(b), Rule 8 of the 2005 Revised Rules of the Court of Tax Appeals, in relation to Rule 43 of the 1997 Rules of Civil Procedure, as amended, which seek to review the Decision dated April 21, 2009 and Resolution dated October 19, 2009 rendered by the Former Second Division of this Court in the consolidated C.T.A. Case Nos. 7180 and 7279, the respective dispositive portions of which read, as follows: "WHEREFORE, petitioner's claim for refund or issuance of tax credit certificate is hereby PARTIALLY GRANTED.

Accordingly, respondent 1s hereby ORDERED to REFUND or to ISSUE A TAX CREDIT CERTIFICATE in the reduced amount of TWENTY-TWO

MILLION

SIX

HUNDRED

FORTY

SEVEN

THOUSAND SIX HUNDRED THIRTY EIGHT PESOS

AND 47/100 (P22,647,638.47) to petitioner, representing its unutilized input VAT for the four ( 4) quarters of taxable year 2003.

Motions

for

Partial

Reconsideration are hereby DENIED for lack of merit.

THE PARTIES

3 CE Luzon Geothermal Power Company, Inc. is a corporation duly organized and existing under Philippine laws, with principal office at 24/F 6750 Bldg., Ayala Ave., Makati City.

It is registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer in accordance with Section 236 of the National Internal Revenue Code (NIRC), with Tax Identification No. 003-924-356-000.

Commissioner of Internal Revenue, on the other hand, is the duly appointed Commissioner of the BIR empowered to perform the duties of his office, including among others, the duty to decide, approve, and grant refunds or tax credits of erroneously or excessively paid taxes. He holds office at the BIR National Office Building, Agham Road, Quezon City.

THE FACTS

The facts, as found by the Former Second Division, are as follows: CE Luzon is accredited by the Department of Energy (DOE), as the owner and operator of CE Luzon Geothermal Power Plant, as shown in its DOE Certificate of Accreditation (OSAC94-12) issued on June 15, 1994. It is principally engaged in the business of power generation and subsequent sale of generated power to the Philippine National Oil

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1 .:: : , ,,,., .. ... ul.:)

w Ex h.

Qtr.

E

1st

F

2nd

G

3'd

H

4\h C.T.A. EB NOS. 553 and 554

4 Company-Energy Development Corporation (PNOC-EDC), pursuant to an Energy Conversion Agreement (ECA).

In the course of its operation, CE Luzon made domestic purchases of goods and services, services rendered by non-residents, and importation of goods attributable to its zero-rated sale of power generation services.

CE Luzon accrued input VAT which allegedly remained unutilized. For each quarter of taxable year 2003, CE Luzon filed its Quarterly VAT Returns, indicating the following: Date of filing of

Exhibit

Quarter

Return

Zero-rated Sales

Input VAT

0 1st

25-Apr-03

856,386,440.57 4,723,705.62

Q

2na

24-Jul-03

1,042,918,879.54 4,150,402.36

R

3ra 27-0ct-03 1,067,478,721 .24 7,760,246.26 s 4tn

26-Jan-04

1,252,326,575.66 10,336,308.43

TOTAL

4,219,110,617.01 26,970,662.67 On November 24, 2004, petitioner filed its Amended Quarterly VAT Returns for each quarter of taxable year 2003, summarized as follows:

Excess/Unutilized VAT Credits

Domestic

Domestic

purchases of

Domestic

Services

Importations of

Zero-rated Sales

purchases goods other purchases of

Rendered by

Goods Other

of capital than capital services (P)

Non-

than Capital goods (P) goods (P)

Residents (P)

Goods (P)

856,386,440.57 141 ,272.73 577,547.84 2,069,863.26 1,577,106.87 265,834.00 - - 1,042,918,879.54 0.00 1,072,720.05 2,236,164.11 37,870.33 1,221 ,704.00 1,067,478,721 .24 0.00 1 '708,21 0.65 2, 762,233.95 534,653.37 2,450,216.00 1 ,252,326,575.66 0.00 697,915.28 7,612,110.29 392,407.26 1,062,849.00 Total Excess/Unutilized VAT Credits for 1st to 4th Quarters of CY 2003 (1 0% of Total Purchases)

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Total (P)

4, 785,234.70 4,568,458.49 7,455,41 3.97 9,765,281.83 26,574,388.99 C.T.A. EB NOS. 553 and 554

5 CE Luzon filed an application for refund of these unutilized input VAT with the BIRon the following dates:

Exhibit

Quarter

Date of Filing

Input VAT (P)

N

1st January 20,2005 4,785,234.70 0 2nd March 31 ,2005 4,568,458.49 p 3rd June 07,2005 7,455,413.97 p 4th June 07,2005 9,765,281 .83

TOTAL

26,574,388.99 Alleging inaction on the part of CIR, CE Luzon filed two separate Petitions for Review on March 30, 2005 and June 30, 2005, with the Former Second Division, docketed-as C.T.A. Case Nos. 71 80 and 7279, respectively.

In CT A Case No. 7180, in his answer, the CIR raised the following

Special and Affirmative Defenses:

"4.

Petitioner's

claim for refund is subject administrative investigation/examination by respondent;

to the 5.

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

a.

The registration requirements of a value-added taxpayer in compliance with Section 6 (a) and (b) of the Revenue Regulations No. 6-97 in relation to Section 4.107-1 (a) of Revenue Regulations No. 7-95, and Section 236"ofthe Tax Code, as amended;

-b.

The invoicing and accounting requirements of VAT registered persons, as well as the filing and C.T.A. EB NOS. 553 and 554 payment of VAT in compliance with the provisions of Sections 1 13 and 114 of the Tax Code as amended; c.

Proof of compliance with the prescribed checklist of requirements to be submitted involving claim for VAT refund in pursuance to Revenue Memorandum Order No. 53-98, otherwise there would be no sufficient compliance with the filing of administrative claim for refund which is a condition sine qua non prior to the filing of judicial claim in accordance with the provision of Section 229 of the Tax Code, as amended. It is worthy of emphasis that Section 112 (D) of the Tax Code, as amended, requires the submission of complete documents in support of the application filed with the Bureau of Internal Revenue before the 120-day audit period shall apply, and before the taxpayer could avail of judicial remedies as provided 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 P4,785,234.70 allegedly paid by the petitioner on its purchases of goods and services for the first quarter of taxable year 2003 were attributable to its zero-rated sales and such have not been applied against any output tax and were not carried over in the succeeding taxable quarter or quarters;

e.

That petitioner's administrative and judicial claims for tax credit or refund of the unutilized input tax (VAT) was filed within two (2) years after the close of the taxable quarter when the sales were made in accordance with sections 112 (A) and (D) and 229 of the Tax Code, as amended;

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6 C.T.A. EB NOS. 553 and 554 f.

That petitioner's domestic purchases of goods and services were made in the course of 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 Tax Code as amended, and in pursuance to Section 4.104-5 (a) & (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 the Revenue Regulations 7-95. (Re: Persons who can avail of the Input Tax Credits); xxx xxx."

7 On the other hand, in CTA Case No. 7279, the CIR raised the following Special and Affirmative Defenses:

"4.

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

5.

The amount of P21,789,154.29 being claimed by petitioner as alleged unutilized input VAT on purchases of goods and services for the 2nd and 4th quarters of 2003 is not properly documented; 6.

In an action for refund/credit, the burden of proof is on the taxpayer to establish the right to refund, and failure to sustain the burden is fatal to the claim for refund/credit;

7.

Petitioner must show that it has complied with the provisions of Sections 204 (C) and 229 of the 1997 T EREi.:..~ J, ;,,.iCU·!AC A r Assistar.t Cle•k ~· Cr• -r, · ::. ... ""

\'.l r;t "f ~· ~~ .\t, IVIii l\t C.T.A. EB NOS. 553 and 554 Tax Code on the prescriptive period for claiming tax refund/credit.

8.

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)."

8 After trial on the merits, on April 21, 2009, the Former Second Division rendered the assailed Decision partially granting the Petition for Review.

Not satisfied, on May 7, 2009, CE Luzon filed a "Motion for Partial Reconsideration (Re: Decision dated 21 April 2009)", while the CIR filed his "Motion for Partial Reconsideration" on June 5, 2009. Both motions were denied by the Former Second Division in a Resolution dated October 19, 2009.

Both parties filed separate Petitions for Review with this Court. On November 6, 2009, CE Luzon filed its petition, docketed as C.T.A. EB No. 553, while the CIR filed his petition on November 10, 2009, docketed as C.T.A. EB No. 554.

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C.T.A. EB NOS. 553 and 554

(Appeal of CE Luzon)

9 On December 15, 2009, we required the CIR to file his comment, within ten (10) days from notice. However, the CIR failed to file his comment.

On January 26, 2010, both parties were ordered to file their simultaneous memoranda, within thirty (30) days from notice, afterwhich the case shall be deemed submitted for decision. CIR filed his "Memorandum" on February 26, 2010. C. TA. EB No. 554 (Appeal o( CIR) On November 19, 2009, we required CE Luzon to file its comment, on the petitions, within ten (1 0) days from notice. On December 17, 2009, CE Luzon filed its "Comment (Re: Petitioner's Petition for Review dated 11 November 2009)". Thus, in a Resolution dated January 5, 2010, the case was deemed submitted for decision.

However, in a resolution dated February 18, 2010, C.T.A. EB No. 554 was ordered consolidated with C.T.A. EB No. 553, the latter bearing the lower docket number. The Resolutions dated January 5, 2010 and CEK.TIF.IiJ TRUr: :;~r (ytJ

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10 January 26, 2010 were recalled and set aside. Thereafter, both parties were ordered to file their respective consolidated memorandum, within thirty (30) days from notice.

Considering that CE Luzon filed its "Consolidated Memorandum" on March 26, 2010 and CIR filed his "Memorandum" on March 29, 2010, these consolidated cases were deemed submitted for decision on April 13, 2010.

Hence, this decision.

CE Luzon's Assigned Errors

The principal issue raised by CE Luzon boils down to whether or not the Former Second Division erroneously applied the law and existing jurisprudence insofar as it disallowed the amount of P3,926,750.52 input VAT on the following grounds:

THERE IS A DISCREPANCY OF P841,876.17

BETWEEN THE AMOUNT OF INPUT VAT

CLAIMED

BY

CE

LUZON

IN

ITS

ADMINISTRATIVE CLAIMS FOR REFUND

VIS-A-VIS THE AMOUNT OF INPUT VAT

PRAYED FOR IN ITS JUDICIAL CLAIMS FOR

REFUND.

CE LUZON'S UNUTILIZED INPUT VAT IN

THE TOTAL AMOUNT OF P3,084,874.35 WAS NOT DULY SUBSTANTIATED.

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CIR 's Assigned Errors For his part, CIR anchors his petition on the following grounds:

THE HONORABLE SECOND DIVISION OF

THE COURT OF TAX APPEALS ERRED IN

RESOLVING

THAT

RESPONDENT

IS

ENTITLED TO A PARTIAL REFUND OF ITS

UNUTILIZED EXCESS INPUT VALUE-ADDED

TAX ATTRIBUTABLE TO ITS ZERO-RATED

SALES FOR ALL FOUR QUARTERS OF 2003.

RESPONDENT HAS FILED THE PETITION

FOR

REVIEW

PREMATURELY

IN

VIOLATION OF SECTION 112 (D) OF THE

NIRC.

THE COURT EN BANC'S RULING

CE Luzon's petition is partly meritorious.

CE Luzon's Arguments

11 CE Luzon contends that there is no discrepancy in the amount of input VAT claimed in its administrative claim for refund as against the amount of input VAT in its judicial claim; that official receipts and invoices supporting its unutilized input VAT comply with the invoicing requirements of the law; that the CIR has waived or abandoned its right to object regarding invoicing requirements when he failed to raise the same

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.... , .• ll..(,.i l ~ C.T.A. EB NOS. 553 and 554

12 during trial; and that in civil cases only preponderance of evidence 1s required.

Anent the first ground, we rule for CE Luzon. After a second hard look on the records of both cases, this Court finds that there is in fact no discrepancy between the amount of input VAT claimed in CE Luzon's administrative and judicial claims.

A

careful perusal of CE Luzon's administrative claim for refund shows that the total unutilized input VAT claimed for refund amounts to P26,574,388.99 (Annexes "E ", "F " and "G" of C. T.A. EB No. 553). On the other hand, the Petition for Review, docketed as C.T.A. Case No. 7180, reveals that CE Luzon is claiming the amount of P4,785,234.70 (C. T. A. Case No. 7180, Orig. Docket, p . 6), while the Petition for Review, docketed as C.T.A. Case No. 7279, shows a claimed amount of P21,789,154.29 (C.T.A. Case No. 7279, Orig. Docket, p. 5) . Hence, CE Luzon's total claim in the consolidated cases amounts to P26,574,388.99. Clearly, both its administrative and judicial claims for refund amounts to P26,574,388.99. Considering that the disallowance of the amount of P841,876.17 has no basis, we hereby reconsider and grant the same to CE Luzon. TH REt .. ~ .;, : · ··lC:>-!A~ r M A~ ~;i stant Cle k ~' c,. '' "'" 1" 1 Cl I,, \.i ·•· .... "...

,'"'\,, , ....... G< I ~ C.T.A. EB NOS. 553 and 554 13 As to the second ground, this Court finds that the issues raised by CE Luzon are mere rehash of the grounds raised in its "Motion for Reconsideration" in the consolidated C.T.A. Case Nos. 7180 and 7279, and present no new arguments nor new matters which have not been considered and passed upon by the Former Second Division in the assailed Decision and Resolution. Nevertheless, we deem it necessary to discuss them in seriatim.

a.) As to the disallowance in the total amount o[P563,245.20 with ORs and invoices with pre-printed "TIN- V" The Fonner Second Division disallowed CE Luzon's official receipts and invoices covering some of its input VAT where such official receipts and invoices bore the pre-printed word "TIN-V", instead of "TIN-VAT", in the total amount of P563,245.20, on the basis of Section 4.108-1 ofRR 7-95.

CE Luzon contends that the indication of the words "TIN-V" 1s sufficient for VAT purposes, pursuant to the provisions of the Tax Code and related jurisprudence relying heavily on the case of Intel Tec;hnology Philippines, Inc. vs. Commissioner of Internal R~venue (522 SCRA 657). CE Luzon's contention cannot be sustained.

TH RE1-.\ ...i.

·.' .!~c:.>-!AC l,. i As~istant Cle k ~ .. ;:; ... · . .:.~,.. '" ' C.T.A. EB NOS. 553 and 554 14 While Section 112 of the NIRC of 1997, as amended, allows tax refund or credit of input tax of zero-rated sales of VAT -registered persons, nonetheless, certain invoicing requirements must be faithfully complied with before such claim for refund or credit can be granted.

Invoicing and Accounting Requirements

Invoicing and accounting requirements for VAT-registered persons are provided for under Sections 113 and 237 of the NIRC of 1997, as amended. Section 113 provides:

"SEC. 113. Invoicing and Accounting Requirements for VAT- Registered Persons.- (A) Invoicing Requirements- A VAT -registered person shall for every sale, issue an invoice or receipt. In addition to the information required under Section 237, the following informations shall be indicated in the invoice or receipt: (1 )A statement that the seller is a VAT -registered person, followed by his taxpayer's identification number (TIN); and · (2)The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax.

XXX

xxx."

The law is very clear. Section 113 provides that "a VAT registered person shall, for every sale, issue a du_ly registered VAT invoice or receipt for every sale transaction". Such VAT invoice or receipt must show the taxpayer's identification number, followed by the word "VAT", T.

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C.T.A. EB NOS. 553 and 554

15 the BIR Authority to Print or BIR permit marker and the word "zero- rated" imprinted on the invoice or receipt covering a zero-rated sale. This requirement is mandatory in nature and consequently, ·non-compliance therewith is fatal to one's claim for credit or refund of its input taxes. Corollary thereto, Section 4-108-1 of Revenue Regulations No. 7 5 (The Consolidated Value-Added Tax Regulations) enumerates the information that must appear on the face of the receipts or invoices issued for sales of goods by all VAT -registered persons, pertinent portion of which states:

"SEC. 4-108-1 . Invoicing Requirements- All VAT -registered person shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales ot commercial invoices which must show:

1.

the name, TIN and address of seller, 2.

date oftransaction;

3.

quantity, unit cost and description of merchandise or nature of service;

4.

the name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or client;

5.

the word "zero-rated" imprinted on the invoice covering zero-rated sales; and 6.

the invoice value or consideration.

XXX

XXX.

Oriiy VAT -registered persons are required to print their TIN followed by the word 'VAT' in their invoices or receipts and this shall be considered as 'VAT INVOICE.' All purchases covered by invoices other than 'VAT INVOICE' shall not give rise to any input tax." '· TH R E ~ .. \ ..;. ;,, .• CJ-!AC If. r Asliistant Cle k ~ · .: .. .. · . .,:. ~, 1111 Ct :. , ~..t ·,· .... :... ,,,;,,t..at.:.

C.T.A. EB NOS. 553 and 554 .

16 The aforequoted revenue regulations implementing the NIRC provision on VAT invoicing and accounting requirements are mandatory as the word "shall" is used. The word "shall" is imperative, commonly operating to impose an obligation or duty which may be enforced; it is a word of command that must be given a compulsory meaning (Filipino vs. Macabuhay, 508 SCRA 50; Francsico vs. Court of Appeals, 243 SCRA 392). Thus, the seller-taxpayer is duty bound to comply with the invoicing requirements laid down in said memorandum circular. Moreover,

Revenue

Memorandum

Circular

No.

42-2003 [ClarifYing Certain Issues Raised Relative to the Processing of Claims for Value-Added Tax (VAI) Credit/Refund, Including Those Filed with the Tax and Revenue Group, One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center, Department of Finance (OSS) by Direct Exporters] expressly provides that the failure of a taxpayer claiming for tax refund/credit to comply with the invoicing requirements will result to the disallowance of the claim for input tax. Pertinent portion of said Revenue Memorandum Circular provides:

"A-13. Failure by the supplier to comply with the invoicing requirements on the documents supporting the sale of goods and .services will result to the disallowance ofthe claim for input tax by the purchaser-claimant.

1\,.sistant Cle k ; .. ::: . .. ·. ~.:.. "' ' C.T.A. EB NOS. 553 and 554 If the claim for refund/TCC is based on existence of zero-rated sales by the taxpayer but it fails to comply with the invoicing requirements in the issuance of sales invoices (e.g., failure to indicate the TIN), its claim for tax credit/refund of 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 sales are classified as zero-rated sales. Nonetheless, this treatment is without prejudice to the right of the taxpayer to charge the input taxes to the appropriate expense account or asset account subject to depreciation, whichever is applicable. Moreover, the case shall be referred by the processing office to concerned BIR office for verification of other tax liabilities ofthe taxpayer."

17 The aforequoted provision clearly mandates that if the claim for refund/issuance of a tax credit certificate is based on the existence of zero-rated sales by the taxpayer, but fails to comply with the invoicing requirements, the claim for tax credit/refund of input VAT shall be denied CE Luzon's reliance on the case of Intel is misplaced. The issue in the Intel case closely dealt with the substantiation of the "output VAT", while in this case, the Former Second Division's disallowance of the claim is based on CE' Luzon's failure to substantiate its "input VAT", thus:

"In a claim for refund or issuance of a tax credit certificate attributable to zero-rated sales, what is to be closely scrutinized is the documentary substantiation of the input VAT paid xxx." (Intel Technology Phils. Vs. CIR (522

SCRA 657)

Accordingly, there is basis for the validity of Section 4.108-1 of RR 7-95. Settled is the rule that a "regulation adopted pursuant to law is

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; .~~C:>·!AC I;. r Asllistant Cle k ~ ·· ,:. ;, ·: .:," "'I C: t. ' • 1 L f ,·..,,, ."\ ,.,1\.Gi l :, (;J_ C.T.A. EB NOS. 553 and 554 18 a law" (Commissioner of Internal Revenue v. Central Luzon Drug Corporation, 456 SCRA 441). Consequently, it bears emphasis that Section 4.108-1 of RR 7- 95 clearly states that VAT-registered persons must print their TIN followed by the word "VAT" in their invoices or receipts and not simply followed by the letter "V".

Well settled is the rule that statutes that grant tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Tax refunds in relation to the VAT are in. the nature of tax exemptions. Taxes are the lifeblood of the nation. Therefore, statutes that allow exemptions are construed strictly against the grantee and liberally in favor of the government (Panasonic Communications vs. CJR, February 8, 2010). Consequently, the Former Second Division committed no reversible error when it disallowed the amount of P563,245.20, corresponding to the amount of ORs and invoices with pre-printed "TIN- V" only, instead of "TIN-VAT", for failure to comply with the mandatory invoicing requirements.

b.) As to the disallowance amounting to P392,146. 00 with supporting certified true copies o[lmport Eniry . and Internal Revenue Declarations (JE!RD)

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19 CE Luzon argues that the IEIRD suppmiing its importations are admissible under relevant rules of evidence; that such forms were certified by the BOC and thus may be considered as public documents. We rule in the negative.

As pointed out by the Former Second Division, this Court cannot ascertain the BOC official who purportedly certified that the said documents are true copies of the original was the actual and authorized custodian ofthe same.

Likewise, we cannot also sustain CE Luzon's contentions that the balance of justice should not be tilted in favor of the CIR who failed to raise any question as to its entitlement for refund and that the quantum of evidence required in this case is mere preponderance of evidence. Considering that the grant of a claim for refund is tantamount to an exemption from taxation, the same shall be construed strictly against the claimant and in favor of the taxing authority. The taxes that have been paid and collected are presumed to have been made in accordance with the law, hence, not refundable. But the burden of proof to the contrary rests upon the claimant, who must establish its factual basis for a refund. The burden of proof rests upon the taxpayer to establish by C.T.A. EB NOS. 553 and 554

20 sufficient and competent evidence its entitlement to a claim for refund (Commissioner of Internal Revenue vs. Tokyo Shipping Co. , Ltd., 244 SCRA 335). Therefore, CE Luzon must not rely on the evidence or the weakness of the defense of the CIR but solely on its own evidence, thus, failure on its part is fatal to its claim for refund.

For all the foregoing, CE Luzon's Petition for Review is hereby partly granted, but in the reduced amount ofP841,876.17. C. T.A. EB No. 554 On the other hand, the CIR questions the jurisdiction of the Fonner Second Division to entertain the appeal on the ground that CE Luzon failed to submit all neces·sary and relevant documents pertaining to its claim for refund in its administrative claim and that it failed to prove compliance with the requirements under Revenue Memorandum Order No. 53-98. Furthermore, CE Luzon allegedly filed the original Petition for Review prematurely, in violation of Section 112 (D) of the NIRC of 1997, as amended.

We are not persuaded .

..

As to the question on the jurisdiction of this Court to entertain the appeal on the ground of non-submission of supporting documents in the

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C.T.A. EB NOS. 553 and 554

21 administrative level, we rule that the same is not fatal to CE Luzon's claim for refund.

Corollary thereto, Section 112 (D) of the NIRC of 1997, as amended, provides:

"SEC. 112. Refunds ofTax Credits of Input Tax.-

XXX

XXX

(D)

Period within which Refund or Tax Credit of Input of 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 hundred twenty-day period, appeal the decision or the unacted claim to the Court of Tax Appeals." It is clear from the above-quoted provision that although the submission of the complete supporting documents is necessary for the granting of refund or tax credit certificate, nowhere in said provision leads to a conclusion that the non-submission of the supporting documents with the CIR will make the administrative claim for refund or

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C.T.A. EB NOS. 553 and 554

22 tax credit certificate invalid or pro forma, which may cause the dismissal of the appeal for lack of jurisdiction. What the provision mandates that the taxpayer must elevate its claim before this Court, within thirty (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 respondent to decide on the taxpayer's claim, which must all be done within two (2) years from payment of the tax or penalty.

Likewise, CE Luzon's non-compliance with the requirements listed under RMO No. 53-98 is not fatal. The requirements listed under RMO No. 53-98 refer mainly to the requirements for refund of tax credit in the administrative level for purposes of establishing the authenticity of a taxpayer's claim for refund or tax credit. However, in the judicial level or when the case is elevated to the Court, the Rules of Court applies. In this connection, it may not be amiss to mention that the question of whether or not the evidence submitted by a party is sufficient to warrant the granting of its prayer lies within the sound discretion and judgment of the Court.

Once an appeal is filed with this Court, it transforms the administrative claim for refund into a judicial claim for refund because ~~

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23 an appeal to the Court of Tax Appeals is manifestly judicial. When CE Luzon's claim was converted into a judicial claim, what matters foremost are - the filing of an administrative claim before the Commissioner, and that both the administrative and judicial claims are filed within the prescriptive period provided under the NIRC of 1997, as amended. Considering that CE Luzon has substantially complied with such requirements, it is clear that this Court has jurisdiction over CE Luzon's judicial claim refund.

As regards the alleged pre-mature filing of the original Petitions for Review before the Former Second Division, the rule is that when the two (2) year period is about to prescribe and the claim for refund with the CIR has not been acted upon, for the protection of the interest of the taxpayer, he should file a Petition for Review with the Court of Tax Appeals, within the said two (2) year period; otherwise, if the decision of the Commissioner is adverse to the taxpayer and it was made after the two (2)-year period, he can no longer appeal the same to the Court of Tax Appeals. In short, a taxpayer need not wait for the lapse of the 120-day period before it can elevate its claim to the CT A. To stress, the administrative claim does not toll the running of the two (2)-year

Assistant Cle :<

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24 prescriptive period for filing a judicial recourse for refund. Hence, CE Luzon should not be faulted for filing its claim before this Court on March 30, 2005 and June 30, 2005, respectively, considering that the two (2)-year prescriptive period is about to expire. An otherwise action on its part would be fatal to its claim.

Incidentally, the taxpayer cannot be faulted for taking advantage of the full two (2)-year period set by law for filing his claim for refund, as the law only limits the maximum period within which a taxpayer may file a claim, which the taxpayer may utilize at its own discretion, as long as it has substantially complied with the rules. Furthermore, it has been held that the claim for refund with the Commissioner could be pending simultaneously with a suit for refund filed before Us in accordance with Revenue Memorandum Circular No.49-2003, which provides:

"In cases where the taxpayer has filed a "Petition for Review" with the Court of Tax Appeals involving a claim for re.fund/TCC that is pending at the administrative agency

(Bureau of Internal Revenue

or OSS-DOF), the administrative agency and the tax court may act on the case separately. While the case is pending in the tax court and at the same time is still under process by the administrative agency, the litigation lawyer of the BIR, upon receipt of the summons from the tax court, shall request from the head of the investigating/processing office · for the docket containing (;L ..

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In the meantime, the investigating/processing office of the administrative agency shall continue processing the refund/TCC case until such time that a .final decision has been reached by either the CT A or the administrative agency.

If the CTA is able to release its decision ahead of the evaluation of the administrative agency, the latter shall cease from processing the claim. On the other hand, if the administrative agency is able to process the claim of the taxpayer ahead of the CT A and the taxpayer is amenable to the findings thereof, the concerned taxpayer must file a motion to withdraw the claim with the CTA.

xxx xxx." (Emphasis supplied) 25 Finding no merit in CIR's Petition for Review, we have no recourse, but to deny C.T.A. EB Case No. 554.

WHEREFORE, premises considered:

1) as regards CE Luzon's Petition For Review, docketed as C.T.A. EB No. 553, the petition is hereby PARTLY GRANTED. Accordingly, the assailed Decision dated April 21, 2009 is hereby AMENDED, to read as follows:

"WHEREFORE, petitioner's claim for refund or issuance of tax credit certificate is hereby PARTIALLY GRANTED.

Accordingly, respondent is hereby ORDERED to REFUND or to ISSUE A TAX CREDIT CERTIFICATE in the reduced amount of TWENTY-

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26

THREE MILLION FOUR HUNDRED EIGHTY NINE

THOUSAND FIVE HUNDRED FOURTEEN PESOS

AND 64/100 (P23,489,514.64) to petitioner, representing its unutilized input VAT for the four ( 4) quarters of taxable year 2003.

Associate Justice

WE CONCUR:

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(With Dissenting Opinion)

ERNESTO D. ACOSTA

Presiding Justice

s:J-.~"4 G . Q.;:t-~~ Q_ J11ANITO C. CASTANEffl\; JR.

Associate Justice

(On Leave)

ERLINDA P. UY

Associate Justice

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~~OV~BAUTISTA

----:A..s;~ociate Justice ( CAESAR A. CASANOVA

Associate Justice

C.T.A. EB NOS. 553 and 554

27 ~ N, l\/1~~--G'~ CIELITO N. MINDARO-GRULLA

Associate Justice

{On Leave)

AMELIA R. COTANGCO-MANALASTAS

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby . certified that the above Decision has been reached in consultation with the members of the Comi En Bane before the case was assigned to the writer of the opinion of the Court.

~<.0· '-~ ERNESTO D. ACOSTA

Presiding Justice

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REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

ENBANC

CE LUZON GEOTHERMAL

POWER COMPANY, INC., Petitioner,

~ versus ~

COMMISSIONER OF INTERNAL

REVENUE, Respondent.

X------- ----------------------- -X

COMMISSIONER OF INTERNAL

REVENUE, Petitioner, ~ versus ~

Present:

Acosta, PJ, Castaneda, Jr., Bautista, Uy, Casanova, Palanca-Enriquez, Fabon-Victorino, Mindaro-Grulla, and Cotangco-Manalastas, JJ.

CE LUZON GEOTHERMAL

Promulgated:

.

POWER COMPANY, INC., ~

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Respondent.

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DISSENTING OPINION

I dissent to the ruling of the majority that the one hundred twenty (120) day waiting period and the thif!y (30) day appeal period provided under Section 112(D) of the 1997 National Internal Revenue Code (NIRC), as amended, must all be done within two years from payment of the tax or penalty. Contrary to the majority's interpretation, I see

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DISSENTING OPINION

CT A EB Nos. 553 and 554

Page 2 of6

no reason to limit the application of the 120-30 day period provided in Section 112(D) of the NIRC within the bounds of the two year prescriptive period under Section 112(A) in relation to Section 229 of the NIRC.

It should be emphasized that Section 229 1 of the 1997 NIRC 2 has been present even prior to the introduction of the value-added tax (VAT) system in our country. This provision of the NIRC cannot support the questionable view of the majority because it deals only with the recovery of tax erroneously or illegally collected. In fact the Honorable Supreme Court already ruled that the erroneous, illegal, or wrongful payment angle does not enter the equation as regards the refund for any unutilized creditable input VAT.3 The first VAT law took effect on January 1, 1988 by virtue of Executive Order No. 273 (E.O. 273), which amended several provisions of then 1986 NIRC (Old NIRC). 4 The provisions providing for the refund of input tax then was found in Section 106 of the old NIRC, as amended by EO 273. Unlike Section 112 of the present NIRC [Republic Act (RAJ No. 8424, as amended} which governs the case at hand, Section 106 of the old NIRC, as amended by EO 273 does not provide for a period within which to appeal the adverse decision or inaction of the Commissioner of Internal Revenue with the Court of Tax Appeals (CTA) . It merely provides the two (2) year prescriptive period to apply for an administrative claim and the sixty (60) day period [became one hundred twenty (I 20) day period under RA 8424} within which refund may made by the Commissioner from the date of such application. The period then to elevate the unsuccessful or unacted 1 Sec. 229. Recovery ofTax Erroneously or fllegal/y Collected. - No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be fil ed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner ma)', evel) without a written claim therefor. refund or credit any tax, where on the face of the return upon which payment was made. st.7ch payment appears clearly to have been erroneously paid. 2 Previously found in Section 306 of Commonwealth Act No. 466; Section 292 of the 1977 N I RC (Presidential Decree No. 11 58); Section 230 of the NIRC (PD) No. 1158(Amended). 3 Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation, G. R. No. 1721 29, September 12, 2008 (Supreme Court Third Division). Respondent's Motion for Partial Reconsideration was denied in a Resolution dated November 26, 2008 by the Supreme Court Second Division.

· 4 Fort Boni facio Development Corporation vs. Commissioe<e, f l ~ ....::..::~~;.__fj--ij--7 TH RE}..

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DISSENTING OPINION

CTA EB Nos. 553 and 554

Page3of6

administrative claim for refund or tax credit of input tax with the CTA is confined to the two-year prescriptive period provided in Section 229 of the NIRC, which served as the general provision governing claim for refund in the absence of a more specific provision of law.

Thus, in the case of Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue5 which involves a claim for refund of input tax attributable to zero-rated sales for years 1990 and 1992, the Supreme Court applied Section 230 (now 229) of the NIRC and held that the two-year prescriptive period for claims for refund of illegally or erroneously collected tax may also apply to the Petition involving claims for refund/credit of input tax. However, I see no reason to continuously apply Section 229 to cases involving the "issuance of tax credit/refund of excess/unutilized input tax" with the amendment in our VAT law, particularly introduced in Section 1 06(d) ofRA 7716 (now Section 112(D) of RA 8424, as amended by RA 9337), which already provides for the thirty (30) day appeal period with the CTA.

Section

112(A) and (D) is comprehensive and specific enough to cover refund/tax credit of input tax both in the administrative and judicial levels. The administrative remedy to claim for the refund of input tax attributable to zero- rated sales is provided in Section 112(A) of the 1997 NIRC, as amended, which provides: "Sec. 112. Refimds or Tax Credits of input Tax. - (A) Zero-rated or E;[fectively 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 I 06(A )(2 )(a)( I), (2) and (b) and Section 1 08(8)( I) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be al located proportionately on the basis of the volume of sales." Said provisions of the NIRC plainly provides that a VAT-registered person may apply for the issuance of a tax credit certificate or refund of creditable input tax attributable to zero-rated sales within two years after the close of the taxable quarter when the sales were made. Apparently, it merely sets a limitation for the application of the 5 G.R. Nos. 14 1104 & 148763, June 8. 2007.

DISSENTING OPIN ION

CT A EB Nos. 553 and 554

Page 4 of6

-.

administrative claim with the Bureau of Internal Revenue and does not suggest that an appeal to this Court must likewise be made within the same two-year period. On the contrary, the judicial remedy for the refund of input tax attributable to zero-rated sales is laid down under Section 112(D) ofthe NIRC, as amended, which provides: "(D) Period within which Refimd 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."

Section 112 (D) of the NIRC clearly states that the affected taxpayer may appeal to the CTA within thirty (30) days from receipt of the decision or from inaction of the Commissioner of Internal Revenue after the lapse of the one· hundred twenty ( 120) day period.

The Court therefore should make no unnecessary interpretation; otherwise the provisions of Section 112(D) of the NIRC would become inutile. It is well-settled that where the language of the law is clear and unequivocal, it must be given its literal application and applied without interpretation. The general rule of requiring adherence to the letter in construing statutes applies with particular strictness to tax laws and provisions of a taxing act are not to be extended by implication. 6 The case at hand would show that while CE Luzon's administrative application for refund on January 20, 2005, March 31 , 2005 and June 7, 2005 were all filed within the two year prescriptive period pursuant to Section 112(A) of the NIRC, nevertheless, its separate Petitions for Review before the Court a quo were prematurely filed since there was yet no "inaction" within the contemplation of Section 112 of the NIRC, as aptly argued by the Commissioner in his Motion to Dismiss before the said Court. In particular, from the aforesaid dates of filing the administrative claim, which are presumably the dates of submission of the supporting documents, the Commissioner of 6 Commissioner of Internal Revenue v. Julieta Ariete, G.R. No. 164152, January 21 , 2010 citing Commissioner ojlnternal Revenue v. Central Luzon Drug Corporation, G. R. No. 159610, 12 June 2008 and Commissioner of Internal Revenue v. Court of Appeals, 338 Phil. 322 <-'~rnfflt::

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DISSENTING OPINION

CT A EB Nos. 553 and 554

Page 5 of6

· .• Internal Revenue has one hundred twenty (120) days or until May 20, 2005, July 29, 2005 and October 5, 2005, respectively, within which to decide on the claim. Thereafter, an appeal may be filed with the CTA within thirty (30) days after the lapse of the said one hundred twenty (120) day period. However, CE Luzon immediately filed its appeal with the Court a quo docketed as CTA Case Nos. 7180 and 7279 on March 30, 2005 and June 30, 2005, respectively, without anymore waiting for the lapse of the one hundred twenty

(120) day period, in utter disregard of the provisions of Section 112(D). This is a clear violation of the rule on exhaustion of administrative remedies. The rule on exhaustion of administrative remedies before resorting to the court means that there should be an orderly procedure which favors a preliminary administrative sifting process, particularly with respect to matters peculiarly within the competence of the administrative agency, avoidance of interference with functions of the administrative agency by withholding judicial action until the administrative process has run its cause, and prevention of attempts to swamp the courts by a resort to them in the first instance. 7 A party seeking an administrative remedy must not merely initiate the prescribed administrative procedure to obtain relief, but also pursue it to its appropriate conclusion before seeking judicial intervention in order to give the administrative agency an opportunity to decide the matter itself correctly and prevent unnecessary and premature resort to court action. 8 Settled is the rule that the non-exhaustion of administrative remedies is not jurisdictional and it renders only the action premature, i.e., the claimed cause of action is not ripe for judicial determination and for that reason a party has no cause of action to ventilate in court.9 The premature invocation of the court's intervention is fatal to one's cause of action; and absent any finding of waiver or estoppel, the case is susceptible of dismissal for failure to state a cause of action. 10 7 Abe-Abe vs. Manta, L-4827, May 31, 1979; 90 SCRA 524. 8 Commissioner of Internal Revenue vs. Rosemarie Acosta, G.R. No. I 54068, August 3, 2007. 9 Carale vs. Abarintos, G. R. No. 120704, March 3, 1997. 10 Ilo-ilo City Zoning Board of Adjustment and Appeals vs. Gegalo-Abecia Funeral Homes, Inc. G.R. No. I 57 118. December 8, 2003. .

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DISSENTING OPINION

CT A EB Nos. 553 and 554

Page 6 of6

In the proceedings before the Court Division, the Commissioner of Internal Revenue filed a Motion to Dismiss on the ground that the petitions were prematurely instituted and thus, the court has no jurisdiction to take cognizance thereof. Since the Commissioner objected to CE Luzon's premature invocation of court's jurisdiction, the Court a quo erred in denying the motion and ultimately, in granting CE Luzon's claim. The said Court should have dismissed the petitions for failure to state a cause of action following the ruling of the Supreme Court in the above-mentioned jurisprudence. 11 With the foregoing, I vote to grant the Petition for Review of the Commissioner of Internal Revenue and deny the Petition for Review of CE Luzon. 11 Note I 0, Supra.

G"'. c----- ERNEs To D. ACOSTA

Presiding Justice

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