Commissioner of Internal Revenue vs. Visayas Geothermal Power Company

DECISION

CASANOVA, J.:

This is an appeal, by way of Petitions for Review, fi led by both parties seeking the reversal of the CTA Former Second Division Decision 1 (the "Assailed Decision") dated April 17, 2009 and the Resolution2 (the "Assailed Resolution") dated October 29, 2009, denying both parties' Motions for Partial Reconsideration. The facts of the case, as fou nd by the CTA Former Second Division, are as follows:

"Petitioner Visayas Geothermal Power Company is a special purpose limited partnership duly organized and existing under Philippines laws, with Taxpayer ldentiiication No. (T IN) 003-832-538-VAT3 and principal office at Milagro. Ormoc City, Province of Leyte.4 It is principally engaged in the business of power generation through geothermal energy and the subsequent sale of generated power to the Philippine National Oil Company- Energy Development Corporation (PNOC-EDC), pursuant to an Energy Conversion Agreement. 5 On the other hand, respondent is the du ly appointed Commissioner of Internal Revenue empowered to perform the duties of the said office including, among others, the power to decide, approve and grant refunds or tax credits of erroneously or excessively paid taxes·. He holds office at the Bureau of Internal Revenue (B IR) National Office Building, BJR Road, Diliman, Quezon Cityfo

Taxable

Quarter

1st 2nd 3rd 4th

Total

Petitioner filed with the BI R its Original Quarterly VAT Returns for the first to fourth quarters of taxable year 2005 on the following dates:7

Taxable Quarter

Date of Filing of Original Return

1 st April 25, 2005 2na July 25, 2005 3ra October 25, 2005 4tn January 20, 2006 However, petitioner amended its Quarterly VAT Returns and reflected therein an excess or unuti lized VAT credits, arising from its domestic purchases o!· non-capital goods and services, services rendered by non-residents, and importation of non-capital goods, detailed as follows: 8

Excess/Unutilized VAT Credits

Date of

Domestic

Services

Importation -

Filing of

Purchases-

Domestic

Amended

Goods other

Purchases-

Rendered by

Goods other

Return

than Capital

Services

Non-

than Capital

Goods

Residents

Goods

Total

11/18/05 318,985.97 5,484,269.71 - 15,830.00 5,819,085.68 11/18/05 402,569.87 1,770,122.20 - 306,305.00 2,478,997.07 11 /18/05 584,207.59 1,544,120.96 104,032.71 113,526.00 2,345,887.26 07/14/06 1,018,936.20 1,919,888.09 395,763.65 182,250.00 3,516,837.94 .

~32'!,69 9.6 ~ - 1 0,7113,_400~~ 6 __ '!99,796.36 617,911 .00 14,160,807.95 ----- - - On December 6, 2006, petitioner filed an administrative claim for refund of the amount of P 14, 160,807.959 with the BIR District Office No. 89, Ormoc City, on the belief that it is entitled to recover excess an~ 7 Par. 2, Admitted Facts, JSFI, Division Docket, pp. 163-161. 8 Par. 3, Admitted Facts, JSFI, Division Docket, p. 164. 9 Par. 4, Admitted Facts, JSFI, Ibid.; Exhib it '·L", Division Docket, pp. 495-496.

CTA EB CASE NO. 561 & 562 unutilized input VAT payments for the four quarters of taxable year 2005, pursuant to Republic Act (R.A .) No. 9 I 36, and its Implementing Rules and Regulations, which treat sales of generated power subject to VAT at zero (0%) percent rate starting June 26, 200 I. The BIR's inaction on its claim for refund prompted petitioner to seek recourse before this Court on January 3, 2007, praying for the refund or the issuance of tax credit certificate in the amount of Pl4,160,807.95 covering the four quarters of taxable year 2005. In the Answer fil ed on March I, 2007,10 respondent raises the fo llowing Special and A ffi rmntive Defenses: '4. Petitioner's alleged claim for refu nd is subject to administrative routinary investigation/examination by the Bureau;

5. The amount or PI 4, I 60,807.95 being claimed by petitioner as alleged unuti lized input VAT from its domestic purchases of non-capital goods and services, services rendered by non-residents and importation of non-capital goods for the first to fourth quarters of taxable year 2005 was not properly documented;

6. In an action for refund, the burden of proof is on the taxpayer to establish its right to refund, and fai lure to sustain the burden is fata l to the claim for refund/credit;

7. To support its claim, it is imperative for petitioner to prove the fo llowing, viz.:

a. The registration requirements of a value-added taxpayer in compliance with Section 6(a) and

(b) of Revenue Regu lations No. 6-97 in relation to Section 4. I 07-a (a) of Revenue Regulations No. 7-95, and Section 236 of the National Internal Revenue Code of I 997 (N IRC of 1997);-6L

b. The invoicing and accounting requirements for VAT-registered persons, as well as the filing and payment of VAT in compliance with the provisions of Sections 113 and I 14 of the NIRC of 1997;

c. Proof of compliance with the prescribed check li st 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 fi ling of administrative claim fo r refund which is a cond ition sine qua non prior to the fil ing of jud icial claim in accordance with the provision of Section 229 of theN I RC of 1997. It is worthy of emphasis that Section 11 2(0) of the NI RC of 1997 requires the submission of complete documents in support of the application filed with the Bureau of Internal Revenue before the 120-day audit period sha ll apply. and before the taxpayer could avai I of judicial remedies as provided for in the law. Hence, petitioner's failure to submit proof of comp liance with the above-stated requirements warrants im med iate dismissal of the petition for review;

d. That the input taxes of P20,546,004.87 allegedly paid by petitioner on its domestic purchases of non-capital goods and services, services rendered by non-residents and importation of non-capital goods fo r the fi rst to fourth quarters of taxable year 2005 vvere 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 fo r tax credit or refu nd of the unutilized in put tax (VAT) was fi led within two (2) years after the close or the taxable quarter when the sales were made in accordance with Sections 112 (/\) and (D) and 229 of the NIRC of 1997 ;~ CTA EB CASE NO. 561 & 562 f.

That petitioner's domestic purchases of goods and services were made in the course of its trade or busi ness, properly supponed by

VAT

in voices and/or official receipts and other documents, such as subsidiary purchase journal, showing that it actuall y paid VAT in accordance with Sections II 0 (A) (2) and 113 of the NIRC of 1997, and in pursuance to Section 4.104-5 (a) and (b) of Revenue Regulations No. 7-95 (RE:

Substantiation of Claims for Input Tax Credit);

g. The req uirements as enumerated under Section 4.¹ 04-2 of Revenue Regulations 7-95. (Re:

Persons who can avail of the Input Tax Credits).

8. The Petition for Review is premature. Since petitioner did not su bmit complete documents in support of its administrative cia i m for refund as indicated under Section 112 (D) of the NIRC of 1997, the 120-day period starts to run on 6 December 2006, the date when it fil ed its admin istrative claim for refund . The said period is yet to expire on 5 April 2007. Hence, the 30- day period within which to file the petition for review before thi s Honorable Court is yet to expire on 5 May 2007.

This being so, this Honorable Court has no jurisdiction to act on the instant petition for review.

9. Claims lor 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 as such, they are looked upon with disfavor (Western Minolco Corp. vs. Commissioner oflnternal Revenue, 124 SCRA 1211).' During trial, only petitioner presented its evidence while respondent's counsel. /\tty. Clarissa Virtudes-Babaran, manifested that she will not be presenting evidence on behalf of respondent and this case w~ deemed submitted for decision in the Resolution dated July 24, 2008,11 taking into consideration both parties' respective Memorandum.12" The parties, in their Joint Sti pulation of Facts and Issues To Be Resolved 13, filed on June 4, 2007, submitted the fo llowing issues 14 fo r this Court's resolution, to wit: " I. Whether or not Petitioner is entitled to the refund in the amount of Fourteen Million One Hundred Sixty

Thousand Eight Hundred Seven and 95/1 00 Pesos

(P 14, 160,807.95) representing its alleged unutilized input Value Added Tax ("VAT") for the 1st to 4th quarters of2005;

2.

Whether or not the input V 1\.T amount of Fourteen Mill ion One Hundred Sixty Thousand Eight Hundred Seven and 95/ I 00 Pesos (P 14.160,807 .95) allegedly paid by Petitioner from its domestic purchases of non- capi tal goods and services, services rendered by non- residents and importation of non-capital goods was attri butable to its zero-rated sales and such input VAT has not been appl ied aga inst any output tax; 3.

Whether or not the admin istrative claims for refund were filed within the period allovved under the law; and 4.

Whether or not Petitioner's domestic purchases of goods and services during the I st to 4th quarters of 2005 were made in the course of its trade or business." On April 17, 2009. the CTA Former Second Division promulgated the Assailed Decision, the dispositive portion of which reads as fo ll ovv s~ 11 Ibid., at p. 582.

12 Petitioner filed its Memorandum on June 19. 2008 and Reply Memorandum on August 29, 2008 (admitted on September 4, 2008), while respondent fil ed his Memorandum on July 2 1, 2008, Division Docket, pp. 547-564, 586-603. 565-579, respecti vely. 13 JSFI, Division Docket, pp. 163- 167.

14 Ibid, p. 166.

CTA EB CASE NO. 561 & 562

"WHEREFORE, in view of the foregoing considerations, the Petition for Review is hereby PARTIA LLY GRANTED. Accordingly, respondent is ORDERED TO REFUND or, in the alternative, TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner the reduced amount of SEVEN MILLION SIX HUNDRED NINETY

NINE THOUSAND THREE HUNDRED SIXTY SIX PESOS AND

37/100 (P7,699,366.37) representing unutilized input VAT paid on domestic purchases of non-capital goods and services, services rendered by non-residents, and importations of non-capital goods for the first to fourth quarters of taxable year 2005.

In a Resolution

17 promulgated on October 29, 2009, the CTA Former Second Division denied both parties' respective Motion. Hence, the instant Petitions for Review filed by both parties, viz:

a. CTA EB No. 561 -

Commissioner

of

Internal

Revenue

vs.

Visayas

Geothermal Power Company

b. CTA EB No. 562 -

Visayas

Geothermal

Power

Company vs. Commissioner of

Internal Revenue

On February 12, 20 I 0, the Court En Bane issued a Resolution 18 consolidating CTA EB No. 562 with CTA EB No. 56 1, the case bearing the lower docket number; and ordering both parties to submit their respective consolidated memorandum within thirty

(30) days from receipt of the resoluti on after which the case shall be deemed s ubmitte~ 15 Division Docket, pp. 626-655 .

16 Division Docket, pp. 672-690.

17 Division Docket, pp. 754-759.

18 En Bane Rollo, pp. 98-99.

CTA EB CASE NO. 561 & 562 for decision. In compliance with the said Resolution, VISA Y AS GEOTHERMAL filed its Consolidated Memorandum 19 on March 22, 20 I 0. On the other hand, CIR filed his Memoranda20 (in CTA Case Nos. 56 1 & 562) both on February 18, 20 I 0. In support of thei r respective Petition for Review, the CIR and VISA Y AS GEOTHERMAL presented their respecti ve issues/discussions, to wit: CTA EB Case No. 561 (CIR, petitioned 1 " I WHETH ER OR NOT THE IIONORABLE COU RT ERRED IN

PARTIA LLY GRANTING RESPONDENT' S CLAIM FOR

REFUN D IN TH E REDUCED AMOUNT OF P7,699,366.37

ALLEGEDLY REPRESENTING UNUTILIZED INPUT VAT

PAID ON DOM ESTIC PU RCHASES OF NON-CAPITAL

GOODS AN D SERVI CES, SERVICES REN DERED BY NON-

RESIDENTS AND IMPORTATIONS OF NON-CAPITAL

GOODS FOR TH E FIRST TO FOURTH QUARTERS OF TAXAB LE YEAR 2005 BECAUSE RESPON DENT HAS NOT

SUFFICI ENTLY

PROVEN

ITS

ENTITLEMENT

TO

REFUN D.

II.

THE CLAIM WAS NOT 1-'ILED IN ACCORDANCE WITH

THE PROC EDURE PRESC RIBED BY LA W. THUS THE SECOND DI VISION liAS NO JU RISDICTION TO ACT ON THE PETITION FOR REV II~ W. '' CTA EB Case No. 562 (VI SA Y AS GEOTH ERMAL, petitioner) "A.

PETITIONER'S OFFIC IAL

RECEIPTS AND INVOICES

SUPPORTING ITS CLA IMED INPUT VAT CONTAINED

ALL TH E INFORMATION REQUIRED BY THE TAX CODE AND TH E RELEVANT RULES AND REGU LATIONS. THE~

fNNOCUOUS

CORRECTIONS

IN

RECEIPTS

AND

INVOICES

DO

DISALLOWANCE Of-INPUT VAT.22 B.

THE

NOT

OFFICIAL

JUSTIFY

PETITIONER'S OFFICIAl , RECEIPTS AN D INVOICES

SUPPORTING ITS UNUTILIZED INPUT VAT COMPLY

WITH THE INVOICING REQU IREMENTS OF THE LAW.23 c.

RESPONDENT

WAIVED

OR

ABAN DONED

ANY

OBJECTION

REGARDING

TH E

INVOICING

REQUIREMENTS WHEN HE FAILED TO RAISE THE

SAME DURING TRIAL. 24 D.

IN

CIVIL CASES, ONLY

A PREPON DERANCE OF

EVIDENCE IS REQU!RED. 25., After a careful and thorough evaluation and consideration of the records of the cases, the Court En Bane finds mct·it in CIR's Petition for Review (CTA EB Case No. 561).

VISA Y AS GEOTHERMAL anchors its claim under Sections II 0 (B), and 112(A) ofthe NIRC of 1997, which. respectively, provides: "SEC. 110. Tax Credits. -

XXX

XXX

XXX

(B) Excess Output or Input Tax. - If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT- registered person. If the input tax exceeds the output tax, the excess shall be catTied over to the succeeding quarter or quarters. Any input tax attributable to the purchase of capital goods or to zero-rated sales by a VAT -registere~ 22 Petition for Review, En Bane Rollo (CT!\ EB No. 562), p. 19. 23 Ibid, p. 27.

24 Ibid, p. 47.

25 Ibid, p. 49.

CTA EB CASE NO. 561 & 562

DECISION

Page II of 17

person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112.

XXX

XXX

xxx" "SEC. 112. Refunds or Tax Credits of Input Tax. - (A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person, whose sales are zero-rated or el'fectively 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 aga inst 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 I 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 allocated proportionately on the basis of the volume of sales." Pursuant to the afore-quoted Section 112 (A) of the 1997 NIRC, in order to be entitled to a refund/tax credit of unuti lizcd in put VAT. the following requisites must be complied with:

I. there must be zero-rated or effectively zero-rated sales;

2. that input taxes were incurred or paid;

3. that such input taxes arc attributable to zero-rated or effectively zero-rated sales;

4. that the input taxes were not applied against any output VAT liability;

5. that the ad ministrative claim for refund was filed within the two-year prescriptive period.

The Court En Bane deems it proper to resolve fi rst VISA Y AS GEOTHERMAL's conformity or non-comp liance with the fl fth requisite before determining whether or not VISA Y AS GEOTHERMA L is entitled to its claim for refu nd /credit~

In the case of Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation (formerly Southern Energy Quezon, Inc.), G.R. No. 172129, September 12, 2008, the Highest Tribunal held, and We quote:

"The claim for refund or tax credit for the creditable input VAT payment by M PC embodied in 0 R No. 0189 was filed beyond the period provided by law for such claim. Section 11 2 (A) of the NJRC pertinently reads:

'(A) Zero-rated or Effectively Zero-rated Sales. - Any

VAT-registered

person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxa ble quarter when the sales were made, apply fo r the issua nce of a ta x 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: xxx ' The above proviso clearly provides in no uncertain terms that unutilized input VAT payments not otherwise used for any internal revenue tax due the taxpayer must be claimed within two years reckoned from the close of taxable quarter when th e relevant sales were made pertaining to the input VAT regardless of whether said tax was paid or not. xxx" (Emphasis supplied) Applying the afore-quoted ruling in the case at bar, the Court En Bane finds that the administrative claim of VISA YA S GEOTHERMAL was filed within the two-year prescriptive period pursuan t to Section 11 2 (A) of the NIRC of 1997. The present claim pertains to VISA Y AS GEOTHERMAL's alleged unutilized input VAT in the amount of P 14, 160,807.95, from its domestic purchases of non-capital goods an~ services, services rendered by non-residents, and importations of non-capital goods for the first to fourth quarters of taxable year 2005. Counti ng from March 31, 2005 (end of I st quarter of2005), June 30,2005 (end of 2nd quarter of 2005), September 30,2005 (end of3rd quarter of 2005) and December 3 1, 2005 (end of 4 th quarter of 2005), petitioner had until March 3 1, 2007, June 30, 2007, September 30, 2007 and December 31 , 2007, respectively, within which to file its clai m for refund in the administrative level. Having filed a claim for refund or issuance of a tax credit certificate with the BIR, District Office No. 89 of Ormoc City on December 6, 2006, the said administrative claim was seasonably filed within the two-year prescriptive period.

Notwithstanding such findin g of lact, We are constrained to grant CIR's Petition for Review due to the premature filin g of VISA Y AS GEOTHERMAL's judicial claim for refund/credit with th is Court provided under Section 112 (D) of the NfRC, which is hereunder quoted for easy reference:

"SECTION 112. Refunds or Tax Credits of Input Tax.-

XXX

XXX

XXX

(D) Period within which Rcl'und or Tax Credit of Input Taxes shall be Made. - In proper cases, the Com mi ssioner 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 accorda nce 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 Comm issioner to act on the application within the period prescribed above, the taxpayer may, within thirty (30) days from receipt of the decision denying the clai m or after the expiration of the one hund red twenty-day period, appeal the decision or the unacted claim with the Court of Tax Appeals." (Emphas is s upplied~ CTA EB CASE NO. 561 & 562 The Supreme Court, in the recent case of Commissioner of Internal Revenue vs. Aichi Forging Company of Asia, Inc., G.R. No. 184823, October 6, 2010, interpreted the above provision, to wit:

"Section 11 2 (D) of the N l RC clearly provides that the CIR has '120 days, from the date of subm ission of the complete documents in support of the application [for tax refund/tax credit],' with in which to grant or deny the claim. In case of full or partial deni al by the ClR, the taxpayer's recourse is to file an appeal before the CTA within 30 days from receipt ofthe decision of the CIR. However, if after the 120-day period the CIR fails to act on the application for tax refund/credit, the remedy of the taxpayer is to appeal the inaction ofthe CIR to CTA within 30 days.

In th is case, the admi nistrative and judicial claims were simultaneously fil ed on September 30, 2004. Obviously, respondent did not wait for the decision of the Cl R or the lapse of the 120-day period. For this reason, we fin d the filing ofthe judicial claim wi th the CTA premature. Respondent's assertion that the non-observance of the 120-day period is not fatal to the filing of a j udi cial claim as long as both the administrative and judicial claims are filed with in the two-year prescriptive period has no legal basis.

There is nothing in Section 11 2 of the NIRC to support respondent's view. Subsection (A) of the said provision states that 'any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refun d of creditable input tax due or paid attributable to such sa les.' The phrase ' within two (2) years xxx apply for the issuance of a tax credit certificate or refund' refers to applications for refund/credit fil ed with the CIR and not to appeals made t~ the CTA. This is apparent in the first paragraph of subsection (D) ofthe same provision, which states that the CIR has ' 120 days from the submission of complete documents in support of the application fi led in accordance with Subsections (A) and (B)' within which to decide on the claim. In fact, applying the two-year period to judicial claims would render nugatory Section 11 2 (D) of the NIRC, which already provides for a specific period within which a taxpayer should appeal the decision or inaction of the CIR. The second paragraph of Section 11 2 (D) of the NIRC envisions two scenarios: ( I) when a decision is issued by the CIR before the lapse of the 120-day period; and (2) when no decision is made after the 120-day period. In both instances, the taxpayer has 30 days within which to file an appeal with the CTA. As we see it then, the 120-day period is crucial in filing an appeal with the CTA.

XXX

XXX

XXX

In fi ne, the premature fi ling of respondent's claim for refund/credit of input VAT before the CTA warrants a dismissal inasmuch as no jurisdiction was acquired by the CTA.'' As shown by the records of this case, the admi nistrative claim was filed on December 6, 2006. Hence, the CIR has 120 days or until April 5, 2007 within which to decide on the said claim. After the lapse of the said 120-day period without any action on the part of the CIR, petitioner may appeal with the CTA the unacted administrative claim within thirty (30) days or until May 5, 2007. However, considering that the present Petition for Review was filed on January 3, 2007, or 28 days after petitioner filed its administrative claim without waiting for the expiration of the 120-day period, such judicial claim was filed prematurely. Thus, the Court acquires no jurisdiction to act on the said judicial c l a im .~ ..

With the above discussion, the Court En Bane deems it proper to deny VISA Y AS GEOTHERMAL's Petition for Review (CTA EB Case No. 562). WHEREFOR E, premises considered:

1.

As regards CTA EB Case No. 562, the Petition for Review is hereby DISMISSED; and 11.

As regards CTA EB case No. 561, the Petition for Review is hereby GRANTED.

Accordingly, the Decision dated April 17, 2009 and the Resolution dated October 29, 2009 of the CTA Former Second Division are hereby REVERSED and SET ASIDE, and another one is hereby entered DISMISSING the Petition for Review filed in CTA Case No. 7559 for having been filed prematurely.

WE CONCUR:

~ CAESAR A. CASANOVA

Associate Justice

L ~ Q__.,_ ERN ESTO D. ACOSTA

Presiding Justice

q...~ c, ~~~/, g, .

eifUANITO C. CASTANEDA, J1t ..

Associate Justice

' E~P. UY

Assoctate Justice

O~P&~E~

Associate Justice

~ N. M""~ - G'v.Jtc CIELITO N. MINDARO-GRULLA

Associate Justice

/4-/. ~;LJ~ AMELIA R. COTANGCO-MANALASTAS

Associate Justice

CER T I F ICA TI ON

Pursuant to Article Vlll, Secti on 13 of the Constituti on, it is hereby certified that the above Decision has been reached in consultati on with the members of the Court en bane before the case was assigned to the writer of the opinion of the CoUii . tt~1P \)~ ERNESTO ·D. ACOSTA

Presiding Justice