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

DECISION

MINDARO-GRULLA, J.:

Submitted for decision are two (2) consolidated Petitions for Review be fore the Court En Bane, separate ly filed by lhe respective( CE Luzon Geothermal Power Company, Inc. v. CIR, CTA EB Case No. 59 1; & CIR v. CE Luzon Geolhermol Power Company, CTA EB Case No. 628 (CTA Case No. 7558)

DECISION

Page 2 o f 22 parties on February 24,2010 1 and May 12, 2010 2 under Section 2(a)(l), Rule 4, in relation to Sec tion 4(b) , Rule 8 of the 2005 Re vised Rules of the Court o f Tax Appeals, as amended, of the Decision 3 and Amended Decision -1 dated June 24, 2009 and January 19, 2010, respectively, rendered by the Former Second Division of this Court. CE Luzon Geothermal Power Company, Inc. ("CE Luzon " ) prays for the Court en bane to reverse and to se t a side the Amended Decision dated January 19, 2010 insofar as the Court a quo disallowed th e unutilized input VAT in the amount of P3,268,066.40; and to issue a Decisio n granting in full its claim for re fund or issua nce o f a TCC for its unutilized input VAT for the four ( 4) quarters o f CY 2005 in the total amount of P20,546,004.87.

On the oth er hand, th e Commissioner o f Internal Revenue ("CIR") prays for the Court en bane to reverse and to set aside the Amended Decisio n dated January 19, 2010 and Resolution dated April 22, 201 0~ 1 Filed by CE Luzon Geo thermal Power Company, Inc. w ilhin the ex tended period of lime gronled by En Bone in o Resolution doled February 10, 20 10, docketed as CTA EB No. 59 1.

2 Filed by Commissioner o f lnlernol Revenue, docketed as CT A EB No. 628. 3 Penned by Associa te Justice Olga Polanco-Enriquez and concurred in by Associate Justices Juonito C. Castaneda, Jr. and Erlindo P. Uy, CT A EB No. 59 1, Docket, pp. 59- 83.

4 Penned by Associate Jus tice Olga Polanco-Enriquez and concurred in by Associa te Juslices Juonilo C. Coslonedo, Jr. and Erlindo P. Uy, CTA EB No. 59 1, Dockel, pp. 85- 103.

C E Luzon Geo therma l Pow er Company, Inc. v. Cl l~ , CT A EB Case No. 59 1; & CIR v. CE Luzon Geothermal Power Company, CTA EB Case No. 628 (CTA Case No . 7558)

DECISION

Page 3 o f 22 and to 1ssue another Decisio n d enying CE Luzon' s e ntire claim for re fund .

The anteced e nt fa c ts a s c ulle d fro m the Decision o f the Court a quo dote d June 24, 2009 ore a s fo llow s:

"THE PARTIES Petitio ne r is a corpora tion duly org a nized a nd existing under and b y virtue o f the lows o f the Republic o f the Philippines, w ith p rinc ipal o ffice at the 241t1 Floor, 6750 Aya la Avenue, Makoti City.

Respondent, on the other hand , is the d uly a ppointed Commissioner o f Intern al Revenue, vested w ith authority to o c t as suc h, inc luding, among others, the p ower to decide, a pprove a nd gra nt refunds or tax c redits of erroneously or excessively paid taxes.

He may b e served w ith summons, pleadings and other legal processes at his office at the BIR No tiona l O ffice Building, BIR Rood, Dilimon, Quezon City.

THE FACTS

The anteced ent facts of the case ore as fo llows: Petitio ner is engaged in the business of power generation for w hich it was accredited and certified to as such b y the Deportme nt o f Energy, as evidenced by its DOE Certific ate o f Accredita tio n (OSAC94- 12) issued on June 15, 1994 (Exhibit "B") . Petitio ner is a registered value added lox (VAT) taxpayer w ith the Bureau o f Internal Revenue evide nced b y its Certific ate of Registration w ith Tax Ide ntification Number 003-924-356-000 (Exhibit "C ").

On the fo llowing dotes, pe titioner fil ed with the BIR its Orig inal Quarte rly VAT Returns for the first to fourth quarters of 2005, respectively:

Taxable Quarter

Date of Filing of Original Return

April 25, 2005 July 25, 2005 Oc lober 25, 2005 JanL,Jory 25"--2006 CE Luzon Geothermal Power Company, Inc. v. CIR, CTA EB Case No. 591; & CIR v. CE Luzon Geothermal Power Company, CTA EB Case No. 628 (CTA Case No. 7558) ?OO~J loxotJic

Ouorlcr

,,, 4 1h lolol On the following dotes, petitioner filed with the BIR its Amended Quarterly VAT Returns for the first to fourth quarters of 2005, reflec ting excess or unutilized VAT c redits arising from petitioner's domestic purc hases of non-capitol goods and services, services rendered by non-residents and importation of non-capitol goods:

Do le oil ilin(J ol Rei urn l)orncs lie l'urct1oscs Goods O lhcr !han Copilo l

Goods WJ

.Jonuory I?. ?006 ~34.~J0/.06 .Jonuory I?, ?006 l ,?

l :l.~J9?BI .Jonuory I?, 2006 1,091,1??.9/ ·- April I 0, 2006 96~.139~.81 --- - 3,130~J. I I 13.6~> I xc:css/Unulili;ccj VA I C:rccjils

Dorneslic

l'urct10SCS

Services (P)

~.9~J/, I ~?.09 ?, I/9Sl9 BO ?,690,93EU I 2.~ 14,421.72 I :3,:342,05 1.9?

----

Services

J.lcncjcrcd

by Non

Residcnls

(_!:') :30. 4/1.40 0 :3:3/,660.21 lrnpor lolion Co ods I han ilol 0 I t1C:r

Cop

Go~

s PL ,84.00 1/6,{:

:319,? 2?.00 -- 1,:306,8 00.00 /6/,4 11.00 ·- 1133.00 -- - lolol (P) /,I ?B,862.84 :l./4? ,826 .0 I ~>.088,86 l .28 4,585,454.74 - 20,546,004.87 -- On November 30, 2006, petitioner filed its administrative claim for re fund of unutilized input VAT for the four quarters of taxable year 2005.

In view of respondent's inaction, on January 3, 2007, petitioner filed its judicial c laim for refund with this Court. docke ted as C.T.A. Case No. 7558.

In his Answer, respondent alleged by way of special and affirmative defenses:

'4. Petitioner's c laim for refund is subject to administrative invesligotion/exominotion by the Bureau;

5. The amount of P20,546,004.87 being claimed by petitioner as alleged unutilized input VAT from its domestic purchases of non-capitol goods and services, services rend ered by non-residents and importation of non-capitol goods for the first to fourth quarters of taxable year 2005 was not properly documented;( CE Luzon Geo thermal Power Company, Inc. v. CIR, CT A EB Case No . 591; & CIR v. CE Luzon Geo thermal Power Company, CTA EB Case No. 628 (CTA Case No. 7558)

DECISION

6. In on action for refund, the burde n of proof is on the taxpayer to establish its right to refund, and failure to sustain the burden is fatal to the claim for refund /credit;

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

a.

The registration requirements of a value- added taxpayer in compliance with Section 6(o) 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 of the Notional Internal Revenue Code o f 1997 (NIRC of 1997);

b.

The 1nvo1c 1ng and accounting require ments for VAT registered p ersons, as well os the filing and payments of VAT in compliance w ith the provisions of Sections 1 13 and 114 of the NIRC of 1997;

c .

Proof of compliance w ith the prescribed c hecklist o f require me nts to be submitted involving c laim for VAT refund in pursua nce to Revenue Memorandum Ord er No. 53-98, otherwise, there would be no sufficient compliance with the filing of administrative claim for refund which is a condition sine quo non prior to the filing of judic ial c laim in accordance with the provision of Section 229 of the Tax Code, os amended. It is worthy of emphasis that Section 11 2 (D) of the Tax Code, os amended, requires the submission of complete d ocuments in support of the application filed with the Bureau of Internal Revenue before the 1 20-doy audit period shall apply, and before the taxpayer could avail of judic ial remedies os provided for in the low. Hence, petitioner's failure to submit proof of compliance with the above-stated requirements warrants immediate dismissal of the petition for review;

d.

Thai the input taxes of P20,546,004.87 allegedly paid by the petitioner on its( Page 5 o f 22 CE Luzon Geo thermal Power Company. Inc. v. CIR. CTA EB Case No . 59 1; & CIR v. CE Luzon Geo thermal Power Company, CTA EB Case No. 628 (CTA Case No. 7558)

DECISION

purchases of non-capitol goods and services, services rendered by non-reside nts and importation o f non-capitol goods for the first to fourth quarters of 2005 were attributable to its zero-rated soles and such hove not b een applied against any output tax and were not carried over in the succeeding taxable quarter or quarters;

e.

That

p etitioner's administrative and judicial claims for tax credit or refund of the unutilized input tax (VAT) was filed within two

(2) years after the c lose of the taxable quarter when the soles were mode in a ccordance with Sections 11 2 (A) and (D) of the NIRC of 1997;

f.

That petitioner's domestic purchases o f goods and services were mode in the course of its trade or business, properly supported by VAT invoices and/or offic ial receipts and o ther doc ume nts, suc h as subsidiary purchase journal. showing that it actually paid VAT in accordance with Sections 110 (A)

(2) and 113 of the NIRC o f 1997, and in pursuance to Section 4.104-5 (a) and (b) of

Revenue

Regulations

No .

7-95

(Re:

Substantiation of Claims of Input Tax Credit) ; g.

The require ments as enumerated under Section 4.104-2 of the Revenue Regulations 7- 95 (Re: Persons who con avail o f the Input Tax Credits);

8. The petition for review is premature.

Since

pe titioner did not submit complete documents in support of its administrative claim for refund as indica ted under Sec tion 112 (D) of the NIRC of 1997, the 120-doy period starts to run on 30 November 2006, the dote when it file d its administrative c laim for refund. The said period is yet to expire on 10 Marc h 2007.

Hence, the 30- doy p e riod within which to file the petition for review before this Honorable Court is yet to expire on 9 April 2007. This being so, this Honorable CouriJ:

Page 6 of 22

CE Luzon Geo thermal Power Company, Inc. v. CIR , CTA EB Case No. 591; & CIR v. CE Luzon Geo thermal Power Company, CTA EB Case No. 628 (CTA Case No. 7558)

DECISION

has no jurisdiction to oct on the instant petition for review.

9. Claims for refund ore construed strictly against the claimant for the some partake the nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 3 1 SCRA 95) and such, they were looked upon with disfavor (Western Minolco Corp., vs. Commissioner of Internal Revenue, 124 SCRA 12 11). '

Page 7 of 22

Petitioner presented Leiloh Yosmin E. Alpod and Jerome

Antonio

B.

Constantino, as witnesses, and documentary evid ence, marked as Exhibits "A" to "AAA", inclusive of their submorkings, which were all admitted by the Court. O n the other hand, respondent' s counsel manifested that he w ill not be presenting evidence and submitted the case for decision.

Thereafter, both parties were ordered to file their simultaneous memoranda, within thirty (30) days from notice, ofterwhich the case shall be deemed submitted for decision. Both parties having complied there to, the petition was d eemed submitted for d ecision on July 25, 2008. However, on August 29, 2008, petitioner filed a "Motion to Admit Reply Memorandum" and its "Reply Memorandum (To Respondent' s Memorandum doted July 18, 2008", which the Court granted in a Resolution doted Septemb er 4, 2008. " ~' On June 24, 2009, th e Former Second Division of this Court rendered a Decision6 partially granting CE Luzon's claim for unutilized input VAT re fund/credit in the reduced amount of P 14,879,312.65 for the four (4) quarters of calendar year 2005.

In partially granting the petition, I he Court a quo held !hoi CE Luzon su ffic ie ntly complied with C 5 CT A EB No. 591, Docket, pp. 60-65.

6 Supra note 3.

CE Luzon Geo therma l Power Company, Inc. v. CIR, CTA EB Case No. 59 1; & CIR v. CE Luzon Geo thermal Power Company, CTA EB Case No. 628 (CT A Case No. 7558)

D EC ISION

Page 8 o f 22 the requisites under Sections 11 O(B) and 112(A) of the National Internal Reve nue Code (NIRC) of 1997, a s amended , the dispositive portion of whic h reads:

"WHEREFORE, premises considered, the present Petition for Review is PARTLY GRANTED.

Accordingly, respondent is hereby ORDERED TO REFUND OR ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the reduced amount o f FOURTEEN

MILLION

EIGHT

HUNDRED

SEVENTY

NINE

THOUSAND

THREE

HUNDRED TWELVE AND 65/ 100 (P14,879,312.65), representing unutilized input VAT paid on its d omestic purchases of non- capital goods and services rendered by non-residents and importation of non-c apitol goods which ore attributable to zero- rated soles for calendar year 2005.

Partial

Reconsideration;

while

CE

Luzon's

Motion

for

Partial

Reconsideratio n was partly granted insofar as it has sufficiently proven its e ntitle ment to additional input VAT in the amount o f P2,398,625.82. The dispositive portion of the said Amended Decision reads: "WHEREFORE, pre mises considered: ( 7 Filed by Commissioner o f Internal Revenue .

a Filed by CE Luzon Geo thermal Power Company, Inc. 9 Supra no te 4.

CE Luzon Geothermal Power Company, Inc. v. CIR, CT A EB Case No. 59 1; & CIR v. CE Luzon Geo therma l Power Company, CTA EB Case No. 628 (CTA Case No. 7558) l) As regards petitioner CE Luzon Geothermal Power Company, Inc.'s "Motion for Partial Reconsideration"- the some is hereby PARTLY GRANTED. Accordingly, the dispositive portion of our Decision dated June 24, 2009 is hereby AMENDED to read, as follows:

"WHEREFORE, premises considered, the present

Petition

for

Review

is

PARTLY

GRANTED.

Accordingly, respondent is hereby ORDERED TO REFUND OR TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner the reduced amount of

SEVENTEEN MILLION TWO HUNDRED SEVENTY SEVEN

THOUSAND

NINE

HUNDRED

THIRTY

EIGHT

and 47/ 100

PESOS

(P17,277, 938.47), representing unutilized input VAT paid on its domestic purchases of goods and services which ore attributable to zero-rated soles for calendar year 2005.

Commissioner

of

Internal

Revenue's "Motion for Partial Reconsideration"

the some 1s hereby DENIED for lock of merit.

1. The CT A-Division erred when it foiled to consider in evidence petitioner's documents supporting input VAT on payments to non-resident suppliers of services;

2. The CT A-Division erred when it foiled to consider in evidence the certified true copies of the official receipts and invoices issued by petitioner's suppliers;

3. The CTA-Division erred when it ruled that some of petitioner's official receipts and invoices supporting its unutilized input VAT did not comply with the invoicing requirements of the Notional Internal Revenue Code of 1997 (the "Tax Code") . The CT A-Division foiled to appreciate the legal ramifications of Intel relative to the rules on substantiation of input VAT;

4. The CT A-Division erred when it foiled to consider that respondent was deemed to hove waived or abandoned any objection with respect to the alleged failure of petitioner's supporting documents to comply with invoicing requirements. Respondent foiled to raise such issue during trial;

5. The CTA-Division erred when it increased the burden of proof in civil cases from a mere preponderance of evidence to a much higher stondord.

1 ~ On the other hand , the CIR proffers the sole issue, which states: The Former Second Division erred in granting respondent's claim for refund in the reduced amount of P 17,277,938.47 allegedly representing unutilized input VAT paid on its domestic purchases of non-capitol goods and services rendered by non-residents and importation of non-capitol goods which ore attributable to zero-rated soles for calendar year 2005 because respondent has not sufficiently proved itsc 14 CTA EB No. 59 1, Dockel, pp. 19-20.

CE Luzon Geo thermal Pow e r Com pany, Inc. v. Cl l~, CTA EB Case No. 59 1; & CIR v. CE Luzon Geolhermal Power Company, CTA EB Case No. 628 (CTA Case No. 7558)

DECISION

Page 11 o f 22 entitle ment to re fund and that the c laim was not filed in accorda nce w ith the p rocedure prescribed by law. 1s Based o n the foregoing issues raised , the principal issue is whether or not CE Luzon is e ntitled to its claim for re fund/c redit in the amo unt o f P20,546,004.87, representing unutilized input VAT paid on its d omestic purc hases of no n-c apitol good s and services rendered by non-residents and importation o f non-capitol goods whic h are a ttributa ble to zero-rated sol es for c alendar year 2005. How ever, the Co urt shall first rul e on th e issue o f premature filing o f the petition for review raised by the CIR.

The CIR vigorously argues, among others, that CE Luzon's petition for review fil ed b e fore the Court a q uo was premature for failure to adhere with th e one hundred twe nty ( 120)-day period provided under Section 112(0) o f the NIRC o f 1997, a s amended. Th e CIR maintains that CE Luzon ca n o nly appeal before this Court within thirty (30) days reckoned from the expiratio n o f the 120-doy pe riod granted by low or from receipt o f the d ecisio n d enying the claim for re fund. Hence, in view o f C E Luzon 's failure to submit th e comple te d ocume nts in support of its administrative claim for re fund , the 120-doy period started to run(. 1s CTA EB No. 628, Docke t, p . 4.

CE Luzon Geo thermal Power Company, Inc. v. CIR, CT A EB Case No. 591; & CIR v. CE Luzon Geolhermal Power Com pany, CTA EB Case No. 628 (CT A Case No . 7558)

DECISION

Page 12 o f 22 on the date o f its filing o f administrative claim, i. e. November 30, 2006, a nd to expire o n Marc h 10, 2007.

Thu s, the judic ial appeal may be resorted to o nly within 30 days from Marc h 10, 2007 or until April 9, 2007. Considering that C E Luzon filed its judic ial appeal on January 3, 2007, the CIR conc ludes that the Court has no jurisdic tion over th e instant c a se, pursuant to Sectio n 11 2 (D) o f the 1997 NIRC. In opposition, CE Luzon a sserts that Section 112 (D) o f NIRC of 1997, a s amended , does not require that the CIR should be give n the full 120-day pe riod within whic h to d ecide on the administrative claim for refund be fore a taxpayer c an seek judic ial re medy. Instead, CE Luzon avers that the prevailing jurisprude nce at the time it filed its judic ia l claim for re fund is that a taxpayer has a full two (2)-year period reckoned from the date of payment o f tax within whic h to file both its administrative and judic ial claims for VAT re fund . He nce, it should not be fa ulted for adhering to lhe provisions o f law, a s w e ll a s prevailing jurisprude nce on th e matter.

We rule in favor o f CIR.

Suffice it to say that the afore-me ntioned issue raised by the CIR is no longer novel as the same was squarely raised and passed upon in the recent c a se of Commissioner of Internal Revenue v. Aichi Forging c CE Luzon Geothermal Power Company, Inc . v. CIR, CTA EB Case No. 591; & CIR v. CE Luzon Geothermal Power Company, CTA EB Case No. 628 (CTA Case No. 7558)

Company of Asia, /nc. l6 (the "Aic hi Case"), wherein the Supreme Court finally laid to rest the issue of prescription insofar as the filing of on administrative c laim for unutilized input VAT refund/credit before the CIR and its subsequent judicial appeal b e fore the CTA pursuant to Section 112 of NIRC of 1997, as omendedY The pertinent portion of the said dec ision reads :

"The pivotal question of when to reckon the running of the two-year prescriptive period, however, has already been resolved in Commissioner of Internal Revenue v. Miront Pogbiloo Corporation [G .R. No. 172129, September 12, 2008, 565 SCRA 154), where we ruled that Section 112(A) of the NIRC is the applicable provision in determining the start of the two-year period for claiming a refund/credit of unutilized input VAT, and that Sections 204 (C) and 229 of the NIRC ore inapplicable as "both provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes.

XXX

x x x To be clear, Section 112 of the NIRC is the pertinent provision for the refund/credit of input VAT. Thus, the two-year period should be reckoned from the close of the taxable quarter when the sales were made.

XXX

Respondent's assertion that the non-observance of the 120- doy period is not fatal to the filing of a judicial claim as long as both the administrative and the judicial claims ore filed w ithin the two-year prescriptive period has no legal basis.

There is nothing in Section 1 12 of the NIRC to support respondent's view. Subsection A] of the said Qrovision states that "on V AT-re istered erson whose soles ore zero-rated or effective! zero-rated may, within two years after the close of the taxable uorter when the soles were mode a I for the issuance of a tax ( 16 G.R. No. 184823, Oclober6, 20 10.

17 In o Resolulion doted December 6, 20 10, I he Firs I Division o f I he Supre me Court d enied with finolily lhe Motion for Reconsideration filed by Aichi Forging Company of Asia , Inc. in the case entitled: Commissioner o f Internal Revenue v. Aichi Forging Company o f Asia, Inc, supra nole 16.

CE Luzon Geo thermal Power Company, Inc. v. CIR, CT A EB Case No. 591; & CIR v. CE Luzon Geothermal Power Company, CTA EB Case No. 628 (CTA Case No. 7558) credit certificate or refund of creditable input tax due or paid attributable to such soles." The phrase "within two (2) years x x x apply for the issuance of a tax credit certificate or refund" refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA. This is apparent in the first paragraph of subsection (D) of the some provision, which states that the CIR has " 120 days from the submission of complete documents in support of the application filed in accordance with Subsections (A) and (B)" within which to decide on the claim.

In fac t, applying the two-year period to judicial claims would render nugatory Section 11 2(0) 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 112(0) of the NIRC envisions two scenarios: (1) when a decision is issued by the Cl R 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 CT A. As we see it then, the 120-day period is crucial in filing an appeal with the CTA.

With regard to Commissioner of Internal Revenue v. Victorias Milling, Co., Inc. [ 130 Phil. 12 ( 1968)] relied upon by respondent, we find the some inapplicable as the tax provision involved in that case is Sec1ion 306, now Section 229 of the NIRC. And as already discussed, Section 229 does not apply to refunds/credits of input VAT, such as the instant case.

In fine, the premature filing 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." [Emphasis supplied.]

Significan tly, it is emphasized that the Supreme Court, in interpreting Section 112 of NIRC of 1997, as amended, distinguished the prescriptive period for filing an administrative c laim for unutilized input VAT refund/c redit before the CIR from the co nsequent judicial appeal before this Court. To recapitulate, the filing of an administra tive claim( CE Luzon Geo thermal Power Company, Inc. v. CIR, CTA EB Case No. 59 1; & CIR v. CE Luzon Geo thermal Power Company, CTA EB Case No. 628 (CTA Case No. 7558)

D E CISION

Page 15 o f 22 for unutilized input VAT re fund/c redit be fore the CIR must be made within two (2) years after the close of the taxable quarter when the sales w ere made pursuant to Section 112(A) of NIRC of 1997, as amended; w while the filing o f a Petition for Review with this Court must be made within thirty (30) days reckoned from either the receipt of the CIR 's decision d enying the claim or after the expiration of th e 120 day-period for the CIR to act on th e c laim in accordance with Section 112(0) o f the NIRC o f 1997, as amended. 19 Th e Supreme Court clearly and categorically ruled that failure on the part o f the taxpayer to adhere with the 120-day period under( 18 SEC. 11 2 (A) . Zero-rated or Effectively Zero-rated Soles. - Any VAT-registe red p erson, whose soles ore zero-rol ed or e ffectively zero-rated may, wi thin lwo (2) years ofler lhe close of lhe taxable quarter when the soles were mode, apply for lhe issuance of o tax c redit certificole or re fund o f creditable input lox due or paid o tlributoble to such soles, excep t transitional inpu t lox, to the exten t !hot such input tax has not been applied against ou tput tax: x x x 19 SEC. 112 (D). Period within which Refund or Tax Credit of Input Taxes shall be Mode. 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 wilh Subsec tion (A) hereof.

In case o f full or partial denial o f lhe c laim for lox refund or lox c redit , or the failure on the pori of lhe Commissioner lo ocl on lhe application w ithin lhe 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. [Emphasis supplied.]

CE Luzon Geo therma l Power Company, Inc. v. CIR, CT A EB Case No. 59 1; & CIR v. CE Luzon Geo thermal Power Company, CTA EB Case No . 628 (CTA Case No. 7558)

DECISION

Page 16 o f 22 Sec tion 11 2(0) o f the NIRC o f 1997, a s amended , is c ruc ial in filing his/her judic ial appeal be fore this Co urt and there fore warrants a dismissal of th e petition . Simply put, "the premature filing of taxpayer's claim for refund/credit of input VAT before the CTA warrants a dismissal inasmuch as no jurisdiction was acquired by the CTA. "2D Applying the foreg oing precepts 1n the instant c a se, it is undisputable that CE Luzon tim ely filed its administrative claim for unutilized input VAT re fund/c redit for the fo ur ( 4) quarters of c alendar year 2005 be fore the CIR o n November 30, 2006 a s the some was filed within two (2) years recko ned from the close of the taxable quarter when the soles w ere mode pursuant to Section 11 2(A) of the NIRC of 1997, as amended. How ever, a s to the timeliness o f CE Luzon 's filing o f judic ial appeal, record s disclosed that it prematurely filed its Petition for Review before this Co urt o n January 3, 2007 or merely 34 days after it filed its a pplica tio n for re fund be fore the CIR.

Clearly the n, CE Luzon foiled to heed on the mandatory period of 120 days, whic h is c ru c ial in filing on appeal with th e CT A, as held in the Aic hi Case. He nce, the filing of CE Luzon 's claim for unutilized input VAT re fund/c redit be fore the Court a quo was premature as there wosC 2° Commissioner o f ln lernal Revenue v. Aichi Forging Company o f Asia, Inc, supra , emphasis supplied .

CE Luzon Geo thermal Power Company, Inc . v. CIR, CTA EB Case No. 59 1; & CIR v. CE Luzon Geotherma l Power Com pany, CTA EB Case No. 628 (CTA Case No. 7558)

DECISION

Page 17 o f 22 yet no decisio n o f th e CIR for this Court to review nor was there inac tion on the port o f the CIR after the lapse of the 120-doy period provided under Sectio n 112(0) o f the NIRC o f 1997, as ame nded. Therefore, fo llowing the rule laid d own in Aic hi Case, the petition for re view filed before this Co urt warrants a dismissal inasmuc h as no jurisdic tio n was acquired by the Co urt a q uo to lake cog nizance o f the c ase. Time and again, jurisprude nce is re plete with c a ses holding that the Court o f Tax Appeals is a court o f special jurisdic tio n a nd c on only to ke cog n1zo nce o f suc h matters as ore c learly within its jurisdic tio n.7 1 Pursuant to Sec tion 7 o f Rep ublic Ac t (R.A.) No. 9282, a m end ing R.A. No. 11 25, o therwise known as the La w Creating the Co urt of Tax Appeals, and Section 3, Rule 4 and Section 3(a) , Rule 8 of the Revised Rules o f th e Co urt o f Tax Appeals, it is evide ntly clear that "the jurisdic tio n o f th e Co urt of Tax Appeals has been expanded to includ e not o nly d ecisio ns or rulings but inactio n as w e ll of the Commissioner o f Internal Reve nue ."?? More importantly, " the d ecisions, rulings or inac tion of th e Commissioner ore necessary in order to vest the Co urt of Ta x Appeals with jurisdic tion to entertain the appeal,"23 provided it is filed within 30 days after the receipt o f suc h decision or( 21 Rizol Commerc ial Bonking Corp. vs. Commissioner o f Inferno/ Re venue, G.R. No . 168498, April 24, 2007, 522 SCRA 144.

22 fd .

23 fd.

CE Luzon Geolhermal Power Company, Inc . v. CIR, CTA EB Case No. 591; & CIR v. CE Luzon Geothermal Power Company, CTA EB Case No. 628 (CT A Case No. 7558) ruling, or within 30 days after the expiration of the 120-day period prescribed under Section 11 2 (D) o f the NIRC of 1997 for the Commissioner to act on the c laim for tax re fund/c redit. 711

Anent CE

Luzon 's reliance on Atlas Consolidated Mining Development Corporation v. Commissioner o f Internal Revenue 7 ~) (the "Atlas Case" ) where the Supre me Court, in resolving a c laim for refund/c redit o f unutilized input VAT on its purchases of c apital goods and on its zero-rated sales covering the taxable years 1990 and 1992, harmonized th e provisions under Sections 106 and 230 of the 1977 Tax Code, as amended, (now Sections 11 2 and 229 of NIRC of 1997, as amended) and held that "it is m ore practical and reasonable to count the two-year prescriptive period for filing a c laim for refund/credit of input VAT on zero-rated soles from th e dote o f filing o f the re turn and payment of th e tax due xxx" 76 is misplaced.

A careful analysis of the Atlas Case reveals that the doc trine set forth therein is not applicable in the insta nt case as it was an interpretation by the Supre me Court of the provisions under th e NIRC of( 24 See Commissioner of Interna l Revenue v. Aichi Forging Company o f Asia, Inc ., supra. 25 G.R. Nos. 14 11 04 & 1487 63, June 8, 2007.

261d.

CE Luzon Geol hermal Power Company, Inc . v. CIR, CTA EB C ase No . 59 1; & CIR v. CE Luzon Geo thermal Power C om pany, CTA EB Case No . 628 (CTA Case No. 7558)

1977, as amended , pnor to its amendment by R.A. No. 77 1627 whic h substa ntia lly a me nded severa l pro v1s1ons of the NIRC of 1977, a s amended , including Section 106 thereof.

Notably, it must be underscored that prior to the passa ge of R .A. 7716, there was no specific provisio n o n judic ial claim for unutilized input VAT re fund/c redit under Sectio n 106 o f the 1977 NIRC, as amended . He nce, this explains the ra tio nale for th e need by th e Supre me Court in th e Atlas Case to harmo nize th e provisio ns o n Refunds or Tax Credits of Input Tax under Section 106 (now Section 112) with the two-year presc riptive period for institutin g a suit or proceeding for th e Recovery o f Tax Erroneously or Illegally Collected under Section 230 (now Section 229) o f the NIRC of 1977, as amended .

According ly, with the passa ge o f R.A. No. 77 16, a s amended by R.A. No. 8424713 and R.A. No. 933779, where by th e Legisla ture c learly and specific ally provided for the prescriptive period 1n filing on administra tive claim and a judic ia l a ppeal for unutilized input VA T~ 27 An Ac l Reslruc luring the Value-Added Tax (Val) Syste m , Wid e ning its Tax Base and Enhanc ing ils Administra lion, And For These Purposes Amending and Re p ea ling The Relevan l Provisio ns of the Na lional lnlernal Re venue Cod e, as Amended , and for O ther Purposes.

28 An Ac t Amending The Na tional Interna l Revenue Code, As Ame nded, And For O lher Purpo ses.

29 An Ac t Amending Sec tions 27, 28, 34 , I 06, 107, 108, 109, 110, 11 I , 11 2, 113, 11 4, 116, 11 7, 11 9, 121, 148, 15 1, 236, 237 and 288 o f I he Na lional ln lernal Revenue Cod e o f 199 7, As Amended, and For O ther Purposes.

CE Luzon Geo thermal Power Company, Inc. v. CIR, CTA EB Case No. 59 1; & CIR v. CE Luzon Geothermal Power Com pany, CTA EB Case No. 628 (CTA Case No. 7558) refund/credit under Section 11 2 of the 1997 NIRC, as amended, the need to harmonize th e provisions under Sections 112 and 229 of the NIRC of 1997, as amended, (formerly Sections 106 and 230) is no longer applicable.

As to Gibbs v. Collector o f Internal Revenue 3o and College o f Oral & Dental Surgery v. Court of Tax Appeals, et a/.3 1 similarly relied upon by CE Luzon, We find the same equally inapplicable as th e tax provision invo lved in those cases is Section 306 o f the NIRC (now Section 229 of the NIRC of 1997, as amended ).

The Supreme Court

held in the Aichi Case that Section 229 of the NIRC of 1997, as amended, does not apply to claims for re funds/credits o f unutilized input VAT under Sec tion 11 2 of the NIRC of 1997, as amended. Settled is the rule that "tax refunds are 1n the nature of tax exemptions which are construed strictissimi juris against th e taxpayer and liberally in favor of th e government."J?

He nce, strict compliance with tax laws, specifically with the requisites set forth under Section 1 12 (D) o f the NIRC o f 1997, should be applied in this jurisdiction,( 30 G.R. No. L- 13453, February 29, 1960.

31 G.R. No. L- 10446, January 28, 1958.

32 Commissioner o f Internal Revenue v. Acosta, G.R. No. 154068, August 3, 2007.

CE Luzon Geothermal Power Company, Inc. v. CIR, CTA EB Case No. 59 1; & CIR v. CE Luzon Geo thermal Power Company, CTA EB Case No . 628 (CTA Case No . 7558) considering that taxes ore th e life blood of the government and the price w e pay for c ivilization.

In view of this Court's finding that th e Court a quo acquired no jurisdic tion over the instant case, We find no cogent reason to further disc uss the oth er issues raised by both parties in their respective Petitions for Review.

WHEREFORE, premises considered , th e Petition for Review filed by the Commissioner of Internal Revenue is hereby GRANTED; while the Petition for Review filed by CE Luzon Geothermal Power Company, Inc. is hereby DENIED . Accordingly, th e Decision doted June 24, 2009 and the Am ended Decision doted January 19, 20 10 ore hereby SET ASIDE. The Petition for Review docketed as CTA Case No. 7 558 is hereby DISMISSED for having been premature ly filed.

Associate Justice

WE CONCUR:

~ ~ ~' 0---.~--

(with Concurring and Dissenting Opinion)

ERNESTO D. ACOSTA

Presiding Justice

CE Luzon Geothermal Power Company, Inc. v. CIR, CT A EB Case No . 591; & CIR v. CE Luzon Geo thermal Pow er Company, CTA EB Case No. 628 (CT A Case No . 7558)

D ECISION

~c.

C'J-~~ /Q., .

qUANITO-C . CASTANEDA, JR ~ Associa te Justice • (with Se p

LOVELL

Associ

~

Page 22 of 22

ER~ UY

AssoL~~~s tice CAESAR A. CASANOVA ~~

OLGA PALANCA- ENRIQUEZ

Associate Justice

(c~~rrf(fs;-:i::;:Los to) AMELIA R. COTANGCO-MANALASTAS

Associate Justice

CERTIFICATION

Pursua nt to Article VIII, Sec tion 13 o f the Constitution, it is hereby certified tha t the conc lusions in the a bove Resolution were reached in consultation among the members of the Court En Bone before the c a se w a s assig ned to the writer o f th e opinion o f th e Court En Bone.

L~

;o. ~~ L-.--,r...

ERNESTO D. ACOSTA Presiding Justic e

REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

EN BANC

CE LUZON GEOTHERMAL POWER

COMPANY, INC.

Petitioner, -versus-

COMMISSIONER OF INTERNAL

REVENUE, Respondent.

X ------------------------------------------- X.

COMMISSIONER OF INTERNAL

REVENUE, Petitioner, -versus-

CE LUZON GEOTHERMAL POWER

(CTA Case No_. 7558)

Present:

ACOSTA, PJ.

CASTANEDA, Jr., BAUTISTA, UY, CASANOVA, PALANCA-ENRIQUEZ, FABON-VICTORINO, MINDARO-GRULLA, COTANGCO-MANALASTAS,JJ.

Promulgated:

/.

....

COMPANY, INC.

~XJftn~~

Respondent.

OCT 0 4 2011

1.1 PV P 1 n" x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

CONCURRING AND DISSENTING OPINION

Acosta, PJ:

Although I concur in the final disposition of the case, I respectfully dissent to the ground relied upon by the majority Decision, penned by the Honorable Justice Cielito N. Mindaro-Grulla, in granting the Commissioner Internal Revenue's (CIR) , Conct~rring and DiSJenling Opinion C I"A EB Nos. 591 and 628

Page 2 of9

Petition for Review; consequently, denying the one filed by CE Luzon Geothermal Power Company, Inc. (CE Luzon). With all due respect to my esteemed colleagues, I cannot subscribe to their position that the Court has no jurisdiction over a prematurely filed judicial claim for a refund covering unutilized input Value Added Tax (VAT) attributable to zero-rated or effectively zero-rated sales under Section 112 of the National Internal Revenue Code (NIRC). It is my humble opinion that this Court has jurisdiction to entertain such a refund case for excessjunutilized input VAT albeit prematurely elevated from the administrative level. Be that as it may, I vote in favor of the CIR's petition mainly due to the fact that CE Luzon failed to establish that it is a VAT-registered person, whose sales are zero-rated or effectively zero-rated, and is thus entitled to a refund or tax credit of its unutilized input VAT under Section 112 of the NIRC. As found by the Court in Division, CE Luzon is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines. It is engaged in the business of power generation and is registered as a VAT taxpayer with the Bureau of Internal Revenue (BIR). It anchors its VAT-zero rating status on paragraph, Section 6 of the Electric Power Industry Reform Act of 2001 (EPIRA). Said Section reads:

SEC. 6. Generation Sector. - Generation of electric power, a business affected with public interest, shall be competitive and open. Upon the effectivity of this Act, any new generation company shall, before it operates, secure from the Energy Regulatory Commission (ERC) a certificate of compliance pursuant to the standards set forth in this Act, as well as health, safety and environmental clearances from the appropriate government agencies under existing laws.

Any law to the contrary notwithstanding, power generation shall not be considered a public utility operation. For this purpose, any person or entity CnnC11ning and Dissenting Opinion CTA EB Nos. 591 and 628

Page 3 of9

engaged or which shall engage in power generation and supply of electricity shall not be required to secure a national franchise. Upon implementation of retail competition and open access, the prices charged by a generation company for the supply of electricity shall not be subject to regulation by the ERC except as otherwise provided in this Act. Pursuant to the objective of lowering electricity rates to end-users, sales of generated power by generation companies shall be value added tax zero-rated. The ERC shall, in determining the existence of market power abuse or anti- competitive behavior, require from generation companies the submission of their financial statements. (Underscoring supplied.)

Under the EPIRA, clearly, the VAT-zero rating not only attaches to the product sold but also to the nature of the taxpayer. In order for sales of generated power to be VAT zero-rated, the sale should be effected by a generation company. Although CE Luzon, by virtue of a Certification of Accreditation from the Department of Energy (DOE), has been engaged in the business of power generation even prior to the effectivity of the EPIRA on 26 June 2001, it must first be considered a "generation company' under the law and its implementing rules in order for it to qualify for the VAT zero-rating under the aforequoted section of the EPIRA.

Per the EPIRA and its implementing rules, a generation company refers to any person or entity authorized by the Energy Regulatory Commission (ERC) to operate facilities used in the generation of electricity. Section 4, Rule 5 of the law's Implementing Rules and Regulations also provides that- Section 4. Obligations of a Generation Company

(a) A [Certificate of Compliance (COC)] shall be secured from the ERC before commercial operation of a new Generation Facility. The COC shall stipulate all obligations of a Generation Company consistent with this Section and such other operating guidelines as ERC may establish. The ERC shall establish and publish the standards and requirements for issuance of a COC. A COC shall be issued upon compliance with such standards and requirements.

ConC11rring and Dissenting Opini011 CTA EB Nos. 591 and 628

Page+ of9

(i) A Person owning an existing Generation Facility or a Generation Facility under construction, shall submit within ninety (90) days from effectivity of these Rules to ERC. when applicable a certificate of DOE/NPC accreditation, a three (3) year operational history, a general company profile and other information that ERC may require. Upon making a complete submission to the ERC. such Person shall be issued a COC by the ERC to operate such existing Generation Facility. (ii) A Generation Facility which has been previously issued a COC shall not be required to secure a COC even if acquired by a new owner: Provided, That such new owner shall register with the ERC as specified above. Upon registration, such Person shall be deemed authorized to operate such Generation Facility.

XXX

(Underscoring supplied.)

Thus it is essential for CE Luzon to have first secured a COC under the implementing rules and regulations of the EPIRA before it can be considered a generation company and entitled to the VAT zero-rating. Based from the facts of the case, CE Luzon only has the certification from the DOE, which is merely one of the requirements, as stated in the aforequoted section above, for a COC from the ERC. It is not the COC required by the rules. The VAT therefore attributable to the sale of generated power by CE Luzon cannot be considered as zero-rated or effectively zero-rated under the EPIRA and Section 112 of the NIRC; and thus any input VAT due therefrom can only be credited against output tax, or any excess thereof be carried over to the succeeding quarter or quarters, as provided under Section 1101 of the NIRC. Consequently, a claim for refund, administrative or judicial, cannot prosper. 1 Section 110. Tax Credits. - A. Creditable Input Tax -

(1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on the following transactions shall be creditable against the output tax:

XXX

ConC11rring and Dissenling Opinion CTA EB Nos. 591 aJI(/628

Page5 of9

Nonetheless, I maintain this position only for CE Luzon's claim covering the first three quarters and a portion of the last quarter of 2005. For the said period, CE Luzon cannot refund its excess input VAT because its sales were not qualified for VAT zero-rating under the EPIRA. For the last quarter of the year 2005, particularly after 01 November 2005, when the NIRC was amended by Republic Act No. 9337, whereas I still vote for the denial of the refund claim, I do so however on the ground that the claim failed to state a cause of action, the judicial claim having been prematurely filed.

In view of the promulgation of Republic Act No. 9337 on 01 November 2005, which expressly repealed2 the VAT zero-rating for generation companies and instead placed the VAT zero-rating on the sale of power or fuel generated through renewable sources of energy, under the NIRC 3 , a portion of CE Luzon's fourth quarter sales for 2005 of generated power thus became zero-rated. 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 carried 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-registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112.

2 SEC. 24. Repealing Clause. - The following laws or provisions of laws are hereby repealed and the persons and/or transactions affected herein are made subject to the value-added tax subject to the provisions of Title IV of the National Internal Revenue Code of 1997, as amended: ... (B) Section 6, fifth paragraph of R.A. No. 9136 on the zero VAT rate imposed on the sales of generated power by generation companies; and XXX.

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

XXX

(B) Transactions Subject to Zero Percent (0%) Rate.- The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate

XXX

(7) Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels.

ConCIIrring and Dissenting Opinion

CT A EB Nos. 591 and 628

Page 6 of9

All the same, this portion of CE Luzon's petition should still be dismissed as its Petition for Review was prematurely filed per Section 112 (C). CE Luzon's failure to exhaust the administrative remedy available thereto is fatal to its claim before this Court.

The Petition for Review before the Court in Division was filed on 03 January 2007, thirty four days after its timely administrative claim with the SIR on 30 November 2006. From the bare facts, it is evident that the judicial claim was filed before the issuance of an adverse decision by the SIR, or the lapse of the one hundred twenty (120) day period mandated by Section 112 (C) of the NIRC, which covers refund claims of this nature, viz.

SEC. 112. Refunds or Tax Credits of Input Tax. - ... (C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.

XXX

(Underscoring supplied.)

In not joining the majority in this matter, I advance the view that the failure of petitioner to comply with the above subsection does not rob this Court of jurisdiction over the claim for refund as such merely constitutes a violation of the doctrine of exhaustion of administrative remedies.

Conmmng and Dissenting Opinion

CTA EB Nos. 591 and 628

Page 7 of9

The rule on exhaustion of administrative remedies before resorting to the courts means that there should be an orderly procedure which favors a preliminary administrative sifting process, particularly with respect to matters peculiar within the competence of the administrative agency, avoidance of interference with functions of such administrative agency by withholding judicial action until the administrative process has run its course, and prevention of attempts to swamp the courts by a resort to them in the first instance. 4 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. 5 The non-exhaustion of administrative remedies is however not at all times fatalto the claimant.

In the case of Castro vs. Gloria, GR No. 132174, 20 August 2001, the Supreme Court, citing the case of Vidad vs. RTC of Negros Oriental, Branch 426, declared that- Non-exhaustion of administrative remedies implies absence of cause of action. Where a remedy is available within the administrative machinery, this should be resorted to before recourse can be made to the courts. The doctrine of primary jurisdiction does not warrant a court to arrogate unto itself the authority to resolve a controversy the jurisdiction over which is initially lodged with an administrative body of special competence. (Underscoring supplied.) The failure to exhaust available administrative remedies will not rob the courts of its jurisdiction over a case as the same is tantamount only to a judicial 4 Abe-Abe vs. Manta, L-4827, 31 May 1979.

5 Commissioner of Internal Revenue vs. Rosemarie Acosta, GR No. 154068, 03 August 2007. 6 227 SCRA 221 .

ConC71ning and Dissenling Opinion CTA EB Nos. 591 and 628

Page 8 of9

petition lacking a cause of action. In our jurisdiction, the defense of lack of cause of action is not jurisdictional in nature and may be deemed waived if not timely raised in a Motion to Dismiss or in the Answer. 7 In the case of Iloilo City Zoning Board of Adjustment and Appeals vs. Gegato Abecia Funeral Homes, Inc., GR No. 157118, 08 December 2003, the Supreme Court established that the premature invocation of the court's intervention is thus only fatal to one's cause of action. The case though is susceptible of dismissal for such failure to state a cause of action absent any finding of waiver or estoppel, viz. The settled rule is that before a party is allowed to seek the intervention of the court, it is a pre-condition that he should have availed of all the means of administrative processes afforded him. Hence, if a remedy within the administrative machinery can still be resorted to by giving the administrative officer concerned every opportunity to decide on a matter that comes within his jurisdiction, then such remedy should be exhausted first before the court's judicial power can be sought. The premature invocation of the court's intervention is fatal to one's cause of action. Accordingly, absent any finding of waiver or estoppels the case is susceptible of dismissal for failure to state a cause of action. This doctrine of exhaustion of administrative remedies is not without practical and legal reasons, for one thing, availment of administrative remedy entails lesser expenses and provides for a speedier disposition of controversies. It is no less true to state that courts of justice for reasons of comity and convenience will shy away from a dispute until the system of administrative redress has been completed and complied with so as to give the administrative agency concerned every opportunity to correct its error and to dispose of the case. 8 Notably, in the instant case, there was the absence of waiver by respondent of the defense of non-exhaustion of administrative remedies or the lack of a cause of action, as she raised the issue of petitioner's premature filing of the Petition for Review in her Special and Administrative Defenses contained in her Answer, viz. 7 Sec. 1, Rule 9 of the Rules of Court.

8 Citing Paat v. Court of Appeals, 334 Phil. 146, 152-153 (1997)

Conmrring and Dissenting Opinion

cr A EB Nos. 591 and 628

Page 9 of9

... (8) The petition for review is premature. Since petitioner did not submit complete documents in support of its administrative claim for refund as indicated under Section 112(0) of the NIRC of 1997, the 120-day period starts to run on 30 November 2006, the date when it filed its administrative claim for refund. The said period is yet to expire on 10 March 2007. Hence the 30-day period within which to file the petition for review before this Honorable Court is yet to expire on 9 April 2007. This being so, this Honorable Court has no jurisdiction to act on the instant petition for review.

Without touching on this Court's jurisdiction, the premature filing of the Petition for Review exposes it to an attack that it lacks or fails to state a cause of action, which defense is waivable at the election of the opposing party. Upon a finding that there was no waiver of said defense or estoppel, the petition is susceptible of dismissal.

Since there was clearly no waiver or estoppel in the instant case, the portion of the petition, covering claims after 01 November 2005, should likewise be properly dismissed on the ground that it states no cause of action. We concur:

Ll§;'. oz:--,;<-_ ERNESTO D. ACOSTA

Presiding Justice

L.,;./=>/f-~4~

A~~~~OTANGCO-MANALASTAS

Associate Justice

REPUBLIC OF THE PHILIPPINES.

. . .

~

COURT OF TAX APPEALS

QUEZON CITY

CE LUZON GEOTHERMAL

POWER COMPANY, INC., Petitioner, -versus-

COMMISSIONER OF INTERNAL

REVENUE, Respondent.

x----------------------------------------------x

COMMISSIONER OF INTERNAL

REVENUE, Petitioner, -versus-

ENBANC

Present:

Acosta, P.J.

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

Promulgated:

CE LUZON GEOTHERMAL

POWER COMPANY, INC., Respondent.

ft~Ar!t>-1~ c , rr ~~-=.....-:....:..-........,_ __

__L •

~ .t'(. r 'Y\. , X-------------------------------------------------------------------------------------------------------------X

SEPARATE OPINION

BAUTISTA, [.:

While I am in harmony with the Court in granting the Petition for Review filed by the Commissioner of Internal Revenue, and thus dismissing the Petition for Review filed by CE Luzon Geothermal Power Company, Inc., I am compelled to vary from the basis of the said opinion of the Court.

Separate Opinion

CT A EB Nos. 59 1 & 628 (CT A Case No. 7558)

Page 2 of 8

Settled is the rule that a claim for refund is in the nature of a claim for exemption; hence, it should be construed in strictissimi juris against the taxpayer.1 Therefore before any claim for refund is allowed, a taxpayer must sufficiently prove that it has complied with all the requirements. Pursuant to Section 112(A) of the 1997 NIRC, CE Luzon must comply with the following requisites to be entitled to a refund of its input tax, viz.:

1. That there must be zero-rated or effectively zero-rated sales;

2. That input taxes were incurred or paid;

3. That such input VAT payments are directly attributable to zero-rated sales or effectively zero-rated sales;

4. That the input VAT payments were not applied against any output VAT liability; and

5. That the claim for refund was filed within the two-year prescriptive period.

Following the above-enumerated requirements, a determination must be made whether the generation services rendered by CE Luzon to Philippine National Oil Company - Energy Development Corporation ("PNOC-EDC") for the four quarters of 2005 qualified for VAT zero-rating. Once a court acquires jurisdiction over a case, it has wide discretion to look upon matters which, although not raised as an issue, would give life and meaning to the law.2 In light of the foregoing, this Court has the authority to revisit the issue of whether or not petitioner's sales qualify for zero-rated VAT h·ansaction. 1 Commissioner of Internal Revenue v. Tokyo Shipping Co., Ltd., eta/., G.R. No. L-68252 May 26, 1995, 244 SCRA 332. 2 Comilang v. Burcena, G.R. No. 146853, February 13, 2006, 482 SCRA 342.

Separate Opinion

CTA EB Nos. 59 1 & 628 (CIA Case No. 7558)

Page 3 of 8

By CE Luzon's own disclosure, it is in the business of power generation for which it has the requisite Department of Energy ("DOE") Certification of Accreditation.3 In order for its sale of electricity as a power generation company qualify for VAT zero-rating, it must fall under Section 6 of Republic Act ("R.A." ) No. 9136, also known as the "Electric Power Industry Reform Act of 2001," ("EPIRA"), which states:

SEC. 6.

Generation Sector. - Generation of elech·ic power, a business affected with public interest shall be competitive and open. Upon the effectivity of this Act, any new generation company shall, before it operates, secure from the Energy Regulatory Commission (ERC) a certificate of compliance pursuant to the standards set forth in. this Act, as well as health, safety and environmental clearances from the appropriate government agencies under existing laws. Any law to the conh·ary notwithstanding, power generation shall not be considered a public utility operation. For this purpose, any person or entity engaged or which shall engage in power generation and supply of electricity shall not be required to secure a national franchise.

Upon the implementation of retail competition and open access, the prices charged by a generation company for the supply of elech·icity shall not be subject to regulation by the ERC except as otherwise provided in this Act.

Pursuant to the objective of lowering elech·icity rates to end- users, sales of generated power by generation companies shall be value added tax zero-rated.

In the case of Mindanao I Geothermal Partnership v. Commissioner of Internal Revenue,4 this Court, in applying the provisions of R.A. No. 9136, specified the conditions to qualify for VAT zero-rating of power generating companies, viz: I 3 Exhibit "B. "

Separate Opinion

CT A EB Nos. 59 1 & 628 (CT A Case No. 7558)

Page 4 of 8

xxx it is undisputed that Republic Act No. 9136 otherwise known as the "Elech·ic Power Indush·y Reform Act of 2001" provided for VAT zero-rating of sales of generated power by generation companies begimling June 26, 2001. Thus, the pertinent provisions of the National Internal Revenue Code of 1997 are deemed amended by the provisions of R.A. No. 9136 by modifying the VAT rate applicable to sales of generated power by generation companies from ten (10%) percent to zero (0%) percent.

To qualify for VAT zero-rating under R.A. No. 9136, petitioner must prove that: 1) it is a generation company and 2) it derived sales from power generation. (Boldfacing supplied) From the above quoted decision, for a power generation company to qualify for VAT zero-rating in accordance with R.A. No. 9136, petitioner must prove the twin requirements of being a generation company and of deriving its sales from power generation.

Notwithstanding the repeal of RA 9136 under RA 9337, which took effect on November 1, 2005, petitioner's sale of generated power continued to be VAT zero- rated under Section 108(B)(7) of the 1997 NIRC, as amended by RA 9337. 4 CTA Case 6788, October 13, 2005.

I

Separate Opinion

CT A EB Nos. 59 1 & 628 (CT A Case No. 7558)

Page 5 of 8

According to the records, CE Luzon owns and operates a 180-megawatt power plant facility located in Mahanagdong, Province of Leyte, which has been accredited by the Department of Energy, as a Block Power Production Facility (BPPF), since June 15, 1994. It is engaged in the business of power generation and the subsequent sale of generated power to PNOC-EDC. Before the Court can conclude that CE Luzon is a generation company based upon the above cited case and provision of law, a comprehensive study of the entire law and its implementing rules and regulation must be conducted.

Under Section 4(x) of the EPIRA, the term" generation company" is defined as follows:

Section 4. Definition of Terms.-

XXX

XXX

XXX

(x) "Generation Company" refers to any person or entity authorized by the ERC5 to operate facilities used in the generation of elech·icity; xxx Corollary thereto, Section 4 of Rule 5 of the Implementing Rules and Regulations ("IRR") of the EPIRA provides the following: Section 4. Obligations of a Generation Company.

(a) A COC6 shall be secured from the ERC before commercial operation of a new Generation Facility.

The COC shall stipulate all obligations of a Generation Company consistent with this Section and such other operating guidelines as ERC may establish.

The ERC shall establish and publish the standards and requirements for issuance of a COC. A COC shall be issued upon compliance with such standards and requirements.

5 Energy Regulatory Commission.

6 Certificate of Compliance.

Separate Opinion

CT A EB Nos. 591 & 628 (Cf A Case No. 7558)

Page 6 of 8

(i) A Person owning an existing Generation Facility or a Generation Facility under consh·uction, shall submit within ninety (90) days from effectivity of these Rules to ERC, when applicable, a certificate of DOE/NPC accreditation, a three (3) year operation history, a general company profile and other information that ERC may require.

Upon making a complete submission to the ERC, such Person shall be issued a COC by ERC to operate such existing Generation Facility.

Under the EPIRA, part of the obligations of a "generation company" includes the submission within the period ninety (90) days from the effectivity of the Rules to ERC, when applicable, a certificate of DOP /NPCS accreditation, a three (3) year operation history, a general company profile and other information that ERC may require. Upon completion of these requirements, the said generation company shall be issued a COC by ERC to operate such existing generation facility. Thus, the authority to operate a generation facility as a generation company referred to in the preceding provisions pertains to the duly issued COC which must be secured by both a new generation company and an existing generation company to operate a new and existing generation facility, respectively. In the case of Toledo Power Company v. Commissioner of Internal Revenue,9 the Court ruled that failure of the claimant to submit proof of its approved COC will lead to the disqualification for VAT zero-rating of its sales of generated power under the EPIRA.

7 Department of Energy.

8 National Power Corporation.

9 CTA Case No. 696 1, November II , 2009

Separate Opinion

CT A EB Nos. 59 1 & 628 (CT A Case No. 7558)

Page 7 of 8

Again in GBH Power Resources, Inc. [Formerly: Mirant (Philippines) Island Generation Corporation] v. Commissioner of Internal Revenue,10 the Court held that GBH failed to establish that it was a generation company under Section 4(x) in relation to Section 6 of the Elech·ic Power Industry Reform Act of 2001. Petitioner therein failed to submit its ERC registration and Certificate of Compliance, thus it cannot qualify for VAT zero-rating under the EPIRA.

Based on the records of the case, CE Luzon has been accredited and certified by the DOE, as evidenced by its Certificate of Accreditation (OSAC94-12) issued on June 15, 199411 . The Court, however, finds the said certificate to be insufficient. The DOE Certificate of Accreditation is merely one of the requirements mentioned earlier in order to obtain the necessary COC for CE Luzon's sales to qualify for VAT zero-rating.

CE Luzon in its Prefatory Statement itself invokes the provisions of the EPIRA Law. It is asking the Court to recognize that its sale transactions are zero-rated, based on the fact that it has a DOE Certification of Accreditation in accordance with the said law. It would only be logical to determine the eligibility of the said sales h·ansactions based on the requirements set in the EPIRA Law itself. Petitioner must comply with Section 4(a)(i) of Rule 5 of the IRR of the same law, which particularly provides for the required COC to be considered a generation company. Therefore, for failure to present or even secure a COC duly issued by the ERC, petitioner's sale of generated power cannot qualify for VAT zero-rating under the 1° CTA Case No. 7462, March 26, 2010 11 Exhibit "B."

I

Separate Opinion

CT A EB Nos. 591 & 628 (CT A Case No. 7558)

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EPIRA Law.12 The burden of proof to present this particular document lies within the responsibility of the petitioner to successfully support its claim for refund. Where the taxpayer claims a refund, the Court as a court of record is required to conduct a formal trial (trial de novo) to prove every minute aspect of the claim.13 In addition, the rule is that the best evidence under the circumstance must be adduced to prove the allegations in a complaint, petition, or protest. Considering that there is no record showing that CE Luzon has been duly issued with a COC by the ERC, the Court En Bane finds it unnecessary to further discuss the other issu es raised CE Luzon, and the issues raised by the CIR in its Petition for Review.

In sum, I have no recourse but to deny CE Luzon's claim for refund/ tax credit, and therefore, grant the prayer of the CIR. Accordingly, I vote to GRANT the Petition for Review filed by the Commissioner of Internal Revenue, and thus, DENY the Petition for Review filed by CE Luzon Geothermal Power Company, Inc.

LO

ISTA

12 Toledo Power Company v. Commissioner of Internal Revenue, CTA Case Nos. 7233 & 7294, December 15, 2009. " Commissioner of internal Revenue v. Manila Mining Corporation, G.R. No. 153204, August 31, 2005, 469 SCRA 57 1.