Commissioner of Internal Revenue v. San Roque Power Corp.

EN BANC [C.T.A. EB CASE NO. 1004. July 2, 2014.] (C.T.A. Case No. 8007) COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . SAN ROQUE POWER CORPORATION , respondent . DECISION MINDARO-GRULLA , J p : Submitted for decision is a Petition for Review for the Court En Banc under Section 2 (a) (1), Rule 4 , in relation to Section 4 (b), Rule 8 of the 2005 Revised Rules of the Court of Tax Appeals, as amended , seeking the nullification of the Amended Decision 1 and Resolution 2 rendered by the former First Division of this Court on December 6, 2012 and March 22, 2013, respectively, which partially granted respondent San Roque Power Corporation's claim for refund or issuance of tax credit certificate in the reduced amount of P24,101,040.15, representing the latter's unutilized excess input VAT attributable to zero-rated sales for the period January 1, 2008 to March 31, 2009. The antecedent facts as culled from the Decision of the former First Division of this Court are as follows: "[Respondent] San Roque Power Corporation states that it is a duly organized and existing domestic corporation, with principal office at Barangay San Roque, San Manuel, Pangasinan. It was incorporated on October 14, 1997, with primary purpose to design, construct, erect, assemble, own, commission and operate power-generating plants and related facilities pursuant to and under contract with the Government of the Republic of the Philippines, or any subdivision, instrumentality or agency thereof, or any government-owned or controlled corporation, or other entity engaged in the development, supply or distribution of energy. It is a duly registered VAT taxpayer with Tax Identification No. (TIN) 005-017-501-000. ADcEST [Petitioner], on the other hand, is the Commissioner of the Bureau of Internal Revenue (BIR) empowered, among others, to decide, approve and grant refunds or tax credits of erroneously or excessively paid taxes. [Respondent] allegedly has a 345 MW Hydroelectric Power Plant Project, a three unit rated 345 MW hydroelectric power generating facility, which has been duly accredited as a Block Power Production Facility by the Department of Energy (DOE) as evidenced by its DOE Certificate of Accreditation No. 99-01-50 issued on January 20, 1999. On October 11, 1997, it entered into a "Power Purchase Agreement" with the National Power Corporation (NPC), wherein the latter shall be the sole purchaser of all the electricity available from the former's hydroelectric power plant facility. During the period January 2008 to March 2009, [respondent] incurred unutilized input VAT credits from its purchases of capital goods, other domestic goods and services as well as on its importations of goods in the total amount of Php26,645,244.93, the details of which are shown in the Quarterly VAT Returns filed on the following dates: aATHES PERIOD COVERED DATE FILED DATE FILED (ORIGINAL) (AMENDED) January-March 2008 April 23, 2008 January 30, 2009 April-June 2008 July 17, 2008 February 2, 2009 July-September 2008 October 16, 2008 February 10, 2009 October-December 2008 January 20, 2009 February 10, 2009 January-March 2009 April 23, 2009 June 16, 2009 On July 31, 2009, [respondent] filed with the BIR Large Taxpayers Audit and Investigation Division (LTAID) two (2) administrative claims for refund or tax credit of unutilized input VAT. The first is for the period covering January 2008 to March 2008, in the amount of Php3,036,434.66 and the second, for the period covering April 2008 to March 2009, in the amount of Php23,608,810.27, or for a total amount of Php26,645,244.93. Alleging inaction on the part of the [petitioner], [respondent] filed the instant case before this Court on December 18, 2009. In her Answer dated February 5, 2010, [petitioner] interposes the following Special and Affirmative Defenses: "4. [Respondent] is not entitled to refund or tax credit in the amount of P26,645,244.93 representing alleged unutilized input tax because it failed to submit all necessary and relevant documents pertaining to the above-mentioned amount with [petitioner] in the administrative claim for refund or tax credit of excess input tax attributable to zero-rated sales to National Power Corporation (NPC). HaSEcA 5. In an administrative claim for refund or tax credit of input taxes attributable to zero-rated sales, a VAT registered person must submit complete documents to support its application for refund pursuant to Section 112 (D) of the Tax Code of 1997. Otherwise, there will be no sufficient compliance with the filing of an administrative claim for refund, which is a condition sine qua non prior to the filing of judicial claim. 6. To support its claim, it is imperative for [respondent] to prove and present the following, viz. : a. The registration requirements of a value-added taxpayer in compliance with Section 6(a) and (b) of Revenue Regulations No. 6-97 in relation to Section 4.107-a (a) of Revenue Regulations No. 7-95, and Section 236 of the National Internal Revenue Code of 1997 (NIRC of 1997); 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 114 of the NIRC of 1997; ADSIaT c. Proof of compliance with the prescribed checklist of requirements to be submitted involving claim for VAT refund pursuant to Revenue Memorandum Order No. 53-98. It is worthy of emphasis that Section 112 (D) of the NIRC 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 shall apply, and before the taxpayer could avail of judicial remedies as provided for 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 P26,645,244.93 allegedly paid by [respondent] on its domestic purchases of non-capital goods and services, services rendered by non-residents and importation of non-capital goods for the period from January 2008 to March 2009 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; SIcEHC e. That [respondent's] administrative claim for tax credit or refund of the unutilized input tax (VAT) was filed within two (2)-year after the close of the taxable quarter when the sales were made in accordance with Sections 112 (A) and (D) of the NIRC of 1997; f. That [respondent's] domestic purchases of goods and services were made in the course of its 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 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 requirements as enumerated under Section 4.104-2 of Revenue Regulations 7-95 (Re: Persons who can avail of the Input Tax Credits). 7. [Respondent's] alleged claim for refund is subject to administrative routinary investigation/examination by the Bureau of Internal Revenue (BIR). HESIcT 8. Furthermore, in an action for refund the burden 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. This is so because exemptions from taxation are highly disfavored in law and he who claims exemption must be able to justify his claim by the clearest grant of organic or statutory law. An exemption from the common burden cannot be permitted to exist upon vague implications (Asiatic Petroleum Co. vs. Llanes, 49 Phil. 466 cited in Collector of Internal Revenue vs. Manila Jockey Club, Inc., 98 Phil. 670) . 9. 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 as such, they are looked upon with disfavor (Western Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 1211.) In compliance with the Court's directive, the parties filed their respective Pre-Trial Briefs, thereafter, their Joint Stipulations of Facts and Issues which the Court approved on April 13, 2010. DcITaC Trial ensued during which [respondent] presented its Accountant Lalaine A. Estayo, and the Court-Commissioned Independent Certified Public Accountant (ICPA) Ma. Milagros F. Padernal. xxx xxx xxx On July 11, 2011, the case was submitted for decision after [petitioner] filed her Memorandum on May 4, 2011 and [respondent] filed its Memorandum (With Motion for Leave of Court to Admit Evidence) on June 6, 2011." 3 On May 7, 2012, the Court a quo promulgated a Decision 4 dismissing the Petition for Review for insufficiency of evidence. The dispositive portion of the said Decision reads: " WHEREFORE , the instant Petition for Review is hereby DENIED for insufficiency of evidence. SO ORDERED ." 5 Respondent thereafter filed a "Motion for Reconsideration (with Motion for Leave of Court to Admit Evidence)", 6 which was granted by the Court a quo in a Resolution 7 dated July 13, 2012. On December 6, 2012, the Court a quo promulgated an Amended Decision, 8 partially granting respondent's claim for refund or issuance of tax credit certificate in the reduced amount of P24,101,040.15, representing its unutilized excess input VAT for the period January 1, 2008 to March 31, 2009. The Court a quo held that the additional evidence presented by the respondent sufficiently proved that it is engaged in zero-rated or effectively zero-rated sales, thus: DSITEH " WHEREFORE , [respondent's] Motion for Reconsideration is hereby PARTIALLY GRANTED . The Decision dated May 7, 2012 is MODIFIED ordering [petitioner] to refund or issue a tax credit certificate in favor of [respondent] in the reduced amount of TWENTY FOUR MILLION ONE HUNDRED ONE THOUSAND FORTY AND 15/100 PESOS (Php24,101,040.15), representing the latter's unutilized excess input VAT for the period January 1, 2008 to March 31, 2009 attributable to zero-rated receipts. SO ORDERED ." 9 Petitioner moved for reconsideration of the above-cited Amended Decision, which was subsequently denied in a Resolution 10 dated March 22, 2013. The dispositive portion of the said Resolution reads: " WHEREFORE , the Motion for Partial Reconsideration dated January 3, 2013, filed by [petitioner] Commissioner of Internal Revenue is hereby DENIED , for utter lack of merit. SO ORDERED ." 11 Hence, petitioner filed this instant Petition for Review. The principal issue to be resolved in this case is whether respondent is entitled to a tax refund or credit of its alleged unutilized input VAT attributable to zero-rated sales for the period January 1, 2008 to March 31, 2009 in the amount of P24,101,040.15. ISCTcH Petitioner argues that Section 112 (D) of the National Internal Revenue Code (NIRC) of 1997, as amended, requires submission of complete documents in support of the taxpayer's application for tax refund or credit 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 for in the law. 12 Corollary thereto, petitioner posits that submission of complete documents refers to compliance with the checklist of documents to be submitted by a taxpayer upon audit of his tax liabilities provided under Revenue Memorandum Order (RMO) No. 53-98, 13 as amended by RMO No. 16-2007. 14 We disagree. In Commissioner of Internal Revenue v. First Express Pawnshop Company, Inc. , 15 the Supreme Court held that the determination of what constitutes as relevant supporting documents to submit as basis to its claim lies with the taxpayer and not the BIR, thus: "The term 'relevant supporting documents' should be understood as those documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer . The BIR can only inform the taxpayer to submit additional documents. The BIR cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit. " [Emphasis supplied.] HCDAcE To emphasize, the determination of what constitutes as relevant supporting documents to establish the taxpayer's claim should not be left at the sole discretion of the BIR. To rule otherwise would practically render the 120-day period for the CIR to decide on the claims for tax refund or credit indefinite. Moreover, petitioner's argument that Section 112 (D) of the NIRC of 1997, as amended, requires compliance with the checklist of documents to be submitted by a taxpayer upon audit of its tax liabilities provided under RMO No. 53-98, as amended by RMO No. 16-2007, before a taxpayer could avail of judicial remedies, is miserably misplaced. As succinctly held by the Supreme Court in the recent case of Commissioner of Internal Revenue vs. San Roque Power Corporation, G.R. No. 187485; Taganito Mining Corporation vs. Commissioner of Internal Revenue, G.R. No. 196113; Philex Mining Corporation vs. Commissioner of Internal Revenue, G.R. No. 197156, (the "San Roque Case") , promulgated on February 12, 2013, Section 112 (D) of the 1997 Tax Code is clear, unequivocal, and categorical that the Commissioner has 120 days to act on an administrative claim. It is therefore the Commissioner's decision, or inaction "deemed a denial," that the taxpayer can take to the CTA for review. Thus: SEACTH "The charter of the CTA expressly provides that its jurisdiction is to review on appeal ' decisions of the Commissioner of Internal Revenue in cases involving . . . refunds of internal revenue taxes.' When a taxpayer prematurely files a judicial claim for tax refund or credit with the CTA without waiting for the decision of the Commissioner, there is no 'decision' of the Commissioner to review and thus the CTA as a court of special jurisdiction has no jurisdiction over the appeal. The charter of the CTA also expressly provides that if the Commissioner fails to decide within ' a specific period ' required by law, such ' inaction shall be deemed a denial ' of the application for tax refund or credit. It is the Commissioner's decision, or inaction 'deemed a denial,' that the taxpayer can take to the CTA for review. Without a decision or an 'inaction . . . deemed a denial' of the Commissioner, the CTA has no jurisdiction over a petition for review. xxx xxx xxx Section 112(D) of the 1997 Tax Code is clear, unequivocal, and categorical that the Commissioner has 120 days to act on an administrative claim. The taxpayer can file the judicial claim (1) only within thirty days after the Commissioner partially or fully denies the claim within the 120-day period, or (2) only within thirty days from the expiration of the 120-day period if the Commissioner does not act within the 120-day period. " [Underscoring supplied.] Applying the foregoing precepts in the instant case, considering that petitioner never requested for submission of additional documents, the presumption is that complete documents had been submitted by respondent when it filed its administrative claims for tax refund on July 31, 2009. 16 Therefore, the 120-day period within which petitioner is required to act on respondent's claim started to run from July 31, 2009 or until November 28, 2009. Hence, respondent timely filed its Petition for Review before the Court a quo on December 18, 2009 or within thirty days from the expiration of the 120-day period for the CIR to act on its claim for tax refund or credit. HACaSc WHEREFORE premises considered, the petition is DENIED . The Amended Decision of the former First Division of this Court in CTA Case No. 8007 dated December 6, 2012 and its Resolution dated March 22, 2013 are hereby AFFIRMED . No pronouncement as to costs. SO ORDERED. (SGD.) CIELITO N. MINDARO-GRULLA Associate Justice Roman G. del Rosario, P.J., Juanito C. Castaeda, Jr., Lovell R. Bautista, Erlinda P. Uy, Caesar A. Casanova, Esperanza R. Fabon-Victorino, Amelia R. Cotangco-Manalastas and Ma. Belen M. Ringpis-Liban, JJ., concur. Footnotes 1. Penned by Associate Justice Esperanza R. Fabon-Victorino and concurred in by Presiding Justice Ernesto D. Acosta and Associate Justice Erlinda P. Uy; En Banc Docket, pp. 30-55. 2. Penned by Associate Justice Esperanza R. Fabon-Victorino and concurred in by Associate Justice Erlinda P. Uy; En Banc Docket, pp. 56-60. 3. Division Docket, Vol. 1, pp. 464-471. 4. Penned by Associate Justice Esperanza R. Fabon-Victorino and concurred in by Presiding Justice Ernesto D. Acosta and Associate Justice Erlinda P. Uy; Division Docket, Vol. 1, pp. 463-488. 5. Division Docket, Vol. 1, p. 487. 6. Filed on May 29, 2012; Division Docket, Vol. 1, pp. 489-517. 7. Division Docket, Vol. 2, pp. 541-547. 8. Supra note 1. 9. En Banc Docket, p. 54. 10. Supra note 2. 11. En Banc Docket, p. 60. 12. Petition for Review, p. 7; En Banc Docket, p. 13. 13. SUBJECT: Checklist of Documents to be Submitted by a Taxpayer upon Audit of his Tax Liabilities as well as Mandatory Reporting Requirements to be Prepared by a Revenue Officer, all of which Comprise a Complete Tax Docket. Issued on June 25, 1998. 14. SUBJECT: Prescribing Additional Procedures in the Audit of Input Taxes Claimed in the VAT Returns by Revenue Officers and Amending "Annex B" of Revenue Memorandum Order (RMO) No. 53-98 with Respect to the Checklist of Documents to be Submitted by a Taxpayer upon Audit of His/Its VAT Liabilities as well as the Mandatory Reporting Requirements to be Prepared by the Assigned Revenue Officer/s relative thereto, all of which shall form an Integral Part of the Tax Docket. Issued on July 23, 2007. 15. G.R. Nos. 172045-46, June 16, 2009. 16. Exhibits "U" and "V", Respondent's Formal Offer of Evidence, Division Docket, Vol. 1, pp. 375-377; Par. 15, Joint Stipulation of Facts and Issues, Division Docket, Vol. 1, p. 270.