Commissioner of Internal Revenue v. Visayas Geothermal Power Co.

EN BANC [C.T.A. EB CASE NO. 2297. March 9, 2022.] (C.T.A. Case No. 7889) COMMISSIONER OF INTERNAL REVENUE , petitioner , vs. VISAYAS GEOTHERMAL POWER COMPANY , respondent . DECISION MODESTO-SAN PEDRO , J p : The Case Before the Court En Banc is a Petition for Review 1 filed by petitioner Commissioner of Internal Revenue assailing the Amended Decision, dated 4 September 2019, 2 and Resolution, dated 10 June 2020, 3 both rendered by the Court in Division, 4 which partially granted respondent's claim for refund of P11,079,342.33 representing respondent's unutilized input VAT for the four quarters of calendar year 2007 attributable to its zero-rated sales for the same taxable period. The Parties Herein petitioner is the duly appointed Commissioner of Internal Revenue ("CIR") empowered to perform the duties of said office including, among others, the power to decide, approve and grant refunds or tax credits of erroneously or excessively paid taxes, as provided by law. 5 Meanwhile, respondent Visayas Geothermal Power Company is a partnership duly organized and existing under the laws of the Philippines. 6 Its primary business is to "invest in, acquire, finance, complete, construct, develop, improve, operate, maintain and hold that certain partially constructed power production geothermal electrical generating facility in Malitbog, Leyte Province, Philippines (the "Project"), and other property incidental thereto, for the production and sale of electricity from geothermal resources, to sell or otherwise dispose of the Project and such other property and to engage in any other activities related or incidental hereto." 7 Respondent is registered with the Bureau of Internal Revenue ("BIR") as a VAT taxpayer in accordance with Section 236 of the National Internal Revenue Code of 1997 ("Tax Code") , as amended. 8 The Facts As found by the Court in Division, on 13 February 2009, respondent filed an administrative claim for its unutilized input VAT refund for the period from the 1st quarter to the 4th quarter of calendar year 2007 amounting to P11,902,576.07 with BIR Revenue District Office No. 47. 9 Due to petitioner's inaction, respondent filed a Petition for Review with the Court of Tax Appeals on 30 March 2009. 10 In its Answer, petitioner assailed the Court of Tax Appeal's jurisdiction claiming that the petition was prematurely filed. 11 In the CTA-First Division's Decision, 12 promulgated on 19 October 2011, it sustained petitioner's position and denied the Petition for Review for being prematurely filed. The CTA-First Division explained that under Section 112 (C) of the 1997 Tax Code , the CIR has 120 days from the submission of complete supporting documents within which to act on the application for refund or tax credit. Since the administrative claim for refund was filed on 13 February 2009, the CIR had until 13 June 2009 to decide the claim. However, the Petition for Review was filed on 30 March 2009, or merely 45 days from the filing of the administrative claim with the BIR, hence, prematurely filed. Respondent moved for reconsideration, 13 but the same was denied in a Resolution, 14 dated 16 January 2012, prompting its appeal 15 to the Court En Banc . The appeal was docketed as CTA EB Case No. 864. The Court En Banc affirmed the ruling of the CTA-First Division in its Decision, 16 promulgated 8 October 2012. Respondent moved for reconsideration, 17 but this was denied in a Resolution, 18 dated 7 January 2013. Respondent elevated the case to the Supreme Court via a Petition for Review on Certiorari 19 entitled Visayas Geothermal Power Company v. Commissioner of Internal Revenue docketed as G.R. No. 205279. The Supreme Court partly granted respondent's Petition for Review on Certiorari and ruled that respondent seasonably filed its claim for refund before the CTA. In its Resolution, 20 dated 26 April 2017, the Supreme Court declared that the CTA erred in ruling that petitioner's judicial claim was prematurely filed considering that the 120+30 mandatory periods admits of an exception. Citing CIR v. San Roque Power Corporation , 21 the Supreme Court held that " strict compliance with the 120+30-day periods is necessary for such claim to prosper, whether before, during, or after the effectivity of the Atlas doctrine, except for the period from the issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010 when the Aichi doctrine was adopted, which again reinstated the 120+30-day periods as mandatory and jurisdictional ." As such, respondent timely filed its appeal to the CTA. Considering, however, that no ruling was made on the merits of petitioner's claim for tax refund, the case was remanded to the CTA-First Division for disposition on the matter. The dispositive portion of the Resolution, dated 26 April 2017, reads: " WHEREFORE , the petition is PARTLY GRANTED . The Decision dated October 8, 2012 and Resolution dated January 7, 2013 of the Court of Tax Appeals en banc in CTA EB Case No. 864 are REVERSED and SET ASIDE. The case is REMANDED to the Court of Tax Appeals, which is DIRECTED to determine petitioner Visayas Geothermal Power Company's entitlement to a tax refund. SO ORDERED. " The Resolution, dated 26 April 2017, in G.R. No. 205279 became final and executory on 7 July 2017 when the Supreme Court issued an Entry of Judgment. 22 Thus, on 25 July 2018, the Court En Banc issued a Resolution 23 remanding the case to the CTA-First Division for determination of respondent's entitlement to a tax refund. In the assailed Amended Decision, 24 promulgated on 4 September 2019, the Court in Division partially granted respondent's claim for refund. The dispositive portion of the assailed Amended Decision reads: " WHEREFORE , the instant Petition for Review is hereby PARTIALLY GRANTED . Accordingly, respondent is ORDERED TO REFUND OR TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner Visayas Geothermal Power Company in the amount of P11,079,342.33 , representing petitioner's unutilized input VAT for the four quarters of CY 2007 attributable to its zero-rated sales for the same taxable period. SO ORDERED ." Herein petitioner and respondent received the assailed Amended Decision on 12 September 2019. 25 On 17 September 2019, petitioner filed a Motion for Partial Reconsideration, 26 praying that the Amended Decision be reversed and set aside and another one be rendered denying the entire claim for refund. Respondent filed its Comment 27 within the extended period 28 granted by the Court in Division. In the assailed Resolution 29 promulgated on 10 June 2020, the Court in Division denied petitioner's Motion for Partial Reconsideration for lack of merit. Petitioner and respondent received the assailed Resolution on 24 June 2020 30 and 25 June 2020, 31 respectively. On 8 July 2020, petitioner filed the instant Petition for Review 32 assailing the Amended Decision, dated 4 September 2019, and Resolution, dated 10 June 2020. In the Court En Banc's Resolution, 33 dated 29 September 2020, respondent was ordered to file its Comment to the instant Petition for Review. Both petitioner and respondent received the said Resolution on 20 October 2020 34 and 22 October 2020, 35 respectively. Despite order, respondent failed to file its Comment. 36 On 9 February 2021, the Court En Banc promulgated a Resolution 37 submitting the case for decision. Hence, this Decision. However, before the Court En Banc could resolve the instant Petition for Review, it received respondent's Comment (Re: Petition for Review dated July 1, 2020) with Motion for Leave of Court. Considering that the belated filing of the said Comment is due to undersigned counsel's inadvertence and in view of the Rule 15 of A.M. No. 19-10-20-SC or the 2019 Amendments to the 1997 Rules of Civil Procedure and En Banc Resolution No. 9-2020 dated 7 August 2020 prohibiting motions for extension of time to file pleadings, the Court En Banc cannot give due course to respondent's Comment. Issue 38 The sole issue submitted for the Court En Banc's resolution is: Whether or not the Court in Division erred in ruling that respondent is entitled to refund in the amount of P11,079,342.33 allegedly representing unutilized input VAT for the four quarters of calendar year 2007 allegedly attributable to zero-rated sales. Argument of Petitioner 39 Petitioner asserts that not all input taxes of a VAT-registered person whose sales are zero-rated are refundable. According to petitioner, pursuant to Section 112 (A) of the Tax Code , what is refundable are "creditable input taxes." Petitioner then explains that pursuant to Section 110 (A) of the Tax Code and consistent with the universal definition of VAT as essentially a "tax on transactions," input tax on purchases of goods are creditable only if they are a factor in the chain of production. Petitioner further contends that after determining which input taxes are "creditable," the law requires a second evaluation to determine which "creditable" input taxes are attributable to the zero-rated sales. Attributability means that the connection between the purchases and the finished product is "concrete" and "not imaginary" nor "remote." Allegedly, no attributability was established between respondent's input tax purchases and the zero-rated sales. Petitioner insists that there is nothing in the assailed Amended Decision that shows the direct attributability of the purchases or input tax to the finished product whose sale is zero-rated. The Ruling of the Court En Banc The present Petition for Review lacks merit. Petitioner essentially reiterates its earlier arguments raised in the Motion for Partial Reconsideration filed before the Court in Division which have been adequately passed upon in the assailed Resolution. The Court in Division correctly ruled that Section 112 (A) does not require that the input taxes subject of the claim for refund be directly attributable to zero-rated sales. Petitioner chiefly argues that no direct attributability was established between respondent's input tax and its zero-rated sales. Contrary to petitioner's contention, Section 112 (A) of the Tax Code does not require that the input taxes be directly attributable to zero-rated sales. In fact, the provision prescribes for the proportionate allocation of creditable input tax when it cannot be directly and entirely attributed to any specific sale such as when the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods/properties/services. The provision pertinently reads: "Section 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 effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales , except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) 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 of 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 ." (Emphasis and underscoring, Ours.) Clearly, from the foregoing, the requirement of Section 112 (A) is satisfied when the creditable input VAT is attributable to zero-rated sales, whether the connection is direct or indirect. In addition, jurisprudence merely requires attributability as one of the requisites for entitlement to input VAT refund/tax credit pursuant to Section 112 (A) of the Tax Code . In Commissioner of Internal Revenue v. Deutsche Knowledge Services Pte. Ltd. , 40 the Supreme Court enumerated the requisites as follows: "Under Section 4.112-1 (a) of Revenue Regulations No. (RR) 16-05, otherwise known as the Consolidated VAT Regulations of 2005, in relation to Section 112 of the Tax Code, a claimant's entitlement to a tax refund or credit of excess input VAT attributable to zero-rated sales hinges upon the following requisites: "(1) the taxpayer must be VAT-registered; (2) the taxpayer must be engaged in sales which are zero-rated or effectively zero-rated; (3) the claim must be filed within two years after the close of the taxable quarter when such sales were made; and (4) the creditable input tax due or paid must be attributable to such sales , except the transitional input tax, to the extent that such input tax has not been applied against the output tax ." (Emphasis and underscoring, Ours. Citations omitted.) There is also no merit in petitioner's contention that under Section 110 (A) of the Tax Code to be creditable, the input tax must come from purchases of goods that form part of the finished product of the taxpayer or it must be directly used in the chain of production. Section 110 (A) of the Tax Code is not limited to purchases that form part of the finished product of the taxpayer. The provision enumerates the instances that give rise to creditable input taxes to wit: "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: (a) Purchase or importation of goods: (i) For sale; or (ii) For conversion into or intended to form part of a finished product for sale including packaging materials; or (iii) For use as supplies in the course of business; or (iv) For use as materials supplied in the sale of service; or (v) For use in trade or business for which deduction for depreciation or amortization is allowed under this Code, except automobiles, aircraft and yachts. (b) Purchase of services on which a value-added tax has been actually paid. (2) The input tax on domestic purchase of goods or properties shall be creditable: (a) To the purchaser upon consummation of sale and on importation of goods or properties; and (b) To the importer upon payment of the value-added tax prior to the release of the goods from the custody of the Bureau of Customs. However, in the case of purchase of services, lease or use of properties, the input tax shall be creditable to the purchaser, lessee or licensee upon payment of the compensation, rental, royalty or fee. (3) A VAT-registered person who is also engaged in transactions not subject to the value-added tax shall be allowed tax credit as follows: (a) Total input tax which can be directly attributed to transactions subject to value-added tax; and (b) A ratable portion of any input tax which cannot be directly attributed to either activity. The term 'input tax' means the value-added tax due from or paid by a VAT-registered person in the course of his trade or business on importation of goods or local purchase of goods or services, including lease or use of property , from a VAT-registered person . It shall also include the transitional input tax determined in accordance with Section 111 of this Code. The term 'output tax' means the value-added tax due on the sale or lease of taxable goods or properties or services by any person registered or required to register under Section 236 of this Code." (Emphasis and underscoring, Ours.) It is a cardinal rule in statutory construction that a statute's clauses and phrases must not be taken as detached and isolated expressions: the whole and every part must be considered in fixing the meaning of any of its parts in order to produce a harmonious whole. 41 Every part of the statute must be interpreted with reference to the context, i.e. , every part of the statute must be considered together with other parts of the statute and kept subservient to the general intent of the whole enactment. 42 From the foregoing, input tax on the purchase of goods that form part of the finished goods of the taxpayer is only one of the instances that allows input taxes to be credited against output tax. As such, creditable input tax does not only arise from purchases that form part of the finished goods. More importantly, Section 110 (A) (3) defines input tax to include all VAT due from or paid by a VAT-registered person in the course of their trade or business on the importation of goods or local purchase of goods or services including lease or use of property from a VAT registered person. Accordingly, even if the purchased goods do not find their way into the finished product, the input tax incurred therefrom can still be credited against the output tax, provided that the input VAT is incurred or paid in the course of the VAT-registered taxpayer's trade or business and that it is supported by a VAT invoice issued in accordance with Section 113 of the Tax Code . It is worth mentioning that the issue as to whether the claimed input VAT should be directly attributable to zero-rated sales is not novel. The issue has been settled by this Court in Deutsche Knowledge Services Pte. Ltd. v. Commissioner of Internal Revenue , 43 where we held as follows: "The CIR's insistence that "to be creditable, the input tax must come from purchases of goods that form part of the finished product of the taxpayer or it must be directly used in the chain of production" is not entirely consistent with the above-quoted Section 110. This is so because the said provision, as clearly stated, did not limit itself to purchases or importation of goods which are to be converted into or intended to form part of a finished product for sale, or to be used in the chain of production; but also includes, inter alia, purchases or importation of goods for use as supplies in the course of business, or for use in trade or business for which deduction for depreciation or amortization is allowed; as well as purchase of services for which VAT has been actually paid . Accordingly, provided that the subject input tax is evidenced by a VAT invoice or official receipt issued in accordance with Section 113 of the NIRC of 1997, as amended, the same may be creditable against the output VAT. We likewise do not find merit in the CIR's allegation that for an input tax to be attributable to zero-rated sales, it must be shown that "the connection between the purchases and finished product is 'concrete' and not 'imaginary' or 'remote.' Section 112 of the NIRC of 1997, as amended, allows the allocation of creditable input taxes which cannot be directly or entirely attributable to zero-rated sales, to wit: xxx xxx xxx Based from the foregoing, creditable input taxes which cannot be directly or entirely attributable to any sale transaction ( i.e. , zero-rated or effectively zero-rated sale and taxable or exempt sale of goods of properties or services), shall be allocated proportionally on the basis of the volume of sales. Evidently, contrary to the CIR's allegation, the attribution of the input VAT to the zero-rated sales need not always be direct. Moreover, the word "attribute," the adjective form of which is "attributable," is defined as "to explain as to cause or origin," or simply, to "ascribe." Thus, when Section 112(A) of the NIRC of 1997, as amended, states that the input VAT must be attributable to the zero-rated or effectively zero-rated sales, it simply means that the input VAT must be regarded as being caused by such sales. Accordingly, We sustain the Court in Division's ruling that it [is] not required that the claimed input tax be directly attributable to zero-rated sales in order to be creditable." (Emphasis and underscoring, Ours.) Given the foregoing, this Court finds that the Court in Division did not err in finding that the input tax need not be directly attributable to the zero-rated sales in order for it to be refunded or claimed as a tax credit. The Court in Division correctly found that respondent's input VAT are all attributable to its zero-rated sales. Basic is the rule that mere allegation is not synonymous with proof or evidence. 44 Petitioner's bare allegation in the present Petition that no attributability was established between the input tax on purchases and zero-rated sales of respondent is not supported by evidence on record and thus deserves scant consideration. Nonetheless, the Court En Banc shall resolve to address all issues raised by petitioner. In Republic v. Team (Phils.) Energy Corp. , 45 the Supreme Court held that when a taxpayer establishes by prima facie evidence its right to refund, the CIR should present rebuttal evidence to shift the burden back to the taxpayer. The Court in Division determined after a judicious review of evidence on record that respondent established its right to refund. 46 The Court in Division found from respondent's Quarterly VAT Returns for calendar year 2007 that it reported input VAT in the aggregate amount of P11,902,576.07 arising from domestic purchases and importation of goods other than capital goods, domestic purchases of services, and services rendered by non-residents. Thereafter, the Court in Division reviewed the supporting documents, which include suppliers' invoices, official receipts, Bureau of Customs Import Entry and Internal Revenue Declarations, and BIR Form Nos. 1600, which were also examined by the Court-commissioned Independent Certified Public Accountant ("ICPA"). Taking into consideration the disallowances flagged by the ICPA and disallowances after the Court in Division's verification of the supporting documents, the remaining valid input VAT is P11,092,415.44. The Court in Division then determined whether respondent had output tax liability against which the valid input VAT of P11,092,415.44 may be applied or credited. Finding that respondent had no other sales/receipts other than zero-rated sales/receipts for the calendar year 2007, the Court in Division determined that the valid input VAT are necessarily attributable to respondent's zero-rated sales. Notably, petitioner did not present any evidence on his behalf. 47 From the foregoing, it is incumbent upon this Court to affirm the findings of the Court in Division for failure of petitioner to provide convincing reason to reverse or modify the assailed Decision and Resolution. WHEREFORE , in light of the foregoing considerations, the present Petition for Review filed by the Commissioner of Internal Revenue is hereby DENIED for lack of merit. Accordingly, the Amended Decision, dated 4 September 2019, and the Resolution, dated 10 June 2020, both rendered by the Court in Division, are hereby AFFIRMED . Meanwhile, respondent's "Comment (Re: Petition for Review dated July 1, 2020) with Motion for Leave of Court" is hereby DENIED . SO ORDERED. (SGD.) MARIA ROWENA MODESTO-SAN PEDRO Associate Justice Roman G. del Rosario, P.J., Juanito C. Castaeda, Jr., Erlinda P. Uy, Ma. Belen M. Ringpis-Liban, Catherine T. Manahan, Jean Marie A. Bacorro-Villena, Marian Ivy F. Reyes-Fajardo and Lanee S. Cui-David, JJ. , concur. Footnotes 1. EB Records, pp. 1-44, with annexes. 2. Division Records Vol. 2, pp. 1505-1523. 3. Id. , pp. 1571-1577. 4. Court of Tax Appeals-Special First Division. 5. See Admitted Facts, Joint Stipulation of Facts and Issues ("JSFI"), Division Records Vol. 1, pp. 183-187; See also Resolution, dated 8 June 2009 approving and adopting the JSFI, id. , pp. 188-189. 6. Exhibit "A", Id. , pp. 22-27. 7. Ibid. 8. See Admitted Facts, JSFI Division Records Vol. 1, pp. 183-187; See also Resolution, dated 8 June 2009, approving and adopting the JSFI, id. , pp. 188-189. 9. Ibid. 10. Ibid. 11. Answer, Division Records Vol. 1, pp. 147-153. 12. Id. , pp. 628-648. 13. Id. , pp. 649-693. 14. Id. , pp. 722-730. 15. Id. , pp. 736-826. 16. Division Records Vol. 2, pp. 918-942. 17. EB Records (CTA EB Case No. 864), pp. 271-321. 18. Division Records Vol. 2, pp. 977-981. 19. Id. , pp. 983-1354. 20. Id. , pp. 1475-1481. 21. G.R. Nos. 187485, 196113 & 197156, 12 February 2013. 22. Id. , p. 1484; EB Records (CTA EB No. 864), p. 349. 23. Id. , pp. 1496-1499. 24. Id. , pp. 1504-1523. 25. Id. , pp. 1503-1504. 26. Id. , pp. 1524-1533. 27. Id. , pp. 1549-1565. 28. See Resolution promulgated on 3 October 2019, Id. , pp. 1534-1536; Motion for Extension of Time to File Comment/Opposition (Re: Respondent's Motion for Partial Reconsideration), Id. , pp. 1537-1539; Resolution promulgated on 7 November 2019, Id. , pp. 1540-1542; Motion for Extension of Time to File Comment/Opposition, Id. , pp. 1543-1545; Resolution promulgated on 19 November 2019, Id. pp. 1546-1548. 29. Id. , pp. 1569-1577. 30. Id. , p. 1569. 31. Id. , p. 1570. 32. EB Records, pp. 1-44, with annexes. 33. Id. , pp. 61-63 and 71. 34. Id. , p. 61. 35. Id. , p. 71. 36. See Records Verification Report dated 21 January 2021, Id. , p. 72. 37. Id. , pp. 73-76. 38. See Assignment of Error, Petition for Review, Id. , p. 3. 39. See Arguments/Discussion, Petition for Review, id. , pp. 9-41. 40. G.R. No. 234445, 15 July 2020. 41. Taganito Mining Corp. v. Commissioner of Internal Revenue , G.R. No. 216656, 26 April 2021 citing Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue , G.R. Nos. 158885 & 170680, 2 October 2009. 42. Ibid. 43. C.T.A. EB Case Nos. 1917 & 1919 (C.T.A. Case No. 9079), 5 February 2020. 44. Malixi v. Mexicali Philippines , G.R. No. 205061, 8 June 2016; Belga, Jr. v. Everest Security and Investigation Agency , G.R. No. 244324, 17 June 2019; Commissioner of Internal Revenue v. CBK Power Company Limited , G.R. No. 252993, 21 September 2020. 45. G.R. No. 188016, 14 January 2015. 46. See Amended Decision dated 4 September 2019, Division Records Vol. 2, pp. 1505-1523; see also Resolution dated 10 June 2020, Id. , pp. 1571-1577. 47. Division Records Vol. 1, p. 499.