Commissioner of Internal Revenue v. Mindanao II Geothermal Partnership

EN BANC [C.T.A. EB CASE NO. 1777. August 1, 2019.] (C.T.A. Case Nos. 8082 & 8106) COMMISSIONER OF INTERNAL REVENUE , petitioner , vs. MINDANAO II GEOTHERMAL PARTNERSHIP , respondent . [C.T.A. EB CASE NO. 1779. August 1, 2019.] (C.T.A. Case Nos. 8082 & 8106) MINDANAO II GEOTHERMAL PARTNERSHIP , petitioner , vs. COMMISSIONER OF INTERNAL REVENUE , respondent . DECISION UY , J p : Before the Court En Banc are consolidated Petitions for Review separately filed by the Commissioner of Internal Revenue (CIR) on February 1, 2018 against Mindanao II Geothermal Partnership (M2GP) in CTA EB No. 1777 ; 1 and by M2GP on February 19, 2018 against the CIR in CTA EB No. 1779 , 2 both praying for the reversal of the Decision dated August 9, 2017 3 and the Resolution dated January 12, 2018 4 promulgated by the Second Division of this Court (Court in Division) in the consolidated cases docketed as CTA Case Nos. 8082 & 8106, entitled " Mindanao II Geothermal Partnership, Petitioner, versus Commissioner of Internal Revenue, Respondent ." The dispositive portions thereof respectively read: EcTCAD Decision dated August 9, 2017 : " WHEREFORE , premises considered, the instant Petitions for Review are PARTIALLY GRANTED . Accordingly, respondent is ORDERED TO REFUND the amount of P220,700.89 in favor of petitioner, representing the latter's unutilized input VAT attributable to its zero-rated sales for TY 2008. SO ORDERED. " Resolution dated January 12, 2018 : " WHEREFORE , premises considered, respondent's Motion for Reconsideration and petitioner's Motion for Partial Reconsideration are both DENIED for lack of merit. SO ORDERED. " THE FACTS The CIR is the duly appointed Commissioner of the Bureau of Internal Revenue (BIR) who is empowered to perform the duties of his office, including, among others, the duty to act upon and approve claims for refund or tax credit as provided by law, with office address at the 4th Floor, BIR National Office Building, Agham Road, Diliman, Quezon City. On the other hand, M2GP was a partnership previously registered with Securities and Exchange Commission, with principal address at Barangay Ilomavis, Kidapawan City. It was a registered taxpayer in the Regional District Office (RDO) No. 108, BIR, Kidapawan City with Tax Identification No. 004-766-953-000 and engaged in the line of business of generation, collection, and distribution of electricity. M2GP had an Operations and Maintenance Agreement with Marubeni Energy Services Corporation. On March 11, 1997, M2GP entered into a Build-Operate-Transfer contract with the Philippine National Oil Company-Energy Development Corporation (PNOC-EDC) for the finance, engineering, supply, installation, testing, commissioning, operation and maintenance of 48.25 megawatt geothermal power plant provided that PNOC-EDC shall supply and deliver steam to M2GP at no cost. In turn, M2GP shall convert the steam into electric capacity and energy for PNOC-EDC and shall deliver the same to the National Power Corporation for and in behalf of PNOC-EDC. HSAcaE M2GP filed with the BIR its 1st, 2nd, 3rd, and 4th Quarterly Value-Added Tax (VAT) Returns for taxable year (TY) 2008 on April 24, 2008, July 25, 2008, October 24, 2008, and January 26, 2009, respectively. On December 28, 2009, M2GP filed its administrative claim for refund or tax credit of its unapplied and unutilized input taxes for TY 2008 in the total amount of P6,149,256.25 with RDO No. 108, BIR, Kidapawan City. Consequently, the CIR issued a Letter of Authority for the examination of M2GP's books of accounts and other accounting records for VAT covering the period of January 1, 2008 to December 31, 2008. On March 29, 2010, M2GP's partnership was dissolved. M2GP filed a Petition for Review on April 15, 2010, appealing its administrative claim, representing excess and unutilized creditable input tax covering the 1st quarter of TY 2008. The case was docketed as CTA Case No. 8082. Subsequently, on May 27, 2010, M2GP filed another Petition for Review with Motion to Consolidate with the CTA Case No. 8082, appealing its administrative claim, representing excess and unutilized creditable input tax covering the 2nd to 4th quarters of TY 2008. The case was docketed as CTA Case No. 8106. The CIR filed his Answer in CTA Case No. 8082 on June 8, 2010, interposing, among others, the defense that M2GP is not entitled to refund or tax credit in the amount P1,624,603.33, representing alleged unutilized input VAT for the 1st quarter of 2008 because of failure to submit all necessary and relevant documents in the administrative claim for refund or tax credit excess input tax attributable to zero-rated sales to National Power Corporation. While in CTA Case No. 8106, the CIR filed his Answer on July 5, 2010, alleging that M2GP's alleged claim for refund is subject to administrative routinary investigation/examination by the BIR; that the amount of P4,524,652.92 being claimed by M2GP as alleged excess and unutilized creditable input taxes for the 2nd and 4th quarters of the year 2008 was not properly documented; that M2GP did not submit complete documents in support of its administrative claim for refund; and that the petition for review was filed out of time. The CIR filed his Pre-Trial Brief for CTA Case No. 8082 on July 1, 2010. On August 9, 2010, CTA Case No. 8082 was consolidated with CTA Case No. 8106. M2GP then filed its Consolidated Pre-Trial Brief on September 2, 2010. The parties submitted their Joint Stipulation of Facts and Issues on September 27, 2010 which the Court in Division approved on September 28, 2010. On even date, Pre-Trial was deemed terminated. HESIcT Upon motion of M2GP, the Court in Division granted petitioner's motion to commission Michael L. Aguirre as Independent Certified Public Accountant on October 4, 2010. To prove its claim, M2GP initially presented Ma. Daisy C. Abenes as its witness. In the midst of M2GP's presentation of evidence, the CIR filed a Motion to Dismiss on December 7, 2010, claiming that M2GP prematurely filed its Petition for Review in CTA Case No. 8082. The CIR propounded that only 107 days had lapsed from the filing of M2GP's administrative claim on December 28, 2009; and that the filing of the Petition for Review on April 15, 2010 is in clear violation of Section 112 of the National Internal Revenue Code (NIRC) of 1997, as amended. In the Resolution dated January 20, 2011, the Court in Division granted the CIR's Motion to Dismiss , thereby dismissing M2GP's claim for refund for the 1st quarter of TY 2008 for being filed prematurely. On February 7, 2011, M2GP filed a Motion for Reconsideration , which was denied by the Court in Division in the Resolution dated March 15, 2011 for lack of merit. On April 14, 2011, M2GP elevated the matter to this Court En Banc via a Petition for Review , which was docketed as CTA EB No. 750, praying that the Resolutions dated January 20, 2011 and March 15, 2011, respectively, issued by the Court in Division be reversed and set aside. Accordingly, the Court En Banc gave due course to the said Petition . The Court En Banc rendered the Decision dated July 5, 2012, dismissing M2GP's Petition for Review. On July 26, 2012, M2GP filed a Motion for Reconsideration , but was subsequently denied by this Court En Banc , in the Resolution dated November 29, 2012. Undaunted, M2GP filed a Petition for Review on January 24, 2013 with the Supreme Court which was docketed as G.R. No. 204745. M2GP prayed that the Decision dated July 5, 2012 and Resolution dated November 29, 2012, both rendered by this Court En Banc , be reversed and set aside, and that judgment be rendered reinstating its Petition for Review in CTA Case No. 8082. On December 8, 2014, the Supreme Court promulgated a Decision, granting M2GP's Petition for Review . The said Decision reversed and set aside this Court En Banc 's Decision dated July 5, 2012 and Resolution dated November 29, 2012, and further, remanded CTA Case No. 8082 to the Court in Division for its resolution on the merits. caITAC Consequently, the proceedings in CTA Case Nos. 8082 and 8106 continued, and M2GP presented its witnesses, namely: Ivy P. Acosta and Michael L. Aguirre. Thereafter, M2GP formally offered its documentary exhibits which the Court in Division admitted in its Resolution dated May 23, 2016. On the other hand, during the hearing held on June 6, 2016, the CIR's counsel manifested in open court that she has no witness to present in this case. Considering M2GP's Memorandum filed on July 8, 2016, and the Manifestation of the CIR filed on August 5, 2016, stating that he is adopting the arguments raised in his Answer filed on June 8, 2010 as his Memorandum , CTA Case Nos. 8082 and 8106 were deemed submitted for decision on August 11, 2016. In the assailed Decision dated August 9, 2017 of the Court in Division, 5 the latter partially granted M2GP's Petitions for Review . It ordered the CIR to refund the amount of P220,700.89 in favor of M2GP, representing the latter's unutilized input VAT attributable to its zero-rated sales for TY 2008. Consequently, the parties filed their respective motion for partial reconsideration of the assailed Decision. On August 25, 2017, the CIR filed his Motion for Reconsideration ; 6 and on the same date, M2GP filed its Motion for Partial Reconsideration . 7 In the assailed Resolution dated January 12, 2018, 8 however, both Motions were denied by the Court in Division for lack of merit. On February 1, 2018, the CIR filed his Petition for Review , and the case was docketed as CTA EB No. 1777. For its part, M2GP filed a Motion for Additional Time to File Petition for Review on February 2, 2018 with this Court En Banc , 9 praying for an additional period of fifteen (15) days from February 2, 2018 or until February 17, 2018, within which to file its Petition for Review . The Court En Banc granted the period prayed for by M2GP, but qualified the same as "final and non-extendible." 10 On February 14, 2018, the Court En Banc directed M2GP to file its comment on the CIR's Petition for Review . 11 M2GP, however, filed a Motion for Additional Time to File Comment (to CIR's Petition for Review) on March 22, 2018, 12 praying for an additional time of ten (10) days from the said date, or until April 1, 2018, within which to file the said Comment . The Court En Banc granted the period prayed for by M2GP, but likewise qualified the same as "final and non-extendible." 13 M2GP's Comment (to CIR's Petition for Review) was filed on April 2, 2018. 14 In the meantime, M2GP filed its Petition for Review on February 19, 2018. 15 The case was docketed as CTA EB No. 1779. ICHDca On February 21, 2018, the Court En Banc consolidated CTA EB No. 1779 with CTA EB No. 1777. 16 In the Resolution dated March 26, 2018, 17 the Court En Banc ordered the CIR to file his comment on M2GP's Petition for Review in CTA EB No. 1779. Thus, on April 20, 2018, the CIR filed the required Comment . 18 Subsequently, in the Resolution dated May 21, 2018, 19 the Court En Banc gave the parties thirty (30) days from notice within which to file their respective memoranda. The CIR filed its Memorandum on June 27, 2018; 20 M2GP filed its Memorandum on July 27, 2018. 21 In the Resolution dated September 5, 2018, 22 the Court En Banc deemed the consolidated cases submitted for decision. Hence, this Decision. ASSIGNMENTS OF ERRORS The CIR assigns the following error supposedly committed by the Court in Division, to wit: "THE HONORABLE COURT ERRED IN RULING THAT [M2GP] IS ENTITLED TO REFUND IN THE AMOUNT OF P220,700.89 REPRESENTING ALLEGED UNUTILIZED INPUT VAT FOR TAXABLE YEAR 2008." 23 For its part, M2GP assigns the following errors supposedly committed by the Court in Division, to wit: "I. THE HONORABLE SECOND DIVISION ERRED IN DENYING [M2GP]'S CLAIM IN THAT [M2GP] WAS ABLE TO SUFFICIENTLY ESTABLISH BY COMPETENT EVIDENCE THAT THE VALUE-ADDED TAX WAS PAID. II. SUBSTANTIAL JUSTICE AND FAIR PLAY ARE ON THE SIDE OF [M2GP]. HENCE, TECHNICALITIES AND LEGALISMS SHOULD NOT BE MISUSED BY THE GOVERNMENT TO KEEP MONEY NOT BELONGING TO IT. III. THE DOCTRINE OF STRICTISSIMI JURIS SHOULD BE RELAXED IN THE PRESENT CASE IN THAT [M2GP] HAS SUFFICIENTLY AND CLEARLY ESTABLISHED ITS CLAIM BY COMPETENT PREPONDERANCE OF EVIDENCE." 24 The CIR's arguments: The CIR argues that the Court in Division erred in ruling that the amount of P220,700.89 is directly attributable to M2GP's zero-rated sales. According to the CIR, Section 112 of the NIRC of 1997 uses the word " directly attributable " and not the word " entirely attributable ," and thus, the fact of "direct attributability" must be established. It is allegedly erroneous to immediately assume that all the valid input tax is directly attributable to M2GP's zero-rated sales without establishing how it factored in the production chain. According to the CIR, the input tax must come from purchases of goods and services that form part of the finished product of the taxpayer, and that it must be directly used in the production chain; and that "direct attributability" must be established. M2GP's arguments: M2GP argues that while it appears that the official receipts (ORs) presented in evidence do not show or indicate the amount of the VAT component as a separate item, it was able to sufficiently establish by competent evidence that the VAT was actually paid. This fact is allegedly clear from a simple examination of the relevant documents presented, offered and admitted in evidence. ASEcHI In addition, M2GP stresses that it presented in evidence not only the ORs but also the corresponding sales invoices and statement of accounts to establish its claim for refund or tax credit particularly the fact that it paid the VAT. These documents, taken collectively, have established that the VAT was actually paid by M2GP. Furthermore, M2GP emphasizes that technicalities should not be misused to defeat its claim in light of competent evidence clearly establishing that there was a VAT and the VAT was indeed actually paid. Lastly, M2GP submits that the doctrine of strictissimi juris should be relaxed in the present case in that M2GP has sufficiently established its claim by competent preponderance of evidence. THE COURT EN BANC 'S RULING Both Petitions for Review lack merit, and thus, must be denied. The Court in Division did not err in ruling that the amount of P220,700.89 represents petitioner's valid input tax that is attributable to zero- rated sales. The CIR contends that the Court in Division erred in ruling that the amount of P220,700.89 is directly attributable to M2GP's zero-rated sales. Quoted herewith are the pertinent portions of the CIR's arguments on the matter, for easy reference, to wit: cTDaEH "Section 112 of the National Internal Revenue Code of 1997 uses the word 'directly attributable' and not the word 'entirely attributable.' Therefore, the fact of 'direct attributability' must be established. Thus, it is erroneous to immediately assume that all the valid input tax is directly attributable to [M2GP]'s zero-rated sales without establishing how it factored in the production chain. xxx xxx xxx From the definition provided by law, 25 it is [the CIR]'s position that the input tax must come from purchases of goods and services that form part of the finished product of the taxpayer. It must be directly used in the chain of production. Let us bear in mind that the law used the word 'directly.' This means that the connection between the purchases and the finished product is 'concrete' and not 'imaginary' or 'remote.' Such is required by law as discussed above. There is nothing in the decision of this Honorable Court explaining the evidence showing the direct connection of the purchases or input tax to the finished product whose sale is zero rated." 26 In support of the foregoing contentions, the CIR invokes the ruling in the cases of Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue (the " 2011 Atlas case "), 27 and Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue (the " 2007 Atlas case "), 28 collectively referred to as the " Atlas cases", to wit: 2011 Atlas case : "The CTA, applying the abovementioned rules, in its Decision dated August 24, 1998, came out with the following factual findings: The formal offer of evidence of the petitioner failed to include photocopy of its export documents, as required. There is no way therefore, in determining the kind of goods and actual amount of export sales it allegedly made during the quarter involved. This finding is very crucial when we try to relate it with the requirement of the aforementioned regulations that the input tax being claimed for refund or tax credit must be shown to be entirely attributable to the zero-rated transaction, in this case, export sales of goods. Without the export documents, the purchase invoice/receipts submitted by the petitioner as proof of its input taxes cannot be verified as being directly attributable to the goods so exported . xxx xxx xxx." (Emphasis by the CIR, Underscoring Ours) 2007 Atlas case : cSaATC "Granting arguendo that the application of petitioner corporation for the refund/credit of the input VAT on its zero-rated sales in the first quarter of 1992 was actually and timely filed, petitioner corporation still failed to present together with its application the required supporting documents, whether before the BIR or the CTA. As the Court of Appeals ruled In actions involving claims for refund of taxes assessed and collected, the burden of proof rests on the taxpayer. As clearly discussed in the CTA's decision, petitioner failed to substantiate its claim for tax refund. Thus: xxx xxx xxx There is the need to examine the sales invoice or receipts in order to ascertain the actual amount or quantity of goods sold and their selling price. Without them, this Court cannot verify the correctness of petitioner's claim inasmuch as the regulations require that the input taxes being sought for refund should be limited to the portion that is directly and entirely attributable to the particular zero-rated transaction . In this instance, the best evidence of such transaction are the said sales invoices or receipts. xxx xxx xxx." (Emphasis by the CIR, Underscoring Ours) The CIR clearly misread the law. Section 112 (A) of the NIRC of 1997, as amended by Republic Act (RA) No. 9337, 29 provides, in part, as follows: "SEC. 112. Refunds or Tax Credits of Input Tax . (A) Zero-Rated or Effectively Zero-Rated Sales . Any VAT-registered person, whose sales are zero-rated or 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: x x x 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: x x x. A plain reading of the foregoing provision would reveal that the law merely states that the creditable input VAT should be "attributable" to the zero-rated or effectively zero-rated sales. In other words, nowhere is it stated in the above-quoted Section 112 (A) that the refundable creditable input VAT should be " directly attributable" to such sales. It is elementary that where the law does not distinguish, none must be made. Ubi lex non distinguit nec nos distingere debemos . 30 Admittedly, the words "directly . . . attributed" were used under the aforequoted provision. However, the said words merely relate to a situation where the creditable input VAT cannot be "directly . . . attributed" to any transaction. It does not , in any way, qualify the preceding sentences of the same Section 112 (A) which will have the effect of making the refundable input VAT are only those which are "directly attributable" to zero-rated or effectively zero-rated sales. Thus, there is no legal basis for the CIR's stand that the fact of "direct attributability" must be established. Correspondingly, We quote with approval the findings of the Court in Division, to wit: "Considering that petitioner had no other sales reported per Quarterly VAT Returns for CY 2008, the valid input VAT of P220,700.89 is entirely attributable to its zero-rated sales." (Emphasis supplied) It is fundamental that the findings of fact by the Court in Division are not to be disturbed without any showing of grave abuse of discretion considering that the members of the Division are in the best position to analyze the documents presented by the parties. 31 There being no showing of grave abuse of discretion, the said findings of fact stand. EATCcI The CIR's argument failed to specifically refute the findings of the Court in Division regarding the amount of P220,700.89. If the CIR was truly convinced that the Court in Division erred in the said findings, he could have easily pinpointed which of the said findings is not consistent with evidence, the law and/or jurisprudence. A general and perfunctory statement that 2GP failed to prove that its claimed input VAT were directly attributable to its zero-rated sales failed to convince this Court En Banc that a reversible error was committed by the Court in Division. Especially so, as earlier shown, that the law does not require that the input VAT should be "directly" attributable a simple attributability suffices. We cannot rely on the rulings in the Atlas cases being invoked by the CIR. This must be so because, as clearly shown in the said cases, the latter were decided under the earlier Revenue Regulations (RR) No. 5-87 dated September 1, 1987, 32 as amended by RR No. 3-88 dated February 15, 1988, 33 Section 16 of which provides, in part, as follows: "In all cases, the amount of refund or tax credit that may be granted shall be limited to the amount of value-added tax (VAT) paid directly and entirely attributable to the zero-rated transaction during the period covered by the application for credit or refund." (Emphasis and underscoring supplied) ISHCcT Understandably, on the basis thereof, the Supreme Court required and ruled in the Atlas cases that the input VAT being claimed for refund should be "directly and entirely attributable" to the zero-rated sales. However, RR Nos. 5-87 and 3-88, and the jurisprudential pronouncements interpreting and/or applying the same, could no longer be applied as the same are deemed revoked. Section 23 of Republic Act No. 9337 34 reads: "SEC. 23. Implementing Rules and Regulations . The Secretary of Finance shall, upon the recommendation of the Commissioner of Internal Revenue, promulgate not later than June 30, 2005, the necessary rules and regulations for the effective implementation of this Act. Upon issuance of the said rules and regulations, all former rules and regulations pertaining to value-added tax shall be deemed revoked ." (Emphasis and underscoring supplied ) Pursuant to the foregoing provision, rules and regulations pertaining to VAT issued before the effectivity of RA No. 9337, such as RR Nos. 5-87 and 3-88, shall be deemed revoked upon the issuance of the rules and regulations implementing the said law which should be done not later than June 30, 2005. On June 22, 2005, the Secretary of Finance, upon the recommendation of the CIR, issued RR No. 14-2005, also known as the " Consolidated Value-Added Tax Regulations of 2005 ," which became effective on July 1, 2005. Parenthetically, RR No. 14-2005 was later superseded by RR No. 16-2005 on September 1, 2005, which took effect on November 1, 2005. The latter RR, in turn, has undergone several amendments thereafter. Correspondingly, all RR pertaining to VAT, including RR Nos. 5-87 and 3-88, were deemed revoked as of July 1, 2005. Thus, unless the provisions of the said RR pertaining to the requirement that the input VAT being claimed for refund should be "directly and entirely attributable" to the zero-rated sales, has been retained in the said RR No. 14-2005 and subsequent RR pertaining to VAT, such treatment under the said RR Nos. 5-87 and 3-88 is deemed revoked. A cursory examination, however, of RR No. 14-2005 and subsequent RR pertaining to VAT would reveal that the provisions of RR Nos. 5-87 and 3-88, as to the requirement that the input VAT being claimed for refund should be "directly and entirely attributable" to the zero-rated sales, has not been retained. Thus, the aforequoted portion of Section 16 of RR No. 5-87, as amended by RR No. 3-88, is no longer binding, upon the effectivity of RR No. 14-2005, i.e. , on July 1, 2005. Considering that the taxable year under consideration is 2008, the provisions of RR Nos. 5-87 and 3-88, as applied to the Atlas cases, may no longer be validly applied to the instant case. CAacTH The Court in Division did not err in denying M2GP's claim, and in disallowing the total amount of P5,928,555.36. In the assailed Decision, the Court in Division found that M2GP's supporting invoices and ORs failed to meet the substantiation requirements under Sections 110 (A) and 113 (A) and (B) of the NIRC of 1997, as amended, in relation to Sections 4.110-1, 4.110-8 and 4.113-1, of RR No. 16-05, as amended. For easy reference, the composition of the said amount of P5,928,555.36 is as follows: Findings of the Court-commissioned ICPA Disallowed Input VAT Purchase of service supported by ORs dated outside the 2008 covered period P14,035.71 Purchase of goods without original/valid sales invoices but with original/valid ORs 765.28 Findings of the Court in Division Purchases of goods/services supported by invoices/ORs but input VAT amount was not separately shown 4,096,098.51 Purchases of goods/services supported by invoices/ORs without TIN and/or address of M2GP 129,435.18 Purchases of goods/services supported by invoices/ORs without TIN and/or address of M2GP and input VAT amount was not separately shown 1,008,665.48 Purchases of goods/services supported by documents other than VAT invoices/ORs 361,703.63 Purchase of goods/services supported by documents with notation "Not valid source of/not allowed for claiming input tax" 10,398.80 Purchases of services supported by ORs dated outside the period of claim and input VAT amount was not separately shown 307,308.77 TOTAL P5,928,555.36 We affirm the above-stated findings of the ICPA and the Court in Division. M2GP, however, argues that the Court in Division erred in denying its claim for refund or tax credit as the latter was able to sufficiently establish by competent evidence that the VAT was paid. It further claims that even though the ORs it presented did not separately indicate the VAT component, the sales invoices or statements of account supporting each official receipt clearly show the amount of VAT as a separate item and that the amount of which were paid. cEaSHC We are not persuaded. Section 113 (A) and (B) of the NIRC of 1997, as amended by RA No. 9337, provides as follows to wit: "SEC. 113. Invoicing and Accounting Requirements for VAT-registered Persons . (A) Invoicing Requirements . A VAT-registered person, shall issue: (1) A VAT invoice for every sale, barter or exchange of goods or properties; and (2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services. (B) Information Contained in the VAT Invoice or VAT Official Receipt . The following information shall be indicated in the VAT invoice or VAT official receipt : (1) A statement that the seller is a VAT-registered person, followed by his Taxpayer's Identification Number (TIN); (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax : Provided , That: (a) The amount of the tax shall be shown as a separate item in the invoice or receipt ; xxx xxx xxx (4) In the case of sales in the amount of one thousand pesos (P1,000) or more where the sale or transfer is made to a VAT-registered person, the name, business, style, if any, address and Taxpayer Identification Number (TIN) of the purchaser , customer, or client. (Emphases and underscoring supplied) To implement the foregoing provision, Section 4.113-1 of Revenue Regulations (RR) No. 16-2005 35 provides: "Section 4.113-1. Invoicing Requirements . (A) A VAT-registered person shall issue: (1) A VAT invoice for every sale, barter or exchange of goods or properties; and (2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services. Only VAT-registered persons are required to print their TIN followed by the word 'VAT' in their invoice or official receipts. Said documents shall be considered as a 'VAT Invoice' or VAT official receipt. All purchases covered by invoices/receipts other than VAT Invoice/VAT Official Receipt shall not give rise to any input tax. CTIEac VAT invoice/official receipt shall be prepared at least in duplicate, the original to be given to the buyer and the duplicate to be retained by the seller as part of his accounting records. (B) Information contained in VAT invoice or VAT official receipt. The following information shall be indicated in VAT invoice or VAT official receipt : (1) A statement that the seller is a VAT-registered person, followed by his TIN; (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the VAT ; Provided , that: (a) The amount of tax shall be shown as a separate item in the invoice or receipt ; xxx xxx xxx (3) In the case of sales in the amount of one thousand pesos (P1,000) or more where the sale or transfer is made to a VAT-registered person, the name, business style, if any, address and TIN of the purchaser , customer or client, shall be indicated in addition to the information required in (1) and (2) of this Section." (Emphases and underscoring supplied) Based on the foregoing provisions, the law enumerates what must be indicated in the ORs or invoices, which include, inter alia , (1) the amount of tax as a separate item; and (2) the name, TIN, address of the VAT-registered purchaser in the case of sales of P1,000 or more. The invoicing requirements for a VAT-registered taxpayer as provided in the NIRC and revenue regulations are clear. A VAT-registered taxpayer is required to comply with all the VAT invoicing requirements to be able to file a claim for input taxes on domestic purchases for goods or services attributable to zero-rated sales . 36 Compliance with all the VAT invoicing requirements provided by tax laws and regulations is mandatory . 37 In addition, the invoicing requirement is reasonable and must be strictly complied with , as it is the only way to determine the veracity of the claim. 38 Moreover, it is already settled that in a claim for tax refund or tax credit, the applicant must prove not only entitlement to the grant of the claim under substantive law, he must also show satisfaction of all the documentary and evidentiary requirements for an administrative claim for a refund or tax credit and compliance with the invoicing and accounting requirements by the NIRC, as well as by revenue regulations implementing them . 39 In the instant case, M2GP admits that the ORs presented in evidence do not show the amount of VAT as a separate item; but argues that the invoices supporting each official receipt clearly show or indicate the VAT as a separate item, and that the VAT thereon was actually paid by M2GP, based on the corresponding sales invoices or statements of accounts. Moreover, anent the finding on the purchases of goods/services supported by ORs which do not separately show the TIN and/or address of M2GP and the amount of input VAT, M2GP points out that the submitted ORs are duly supported by sales invoices which clearly indicates the TIN and/or address of M2GP and the amount of VAT. Finally, as for the finding regarding the purchases of services supported by ORs outside the period of claim and the input VAT amount was not separately shown, M2GP stresses that there were no corrections and countersignature made because the ORs were duly supported by invoices which clearly shows the VAT as a separate item and stamp marked "PAID August 5, 2008." SaCIDT With the said argument, M2GP, in effect, admits, and no longer questions, the Court in Division's findings on: (1) the other items not involving a finding of the VAT not being separately shown, in the amounts of P14,035.71, P765.28, P361,703.63, and P10,398.80, or in the aggregate amount of P516,338.60, and (2) the portions of the purchases of goods supported by invoices but the input VAT amount was not separately shown. Considering the said admissions of M2GP to the effect that the ORs for its purchases of services indeed do not separately show the VAT component, We find justification to deny M2GP's Petition for Review , for failure to comply with the invoicing requirements established by law. To stress, Section 113 (B) (2) (a) and (4) of the NIRC of 1997, as amended by RA No. 9337, require, inter alia , that the VAT are shown as a separate item in the invoice or receipt, as the case may be, and the TIN and address of the purchaser are indicated therein. Such being the case, it is clear that M2GP failed to comply with the said invoicing requirements, and thus, the pertinent items were correctly disallowed. An otherwise ruling would render nugatory the mandatory nature of, and the rule on strict compliance with, the said invoicing requirements. We cannot subscribe to M2GP's argument to the effect that it is of no moment that the subject ORs do not indicate VAT as a separate item, as the fact of payment of the input VAT may be proved by, or as the indication of the VAT as a separate item is shown in, other documents, such the corresponding sales invoices or statements of accounts. This is so because the above-quoted Section 113 (A) of the NIRC of 1997, as amended by RA No. 9337, clearly mandates the instances when a VAT invoice or a VAT official receipt is issued. To reiterate, the law states that a VAT-registered person shall issue a VAT invoice for every sale, barter or exchange of goods or properties, and a VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of service. Parenthetically, jurisprudence and statutory construction teach Us that the word "shall" connotes mandatory character; it indicates a word of command, and one which has always or which must be given a compulsory meaning, and it is generally imperative or mandatory in nature. 40 To decree that it is allowed to refer to sales invoices, since the presented ORs fails to comply to the invoicing requirements, would run counter to the mandate of the law. Apropos , We find that VAT ORs are indispensable to prove sales of services by a VAT-registered taxpayer . 41 Moreover, an invoice and an official receipt , for purposes of the VAT law, are not interchangeable. One cannot be a substitute to the other. In Team Energy Corporation (formerly: Mirant Pagbilao Corporation and Southern Energy Quezon, Inc.) vs. Commissioner of Internal Revenue , 42 the Supreme Court held: cHECAS "Team Energy submits that the disallowances 'essentially result from the non-recognition [by] the [Court of Tax Appeals] En Banc of the interchangeability of VAT invoices and VAT [official receipts] in a claim for refund of excess or unutilized input tax.' In AT&T Communications Services Philippines, Inc. v. Commissioner of Internal Revenue , 43 this Court was confronted with the same issue on the substantiation of the taxpayer-applicant's zero-rated sales of services. In that case, AT&T Communications Services Philippines, Inc. (AT&T) applied for tax refund and/or tax credit of its excess/unutilized input VAT from zero-rated sales of services for calendar year 2002. The Court of Tax Appeals First Division, as affirmed by the En Banc, denied AT&T's claim 'for lack of substantiation' on the ground that: [C]onsidering that the subject revenues pertain to gross receipts from services rendered by petitioner, valid VAT official receipts and not mere sales invoices should have been submitted in support thereof. x x x Reversing the Court of Tax Appeals, this Court held that since Section 113 did not distinguish between a sales invoice and an official receipt, the sales invoices presented by AT&T would suffice provided that the requirements under Sections 113 and 237 of the Tax Code were met. It further explained: Sales invoices are recognized commercial documents to facilitate trade or credit transactions. They are proofs that a business transaction has been concluded, hence, should not be considered bereft of probative value. Only the preponderance of evidence threshold as applied in ordinary civil cases is needed to substantiate a claim for tax refund proper. (Citations omitted) However, in a subsequent claim for tax refund or credit of input VAT filed by AT&T for the calendar year 2003, the same issue on the interchangeability of invoice and official receipt was raised. This time in AT&T Communications Services Philippines, Inc. v. Commissioner of Internal Revenue , 44 this Court held that there was a clear delineation between official receipts and invoices and that these two (2) documents could not be used interchangeably . According to this Court, Section 113 on invoicing requirements must be read in conjunction with Sections 106 and 108, which specifically delineates sales invoices for sales of goods and official receipts for sales of services. xxx xxx xxx This Court reiterates that to claim a refund of unutilized or excess input VAT, purchase of goods or properties must be supported by VAT invoices, while purchase of services must be supported by VAT official receipts . xxx xxx xxx Our VAT system is invoiced-based, i.e. , taxation relies on sales invoices or official receipts. x x x. xxx xxx xxx Strict compliance with substantiation and invoicing requirements is necessary considering VAT's nature and VAT system's tax credit method, where tax payments are based on output and input taxes and where the seller's output tax becomes the buyer's input tax that is available as tax credit or refund in the same transaction. It ensures the proper collection of taxes at all stages of distribution, facilitates computation of tax credits, and provides accurate audit trail or evidence for BIR monitoring purposes . AHDacC The Court of Tax Appeals further pointed out that the non-interchangeability between VAT official receipts and VAT invoices avoids having the government refund a tax that was not even paid. It should be noted that the seller will only become liable to pay the output VAT upon receipt of payment from the purchaser. If we are to use sales invoice in the sale of services, an absurd situation will arise when the purchaser of the service can claim tax credit representing input VAT even before there is payment of the output VAT by the seller on the sale pertaining to the same transaction. As a matter of fact[,] if the seller is not paid on the transaction, the seller of service would legally not have to pay output tax while the purchaser may legally claim input tax credit thereon. The government ends up refunding a tax which has not been paid at all. Hence, to avoid this, VAT official receipt for the sale of services is an absolute requirement. In conjunction with this rule, Revenue Memorandum Circular 42-03 expressly provides that an 'invoice is the supporting document for the claim of input tax on purchase of goods whereas official receipt is the supporting document for the claim of input tax on purchase of services .' It further states that a taxpayer's failure to comply with the invoicing requirements will result to the disallowance of the claim for input tax . Pertinent portions of this circular provide: A-13: Failure by the supplier to comply with the invoicing requirements on the documents supporting the sale of goods and services will result to the disallowance of the claim for input tax by the purchaser-claimant . If the claim for refund/[tax credit certificate] is based on the existence of zero-rated sales by the taxpayer but it fails to comply with the invoicing requirements in the issuance of sales invoices ( e.g. , failure to indicate the TIN), its claim for tax credit/refund of VAT on its purchases shall be denied considering that the invoice it is issuing to its customers does not depict its being a VAT-registered taxpayer whose sales are classified as zero-rated sales. Nonetheless, this treatment is without prejudice to the right of the taxpayer to charge the input taxes to the appropriate expense account or asset account subject to depreciation, whichever is applicable. Moreover, the case shall be referred by the processing office to the concerned BIR office for verification of other tax liabilities of the taxpayer. Pursuant to Sections 106(D) and 108(C) in relation to Section 110 of the 1997 NIRC, the output or input tax on the sale or purchase of goods is determined by the total amount indicated in the VAT invoice, while the output or input tax on the sale or purchase of services is determined by the total amount indicated in the VAT official receipt. Thus, the Court of Tax Appeals properly disallowed the input VAT of P258,874.55 for Team Energy's failure to comply with the invoicing requirements ." (Emphases and underscoring supplied) Based on the foregoing jurisprudential pronouncements, it is clear that the office of a VAT invoice is separate and distinct from a VAT official receipt or vice versa; that in a claim for refund of unutilized or excess input VAT, purchases of goods or properties must be supported by VAT invoices , while purchases of services must be supported by VAT ORs; that VAT invoices and VAT ORs are not interchangeable; and that failure to comply with the invoicing requirements will result to the disallowance of the claim for input VAT. IDSEAH Since M2GP failed to show that the subject VAT ORs are compliant with the invoicing requirements established by law, it cannot validly argue that the Court in Division should look into the sales invoices or other documents instead. To stress, purchases of services must be supported by VAT ORs. In sum, We do not find any reversible error committed by the Court in Division, when it disallowed the items which were not compliant with the invoicing and substantiation requirements under the law, as above shown. As a corollary, the Court in Division correctly ruled that M2GP is entitled only to the reduced amount of P220,700.89, representing unutilized input VAT paid on its domestic purchases of goods and services attributable to zero-rated sales for TY 2008. Tax refunds, in relation to VAT, are construed in strictissimi juris against the taxpayer. The principle of solutio indebiti is not applicable to claims for refund or tax credit certificate for input VAT. M2GP further contends that technicalities and legalisms should not be misused by the government to keep money not belonging to it when it is clear that substantial justice and fair play are on its side; that Government is not exempt from the application of solutio indebiti ; that the doctrine of strictissimi juris should be relaxed in the present case where M2GP has clearly and sufficiently established its claim by competent preponderance of evidence. We find the foregoing arguments untenable. Although it is true that this Court is not strictly governed by technical rules of evidence, the invoicing and substantiation requirements must, nevertheless, be followed because it is the only way to determine the veracity of the taxpayer's claims. 45 A claim for tax refund is a statutory privilege and the mere existence of unutilized input VAT does not entitle the taxpayer, as a matter of right, to it. As such, the rules and procedure in claiming a tax refund should be faithfully complied with. Non-compliance with the pertinent laws should render any judicial claim fatally defective . 46 Furthermore, the principle of solutio indebiti is not applicable to the instant case. In CBK Power Company Limited vs. Commissioner of Internal Revenue , 47 the Supreme Court held: "Also devoid of merit is the applicability of the principle of solutio indebiti to the present case. According to this principle, if something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. In that situation, a creditor-debtor relationship is created under a quasi-contract, whereby the payor becomes the creditor who then has the right to demand the return of payment made by mistake, and the person who has no right to receive the payment becomes obligated to return it. The quasi-contract of solutio indebiti is based on the ancient principle that no one shall enrich oneself unjustly at the expense of another. aCIHcD There is solutio indebiti when: (1) Payment is made when there exist no binding relation between the payor, who has no duty to pay, and the person who received the payment; and (2) Payment is made through mistake, and not through liberality or some other cause. Though the principle of solutio indebiti may be applicable to some instances of claims a refund, the elements thereof are wanting in this case. First , there exists a binding relation between petitioner and the CIR , the former being a taxpayer obligated to pay VAT. Second , the payment of input tax was not made through mistake, since petitioner was legally obligated to pay for that liability . The entitlement to a refund or credit of excess input tax is solely based on the distinctive nature of the VAT system. At the time of payment of the input VAT, the amount paid was correct and proper. Finally, equity, which has been aptly described as 'a justice outside legality,' is applied only in the absence of, and never against, statutory law or judicial rules of procedure . x x x." (Emphases supplied) All the foregoing circumstances are present in the instant case. First , there exists a binding relation between M2GP, as a taxpayer obligated to pay VAT, and the CIR. Second , in view of M2GP's obligation to pay the said tax, the payment of input VAT was not made through mistake. And lastly , Section 113 (B) (2) (a) and (4) of the NIRC of 1997, as amended by RA No. 9337, is a positive rule that should preempt and prevail over all abstract arguments based only on equity. Lastly, actions for tax refund or credit, as in the instant case, are in the nature of a claim for exemption and the law is not only construed in strictissimi juris against the taxpayer, but also the pieces of evidence presented entitling a taxpayer to an exemption is strictissimi scrutinized and must be duly proven. The burden is on the taxpayer to show that he has strictly complied with the conditions for the grant of the tax refund or credit . Since taxes are the lifeblood of the government, tax laws must be faithfully and strictly implemented as they are not intended to be liberally construed. 48 Simply put, statutes that grant tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Tax refunds in relation to the VAT are in the nature of such exemptions . 49 In other words, a claim for unutilized input VAT is in the nature of a tax exemption . Thus, strict adherence to the conditions prescribed by the law is required of the taxpayer. 50 In view of the failure of M2GP to prove its entitlement to the grant of tax refund or issuance of tax credit of input VAT in the amount of P5,928,555.36, the Court in Division was correct in partially granting its Petitions for Review in the reduced amount of P220,700.89. WHEREFORE , in light of the foregoing considerations, the consolidated Petitions for Review in CTA EB 1777 and 1779 are DENIED for lack of merit. Accordingly, the assailed Decision dated August 9, 2017 and Resolution dated January 12, 2018, both rendered by the Court in Division in CTA Case Nos. 8082 and 8106 are AFFIRMED . cHaCAS SO ORDERED. (SGD.) ERLINDA P. UY Associate Justice Roman G. del Rosario, P.J., Juanito C. Castaeda, Jr., Esperanza R. Fabon-Victorino, Cielito N. Mindaro-Grulla, Ma. Belen M. Ringpis-Liban and Catherine T. Manahan, JJ. , concur. Jean Marie A. Bacorro-Villena and Maria Rowena Modesto-San Pedro, JJ. , took no part. Footnotes 1. EB Docket (CTA EB No. 1777), pp. 1 to 12. 2. EB Docket (CTA EB No. 1779), pp. 54 to 114. 3. EB Docket (CTA EB No. 1777), pp. 13 to 41; EB Docket (CTA EB No. 1779), pp. 117 to 145. 4. EB Docket (CTA EB No. 1777), pp. 42 to 55; EB Docket (CTA EB No. 1779), pp. 147 to 160. 5. EB Docket (CTA EB No. 1777), pp. 13 to 41; EB Docket (CTA EB No. 1779), pp. 117 to 145; and Division Docket (CTA Case No. 8082) Vol. IV, pp. 1690 to 1718. 6. Division Docket (CTA Case No. 8082) Vol. IV, pp. 1719 to 1724. 7. Division Docket (CTA Case No. 8082) Vol. IV, pp. 1728 to 1765. 8. EB Docket (CTA EB No. 1777), pp. 42 to 55; EB Docket (CTA EB No. 1779), pp. 147 to 160; and Division Docket (CTA Case No. 8082) Vol. IV, pp. 1803 to 1816. 9. EB Docket (CTA EB No. 1779), pp. 1 to 5. 10. Minute Resolution dated February 6, 2018, EB Docket (CTA EB No. 1779), p. 53. 11. Resolution dated February 14, 2018, EB Docket (CTA EB No. 1777), pp. 60 to 61. 12. EB Docket (CTA EB No. 1777), pp. 63 to 66. 13. Minute Resolution dated March 23, 2018, EB Docket (CTA EB No. 1777), p. 67. 14. EB Docket (CTA EB No. 1777), pp. 72 to 81. 15. EB Docket (CTA EB No. 1779), pp. 54 to 111. (February 17, 2018 falls on a Saturday). 16. Minute Resolution dated February 21, 2018, EB Docket (CTA EB No. 1777), p. 62. 17. EB Docket (CTA EB No. 1777), pp. 69 to 71. 18. EB Docket (CTA EB No. 1777), pp. 83 to 86. 19. EB Docket (CTA EB No. 1777), pp. 89 to 90. 20. EB Docket (CTA EB No. 1777), pp. 91 to 100. 21. EB Docket (CTA EB No. 1777), pp. 102 to 160. 22. EB Docket (CTA EB No. 1777), pp. 230 to 231. 23. EB Docket (CTA EB No. 1777), pp. 3 and 93. 24. EB Docket (CTA EB No. 1779), p. 61. Refer also to EB Docket (CTA EB No. 1777), p. 109. 25. Referring to Section 110 (A) (1) (a) of the NIRC of 1997, as amended. 26. EB Docket (CTA EB No. 1777), pp. 5 and 6. 27. G.R. No. 159471, January 26, 2011. 28. G.R. Nos. 141104 & 148763, June 8, 2007. 29. AN ACT AMENDING SECTIONS 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237 AND 288 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSES. 30. The Commissioner of Internal Revenue vs. The Commission on Audit, etseq. , G.R. Nos. 101976 and 102258, January 29, 1993. 31. Republic of the Philippines, represented by the Commissioner of Internal Revenue v. Team (Phils.) Energy Corporation (formerly Mirant (Phils.) Energy Corporation) , G.R. No. 188016, January 14, 2015 citing Sea-Land Service, Inc. v. Court of Appeals , G.R. No. 122605, April 30, 2001, 357 SCRA 441, 445-446. Refer also to Rhombus Energy, Inc. vs. Commissioner of Internal Revenue , G.R. No. 206362, August 1, 2018. 32. SUBJECT: Value-Added Tax. 33. SUBJECT: Regulations Governing the Application of Zero-Rate, Exemption on Certain Transactions Related to Exporters, and Refunds of Input Taxes. 34. AN ACT AMENDING SECTIONS 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237 AND 288 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSES. 35. Consolidated Value-Added Tax Regulations of 2005. 36. Microsoft Philippines, Inc. vs. Commissioner of Internal Revenue , G.R. No. 180173, April 6, 2011. 37. Eastern Telecommunications Philippines, Inc. vs. Commissioner of Internal Revenue , G.R. No. 183531, March 25, 2015. 38. Kepco Philippines Corporation vs. Commissioner of Internal Revenue , G.R. No. 179961, January 31, 2011. 39. Sitel Philippines Corporation (Formerly Clientlogic Phils., Inc.) vs. Commissioner of Internal Revenue , G.R. No. 201326, February 8, 2017, citing Western Mindanao Power Corp. vs. Commissioner of Internal Revenue , 687 Phil. 328 (2012). 40. UCPB General Insurance Company, Inc. vs. Hughes Electronics Corporation , G.R. No. 190385, November 16, 2016. 41. Nippon Express (Philippines) Corporation vs. Commissioner of Internal Revenue , G.R. No. 191495, July 23, 2018. 42. G.R. Nos. 197663 and 197770, March 14, 2018. 43. 640 Phil. 613 (2010) [Per J. Carpio Morales, Third Division]. 44. 747 Phil. 337 (2014) [Per J. Perez, First Division]. See also KEPCO Philippines Corporation v. CIR , G.R. No. 181858, 24 November 2010, 636 SCRA 166 [Per J. Mendoza, Second Division] cited in Northern Mindanao Power Corp. v. Commissioner of Internal Revenue , G.R. No. 185115, February 18, 2015 [Per C.J. Sereno, First Division]. 45. Kepco Philippines Corporation vs. Commissioner of Internal Revenue , G.R. No. 181858, November 24, 2010. 46. Team Sual Corporation (Formerly Mirant Sual Corporation) vs. Commissioner of Internal Revenue , G.R. Nos. 201225-26, 201132, and 201133, April 18, 2018. 47. G.R. Nos. 198729-30, January 15, 2014. 48. Coca-Cola Bottlers Philippines, Inc. vs. Commissioner of Internal Revenue , G.R. No. 222428, February 19, 2018. 49. Panasonic Communications Imaging Corp. of the Philippines vs. Commissioner of Internal Revenue , G.R. No. 178090, February 8, 2010. 50. Steag State Power, Inc. (Formerly State Power Development Corporation) vs. Commissioner of Internal Revenue , G.R. No. 205282, January 14, 2019.