Commissioner of Internal Revenue v. Hopewell Power (Phils.) Corp.

EIGHTH DIVISION [CA-G.R. SP. NO. 51617. March 17, 2000.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . HOPEWELL POWER (PHILS.) CORPORATION , respondent . D E C I S I O N GUERRERO , J p : In this petition for review, sought to be reversed and set aside are the decision 1 of the Court of Tax Appeals dated 04 January 1999 and its resolution 2 dated 15 February 1999 ordering the refund or, in the alternative, the issuance of a tax credit certificate in favor of respondent in the amount P202,431,393.89 representing the input tax payments on capital goods purchased for the period April 1,1994 to September 30,1995. As required, private respondent filed its comment dated 12 August 1999. Earlier, pursuant to our resolution promulgated on 15 April 1999, the Office of the Solicitor General submitted a comment stating that under present laws, "representation of tax cases before this Honorable Court (CA) and the Supreme Court, for that matter, now evolve on the legal officers of the BIR." Thus, the present petition was filed by the Litigation and Prosecution Division, BIR, NOB, Diliman, Quezon City. The antecedent facts are not disputed, viz : Hopewell Power (Phils.) Corporation (Hopewell, for brevity) is a domestic corporation under the Philippine laws and engaged in the business of power generation and subsequent sale thereof. A VAT registered entity with the Bureau of Internal Revenue, it is a holder of VAT Registration Certificate No. 330-001-726-870-V dated 16 July 1992. llcd From 01 April 1994 to 30 September 1995, Hopewell paid input VAT on capital goods in the total amount of P202,536,046.26 as reflected in the following quarterly VAT returns. "Period Covered Amount Exh. 04-01-94 to 06-30-94 P103,580,276.96 E 07-01-94 to 09-30-94 1,089,286.81 G 10-01-94 to 12-31-94 41,881,463.28 I 01-01-95 to 03-31-95 46,575,122.82 K 04-01-95 to 06-30-95 9,291,832.01 M 07-01-95 to 09-30-95 118,064.38 N P202,536,046.26" 3 ============= On 12 January 1996, Hopewell filed an application for tax credit/refund of VAT, paid on capital goods with BIR Revenue District Office No. 51, invoking Section 106(5) of the Tax Code as amended by Republic Act No. 7716. To stop the running of the two-year prescriptive period for refund under said Tax Code, petitioner on 26 June 1996, filed the instant petition for review. llcd In its answer, respondent Commissioner of Internal Revenue (BIR for short) interposed the following special and affirmative defenses: "5. Petitioner's claim for the issuance of a VAT Tax Credit Certificate is premature as the same is still undergoing administrative routinary examination by respondent's Bureau. 6. The alleged creditable input taxes were collected and paid pursuant to law and pertinent BIR implementing rules and regulations, hence, the same are neither refundable nor may they be claimed as tax credit. Petitioner must prove that the said input taxes were actually paid, remitted and received by respondent's Bureau and that the same were paid on capital goods purchased and have not been applied against output taxes; prcd 7. Petitioner failed to substantiate by proper documents that it is entitled to refund or the issuance of a tax credit certificate for the amount of P202,536,046.26; 8. Claims for tax refund or tax credit are construed strictly against the claimant as they partake of the nature of a tax exemption. It is therefore incumbent upon the petitioner to prove that it is entitled to such exemption under the law, and failure to do the same is fatal to its claim for tax refund or tax credit; 9. Petitioner likewise failed to show that it had strictly complied with the provisions of Section 204 of the Tax Code in relation to Section 230 thereof with respect to the herein amount being claimed as Tax Credit." 4 In due course, a decision was rendered on 04 January 1999 which was sought to be reconsidered but said motion was denied per order dated 15 February 1999, as earlier mentioned. Hence, the instant petition for review foisting as the sole issue "WHETHER OR NOT PETITIONER IS ENTITLED TO THE REFUND OF THE ALLEGED UNUTILIZED INPUT VALUE-ADDED TAXES IT ALLEGEDLY PAID ON CAPITAL GOODS FOR THE PERIOD COVERING APRIL 1, 1994 TO SEPTEMBER 30,1995." 5 Petitioner contends that the taxes for which respondent seeks refund are not creditable input taxes under Section 104(a) of the Tax Code as amended by Republic Act No. 7716. What the law contemplates as creditable input taxes are only those paid on purchases of goods and services specifically enumerated under Section 104(a)(1)(2), and that such input tax must have been paid by a VAT registered person/entity in the course of trade or business. The receipts and invoices submitted by respondent to substantiate its claim for refund show that the items purchased have no connection or relation at all to respondent's business of power generation. Further, the purchase of goods and services which respondent made are not among the creditable input taxes under Section 104(a) (1) and (2) of the Tax Code as amended by R.A. 7716. Section 104 (a) of the Tax Code does not mention of capital goods per se but rather goods purchased or imported by the VAT registered person for sale or for conversion into a finished product, or for use in the course of business, or for use of materials supplied in the course of business, in the sale of service, or for use in trade or business for which deduction for depreciation or amortization is allowed. The aforementioned enumeration reflects different classification of capital goods which when purchased by a VAT registered person may result in creditable input taxes. LibLex The purchases made by respondent as shown by its invoices and receipts presented, however, are not purchases of capital goods and do not fall under the enumeration in Section 104(a)(1) of the Tax Code, as amended by Rep. Act No. 7716. The goods have no relation to Hopewell's business of power generation and sale. Section 106 (b) of the Tax Code cannot likewise be invoked for said Section merely provides the manner in which refunds or tax credits of creditable input tax may be claimed. Section 4,106-1 (b) of Revenue Regulations No. 7-95 entitled Consolidated Value Added Tax Exemptions dated December 9, 1995 defines the term capital goods in this manner: " Capital Goods Only VAT- registered person may apply for issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locally purchased. The refund shall be allowed to that extent that such input taxes have not been applied against output taxes. The application should be made within two(2) years after the close of the taxable quarter when the importation or purchased was made. LexLib Refund of input taxes on capital goods shall be allowed only to the extent that such capital goods are used in VAT taxable business. If it is also used in exempt operations, the input tax refundable shall only be the ratable portion corresponding to the taxable operations. LibLex Capital goods or properties refer to goods or properties with estimated useful life greater than one year and which treated as depreciable assets under Section 29(1), used directly or indirectly in the production or sale of taxable goods or services." 6 The invoices submitted by the respondent to the tax court and the BIR covered capital goods from which input taxes cannot be attributable. The fact that the capital goods include goods or properties used indirectly in the production or sale of taxable goods or services does not make the purchases within the coverage of refundable or creditable VAT input taxes. Hopewell's purchases must at least have some semblance or connection to the production of its power and its sale. Indeed, the second paragraph of section 4, 106-1(b), aforequoted, states that refund of input taxes paid shall be allowed only to the extent that such capital goods are used in VAT taxable business. The voluminous invoices and receipts submitted by Hopewell to the tax court show that the payor in the majority of said invoices is either Hopewell Tileman Corporation or Slipform Projects (Phils.), and not respondent Hopewell Power (Phils.) Corporation. This only indicates that Hopewell is claiming for refund of input VAT paid on purchases of goods by other entities, in total disregard of the principle of honesty and good faith. In short, respondent has failed to show beyond doubt that it is entitled to the refund it is claiming. cdlex The petition is not well taken. From the evidence on record, the goods purchased on which input VAT was paid were necessary for Hopewell's business of power establishment and generation. They are within the scope and meaning of Revenue Regulations No. 7-95 the Consolidated Value Added Tax Regulations under the term "goods or properties with estimated useful life greater than one year and which are treated as depreciable assets under Section 29(f), used directly or indirectly in the production or sale of taxable goods and services" (Section 4, 106-1 (b). As reflected in Hopewell's Exhibit "AE," Annex C of its comment, the payments are for materials needed for the construction of its power plant. The payees are engineering companies, hardware companies construction companies such as BHP Engineering, Inc., Genesis Computer System, Mobil Philippines, Inc., Clover Motor Supply etc. Hopewell's invoice-exhibits yield that the expenditure are for the construction of its power plant such as the Pagbilao 700 MW power plant. Hopewell's comment identified the exhibits as Exhibits X-1 to X-30; Y-1 to Y-129; Z-1 to Z-169; AA-1 to AA-178; AB-1 to AB-89 and AC-1 to AC-115. Significantly, petitioner has not confuted Hopewell's positive assertion by contrary compelling evidence. A reading of the petition itself attests to this fact. prcd To be sure, the Court of Tax Appeals was gingerly prudent and judicious in its assessment of evidence. Some of Hopewell's receipts and invoices were disallowed as they " are not material to the construction of power facilities." The CTA decision listed them as follows: "Name of Supplier Exh. Input Tax Remarks Avis International, Inc. X-1 P 32.27 Supplies Datacom System Corp. X-10 904.55 Toner NS Ocana X-21 29.09 Xerox Printwheel Enterprises X-23 263.64 Letterhead AVIS International, Inc. Y-17 32.27 Supplies DHL Worldwide Express Y-37 339.15 Postage DHL Worldwide Express Y-38 229.95 Postage Georkimart Y-44 27.29 Biscuits Kamera World Photo Lab, Inc. Y-51 16.00 Film Developing Tong's Enterprises Y-115 132.73 Film Developing Vibal Social Prints Y-127 198.18 Call card Abenson, Inc. Z-1 2,966.91 Coleman Accurate Printing Inc. Z-5 190.91 Document Envelops American Packing Industries 4,192.09 No Supporting Documents Andrew Commercial 2.73 No Supporting Documents Asian Alliance Enterprise 45.00 No Supporting Document Avesco Marketing Corporation 968.91 No Supporting Documents Bearing Center & Machinery 88.00 No Supporting Documents Dataman Systems Corporation Z-36 63.82 Supplies DHL Worldwide Express Z-40 292.60 Postage Floro Blue Printing Z-43 488.17 Xerox National Book Store, Inc. Z-97 5.89 Supplies O'neals by Edna 768.18 No Supporting Document Perco Enterprises 250.00 No Supporting Documents Printwheel Enterprises 181.82 No Supporting Document Ressein Commercial 271.18 No Supporting Documents Rey Lapiz 1,054.54 No Supporting Documents Vineza Industrial Sales 283.91 No Supporting Document Zenith Wire & Conduit 29.09 No Supporting Documents Abenson Inc. AA-1 1,513.64 Colored TV & VHS Consolidated Paper Products AA-15 704.55 Payslip with envelope Dataman Systems Corporation AA-17 388.64 Plastic dividers legal DHL Worldwide Express AA-19 20.82 Postage DHL Worldwide Express AA-20 125.40 Postage E-Plus Stationery, Inc. AA-21 93.27 Copy paper E-Plus Stationery, Inc. AA-22 25.45 Disk cleaner Executive Computer System AA-28 127.27 Floppy disk drive Floro Blue Printing AA-32 1,496.73 Xerox Kamera World Photo Lab, Inc. AA-61 55.57 Film developing Mega Photo A-86 18.82 Film Photoline Enterprises Corp. AA-129 137.27 Xerox Print Wheel Enterprises AA-130 118.18 Calling Card P.P. Gochenco & Co., Inc. AA-132 390.91 Table tennis w/ racket The Landmark AA-164 107.98 Groceries Asian Alliance Enterprise AB-1 3.18 Scissors Contrade Enterprises Inc. AB-16 40.18 Puncher, stapler & cutter Delta Diesel Parts 136.36 No Supporting Documents Executive Computer Systems AB-22 106.82 Computer Supply Kameraworld Photo Lab. Inc. AB-38 13.51 Film Developing Kameraworld Photo Lab. Inc. AB-39 27-57 Film Developing Print wheel Enterprises AB-67 363.64 Check voucher Severo Sy Ling, Inc. AB-70 45.00 Supplies Sunlife Bookstore 66.18 No Supporting Documents Uptown Industrial Sales, Inc. 11.45 No Supporting Document Uptown Industrial Sales, Inc. 29.32 No Supporting Document Abenson, Inc. AC-1 104-10 Rice cooker Easycall Communication Phils. AC-21 50-91 Pager Subscription Executive Computer Systems AC-23 454.55 Computer Supply Gem Stationery Inc. AC-30 71-36 Puncher, stapler, etc. Harson Electronic Parts AC-32 25.45 Adaptor HJ Franklin, Inc. AC-34 70-91 Supplies Perco Printing Press AC-86 61.36 Supplies HJ Franklin Inc. AC-35 70.91 Supplies TOTAL P24,465.68 7 Arriving at its finding that Hopewell is entitled to a refund or tax credit of the input VAT, it held: "The records show that petitioner expended for engineering and structural services for the purpose of constructing power plant facilities needed in the production of electricity, which is petitioner's main product. We are therefore convinced that said expenses are necessary and should form part of the cost of the power plant facilities. " 8 Factual findings of the Court of Tax Appeals, when supported by substantial evidence, will not be disturbed on appeal unless it is shown that the court committed gross errors in the appreciation of facts. 9 The required quantum of proof exists and no like error was made by the Court of Tax Appeals. WHEREFORE, the petition is hereby DISMISSED. SO ORDERED. Aquino and Gozo-Dadole, JJ ., concur. Footnotes 1. Rollo , p. 24. 2. Ibid ., p. 36. 3. Rollo , p. 25. 4. Rollo , pp. 66-67. 5. Rollo , p. 11. 6. Rollo , p. 16. 7. Rollo , pp. 33-34. 8. Rollo , p. 31. 9. Commissioner of Internal Revenue vs. Court of Appeals , 298 SCRA 83.