Philippine Geothermal, Inc. v. Commissioner of Internal Revenue

EIGHTH DIVISION [CA-G.R. SP No. 54730. September 14, 2001.] PHILIPPINE GEOTHERMAL, INC. , petitioner , vs . THE COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N BELLO , E.R., JR. , J p : Petition for Review under Rule 43 of the 1997 Rules of Civil Procedure, assailing the decision of the Court of Tax Appeals dated April 21, 1999 and its Resolution dated August 23, 1999 both in C.T.A. Case No. 5541. The undisputed factual backdrop of the case as found by the court a quo are as follows: "Petitioner is a resident foreign corporation licensed by the Securities and Exchange Commission (SEC) to engage in the exploration, development, and exploitation of geothermal energy and resources in the Philippines (Exhibit A). In September, 1971, it entered into a service contract with the National Power Corporation (NPC) for the supply of steam which the latter will use in the production of electricity (Exhibit AA). For the period September 1995 to February 1996, Petitioner billed NPC the 10% VAT on its supply of steam which was not paid by NPC but was allegedly remitted by Petitioner to the BIR amounting to P39,328,775.41, detailed as follows Exhibits Period covered Date of Payment VAT Paid C 7/95-9/95 10/18/95 P8,977,117.26 H 10/95-12/95 1/18/96 11,248,194.31 M 11/95 12/13/95 8,243,090.27 S 1/96 2/19/96 5,213,400.45 W 2/96 3/18/96 5,646,973.12 Total 39,328,775.41 Citing Section 103, in relation to Section 99 of the National Internal Revenue Code, to wit: 'Section 103. Exempt transactions The following shall be exempt from the value-added tax: xxx xxx xxx (q) Transactions which are exempt under special laws, except those granted under Presidential Decree Nos. 66, 529, 972, 1491 and 1590, and non-electric cooperatives under Republic Act No. 6938, . . .' Petitioner filed an administrative claim for refund with the Bureau of Internal Revenue on July 10, 1996 (Exhibit R). According to Petitioner, the NPC, by virtue of Fiscal Incentives Review Board (FIRB) Resolution 17-87 which was approved by President Aquino pursuant to Executive Order No. 93, is one of those entities expressly exempted from VAT. As there was no action on the part of herein Respondent, Petitioner filed the instant Petition on July 2, 1997 in order to toll the running of the two-year prescriptive period. Respondent, in his Answer, claimed by way of Special and Affirmative Defenses that: SPECIAL AND AFFIRMATIVE DEFENSES 4. The claim of petitioner Philippine Geothermal Incorporated (PGI for short) for Value-Added Tax refund has no legal basis. 5. Petitioner PGI contends that its supply of steam to the National Power Corporation (NPC) is exempt from Value-Added Tax. Allegedly, it is entitled to a refund on its purported erroneous payments of Value-Added Tax for the period from September 1995 to February 1996 in the total amount of P39,328,775.41. 6. Fiscal Incentives Review Board (FIRB) Resolution 17-87 specifically restored the tax and duty exemption privileges of the NPC, including those pertaining to its domestic purchases of petroleum and petroleum products granted under the terms and conditions of Commonwealth Act 120 as amended, effective March 10, 1987. However, the restoration of the tax and duty exemption privileges does not apply to importations of fuel oil (crude equivalents) and coal, commercially-funded importations (i.e. importations which include but are not limited to those foreign-based private financial institutions, etc.) and interest income derived from any source. Such exemption also does not include purchases of goods and services. Hence, any contracting services of NPC is not qualified for zero-rated VAT (VAT Ruling 250-89, October, 1989). 7. It is clear from aforecited FIRB resolution that the tax exemption privilege granted to NPC does not include purchases of goods and services, such as the supply of steam to NPC. 8. Further, as held by the Honorable Supreme Court in the case of Philippine Acetylene Co. v. CIR, 20 SCRA 1056 (1967), the sales tax must be paid by the manufacturer or producer even if the sale is made to tax-exempt entities like the NPC, and agency of the Philippine Government and to the Voice of America an agency of the US Government. 9. The decision of the Honorable Supreme Court in the case of Maceda v. Macaraig, 223 SCRA 217 [1993] which states that the NPC is exempt from all taxes duties, fees, imposts, charges and restrictions of the Republic of the Philippines and its provinces, cities and municipalities, is not applicable to this instant petition. What is being exempted in said decision is NPC per se and such exemption is not extended to the supplier or contractor such as the petitioner in the case at bar. 10. The subject taxes have been paid and collected in accordance with law and regulation. 11. In a claim for refund, it is incumbent upon petitioner to show that it is indubitably entitled thereto. Petitioner's failure to establish the same is fatal to its claim for refund. 12. The present case is no exception to the basic that claims for refund are construed strictly against claimant for the same partake of the nature of exemption from taxation. (CIR vs. Ledesma, G.R. No. L-17509, 31 SCRA 95, January 30, 1970)." ( Rollo, pp. 71-74 ) On April 21, 1999, the court a quo rendered the assailed decision, the dispositive portion of which, thus provides: "WHEREFORE, in the light of the foregoing, RESPONDENT is hereby ORDERED to REFUND or in the alternative, ISSUE A TAX CREDIT CERTIFICATE to PETITIONER the sum of P9,012,310.26 representing erroneously paid value-added tax. SO ORDERED." ( Rollo, p. 78 ) In arriving at the aforesaid ruling, the court a quo ratiocinated as follows: "We proceed to the amount to which Petitioner is entitled to refund on the basis of the evidence presented. Petitioner alleges that for the period covering September 1995 to February 1996, Petitioner billed NPC the 10% VAT on its supply of steam but the latter did not pay and so Petitioner was obligated to pay the same in order to avoid any potential deficiency tax assessments in the future. However, a thorough examination of the evidence submitted by Petitioner revealed that out of the P39,328,775.41 being claims by Petitioner as having advanced by it only P9,012,310.11 or that portion pertaining to output tax paid during the month of September plus the interest on late payment on peso cash call (Exhibit Q, Q-1, Q-2 and Q-4) were not paid by NPC. As to the rest of Petitioner's claim, it appears that the official receipts issued by petitioner to NPC included the VAT payable shown in the Summary of Payments Received from NPC for each production period, thus: Particulars Exhibits Official Gross Amount Output Tax Amount Paid Receipts November 95-09-SF P, P-1 6350 80,413,807.10 8,041,380.71 95-06 SF-A MPA N 6351 1,158,924.95 115,892.50 95-07 SF-A MPA O, O-1 6351 506,242.13 50,624.21 8,243,090.27 December 95-10 SF K, K-1 6352 62,073,641.54 6,207,364.15 95-09 SF-FX J, J-1 6353 24,952.17 2,495.22 95-11 SF L, L-1 6354 45,890,798.43 4,589,079.84 95-08 to 95-10SF I, I-1 6355 4,492,551.03 449,255.10 (Plant D) 11,248,194.31 January 1996 95-08 SF-A MPA T, I-1 6356 21,135.48 2,113.55 95-09 SF-A MPA U, T-1 5356 160,493.29 16,049.33 95-12 SF V, V-1 6357 51,952,375.66 5,195,237,57 5,213,400.45 February 1996 95-10 SF-A SF 6358 (16,611.19) (1,661.12) 96-01 SF X, X-1 6358 56,486,342.41 5,648,634.24 5,646,973.12 From the above, therefore, We may infer that it was not Petitioner who shouldered the VAT but NPC and so Petitioner may claim a refund only for P9,012,310.11 as there was no showing of payment made by NPC of said amount." ( Rollo, pp. 77-78 ) On May 7, 1999, petitioner filed its Motion for Reconsideration thereon praying that its entire claim for refund amounting to P39,328,775.41 representing erroneously paid VAT for the period covering September 1995 to February 1996 be granted. Said Motion for reconsideration was also denied in another assailed Resolution dated August 23, 1999, thus: "Petitioner points out in its Motion for Reconsideration that this Court erred in concluding that it was NPC who paid the VAT for the period covered by the claim for refund. This erroneous conclusion, as explained by the Petitioner, was the result of this Court's reliance on the data appearing in the official receipts issued by Petitioner to NPC and the Summary of Payments for each production period. Petitioner insists that a more accurate conclusion can be reached if the Court's attention would focus on three documents consisting of the Statement of Account, Summary of Payment and Official Receipt which would eventually reveal that it was PGI (petitioner in the instant case) who alone paid the 10% VAT without any reimbursement from NPC. In order to resolve the issue confronting this Court, We acceded to the request of Petitioner and re-evaluated the date appearing in the three documents aforementioned, all pertaining to the different periods involved in the present controversy. We began with a cursory comparison of these three documents representing a particular period and found that the data contained therein readily show that the Statement of Account (representing the actual billings of petitioner NPC) included the 10% VAT but the Summary of Payment (representing what petitioner alleges to be the actual payment received from NPC) does not include the VAT suggesting that it was petitioner who alone paid the VAT. An example would be Exhibit 'P' and 'P-2' which show the following data, to wit: Statement of Account (Exhibit 'P') Total Service Fee $3,403,169.74 Add: 10% VAT 340,316.97 Service Fee + VAT due Petitioner (PGI) $3,743,486.70 =========== Statement of Payment (Exhibit 'P-2') Service Fees Received from NPC $3,402,122.61 Add: VAT 0.00 Total Payment Received by PGI $3,402,122.61 Less: VAT remitted by PGI 309,283.87 Net Service Fees Received by PGI $3,092.838.74 =========== This court observed however, that there were discrepancies in the data appearing in the documents pertaining to all of the production periods involved which prevent this Court from ruling in favor of petitioner. First, this Court noted that the actual fees received from NPC (per Summary of Payments) found in Exhibits L, V, and X are for services for Tiwi Units 1 to 6 and Bulalo Units 1 to 8 but the billings made by petitioner (per Statement of Account) found in Exhibits L-2, V-2 and X-2 pertain only to service fees for Tiwi Units 1 to 6 and Bulalo Units 1 to 6, therefore any comparison made by petitioner between data appearing in the Summary of Payment and Statement of Account will result in inaccuracies. Second, it is evident from an overall evaluation of the Statements of Account and Summary of Payment referring to the production periods included in Exhibits O, J, I, T, V and Y that there are large discrepancies in the amounts mentioned therein which is probably the reason why petitioner chose not to delve on these production periods in its Motion for Reconsideration. Furthermore, petitioner failed to present any witness or evidence from the NPC itself to confirm its alleged non-payment of the VAT. What is more evident and significant is that the amounts appearing in most of the Official Receipts issued by petitioner to NPC included the value-added taxes subject of the instant claim for refund, hence creating a cloud of doubt on the allegations made by petitioner in the petition as well as in its Motion for Reconsideration. In conclusion, We find no compelling reason to deviate from Our original stand that it was NPC who paid the VAT and not petitioner. WHEREFORE, in view of the foregoing, the instant Motion for Reconsideration filed by petitioner is hereby DENIED for lack of merit. SO ORDERED." ( Rollo, pp. 81-83 ) Hence, the filing of the instant petition for review with the following line assigned error: "ISSUE" The sole issue presented before this Honorable Court is: WHETHER OR NOT THE RESPONDENT COURT OF TAX APPEALS ERRED IN DENYING THE REFUND OR ERRONEOUS PAYMENT OF VALUE-ADDED TAX IN FAVOR OF THE PETITIONER IN THE ADDITIONAL AMOUNT OF THIRTY MILLION THREE HUNDRED SIXTEEN THOUSAND FOUR HUNDRED SIXTY FIVE PESOS AND FIFTEEN CENTAVOS (P30,316,465.15)." ( Rollo, p. 60 ) The main issue here is whether petitioner is entitled to an additional refund of Thirty Million Three Hundred Sixteen Thousand Four Hundred Sixty Five Pesos and Fifteen Centavos (Php 30,316,465.15) over and above the refund adjudged by the court a quo in the amount of Nine Million Twelve Thousand Three Hundred Ten and Twenty Six Centavos (Php 9,012,310.26) representing erroneously paid value added tax. The only question, therefore, is the computation of the tax refund. Petitioner contends that the amount to be refunded should be based on the Official Receipts, Summary of Payments and the Statement of Account in order to determine the rightful amount of erroneously paid value-added tax they made. Petitioner submits that based on the aforesaid documents, the National Power Corporation (NPC) did not pay the 10% VAT billed by them. As testified to by Patricia Cleofe, Manager of Accounting Division and Financial Department of herein petitioner, the flow of billings and collection between petitioner PGI and NPC are as follows: "1. PGI submits its Statement of Account to NPC on a monthly basis which summarizes the production output, calculation of unit price per kilowatt-hour, total service fees, 10% VAT, 1% withholding tax, and the net amount payable to PGI. 2. Payment is made by NPC 30 days after the submission of the Statement of Account. 3. Based on the payment remitted by NPC, PGI prepares the Summary of Payment and the official receipt." ( Rollo, p. 64 ) The initial billings submitted by petitioner to NPC as contained in the Statements of Account consisted of the service fees and the 10% VAT. That, however, the payments received by petitioner as outlined in the Summary of Payments (which is the basis for the issuance of the Official Receipts to NPC) was allegedly for service fees only. This amount (excluding the VAT billed by petitioner) was then multiplied by petitioner by 1/11 to arrive at the VAT payable and subsequently remitted the same to the BIR. Petitioner cited Exhibit "P-2" and "P" as an illustration, thus "Statement of Account (Exhibit P-2) Total service fee $3,403,169.74 Add: 10% VAT 340,316.97 Total Service Fee an VAT billed by PGI to NPC $3,743,486.71 Summary of Payment (Exhibit P) Payments made by NPC $3,402,122.61 Less: VAT paid by PGI 309,283.87 Net service fee received by PGI $3,092,838.74" ( Rollo, p. 65 ) As afore quoted, the initial billing statement submitted by petitioner to NPC demanded for the payment of $3,743,486.71 consisting of the service fees and 10% VAT, but what was allegedly actually paid by NPC was only $3,402,122.61 which is equal to the service fees minus the VAT. That based on the Summary of Payment and the Official Receipt issued to NPC, petitioner divided the payment it actually received from NPC into the 10% VAT and its net service fees computed as follows: "Payments made by NPC $3,402,122.61 Multiply by VAT payable by 1/11 309,283.87 Net service fee received by PGI $3,092,838.74" ( Rollo, p. 65 ) The VAT of $309,283.87 was allegedly reported by petitioner in its Monthly VAT Declaration in November 1995 and remitted to the BIR on December 13, 1995. Hence petitioner is arguing that it was them who shouldered the 10% VAT out of its own service fees. We are not convinced. Firstly, the Court of Tax Appeals is a highly specialized body specifically created for the purpose of reviewing tax cases and, through its expertise, it is undeniably competent to determine the proper computation of the amount of tax to be refunded to a concerned taxpayer through the evidence presented before it. Hence, because of this recognized expertise, the findings of the CTA will not ordinarily be reviewed absent a showing of gross error or abuse on its part. ( Philippine Refining Corporation vs. CA, 256 SCRA 667 ) Indeed, it is a basic rule in taxation that the factual findings of the CTA, when supported by substantial evidence, will not be disturbed on appeal unless it is shown that the said court committed gross error in the appreciation of facts. ( Commissioner of Internal Revenue vs. CA, 298 SCRA 83 ) In the present case, this Court finds that the challenged decision did not deviate from this rule. The Court of Tax Appeals extensively and thoroughly considered all the evidence at hand in arriving at the appealed decision and we did not see any compelling reason to overturn their findings. Secondly, since tax refunds are in the nature of tax exemptions, they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the person or entity claiming the exemption. In other words, the burden, of proof rests upon the taxpayer to establish by sufficient and competent evidence its entitlement to the claim for refund. In this wise, petitioner failed to establish clear and sufficient proof to be entitled to an additional amount of tax to be refunded in their favor. The documents relied upon by the petitioner in arguing its point as aforementioned, which were also adequately considered by the court a quo in arriving at the assailed decision, created a doubt as to their reliability considering that they have plenty of inaccuracies and discrepancies. The truth and accuracy, therefore, of said documents cannot be adequately relied upon as an unquestionable evidence by themselves sufficient enough be the basis for the grant of an additional refund. WHEREFORE, the petition is hereby DENIED and the assailed Decision of the Court of Tax Appeals is AFFIRMED. SO ORDERED. Labitoria and Tria Tirona, JJ . , concur.