Southern Energy Quezon, Inc. v. Commissioner of Internal Revenue

SPECIAL EIGHTH DIVISION [CA-G.R. SP No. 66934. November 15, 2005.] SOUTHERN ENERGY QUEZON, INC. (formerly Hopewell Power [Philippines] Corporation) , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N BARRIOS , J p : This Petition for Review is directed against the Decision of the Court of Tax Appeals (or CTA for brevity) in CTA Case No. 5912, which denied the claim for tax refund of the petitioner Southern Energy Quezon Incorporated [now Mirant Pagbilao Corporation) (or the petitioner). The petitioner's parent company Hopewell Project Management Company Limited (or Hopewell) entered into a Build, Operate and Transfer Project Agreement (or BOT Agreement) with the National Power Corporation (or NPC), where Hopewell agreed to design, build and operate a gas turbine power station in the Philippines to generate electricity which the NPC has agreed to purchase. It was also agreed that Hopewell will transfer ownership of the power station to NPC in due course and after a lapse of a certain period. Hopewell formed and created the petitioner as its subsidiary Philippine corporation to undertake the construction and operation of the power station under the BOT Agreement. Thereafter, an Accession Undertaking was entered into between Hopewell, NPC and the petitioner where it was stipulated that all references to Hopewell in the BOT Agreement shall be construed to be references to the petitioner which thus shall undertake all the obligations of Hopewell to the NPC under the BOT Agreement. The petitioner alleged that it is a value-added tax (or VAT) taxpayer in accordance with Section 107 of the old Tax Code, now Section 236 of the National Internal Revenue Code of 1997 (or NIRC), with BIR Certificate of Registration bearing RDO Control No. 96-600-002498. It further contended that NPC is exempt from all forms of taxes, duties and fees under its charter, Republic Act No. 6395, as amended. Hence the petitioner's power generation services rendered to the NPC is also subject to zero rate under Section 108 of the NIRC which provides that: (b) Transactions Subject to Zero Percent (0%) Rate The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx (3) Services rendered to persons or entities whose exemption under special laws or international agreement to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate; Thus on February 27, 1996 the petitioner filed with the Revenue District Office No. 60 (or RDO) in Lucena City of the Bureau of Internal Revenue (or BIR) an Application for Effective Zero-Rating for the operation and maintenance of the coal-fired power plants of the NPC. This was however not acted upon. On January 28, 1999, prompted by the inaction of the RDO on its application, the petitioner filed a request for ruling with the VAT Review Committee of the BIR National Office. On May 13, 1999, the BIR issued VAT Ruling No. 052-99 where it held that the petitioner is subject to zero percent (0%) VAT pursuant to Section 108 (B)(3) of the NIRC. EcTaSC On June 30, 1999 the petitioner filed with the respondent Commissioner of Internal Revenue an administrative claim for refund of the unutilized input VAT for the second quarter of 1997 in the amount of P1,095,772.39. This was pursuant to Section 112(A) of the NIRC which states that a VAT-registered taxpayer may apply for the issuance of a tax credit or refund of creditable input tax due or paid, attributable to zero-rated or effectively zero-rated sales Because the Commissioner of Internal Revenue failed to act on the petitioner's claim for refund, on July 20, 1999 the petitioner filed with the CTA a petition for review on its claim for the refund of its unutilized input VAT. On May 24, 2001, the CTA rendered the assailed Decision, ruling thus: We deny the claim. There is no dispute that Petitioner is a VAT registered entity which is rendering power generation services to an exempt entity. However, as admitted by the Petitioner, while it applied for zero-rating with the Bureau of Internal Revenue, it has yet to secure the latter's approval, hence the denial. xxx xxx xxx WHEREFORE, in view of all the foregoing, Petitioner's claim for refund is hereby DENIED for lack of merit. SO ORDERED. (pp. 55-56, rollo ) The motion for its reconsideration was likewise struck down in the Resolution dated September 7, 2001. Hence this petition for review, where the petitioner poses the following issues for Our consideration: I WHETHER OR NOT PETITIONER IS ENTITLED TO THE REFUND OF ITS UNAPPLIED OR UNUTILIZED CREDITABLE VAT INPUTS FOR THE QUARTER ENDED JUNE 30, 1997 AMOUNTING TO P1,095,772.39. II WHETHER OR NOT THE COURT OF TAX APPEALS ERRED IN DENYING PETITIONER'S CLAIM FOR REFUND ON THE SOLE GROUND THAT THE PETITIONER FAILED TO ACQUIRE AN APPROVED APPLICATION FOR ZERO RATING FROM THE BIR (p. 29, rollo ) The crux of this petition is the propriety of the denial of the claim for refund on the ground that the petitioner failed to obtain an approved application for zero-rating from the Commissioner of Internal Revenue. The basis of the CTA in denying petitioner's claim for refund is Section 8(d) of Revenue Regulation No. 5-87 issued by the BIR, which provides thus: d) Application for the imposition of zero-rate. Any person claiming that its sales of goods or services are effectively zero-rated under Sections 100 and 102 shall file an application in a form prescribed therefor with the Commissioner of Internal Revenue justifying the imposition of zero-rate on the said Transactions. Upon approval, his status as zero-rated taxpayer shall remain valid until revoked. From the foregoing it held that an application must be filed first with the Commissioner of Internal Revenue justifying the imposition of zero-rate transactions, for otherwise the claim for refund of unutilized input taxes will be denied. It is notable however that in this case the petitioner's failure to present an approved application for zero-rating was due to the RDO's failure to act promptly on its application which was filed as early as February 27, 1996. In fact due to the inaction of the RDO, the petitioner requested to VAT Review Committee of the BIR for a confirmation that it is subject to zero percent (0%) VAT. The VAT Review Committee on May 13, 1999 issued VAT Ruling No. 052-99 holding that the supply of electricity of petitioner to the NPC shall be subject to zero percent (0%) VAT. HIACac Subsequently on May 30, 1999, the petitioner filed an administrative claim for refund of its unutilized input VAT for the second quarter of 1997, but despite its submission of all relevant documents the Commissioner of Internal Revenue failed to act on the claim. Thus it then filed a Petition for Review with the CTA within the two-year prescriptive period for filing a claim for refund. In this regard, the requirement of an approved application for zero-rating should not be allowed to impede or otherwise interfere with the petitioner's right to claim for a refund of its unutilized input taxes, especially since it was established that there was inaction on the part of the BIR on the petitioner's duly filed and supported application. Further, it has also been established that the power generation services rendered by the petitioner to NPC are effectively zero-rated for VAT purposes, which fact is not disputed by the BIR in its VAT Ruling No. 052-99. As aptly held in the case of Philex Mining Corporation vs. Commissioner of Internal Revenue (294 SCRA 887): . . . While there is no dispute that a claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund, however, once the claimant has submitted all the required documents, it is the function of the BIR to assess these documents with purposeful dispatch. After all, since taxpayers owe honesty to government it is but just that government render fair service to the taxpayers. In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these erroneously paid taxes was only granted in 1996. Obviously, had the BIR been more diligent and judicious with their duty, it could have granted the refund earlier. We need not remind the BIR that simple justice requires the speedy refund of wrongly-held taxes. Fair dealing and nothing less, is expected by the taxpayer from the BIR in the latter's discharge of its function. . . . It is also significant to note that the CTA, after the promulgation of the assailed Decision, has granted the petitioner's claim for refund despite the absence of an approved application for zero-rating in Southern Energy Quezon, Inc. vs. CIR (CTA Case Nos. 5933 and 5984), promulgated on January 15, 2002. There the CTA granted the petitioner's claim for refund of its unutilized input VAT attributable to the sale of power to the NPC for the third and fourth quarters of 1997 despite the absence of an approved application for zero-rating, ruling that: We are not unaware of the fact that Petitioner failed to secure an approved application for effective zero-rating with RDO No. 51 of Pasay City. However, we believe that the inaction of the said office regarding the application should not be taken against Petitioner. In fact, in numerous VAT and BIR rulings, the Respondent had already acknowledged that purchases of NPC of electricity from independent power producers are subject to VAT at zero-rate (VAT Ruling Nos. 015-99, 022-99, 052-99, 067-99, 018-00, BIR Ruling Nos. DA-247-04-19-99, DA-632-11-10-99 and DA-209-04-04-99). To the Court's mind, the admission of Respondent regarding the issue qualifiedly approved all the pending applications for effective zero-rating filed with any district or regional offices of the Bureau of Internal Revenue considering that Respondent had already expressed its decision over the matter. . . . Therefore, the payments received by Petitioner for the services rendered in generating and selling of electricity of NPC are subject to VAT at zero percent. Similar rulings were made by the CTA in the cases of Mirant (Philippines) Mobile Corporation vs. CIR (CTA Case Nos. 5935 and 5969) promulgated on January 15, 2002; Mirant Navotas Corporation vs. CIR , (CTA Case Nos. 5936 and 5968) promulgated on January 16, 2002; and Mirant (Navotas II) Corporation vs. CIR , (CTA Case Nos. 5963 and 5944) promulgated on January 21, 2002. STIHaE In fine, (T)echnicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens. If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding excess payments of such taxes ( BPI-Family Savings Bank, Inc. vs. Court of Appeals , 330 SCRA 507). WHEREFORE, the petition is GRANTED and the assailed Decision of the CTA dated May 24, 2001 is SET ASIDE and VACATED. The respondent Commissioner of Internal Revenue is hereby ordered to forthwith refund the amount of P1,095,772.39 representing the petitioner's unutilized input VAT attributed to zero-rated sales for the second quarter of 1997. SO ORDERED. Guaria III and Punzalan Castillo, JJ., concur. Footnotes * Acting Member per Office Order No. 50-05-GJ.