Mirant Sual Corp. v. Commissioner of Internal Revenue

SEVENTEENTH DIVISION [CA-G.R. SP No. 67438. October 15, 2004.] (CTA CASE NO. 5654) PETITION FOR REVIEW UNDER RULE 43 MIRANT SUAL CORPORATION (Formerly, Southern Energy Philippines, Inc.) , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N AREVALO-ZENAROSA , M ., J p : Through a Petition for Review under Rule 43 of the 1997 Rules on Civil Procedure, petitioner seeks the partial reversal of the Decision dated July 18, 2001 rendered by the Court of Tax Appeals granting its claim for refund but providing for a disallowance in the amount of P60,347,523.45. Also assailed is the Resolution dated October 12, 2001 denying its Motion for Partial New Trial. The facts of the case, as found by the Court a quo , are as follows: Petitioner is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines, with principal office at Barangay Pangascasan, Sual, Pangasinan. It was originally registered with the Securities and Exchange Commission (SEC) under the name "Pangasinan Electric Corporation" and licensed principally to engage in the business of power generation and subsequent sale thereof. It is registered with the Bureau of Internal Revenue as a VAT entity with Certificate of Registration bearing RDO Control No. 05-03219, dated January 22, 1996. For the period April 1, 1996 to March 31, 1998, petitioner seasonably filed its original Quarterly Value-Added Tax Returns reflecting a nil sale but with accumulated input VAT arising from its domestic purchases of goods and services. On April 13, 1998, petitioner simultaneously amended its quarterly VAT returns for the second calendar quarter of 1996 to the second calendar quarter of 1997, while the quarterly VAT returns for the third calendar quarter of 1997 to the first calendar quarter of 1998 were simultaneously amended on June 25, 1998. As of March 31, 1998, petitioner had accumulated input taxes in the sum of P316,356,744.95. Petitioner alleged that out of the aforesaid amount, input taxes amounting to P286,592,786.25 pertain to purchases of capital goods and services needed for the construction and development of its power generating plant and its related facilities in Sual, Pangasinan. Pursuant to Revenue Regulations No. 7-95, as amended, petitioner filed on June 25, 1998, an application for tax credit or refund of the aforementioned unutilized VAT paid on capital goods with the Bureau of Internal Revenue, Revenue Region No. 5, Alaminos, Pangasinan. On July 1, 1998, petitioner instituted a Petition for Review in order to toll the running of the two-year prescriptive period under Section 230 of the Tax Code, as amended. On August 14, 1998, respondent filed his answer and raised the following special and affirmative defenses, to wit: 1. That petitioner's claim for input tax refund/credit is still undergoing administrative routinary investigation/examination by respondent's bureau; 2. Petitioner failed to demonstrate that taxes subject of the instant petition were erroneously or illegally collected on account of its dereliction to present proofs showing that, indeed, its alleged purchases of capital goods are covered by Section 106(B) [now Section 112(B) of the Tax Reform Act of 1997]; 3. The total amount of P286,592,786.25 being claimed by petitioner as alleged unutilized input tax credits for the period April 1, 1996 to March 31, 1998 was not substantiated by documents pursuant to Section 4.104.5 of Revenue Regulations No. 7-95; 4. In an action for tax refund/credit, the burden of proof is on the taxpayer to establish its right to refund and failure to sustain the burden is fatal to such claim for refund/credit; 5. Claims for refund/credit are in the nature of tax exemption, hence, construed in strictissimi juris against the taxpayer. On August 17, 1999, the SEC approved the Amended Articles of Incorporation of petitioner which changed, among others, its corporate name from Pangasinan Electric Corporation to Southern Energy Pangasinan, Inc. DCcSHE Due to the voluminous nature of the evidence to be presented, petitioner availed of the services of Mr. Ruben R. Rubio, a partner in the accounting firm SGV & Company, who was commissioned by the Court a quo to verify the accuracy of petitioner's summary of input taxes pursuant to CTA Circular No. 1-95 as amended by CTA Circular No. 10-97. In a report dated February 9, 1999, Mr. Rubio described the audit procedures performed and reported his findings, stating that out of the total claimed input taxes of P286,592,786.25, a minimal amount of P872.73 is excepted because the corresponding official receipt bears only a stamped VAT number. On the other hand, respondent presented as evidence the Memorandum Report of its Revenue Enforcement Officers, Mr. Zaldy I. Dy and Ms. Bernadette B. Mangaoang, recommending the complete denial of the present claim for refund/credit despite their verification that input taxes in the amount of P75,333,540.54 pertain to capital goods. On July 18, 2001, the Court a quo rendered the assailed Decision. It hold that what applies in the case at bar is not Section 106 (a) [now 112 (a) of the Tax Reform Act of 1997) of the Tax Code but Section 106 (b) [now 112 (b)] of the same Code which provides: "SEC. 106. Refunds or tax credits of creditable input tax . (b) Capital Goods 1 . A VAT-registered person may apply for the issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locally purchased, to the extent that such input taxes have not been applied against output taxes. The application may be made only within two (2) years after the close of the taxable quarter when the importation or purchase was made." It then ratiocinated that to be entitled for refund under the said provision, one must only prove that: (1) it is VAT registered person; (2) the input taxes claimed were paid on capital goods; (3) the input taxes have not been applied against its output tax liability; and (4) the administrative claim for refund was seasonably filed. The Court a quo found petitioner to have satisfactorily complied with above requirements, consequently, entitled to refund. Petitioner is registered with the Bureau of Internal Revenue as a VAT-taxpayer and the input taxes it claims pertain to capital goods. 2 Also, the input taxes sought to be refunded/credited were not utilized by petitioner because it had no output tax liability during the subject period against which the said taxes could be applied. But then, input taxes in the total amount of P60,347,523.45 were disallowed due to the following reasons: Supplier Exhibit Input VAT REMARKS Flower Company, Inc. T-5 P863.64 Non-capital goods (flowers) Sual Construction Corp. T-14 19,095,852.27 Invoice specified zero VAT GEC Alsthom Power T-20 6,365,284.09 Invoice specified nil VAT Generation Activewheels Transport T-29 340.00 Non-capital goods (car rental) Service Roberto Q. Dimacali T-31 872.00 Non-capital goods (clothes) Exclusively His tailoring T-35 492.73 Non-capital goods (uniforms) GEC Alsthom Power T-45 6,370,147.73 Invoice specified zero VAT Generation Triple K Printing Services T-109 345.69 Non-capital goods (office supplies) Amstar Company, Inc. T-111 3,509.10 Non-capital goods (office supplies) Columbia Technologies Inc. T-113 3,200.00 Non-capital goods (office supplies) Vaecare Enterprises T-137 425.39 Non-capital goods (janitorial services) Vaecare Enterprises T-139 443.45 Non-capital goods (janitorial services) Sual Construction Corporation 27,958,035.47 Not documented Angel Zamora & Sons T-167 1,404.55 Non-capital goods (company logo) E. Arnaldo Lighting Systems T-173 8,222.27 Non-capital goods (rental of lights) E. Arnaldo Lighting Systems T-175 8,222.27 Non-capital goods (rental of sounds Floro Blue Printing Inc. T-176 390.00 Non-capital goods (supplies) Floro Blue Printing Inc. T-178 335.45 Non-capital goods (supplies) Floro Blue Printing Inc. T-180 528.00 Non-capital goods (supplies) Vaecare Enterprises T-184 400.06 Non-capital goods (janitorial services) Vaecare Enterprises T-186 392.10 Non-capital goods (janitorial services) Vaecare Enterprises T-205 638.03 Non-capital goods (janitorial services) Vaecare Enterprises T-207 304.93 Non-capital goods (janitorial services) Vaecare Enterprises T-209 376.65 Non-capital goods (janitorial services) CEPA Operations (Phils) Corp. 526,186.31 Not documented GERP Rent A Car T-211 302.27 Non capital goods (car rental) TOTAL P60,347,523.45 Thus, the Court a quo stated. "In sum, petitioner is entitled to the refund/credit of input taxes in the amount of P226,245,205.85, computed as follows: Amount sought to be refunded/credited P286,592,729.30 Less: Court's disallowed input taxes 60,347,523.45 Amount refundable P226,245,205.85 ============= WHEREFORE, in view of the foregoing, petitioner's claim for refund is hereby PARTIALLY GRANTED. Respondent is ORDERED to REFUND or ISSUE A TAX CREDIT CERTIFICATE in the amount of P226,245,205.85 in favor of the petitioner representing input taxes on capital goods for the period April 1, 1996 to March 31, 1998. SO ORDERED." In view of the disallowance in the amount of P60,347,523.45, petitioner on August 16, 2001, filed a Motion for Partial New Trial on the ground of mistake and excusable neglect arising from its reliance on the accuracy of the independent CPA Report and the completeness of its supporting documents. Conversely, on September 4, 2001, respondent Commissioner of Internal Revenue filed a Motion for Reconsideration arguing that the decision is bereft of factual and legal basis. ICHcaD Eventually, on October 12, 2001, a Resolution was issued by the Court of Tax Appeals, denying the Motion for New Trial filed by petitioner and the Motion for Reconsideration filed by respondent for lack of merit. Hence the present appeal by the petitioner based on the following grounds: I PUBLIC RESPONDENT ERRED IN DENYING PETITIONER'S MOTION FOR PARTIAL NEW TRIAL. II THERE IS MERIT IN PETITIONER'S MOTION FOR PARTIAL NEW TRIAL. THE BULK OF THE P60,347,523.45 DISALLOWANCE HAS DOCUMENTARY SUPPORT AND ACTUALLY PERTAINS TO TRANSACTIONS SUBJECT TO VALUE-ADDED TAX. III SUBSTANTIVE JUSTICE WOULD BE SERVED IF THE HONORABLE COURT WOULD GRANT PETITIONER A PARTIAL NEW TRIAL. THE COURT'S DECISION Anent the first ground, petitioner asserts that it cannot be faulted for its heavy reliance on the report of the independent CPA. Given the latter's expertise and authority to examine or evaluate the voluminous documents, petitioner had all the reason to rely on the accuracy of his findings and the completeness of the supporting documents. To re-check and review those voluminous documents would require the use of not just ordinary, but extraordinary prudence, skillful training and sophistication. Hence, its reliance on the independent CPA can be considered as mistake or excusable neglect which ordinary prudence could not have guarded against that would qualify as ground for new trial. Therefore, public respondent should have given petitioner a chance to present additional evidence as prayed for in its motion for partial new trial. Section 1, Rule 37 of the Rules of Court provides: " Grounds of and period for filing motion for new trial or reconsideration . Within the period for taking an appeal, the aggrieved party may move the trial court to set aside the judgment or final order and grant a new trial for one or more of the following causes materially affecting the substantial rights of said party: (a) Fraud, accident, mistake or excusable negligence which ordinary prudence could not have guarded against and by reason of which such aggrieved party has probably been impaired in his rights;" (italics supplied) On the other hand, as to excusable neglect as a ground for new trial, it was discussed: "In practice and particularly with reference to the setting aside of a judgment taken against a party through his "excusable neglect", this means a failure to take the proper steps at the proper time, not in consequence of party's own carelessness, inattention, or willful disregard of the process of the unavoidable hindrance or accident or on reliance on the care and vigilance of his counsel or on promise made by the adverse party." 3 (emphasis ours). Based on the above-quoted legal provision and definition, petitioner's reliance on the independent CPA cannot be considered as the mistake or excusable neglect required by law that would qualify as ground for new trial. As correctly ruled by the Court a quo : "The mistake or excusable negligence contemplated under the aforecited provision of law is one which ordinary prudence could not have guarded against. In the instant case, the documents which petitioner want to present as additional evidence was already available at the time of its presentation of the formal offer of evidence. It only takes ordinary prudence and diligence to offer the same. Had petitioner been meticulous in the preparation of its evidence, the input taxes which the Court did not consider, could have been granted. Petitioner's counsel should have checked and reviewed the report of the independent CPA including its supporting documents considering that this report forms part of his evidence." If indeed there was negligence, as posited by the petitioner, this is obviously on the part of its counsel whose prudence in handling the case fell short of that required under the circumstances. Such kind of negligence cannot buttress petitioner's claim for new trial, for as was held by the Supreme Court: "However, as a general rule, the client is bound by the action of his counsel in the conduct of his case and he cannot therefore complain that the result of the litigation might have been otherwise had his counsel proceeded differently. It has been held time and again that blunders and mistakes made in the conduct of the proceedings in the trial court as a result of the ignorance, inexperience or incompetence of counsel do not qualify as a ground for new trial. If such were to be admitted as valid reasons for re-opening cases, there would never be an end to litigation so long as a new counsel could be employed to allege and show that the prior counsel had not been sufficiently diligent, experienced or learned. This will put a premium on the willful and intentional commission of errors by counsel, with a view to securing new trials in the event of conviction." 4 Moreover, the petitioner is not at all blameless for the inadvertence. Considering that its substantial proprietary interest is at stake, it should have taken a more positive role in the conduct of the case, instead of denigrating its importance by mindlessly leaving it in its counsel's apathetic hand. It should have not reneged itself of vigilance over the case. Hence, as was elucidated in one case: "Petitioner GOLDLINE itself, in like manner, is partly to be blamed for it is not solely the negligence of its counsel but its own lethargy that was responsible for the unfortunate outcome of its case. Petitioner should have taken the initiatives as would be in keeping with the normal course of events, after an unreasonable length of time, of making the proper inquiries from its counsel and the trial court as to the status of its case. Litigants represented by counsel should not expect that all they need to do is sit back and relax, and await the outcome of their case. They should give the necessary assistance to their counsel, for at stake is their interest in the case." 5 The contention of petitioner that the bulk of the P60,347,523.45 disallowance has documentary support and actually pertains to transactions subject to value-added tax, must also fail. CHIEDS Touching upon findings of facts, this issue being raised by the petitioner must be decided in the light of the pronouncement made in the case of Commissioner of Internal Revenue vs. Manila Machinery & Supply Company and The Court Of Tax Appeals (G.R. No. L-25653, February 28, 1985), where it was held: "It is well settled that in passing upon petitions for review of the decisions of the Court of Tax Appeals, this Court is generally confined to questions of law. The findings of fact of said Court are not to be disturbed unless clearly shown to be unsupported by substantial evidence. (Rules of Court, Rule 44, Section 2. Republic Act 1125, Sections 1819.) As to the definition of substantial evidence, the same case stated: "Substantial evidence has been construed to mean not necessarily preponderant proof as is required in ordinary civil action, but such kind of "relevant evidence as a reasonable man might accept as adequate in support of a conclusion." ( De Lamera vs. Court of Agrarian Relations, et al ., 17 SCRA 368.)" Applying the above ruling, we find the decision of the Court a quo sufficiently supported by such substantial evidence. Lastly, it is also important to note that because of its recognized expertise, the findings of the CTA will not ordinarily be reviewed absent a showing of gross error or abuse on its part. 6 In the base at bar we find none, hence we sustain. WHEREFORE, the instant appeal is hereby DENIED and the Decision dated July 18, 2001 AFFIRMED. SO ORDERED. Reyes, Jr. and Carandang, JJ ., concur. Footnotes 1. Under Section 2 (o) of Revenue Regulations No. 5-87 of the Value-Added Tax Regulations, "capital goods" refer to goods 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 or taxable goods or services. 2. The Court of Tax Appeals stated in its decision that the records convincingly show that petitioner expended for the construction of its power generating plant as evidenced by various VAT invoices and official receipts showing payments for the erection of the coal-fired thermal power plant in Sual, Pangasinan. Further, the power plant and its related facilities are within the scope and meaning of capital goods. 3. Remedial Law, Revised 1994 Edition, by Oscar M. Herrera, p. 122 citing p. 508, Black's Law Dictionary, Fifth Edition. 4. Basilio Rivera, et al. vs. The Honorable Court of Appeals, et al ., G.R. No. 141863, June 26, 2003. 5. Gold Line Transit, Inc. vs. Luisa Ramos , G.R. No. 144813, August 15, 2001. 6. Philippine Refining Company (now known as " Unilever Philippines [PRC], Inc."), vs. Court of Appeals, Court of Tax Appeals, and the Commissioner of Internal Revenue , G.R. No. 118794, May 8, 1996.