Commissioner of Internal Revenue v. Mirant Sual Corp.

SECOND DIVISION [CA-G.R. SP No. 67594. February 13, 2004.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . MIRANT SUAL CORPORATION (Formerly Southern Energy Pangasinan, Inc.) , respondent . D E C I S I O N REYES , JR., A. B. , J p : Before the Court is a Petition for Review under Rule 42 of the 1997 Rules of Civil Procedure assailing the 18 July 2001 Decision 1 of the Court of Tax Appeals in CTA Case No. 5654, the fallo of which reads: "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 paid on capital goods for the period April 1, 1996 to March 31, 1998. SO ORDERED." As correctly summarized by the public respondent court, the antecedent facts of the case are as follows: "This case involves a claim for refund or issuance of a tax credit certificate in the amount of P286,592,786.25 allegedly representing unutilized input value-added tax (VAT, for brevity) on domestic purchases of capital goods and services for the period April 1, 1996 to March 31, 1998. 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 is originally registered with the Securities and Exchange Commission (SEC) under the name "Pangasinan Electric Corporation". It is 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 (Exhibit B). 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 (Exhibits D-2, E-2, F-2, G-2, H-2, I-2, J-2, and K-2). The quarterly VAT returns for the second calendar quarter of 1996 to the second calendar quarter of 1997 were simultaneously amended on April 13, 1998 (Exhibits D, E, F, and G) while the quarterly VAT returns for the third calendar of 1997 to the first calendar of 1998 were simultaneously amended on June 25, 1998 (Exhibits H, I, J, and K). As of March 31, 1998, Petitioner had accumulated input taxes in the sum of P316,356,744.95. Out of the afore-said amount, Petitioner alleged that the input taxes of 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 (TSN, December 3, 1998, p. 9). Pursuant to the procedures prescribed under 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 (Exhibit C). On July 1, 1998, Petitioner instituted the instant 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, thus: 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 be 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 the nature of tax exemption, hence, construed in strictissimi juris against the taxpayer. Meanwhile, 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. (CTA records, pp. 166 to 180). Petitioner, due to the voluminous nature of the evidence to be presented, availed of the services of Mr. Ruben R. Rubio, a Partner in the accounting firm of SGV & Company who was commissioned by this court to verify the accuracy of Petitioner's summary of input taxes (CTA records, p. 50) 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 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. Pertinent portions of the memorandum report submitted by the revenue examiners are quoted as follows: Photocopies of the Amended VAT returns and Invoices/Official receipts were presented for verification. These were authenticated from the original Documents, and the supposed Input Tax were accounted as follows: Period covered as claimed Non Capital goods Capital goods 1996-2nd QTR 29,002,328.59 26,116,489.44 2,886,839.15 -3rd QTR 30,945,209.03 30,939,486.74 5,722.29 -4th QTR 14,433,285.82 14,401,370.38 31,915.44 Total 74,380,823.44 71,456,346.56 2,924,476.88 ========== ========== ========== 1997-1st QTR 27,888,318.87 20,188,090.69 7,700,228.18 -2nd QTR 43,397,047.50 43,381,904.71 15,142.77 -3rd QTR 71,276,296.59 48,729,202.50 22,547,094.09 -4th QTR 48,559,077.78 6,412,479.16 42,146,598.62 Total 191,120,740.40 118,711,676.90 72,409,063.66 ========== ========== ========== GRAND TOTAL 245,501,564.00 190,168,023.40 75,333,540.54 ========== ========== ========== The non Capital goods as shown above includes payments made to contractors and suppliers whose invoice do not show the breakdown or description of the items paid, amounting to 65,088,493.37 in 1996 and 110,644,597.80 in 1997. RECOMMENDATION: The undersigned examiners, after an evaluation of the facts and circumstances surrounding the case hereby recommend that the refund be denied on the following grounds: 1. PEC as engaged in Electric power generation is not considered an ordinary VAT taxpayer. They should have applied as VAT zero rated pursuant to Revenue Regulation 7-95 and as contained in a memorandum from the Department of Finance dated Oct. 21, 1997 and January 26, 1998 (see attached copy) 2. In a VAT review committee ruling dated March 11, 1999, it was clearly defined that, without an approved application for zero rating, the transaction otherwise entitled to VAT zero rating shall be considered exempt as such input tax credits will be treated as part of project cost and expenses. xxx xxx xxx." 2 Based on these factual findings, public respondent issued the herein assailed Decision in favor of private respondent, the fallo of which was quoted at the outset. After the denial of its Motion for Reconsideration 3 by the respondent CTA in its Resolution 4 dated 12 October 2001, petitioner C.I.R. elevated the case before this Tribunal through the present Petition for Review , theorizing: "xxx xxx xxx. ISSUE WHETHER OR NOT RESPONDENT IS ENTITLED TO THE REFUND OF THE AMOUNT OF P226,245,205.85 ALLEGEDLY REPRESENTING INPUT TAXES PAID ON CAPITAL GOODS FOR THE PERIOD APRIL 1, 1996 TO MARCH 31, 1998; GROUND FOR PETITION THE TAX COURT ERRED IN GRANTING THE REFUND FOR THE REASON THAT IT DID NOT CONSIDER THE EVIDENCE PRESENTED BY HEREIN PETITIONER. The Petition is without merit. Petitioner contends that the CTA did not consider the evidence it presented during the trial. Petitioner solely and relied on the findings of their revenue examiners which allegedly revealed that out of the findings of their revenue examiners which allegedly revealed that out of the P286,592,786.25 input VAT claimed by the respondent, only P75,333,540.54 appeared to represent input VAT paid on capital goods and services. Contrary to petitioner's allegation, the CTA painstakingly considered the evidence presented by both petitioner and respondent. It conducted its own verification in order to arrive at its decision; and, this is clearly demonstrated in page 9 of the assailed CTA Decision , to wit: "As mentioned earlier, the independent CPA and the revenue examiners have reached different conclusions, therefore the Court deemed it proper to conduct its own verification on the VAT invoices and official receipts that have been submitted in evidence by the petitioner . As a result of this Court's verification and computation, the input taxes in the total amount of P60,347,523.45 were disallowed due to the following reasons: Supplier Exhibit Input VAT R E M A R K S 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 Generation T-20 6,365,284.09 Invoice specified nil VAT Activewheels Transport Service T-29 340.00 Non-capital goods (car rental) 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 Generation T-45 6,370,147.73 Invoice specified zero VAT 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 supplied) 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-139 443.39 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 8,227.27 Non-capital goods (rental of lights) E. Arnaldo Lighting Systems T-175 8,227.27 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 (janitorial) 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-209 375.65 Non-capital goods (janitorial services) CEPA Operations (Phils) Corp. 526,186.31 Not documented Gerp rent A car T-211 902.27 Non-capital goods (car rentals) T O T A L P60,347,523.45" The above-quoted excerpt from the CTA's Decision indisputably established that CTA had properly discharged its duty of investigating the matters motu proprio . Such action by the CTA only highlights the fact that it considered the evidence submitted by both parties. If it were already satisfied merely with herein respondent's evidence, it would not have found a need to conduct its own verification. Moreover, well-entrenched is the principle that after due consideration of the evidence presented before it, the CTA's findings of fact are given utmost respect. In the recent case of Cyanamid Philippines, Inc. vs. Court of Appeals, 322 SCRA 639 (2000) , the Highest Magistrate succinctly rules that "The Supreme Court will not set aside lightly the conclusion reached by the Court of Tax Appeals which, by the very nature of its function, is dedicated exclusively to the consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority." Also, in Equitable PCI Bank vs. Commissioner of Internal Revenue (CA-G.R. SP No. 66803, March 22, 2001) , this Tribunal had declared: "Settled in the doctrine that findings of fact of a special court (Court of Tax Appeals) exercising particular expertise on the subject of tax, generally binds the higher court. 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 error in the appreciation of facts. As a matter of principle, the higher court will not set aside the conclusion reached by an agency such as the Court of Tax Appeals which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise on the subject unless there has been an abuse or improvident exercise of authority." Fittingly, petitioner's claim that the CTA did not consider the evidence it presented during the trial has no factual and legal basis. WHEREFORE, the Petition is DISMISSED for lack of merit. No costs. SO ORDERED. Guerrero and Maambong, JJ . , concur. Footnotes 1. Rollo , p. 18. 2. Rollo , pp. 1822. 3. Rollo , p. 32, 4. Rollo , p. 28.