Commissioner of Internal Revenue v. Mirant Pagbilao Corp.

FOURTH DIVISION [CA-G.R. SP No. 69115. April 29, 2004.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . MIRANT PAGBILAO CORPORATION (formerly SOUTHERN ENERGY QUEZON, INC.) , respondent . D E C I S I O N CARANDANG , J p : Before Us is a Petition for Review from the decision of the Court of Tax Appeals ("CTA") dated January 15, 2002 in CTA Case Nos. 5933 and 5984, where the CTA ordered to refund or to issue a tax credit certificate in the amount of P21,474,313.69 in favor of Mirant Pagbilao Corporation (formerly Southern Energy Quezon, Inc.). The undisputed facts of this case as found by the CTA are as follows: "Petitioner is a corporation duly existing under and by virtue of the laws of the Philippines with principal address located in Pagbilao Grande Island, Pagbilao, Quezon. It is principally engaged in the business of power generation and subsequent sale thereof to the National Power Corporation (NPC) under a Build, Operate, Transfer (BOT) Scheme. It is registered with the Bureau of Internal Revenue as VAT taxpayer with Certificate of Registration bearing RDO Control No. 96-600-002498 (Exhibit "A"). It was originally registered with the Securities and Exchange Commission under the name "Hopewell Power (Philippines), Corporation" (Exhibit "G-2"). On February 27, 1996, Petitioner filed with the BIR Revenue District Office No. 60 an Application for Effective Zero Rating of its sales of services to National Power Corporation for the building and operation of the latter's power station under the Build Operate and Transfer (BOT) Scheme (Exhibits "B", "B-1" and "B-2"). The inaction of the said office on its application compelled Petitioner to seek a confirmatory ruling with the VAT Review Committee of the BIR National Office on January 28, 1999, with respect to the question on whether or not the energy and capacity fees it received from NPC for the supply of electricity under the BOT scheme are effectively zero rated for VAT purposes pursuant to Sections 106 (A) (2) (c) and 108 (B) (3) of the 1997 Tax Code (Exhibits C, C-1 and C-2). On May 13, 1999, Petitioner received VAT Ruling No. 052-99 from the Respondent containing the information that based on the Memorandum issued by the Secretary of Finance dated January 26, 1998, the supply of electricity of Petitioner to NPC shall be subject to zero percent (0%) VAT pursuant to Section 108 (B) (3) of the National Internal Revenue Code of 1997 (see paragraph 8, Joint Stipulation of Facts, CTA Case No. 5984, CTA Records, p. 54). For the third and fourth quarters of 1997, Petitioner seasonably filed its quarterly Value Added Tax Returns on October 20, 1997 and January 20, 1998 (Exhibits "E-9", "E-10", and p. 151, CTA Records). These VAT returns were respectively amended on October 22, 1999 and November 25, 1999, reflecting total zero rated sales in the amount of P3,490,778,282.58 for the third and fourth quarters of 1997 with the corresponding aggregate input taxes in the amount of P21,830,341.61 for the same period (Exhibits "E", "E-2", "E-3", "E-6, "F", "F-2", "F-3", "F-5"). On June 30, 1999, Petitioner filed its administrative claim for refund with RDO No. 60 of the Bureau of Internal Revenue believing that its sales of services to the NPC are subject to VAT at 0% hence it is entitled to the refund of unutilized input VAT attributable thereto (Exhibits "D" and "D-1"). The inaction of the Respondent on its claim for refund compelled Petitioner to file the instant petitions for review on September 29, 1999 and December 28, 1999 in order to toll the running of the two year prescriptive period under the law. The petition for review for the third quarter of 1997 was docketed as CTA Case No. 5933 while the petition for review for the fourth quarter of 1997 was docketed as CTA Case No. 5984." On January 15, 2002, the CTA rendered a decision in CTA Case Nos. 5933 and 5984, the dispositive portion of which reads: WHEREFORE, in view of the foregoing, the petitions for review are hereby partially GRANTED. Respondent is ORDERED to REFUND or ISSUE A TAX CREDIT CERTIFICATE in the amount of P21,474,313.69 in favor of Petitioner (Mirant Pagbilao Corporation, formerly Southern Energy Quezon, Inc.). Meanwhile, on January 31, 2002, Mirant Pagbilao Corporation (formerly Southern Energy Quezon, Inc.) filed a Motion for Amendment of Caption to reflect the corporation's change of name (from Southern Energy Quezon Inc. to Mirant Pagbilao Corporation). The CTA issued a Resolution dated February 21, 2002 granting said Motion. Petitioner Commissioner of Internal Revenue then filed this Appeal via Petition for Review pursuant to Rule 43 of the Rules of Court dated February 17, 2002. To which Petition, Respondent Mirant Pagbilao Corporation (formerly Southern Energy Quezon, Inc.) filed its Comment dated May 2, 2002. The crux of this case revolves around the sole issue raised in this petition for review, which is whether or not respondent is entitled to a refund of the amount of P21,473,313.69 representing unutilized input VAT for the third and fourth quarters of 1997. Petitioner would like Us to reverse the ruling of the CTA on the ground that the CTA erred in granting the refund amidst Respondent's failure to present an approved application for zero-rating of its sale of services to the National Power Corporation. Petitioner argued that it was a fatal error on the part of Respondent when it failed to adduce an approved application for zero-rating to support its claim that its sales are zero-rated. As a result of such error, its alleged sale to National Power Corporation is treated not as zero-rated for VAT purposes, but only as exempt from VAT. Petitioner claims that this is pursuant to Sec 4.107-1 (d), Revenue Regulations No. 7-95. Moreover, Petitioner argued that Respondent's reliance on VAT Review Committee Ruling No. 052099, dated May 13, 1999, to support its claim is not entirely correct. Petitioner stressed that, "Without an approved application for zero-rating, the transaction otherwise entitled to zero percent (0%) VAT shall only be considered exempt from VAT." The arguments of the Petitioner, as aforementioned, do not impress this Court. We find this Petition for Review unmeritorious. First, We hold that Petitioner cannot invoke its own inaction as sole ground of its appeal. Despite the provisions of Revenue Regulations No. 7-95 and the ruling of the CTA in the case of ABB Power Generation Ltd. Vs. Commissioner of Internal Revenue , CTA Case No. 5270, We are of the opinion that the strict application of these authorities will not apply in this case because of the attendant circumstance surrounding this case. It is in the interest of justice and fair play that Respondent Mirant Pagbilao Corporation (formerly Southern Energy Quezon, Inc.) should not penalized for inaction of Petitioner on its application. If there is any party who should bear the consequences (of this case), it should be borne the Petitioner, certainly not the Respondent. Indeed, it is worth stressing that Respondent's failure to submit an approved application for effective zero-rating is attributable to the Petitioner. It was Petitioner's fault that there was no ruling issued. Respondent has already filed its application for effective zero-rating for VAT purposes as early as February 1997, with the Bureau of Internal Revenue-Revenue District Office (BIR-RDO) No. 60 in Lucena City. Several times, Respondent vigorously followed up on its request for ruling from the BIR. Numerous decided cases and BIR and VAT rulings were even issued indubitably supporting Respondent's right to the approval of its application for the effective zero-rating of its sales to the NPC. Still and all, Petitioner refused to issue the desired ruling. SDAaTC The CTA, in its decision, supported the cause of herein Respondent adopting the ruling in the case of Ernesto M. Maceda vs. Hon. Catalino Macaraig , G.R. No. 88291, May 31, 1991 and the Memorandum issued by the Department of Finance dated January 28, 1998. The CTA ruled that the affirmations of the Supreme Court and the Secretary of Finance regarding NPC's exemption from all kinds of taxes should be enough bases for the Revenue District Office to approve the pending application of Respondent. In the Maceda case, the Supreme Court definitively ruled that there is a total exemption from all kinds of taxes, direct and indirect accorded to NPC. This was further buttressed by the Supreme Court's Resolution dated June 8, 1993, stating that, "a chronological review of the NPC laws will show that it has been the lawmaker's intention that the NPC was to be completely tax-exempt from all forms of taxes." The Maceda case was reiterated in the Memorandum issued by the Department of Finance. Said Memorandum emphasized that the purchases by NPC of electricity from independent power producers are subject to VAT at 0%. Considering the BIR and VAT rulings and the authorities on this matter, Petitioner should have been persuaded to approve respondent's application for effective zero-rating. It would have been actually probable, as found by the CTA, that the delay and inaction was a result of Petitioner's refusal to refund to Respondent what appropriately belongs to Respondent. This is not the first time that the CTA granted the refund on unutilized input VAT attributable to the sale of services to the NPC despite the absence of an approved application for effective zero-rating. In the case of Mirant Navotas II Corporation vs. Commissioner of Internal Revenue , CTA Case No. 5911 promulgated on December 12, 2001, the CTA noted that the taxpayer filed its application for effective zero-rating as early as March 1, 1996 which remained unacted upon by Petitioner, and that the peculiar circumstances of the Mirant case should be considered so as not to deter the claim for refund. It is the height of injustice if We will now deny the claim for refund of Mirant Pagbilao Corporation (formerly Southern Energy Quezon, Inc.). To do so would only reward the inaction of government officials, such as herein Petitioner, to the grave detriment of the public. Such indolence We cannot tolerate. Second, it is worth noting that Respondent exhibited earnest efforts to enforce its right to a refund. It exerted due diligence in enforcing its claim and in following up the ruling it desired. In fact, Respondent even re-filed its application for effective zero-rating for the taxable year 1997 when it filed a request for ruling before the VAT Review Committee of the BIR on January 1999. As a consequence, on May 13, 1999, Petitioner even issued VAT Ruling No. 052-99 to Respondent confirming that the supply of electricity by Respondent to the NPC shall be subject to the zero percent (0%) VAT. Petitioner insists that Respondent should have filed a case for Mandamus to compel the RDO to act upon its application for VAT zero-rating. But Respondent is correct in its assertion that a Mandamus case is unnecessary. It would only result to multiplicity of suits involving the same parties and the same issue. Third, Petitioner should acknowledge and admit, once and for all, that the application was deemed approved with the issuance of VAT Ruling No. 052-99. VAT Ruling No. 052-99 dated May 13, 1999 categorically confirmed that the supply of electricity of Respondent to the NPC is subject to the zero percent (0%) VAT. This connotes that the application for effective zero-rating was deemed approved with the issuance of said ruling. There were other rulings issued which only bolsters Our conclusion that the application for effective zero-rating was deemed approved, such as, but not limited to the following: 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. Considering all these rulings, Respondent can logically assume that its application was approved. Even the CTA held that such rulings constitute a qualified approval of all the pending applications for effective zero-rating filed with any district or regional offices of the Bureau of Internal Revenue. Indeed, We are aware that other divisions of this Court had already ruled on this issue and granted the claim for refund of various taxpayers (including the petitioner herein) despite the absence of an approved application for effective zero-rating of its sale of services to the National Power Corporation. We have repeatedly and consistently held that a taxpayer cannot be prejudiced due to the inaction, indolence or neglect of the Bureau of Internal Revenue. Thus, in the case of Commissioner of Internal Revenue vs. Mirant Navotas Corporation , CA-G.R. SP No. 69114 dated June 27, 2002, through the Seventh Division, we ruled as follows: "We agreed with the Court of Tax Appeals that the inaction of the Revenue District Officer of RDO 51 of Pasay City, regarding respondent's application for effective zero-rating, should not prejudice the latter. After all, it appears that the respondent has submitted the required documents for the approval of the registration. It is then the function and obligation of the Revenue District Officer to assess these documents with deliberate dispatch and accordingly deny or grant the application. However, more than six (6) years had already lapsed and the application remains unacted upon. No explanation whatsoever was given by petitioner for such unreasonable delay. To deny respondent's claim for refund solely on the around that its application for effective zero-rating has yet to be approved by the Revenue District Officer, is to sanction such indolence and neglect on the part of the public officer. Had the application been promptly processed and passed upon would not have arisen and the issue would have been resolved earlier . (emphasis supplied) Similarly and more recently, in the case of Mirant (Navotas II) Corporation, Inc. vs. Commissioner of Internal Revenue , CA-G.R. SP No. 64811 on October 29, 2002, through the Special Eighth Division we ruled that: "Still and all, this Court resolves to grant petitioner Mirant its refund. Just as the government is entitled to expect taxpayers to pay their taxes promptly, taxpayers are similarly entitled to expect that the government, through the BIR, shall also act promptly and expeditiously on their pending applications and papers. Respondent CIR's inaction or undue delay of approving petitioner Mirant's application cannot prejudice the latter's right to earn input VAT to which it is already entitled having already complied with the requirements set forth by law ." (emphasis supplied) Finally, time and again, we have already ruled that the findings of the CTA, a specialized court, should be accorded respect and finality. As held in the cases of Philippine Refining Company vs. Court of Appeals, Court of Tax Appeals, and Commissioner of Internal Revenue , GR No. 118794, May 8, 1996; and Commissioner of Internal Revenue vs. Court of Tax Appeals GR No. 115349, April 18, 1997 "The CTA is a highly specialized body specifically created for the purpose of reviewing tax cases. Consequently, as a matter of principle, this Court will not set aside the conclusion reached by the CTA, 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." The Petitioner in this case failed to establish any sufficient cause that will merit the reversal of the findings of the CTA. The issue on the effective zero-rating was clearly and sufficiently ruled upon by the CTA. As found by the CTA, records show that Respondent received capacity and energy fees from the NPC from July to December 1997 in the aggregate amount of P3,490,778,282.58 (Exhibits "Q-4" and "R-3"). The fees were all supported by invoices and official receipts and were declared in the respective third and fourth quarterly VAT returns (Exhibits "O-1" to "O-43", "P-1" to "P-47, "Q-1" and "R-1"). Since the services of Respondent are subject to VAT at 0% based on the aforementioned rulings, it is ineluctably clear that Respondent is entitled to the refund of input taxes attributed thereto. Likewise, based on the evidence submitted by Respondent below, which were already examined by the commissioned independent CPA, Mr. Ruben R. Rubio and audit partner of SGV & Co., the CTA gave a table of recomputing the allowable input tax credits, thus: 3rd Quarter 4th Quarter Total Input Taxes Claimed P12,055,652.81 P9,774,688.80 P21,830,341.61 Less: Exceptions Noted a) by the CPA 296,291.59 57,636.33 353,927.92 b) Per Court's 2,100.00 2,100.00 Evaluation TOTAL 298,391.59 57,636.33 356,027.92 Amount Refundable P11,757,261.22 P9,717,052.47 P21,474,313.69 We do not see any reason to disturb these findings of the CTA. Accordingly, Respondent must be given a tax refund or a tax credit certificate for the unutilized input VAT for the third and fourth quarters of 1997 in the amount of P21,474,313.69. WHEREFORE, in view of the foregoing, this Petition for Review is DENIED. Petitioner Commissioner of Internal Revenue is ORDERED TO REFUND OR ISSUE A TAX CREDIT CERTIFICATE in the amount of P21,474,313.69 in favor of Respondent Mirant Pagbilao Corporation (formerly, Southern Energy Quezon Inc.). SO ORDERED. Jacinto and Asuncion, JJ ., concur.