Mirant Pagbilao Corp. v. Commissioner of Internal Revenue

TENTH DIVISION [CA-G.R. SP No. 78280. December 22, 2005.] MIRANT PAGBILAO CORPORATION (formerly SOUTHERN ENERGY QUEZON, INC.) , petitioners , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N CARANDANG , J p : Before Us is a Petition for Review under Rule 43 of the Rules of Court seeking to partially reverse or set aside the Decision 1 of the Court of Tax Appeals (CTA) dated March 18, 2003 which partially granted petitioner's claim for refund or issuance of a tax credit certificate in the amount of P10,766,939.48 out of its total claim of P148,003,047.62. Petitioner is seeking for the refund of the P135,993,570.00 difference, arising from petitioner's input VAT on its purchases of services from Mitsubishi Corporation which are attributable to its zero-rated sales. Assailed as well is the Resolution 2 dated July 9, 2003 denying petitioner's motion for reconsideration. The antecedents: Petitioner MIRANT PAGBILAO CORPORATION (formerly Southern Energy Quezon, Inc.) is a duly registered domestic corporation with principal office at Pagbilao Grande Island, Pagbilao, Quezon and 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. Petitioner is registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer in accordance with Section 107 of the Tax Code (now Section 236) with BIR Certificate of Registration bearing RDO Control No. 96-600-002498 and Tax Identification No. 001-726-870-VAT. On December 1, 1997, petitioner filed with the BIR Revenue District Office No. 60 at Lucena City for the taxable year 1998 an Application for Effective Zero Rating for the construction and operation of a power station in Pagbilao, Quezon under a BOT Scheme. Due to inaction on the part of the BIR district office, petitioner refiled the said application in the form of a request for ruling with the VAT Review Committee at the BIR National Office on January 28, 1999. On May 13, 1999, respondent Commissioner of Internal Revenue issued VAT Ruling No. 052-99 addressed to petitioner where it ruled that "the supply of electricity by HOPEWELL PHIL. (herein petitioner) to the NPC, shall be subject to the zero percent (0%) VAT, pursuant to Section 108(B)(3) of the National Internal Revenue Code (NIRC) of 1997. Meanwhile, on August 25, 1998, petitioner filed its quarterly VAT return for the second quarter of 1998, reflecting input VAT in the amount of P148,003,047.62. On November 25, 1999, petitioner filed an Amended VAT Return for the second quarter of 1998 in which it reflected zero-rated sales for the period in the amount of P2,297,007,686.10, all other figures in the Original VAT Return remaining the same, including the input VAT in the same amount of P148,003,047.62. Relying mainly on the provisions of Republic Act No. 6395 (NPC Charter) and on the pronouncement made by the Supreme Court in the case of Maceda vs. Macaraig , 3 that the NPC is exempt from both direct and indirect taxes, petitioner then concludes that its sale of power generation services to the NPC is zero-rated for VAT purposes. To further support its stand, petitioner likewise cited Section 108 of the NIRC as it basis in its action for refund. AHcaDC Thus, pursuant to the procedure prescribed in Revenue Regulations No. 7-95, as amended, petitioner filed an administrative claim for refund of unutilized input VAT with the BIR on December 20, 1999 in the amount of P148,003,047.62 for the second quarter of 1998. As respondent failed to act on petitioner's claim for refund, petitioner brought the matter to the CTA on July 4, 2000 via Petition for Review in order to toll the running of the two-year prescriptive period provided under the law. On March 18, 2003, the CTA rendered the assailed Decision, the decretal portion of which reads: "In view of all the foregoing, the instant petition is PARTIALLY GRANTED. Accordingly, respondent is hereby ORDERED to REFUND, or in the alternative, ISSUE A TAX CREDIT CERTIFICATE in favor of the petitioner its unutilized input VAT payments directly attributable to its effectively zero-rated sales for the second quarter of 1998 in the reduced amount of P10,766,939.48, computed as follows: Claimed Input VAT P148,003,047.62 Less: Disallowances a.) As summarized by SGV & Co. in its initial report (Exh. P) I. Input Taxes on Purchases of Services: 1. Supported by documents other than VAT Ors P10,629.46 2. Supported by photocopied VAT OR 879.09 II. Input Taxes on Purchases of Goods: 1. Supported by documents other than VAT Invoices 165,795.70 2. Supported by invoices with TIN only 1,781.82 3. Supported by photocopied VAT Invoices 3,153.62 III. Input Taxes on Importation of Goods: 1. Supported by photocopied documents [IEDs and/or Bureau of Customs (BOC) Ors 716,250.00 3. Supported by broker's Computations 91,601.09 990,090.69 b.) Input taxes without supporting documents as summarized in Annex A of SGV & Co.'s supplemental report (CTA records, page 134) 254,446.45 c.) Claimed input taxes on purchases of services from Mitsubishi Corporation for being substantiated by dubious OR 135,996,570.00 Refundable Input P10,766,939.48 =========== Its motion for reconsideration having been denied, petitioner interposed the instant petition for review anchored on the following assignment of errors, thus: I THE CTA ERRED IN FINDING THAT THE CLAIMED INPUT VAT OF P135,993,570.00 ON PURCHASE OF SERVICES FROM MITSUBISHI CORPORATION AND THE SUPPORTING OFFICIAL RECEIPT ARE OF DOUBTFUL VERACITY. II THE CTA ERRED IN DISALLOWING THE CLAIMED INPUT VAT OF P135,993,570.00 ON PURCHASE OF SERVICES FROM MITSUBISHI CORPORATION OF SERVICES FROM MITSUBISHI CORPORATION AND THE SUPPORTING OFFICIAL RECEIPT ARE OF DOUBTFUL VERACITY. We find the petition meritorious . Before delving into the issues raised in this petition, this Court would like to clarify once and for all the issue of prescription. Contrary to the assertion of respondent, petitioner's claim for refund was filed within the reglementary period. Section 112 (A) of the Tax Code provides, that: STcHDC "Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of the tax credit certificate or refund of creditable input tax due or paid attributable to such sale . . ." The law is clear. Prescriptive period commences from the close of the taxable quarter when the sales were made and not from the time the input VAT was paid nor from the time the official receipt was issued. In the case at bar, petitioner filed its claim within two (2) years after the close of the taxable quarter when the sales were made. The two-year prescriptive period should be correctly counted from the close of the second quarter of 1998, or on July 30, 1998. It was at this date that the petitioner filed its amended return, showing zero-rated sales of P2,297,007,686.10 and a corresponding input VAT of P148,003,047.62. Accordingly, when it filed its claim for refund and/or issuance of a tax credit certificate on December 20, 1999 with the BIR, it is still within the two-year prescriptive period prescribed by Section 112 (A) of the Tax Code. Another point that this Court would like to stress is the fact that financial accounting and tax accounting are two different schools of thought. We agree with petitioner that financial and tax accountings differ in reportorial requirements and in the recognition of accounts and items. We do not appreciate the matching principle raised by respondent. The laws cited in this case are clear. The Tax Code is clear and it should prevail over any financial accounting theories and principles. Going now to the issues raised in this petition. First , the VAT input payment is clearly evidenced by Official Receipt No. 0189. 4 The presentation of such receipt is the "best evidence or primary evidence" of payment of the VAT by petitioner to Mitsubishi Corporation. It is undisputed that Mitsubishi Corporation acknowledged and received the amount of $5,190,000 (P135,993,570.00) on April 14, 1998 from petitioner as payment for the VAT. This was even acknowledged and admitted by the CTA and the respondent. The official receipt is enough proof. No other document is needed to substantiate the claim of petitioner. It is not necessary to present any debit advice, confirmation receipt or other relevant document appurtenant to such foreign payments. Verily, the law did not require such other documentation. Section 110 of the Tax Code is clear in this regard, to wit: "Sec. 110. Tax Credits. (A) Creditable Input Tax. (1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on the following transactions shall be creditable against the output tax: xxx xxx xxx (b) Purchase of services on which a value-added tax has been paid. xxx xxx xxx This is further strengthened by Revenue Regulations No. 7-95, as amended, otherwise known as the Consolidated VAT Regulations. Section 4.104-5 thereof states, that: "Sec. 4.104-5. Substantiation of claims for input tax credit xxx xxx xxx (b) Input taxes shall be allowed only if the domestic purchase of goods, properties or services is made in the course of trade or business. The input tax should be supported by an invoice or receipt showing the information as required under Sec. 108(a) and 238 of the Tax Code." Second , the issue now focuses on the genuineness and authenticity of the cited Official Receipt. This case must be appreciated according to the particular circumstances that transpired. The CTA aptly put it, "[t]rue enough, for the period 1993-1996, petitioner did not pay the VAT believing they were not liable to do so. Mitsubishi, on the other hand, did not agree with petitioners and believed that petitioners should instead assume the VAT." Due to the confusion that occurred as to who should shoulder the payment of the VAT, the payment of said VAT was delayed. The date in Official Receipt No. 0189 should then be taken conclusively. The April 14, 1998 date in the receipt should be construed as the true date when the VAT was paid. The purpose of its issuance, i.e., the payment for the VAT portion of the following progress payments on services rendered pursuant to the Turnkey Contract E&M Equipment Erection Portion, should likewise be appreciated as the true purpose behind the payment, as contained in the official receipt. ACTIHa Indeed, petitioner has no control over the issuance of the receipt since it is only a purchaser of the services. In the normal course of business, as what this Court believes occurred, it is the seller of services, Mitsubishi Corporation, who can issue the receipt. The seller is the only entity who can decide when to issue said receipt. Naturally, a seller would issue a receipt only after it has received an equivalent payment of the amount covered by the receipt. It would be highly preposterous for Mitsubishi Corporation to put a different date, considering the huge amount involved in this transaction and the tax implications it will produce. Indubitably, the corresponding date in the receipt is April 14, 1998 and no other. The Official Receipt, marked as Exhibit "X-3", contrary to the CTA's conclusion and the respondent's assertion, is not of dubious character. The fact that the exchange rate used was not what the CTA expected considering its value in 1998 is irrelevant in this case. For what is truly important is the fact that the VAT was paid by petitioner. The interest charges are similarly not an issue. Again, this does not change the fact that petitioner indeed paid the VAT, as evidenced by Official Receipt No. 0189. Given the foregoing, the CTA gravely erred when it gave undue focus on the genuineness and authenticity of Official Receipt No. 0189, ignoring the clear language of the law. What the law requires as evidence is the production of the Official Receipt. The law likewise requires that the claim for refund or issuance of tax credit certificate be filed within two years from the close of the taxable quarter in which the zero-rated sale was made. Both requirements were duly complied by petitioner. It produced Official Receipt No. 0189 and it filed its case within the two-year period as prescribed by law. Thus, petitioner should be granted its claim for refund or issuance of a tax credit certificate in the total amount of P146,760,509.48, computed as follows: Total Amount of Claimed Input VAT P148,003,047.62 Claimed Input Taxes on Purchases of Services From Mitsubishi Corp. substantiated By Official Receipt No. 0189 P135,993,570.00 Plus: Input Taxes granted by the CTA in its Decision dated March 18, 2003 10,766,939.48 Refundable Input P146,760,509.48 On a final note, this Court maintains that petitioner's sale of services to the NPC can be treated as a VAT zero-rated transaction. The pendency of the application for zero-rating of sale services of petitioner to the NPC shall not bar the granting of petitioner's claim for refund. The inaction of the Revenue District Office regarding petitioner's application for effective zero-rating should not prejudice the latter. Petitioner 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. Unfortunately, the Revenue District Officer did not act all upon petitioner's claim. To deny now petitioner's claim for refund solely on the ground that its application for effective zero-rating has yet to be approved by the Revenue District Officers is to sanction such indolence and neglect on the part of the public officer. 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. 5 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. Indeed, just as the government is entitled to expect taxpayers to pay their taxes promptly, taxpayers are also entitled to expect that the BIR shall act promptly and expeditiously on pending applications. Petitioner should then be not faulted for BIR's inaction and undue delay. It will be clearly unjust if the punishment of such inaction or delay is meted out to petitioner. WHEREFORE, premises considered, the instant petition is GRANTED. The assailed Decision of the Court of Tax Appeals dated March 18, 2003 is hereby MODIFIED. Accordingly, respondent Commissioner of Internal Revenue is ordered to refund or issue a tax credit certificate in favor of petitioner Mirant Pagbilao Corporation its unutilized input VAT payments directly attributable to its effectively zero-rated sales for the second quarter of 1998 in the total amount of P146,760,509.48. SO ORDERED. Reyes, Jr. and Arevalo-Zenerosa, JJ., concur. Footnotes 1. Annex "A" of the Petition, Rollo , pp. 63-79. 2. Annex "B" of the Petition, Rollo , pp. 80-85. 3. G.R. No. 88291, May 31, 1991. 4. Exhibits "X-3", "X-3-1", "X-3-2", inclusive, Rollo , p. 159. 5. See Commissioner of Internal Revenue vs. Mirant Navotas Corporation , CA-G.R. SP No. 69114, June 27, 2002, Seventh Division; Mirant (Navotas II) Corporation, Inc. vs. Commissioner of Internal Revenue , CA-G.R. SP No. 64811, October 29, 2002, Special Eighth Division.