Raytheon Ebasco Overseas Ltd. Philippine Branch v. Commissioner of Internal Revenue

SECOND DIVISION [CA-G.R. SP No. 80296. April 11, 2005.] RAYTHEON EBASCO OVERSEAS LTD. PHILIPPINE BRANCH , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N REYES , B ., J p : Raytheon Ebasco Overseas Ltd. (Philippine Branch), herein petitioner-appellant, assails via a petition for review the May 23, 2003 resolution issued by the Court of Tax Appeals in CTA Case No. 6458 entitled " Raytheon Ebasco Overseas Ltd. (Philippine Branch) vs. Commissioner of Internal Revenue ". The impugned order dismissed, on the ground of lack of cause of action, the former's claim for tax refund in the amount of eighty one million two hundred fifty two thousand nine hundred forty (P81,252,940.00) supposedly due the petitioner-appellant by way of unutilized creditable withholding taxes for the taxable years 1999 and 2000. DIcSHE The undisputed facts of the case are as follows: Petitioner-appellant Raytheon Ebasco Overseas Ltd. (Philippine Branch) is a general contractor of San Roque Power Corporation and KEPCO Ilijan Corporation, and as such, is subject to the One Percent (1%) creditable withholding tax on income payments to it pursuant to Revenue Regulation No. 2-98. During the taxable year December 31, 1999, San Roque Power Corporation withheld twenty nine million four hundred eighty nine thousand nine hundred twenty six (P29,489,926) from its two billion nine hundred sixty one million three hundred forty six thousand six hundred thirty one and 68/100 (P2,961,346,631.68) worth of income payments to petitioner-appellant. According to the petitioner-appellant, however, it suffered an eighty three million five hundred thirty six thousand three hundred forty (P83,536,340) net loss in 1999 such that it could not utilize and apply any of its excess tax credits for the year. Petitioner then carried over the excess tax credit of twenty nine million four hundred eighty nine thousand nine hundred twenty six (29,489,926) into the year 2000. In the same year, San Roque Power Corporation withheld twenty million five hundred ninety seven thousand seventy five (P20,597,075) from its two billion fifty nine million seven hundred seven thousand four hundred twenty nine and 88/100 (P2,059,707,429.88) income payments to petitioner-appellant, and KEPCO Ilijan Corporation withheld thirty two million four hundred sixty five thousand six hundred sixty nine (P32,465,669) from its three billion two hundred forty three million nine hundred sixty three thousand eight hundred eighty five and 51/100 (P3,243,963,885.51) income payments to petitioner-appellant. Following the petitioner-appellant's computation, prior to payment of income tax due in the year 2000, the total available credits to petitioner amounts to eighty two million five hundred fifty two thousand six hundred sixty nine (P82,552,669). In 2000, petitioner-appellant earned a net income of four million sixty one thousand six hundred fifty five (P4,061,655) resulting to a tax due thereon of one million two hundred ninety nine thousand seven hundred thirty (P1,299,730). This was paid by way of application of tax credits available to petitioner. After payment of said tax due, petitioner-appellant's unutilized tax credit amounts to eighty one million two hundred fifty two nine hundred forty (P81,252,940). In 2001, pursuant to Revenue Regulation No. 2-98, as amended by Revenue Regulation Nos. 6-01 and 12-01, San Roque Power Corporation withheld fifty million eight hundred forty thousand six hundred eighty seven (P50,840,687) from its three billion eight hundred twenty five million two hundred sixty four thousand four hundred thirty two (P3,825,264,432.50) income payments to petitioner, and KEPCO Ilijan Corporation withheld eight million eighty thousand three hundred two (P8,080,302) from its five hundred seventy four million three hundred seventy eight thousand three hundred five (P574,378,305) income payments to petitioner for 2001. However, petitioner-appellant suffered another net loss of five billion two hundred sixty two million four hundred sixty three thousand four hundred fifty three (P5,262,463,453) in 2001 such that it could not again utilize and apply any of its available tax credits during the year and previous years. Considering the incremental excess tax credits in 2001, petitioner-appellant no longer expects to utilize tax credits coming from 1999 and 2000 amounting to eighty one million two hundred fifty two thousand nine hundred forty (P81,252,940). Convinced that it is entitled to a tax credit certificate for the excess tax credits for the years 1999 and 2000, petitioner-appellant filed an administrative claim with the respondent-appellee Commissioner of Internal Revenue on April 16, 2002. However, because of the respondent Commissioner's failure to act on the said administrative claim within the time prescribed under Section 229 of the 1997 Tax Code, petitioner-appellant filed a petition for review with the Court of Tax Appeals on April 17, 2002 to preserve its judicial remedy. November 12, 2002, respondent Commissioner filed a motion to dismiss, alleging that there was no cause of action. On February 26, 2003, petitioner-appellant filed its comment to the said motion to dismiss. On May 23, 2003, the Court of Tax Appeals issued a resolution granting the motion to dismiss filed by the respondent-appellee. The salient portions of the questioned resolution provides as follows: "The foregoing provision of law is clear and leaves no room for doubt. It cannot be interpreted otherwise than that an option once exercised, the same shall be considered irrevocable. A close scrutiny of the petition for review reveals that petitioner has indeed incurred excess tax credits for the years 1999 and 2000. The excess tax credit for the calendar year 1999 in the amount of P29,489,926 was carried over to the year 2000 (par. 6, petition for review). For the calendar year 2000, petitioner earned a net income of P4,061,655 with a corresponding tax due of P1,299,730. Petitioner's total unutilized tax credits for the calendar year 2000 was applied to the tax due for that year leaving unutilized tax credits in the aggregate amount of P81,252,940.00 (par. no. 7, petition for review). Petitioner's excess tax credits for the calendar year 2000 was likewise carried-over to the succeeding taxable year, 2001 (Annexes "B" and "C", petition for review). Clearly from the foregoing, petitioner has opted to carry-over its excess tax credits for the calendar years 1999 and 2000, which are the subject of the instant petition for review. As such, the choices made by petitioner for the years 1999 and 2000 are irrevocable for the said taxable years. Hence, petitioner is no longer allowed to pursue the instant claim for the issuance of a tax credit certificate in the amount of P81,252,940 representing its excess tax credits for the calendar years 1999 and 2000. WHEREFORE, premises considered, respondent's motion to dismiss is hereby GRANTED. The instant petition for review is accordingly DISMISSED. SO ORDERED." ( Rollo , p. 76) On June 11, 2003, petitioner-appellant moved for the reconsideration of the tax court's order of dismissal. The same was, however, denied. Hence, this petition. I A. THE COURT OF TAX APPEALS ERRED IN CONSIDERING "LACK OF CAUSE OF ACTION" AS A GROUND IN GRANTING RESPONDENT-APPELLEE'S MOTION TO DISMISS CONSIDERING THAT SAID GROUND WAS NOT RAISED BY THE RESPONDENT-APPELLEE. B. THE COURT OF TAX APPEALS ERRED IN CONSIDERING IN ITS RESOLUTION THE RESPONDENT-APPELLEE'S REPLY TO PETITIONER-APPELLANT'S COMMENT SINCE IT WAS FILED OUT OF TIME. II A. EVEN ASSUMING THAT RESPONDENT-APPELLEE CLARIFIED IN ITS REPLY THE BASIS FOR ITS MOTION TO DISMISS, THE COURT OF TAX APPEALS ERRED IN CONSIDERING SAID MOTION TO DISMISS SINCE RESPONDENT-APPELLEE GRAVELY ERRED IN RELYING ON THE GROUND OF "LACK OF CAUSE OF ACTION" SINCE SAID GROUND IS BASED ON A DELETED PROVISION OF THE FORMER RULES OF COURT. B. THE COURT OF TAX APPEALS ERRED IN RELYING ON THE CASE OF DABUCO VS. COURT OF APPEALS , 233 SCRA 853 SINCE THIS CASE WAS DECIDED ON THE BASIS OF THE DELETED PROVISION OF THE FORMER RULES OF COURT AND NOT ON THE 1997 REVISED RULES ON CIVIL PROCEDURE. C. THE COURT OF TAX APPEALS ERRED IN GRANTING RESPONDENT'S MOTION TO DISMISS WITHOUT CONSIDERING; THAT THE PROPER REMEDY FOR THE RESPONDENT-APPELLEE SHOULD BE TO FILE A DEMURRER TO EVIDENCE AFTER PETITIONER-APPELLANT HAS FORMALLY RESTED ITS CASE. III A. EVEN ASSUMING THAT THE COURT OF TAX APPEALS SHOULD MAINTAIN RELIANCE ON THE FORMER RULES OF COURT AND NOT THE 1997 REVISED RULES ON CIVIL PROCEDURE, THE COURT OF TAX APPEALS ERRED IN NOT ALLOWING THE PETITIONER-APPELLANT TO PRESENT AND SUBMIT ITS OPPOSITION TO DISMISS AND SUBMIT ITS EVIDENCE. ACCORDINGLY, PURSUANT TO SECTION 2, RULE 16 OF THE 1997 REVISED RULES ON CIVIL PROCEDURE. B. THE COURT OF TAX APPEALS ERRED IN NOT ALLOWING THE PETITIONER-APPELLANT TO SUBMIT ITS OPPOSITION TO THE MOTION TO DISMISS. PETITIONER-APPELLANT DID NOT WAIVE ITS RIGHT TO SUBMIT ITS OPPOSITION TO THE MOTION TO DISMISS SINCE WHAT IT MERELY FILED WAS A COMMENT ON THE MOTION TO DISMISS EX ABUNDANTI CAUTELA IN COMPLIANCE WITH THE ORDER OF THE COURT OF TAX APPEALS DURING THE HEARING ON FEBRUARY 21, 2003. IV A. EVEN ASSUMING THAT THE COURT OF TAX APPEALS SHOULD MAINTAIN RELIANCE ON THE FORMER RULES OF COURT AND NOT ON THE 1997 REVISED RULES ON CIVIL PROCEDURE, THE COURT OF TAX APPEALS ERRED IN CONSIDERING THE GROUND OF LACK OF CAUSE OF ACTION SINCE THE RESPONDENT-APPELLANT HAD CAUSE OF ACTION TO CLAIM THE TAX REFUND AS DECIDED BY THE PERTINENT DECISIONS OF THE SUPREME COURT AND THE COURT OF TAX APPEALS. B. THE COURT OF TAX APPEALS ERRED IN GRANTING THE MOTION TO DISMISS INSTEAD OF ALLOWING THE PETITIONER-APPELLANT TO PRESENT ALL OF ITS EVIDENCE BEFORE IT RENDERS A DECISION ON THE SAID CASE. C. CONSIDERING THAT THE ONLY GROUND RAISED BY THE RESPONDENT-APPELLEE IS NO CAUSE OF ACTION, RESPONDENT-APPELLEE IS DEEMED TO HAVE ADMITTED ALL THE ALLEGATIONS OF THE RESPONDENT-APPELLANT AND ON THE BASIS OF SUCH ADMISSIONS. RESPONDENT-APPELLANT IS ENTITLED TO THE CLAIM FOR TAX REFUND. ( Rollo , pp. 19-21) All the foregoing issues may be summed up us follows: (a) Whether or not the tax court erred in dismissing the petition on the basis of a motion to dismiss filed out of time and upon a ground not specifically raised by the movant; (b) Whether or not the petitioner is precluded from refunding the excess tax credits under the behest of Sec. 76 of the National Internal Revenue Code. To begin with, this Court is not customarily went to set aside the conclusion reached by an agency such as the CTA, considering that it is dedicated exclusively to tax problems and has necessarily developed an expertise on the subject. Nevertheless, a showing of improvident exercise of authority or plain misappreciation of significant facts and of law should occasion a departure from the conclusion of specialized bodies. As to whether the motion to dismiss filed by respondent BIR Commissioner was valid despite its being filed out of time, We are poised to sustain the Court of Tax Appeals. Indeed, dismissal based on lack of cause of action may be raised any time ( Quiaoit vs. Consolacion, 73 SCRA 208 ). However, the petitioner was correct in that when the dismissal is predicated on the ground of lack of cause of action, which is entirely distinct from failure to state cause of action, the same should be alleged in the motion to dismiss. The motu proprio dismissal of a case was traditionally limited to instances when the court clearly had no jurisdiction over the subject matter and when the plaintiff did not appear during trial, failed to prosecute his action for an unreasonable length of time or neglected to comply with the rules or with any order of the court. Outside of these instances, any motu proprio dismissal would amount to a violation of the right of the plaintiff to be heard. Except for qualifying and expanding Section 2, Rule 9, and Section 3, Rule 17, of the Revised Rules of Court, the amendatory 1997 Rules of Civil Procedure brought about no radical change. Under the new rules, a court may motu proprio dismiss a claim when it appears from the pleadings or evidence on record that it has no jurisdiction over the subject matter, when there is another cause of action pending between the some parties for the same cause, or where the action is barred by a prior judgment or by statute of limitations. Neither lack of cause of action nor failure to state a cause of action in the pleading was included in the enumeration. Thus, it should follow that motu proprio dismissal on said grounds would still not be allowed under the 1997 Rules of Civil Procedure ( Gumabon vs. Larin, 422 Phil. 222, G.R. No. 142523, November 27, 2001 ). In granting BIR's motion to dismiss the petitioner's claim for tax refund, the Court of Tax Appeals reasoned that by the petitioner's own previous election to carry-over its excess tax credit for 1999 and 2000 to the years succeeding, it was already barred from changing its mind and filing a refund of its creditable taxes withheld in 1999 and 2000 instead. Allusion was made to Sec. 76 of the National Internal Revenue Code which reads thus: "SEC. 76. Final Adjustment Return . . . . Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either: (A) Pay the balance of the tax still due; or (B) Carry-over the excess credit; or (C) Be credited or refunded with the excess amount paid, as the case may be. In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefore . (Emphasis supplied) ESTCHa As clearly seen from this provision, the taxpayer is allowed three (3) options if the sum of its quarterly tax payments made during the taxable year is not equal to the total tax due for that year: (a) pay the balance of the tax still due (b) carry-over the excess credit; or (c) be credited or refunded the amount paid. If the taxpayer has paid excess quarterly income taxes, it may be entitled to a tax credit or refund as shown in its final adjustment return which may be carried over and applied against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. However, once the taxpayer has exercised the option to carry-over and to apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years, such option is irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed ( Paseo Realty & Development Corp. vs. CA, G.R. No. 119286, October 13, 2004 ). True that the petitioner indeed opted to carry-over its excess tax credits for 1999 and 2000. However, in 1999, the petitioner company suffered from more than eighty three million net loss. Naturally, no income tax is due when there is no income to start with. Hence, even if it chose to have its excess tax credits carried over to the following year, it could not possibly utilize the same. As may be gleaned from the records, the unutilized tax credit of the petitioner around this time amounted to more than eighty one million pesos. In 2000, the petitioner was only able to earn roughly four million in net income. The tax due on the said income was paid by applying it against the eighty two million plus unutilized tax credit of the petitioner company. Resultantly, there was a remaining eighty one million plus still unutilized by the petitioner company which it likewise carried over to the following year. However, in 2001, petitioner company again suffered another net loss amounting to more than five billion pesos such that, again, it incurred no tax liability to which the tax credit may be applied. There is therefore no reason for the BIR to withhold the tax refund which belongs to the petitioner. The government cannot illicitly withhold from taxpayers what is justly due them. Verily, the immutable standards of justice and fair play override the rigid policy of literal adherence to the law. Withal, no one not even the State should be unjustly enriched at the expense of another ( Art. 2154, Civil Code ). 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. When it is undisputed that a taxpayer is entitled to a refund the State should not invoke technicalities keep money not belonging to it ( BPI Family Savings Bank, Inc. vs. Court of Appeals, G.R. No. 122480, April 12, 2000 ). Then again, a closer reading of the law would show that even if we construe the provision literally, the "irrevocability" of the taxpayer's choice of mode of recovery is not absolute inasmuch as it was qualified and followed by the phrase "for that taxable period". Seemingly, the proscription lies thus: that once a taxpayer elects to carry-over and apply its excess tax to the following year's tax liability, it could not have this excess refunded until the entire duration of that taxable year has lapsed or expired . In any case, the law was not couched in such a way as to authorize the State to forfeit and absolutely but innocent taxpayers from recovering the unutilized excess tax credits carried over to the succeeding taxable year. Apparently, the petitioner's claim for refund was prematurely quashed due to the dismissal of the petition on ground of lack of cause of action. Considering the staggering amount involved and the precipitate dismissal of the case, we deem it best to remand to the Court of Tax Appeals so that the petitioner may present additional evidence and the tax tribunal be afforded better opportunity to further evaluate the merits of the claim. IcADSE WHEREFORE, on the basis of the premises above conveyed, the instant petition is hereby GRANTED. Accordingly, the petition is remanded back to the Court of Tax Appeals for further study and reception of evidence. SO ORDERED. Jacinto and Asuncion-Vicente, JJ., concur.