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FORT BONIFACIO DEVELOPMENT CORPORATION vs.

COMMISSIONER OF INTERNAL REVENUE,


REGIONAL DIRECTOR, REVENUE REGION NO. 8, CHIEF, ASSESSMENT DIVISION, REVENUE REGION
NO. 8, BIR
G.R. No. 158885, April 2, 2009;

FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE and


REVENUE DISTRICT OFFICER, REVENUE DISTRICT NO. 44, TAGUIG and PATEROS, BUREAU OF
INTERNAL REVENUE
G.R. No. 170680, April 2, 2009

FACTS:

FBDC is owned to the extent of 45% by the Bases Conversion Development Authority (BCDA) and to the extent of
55% by private domestic corporations. FBDC is engaged in the development and sale of real properties. On 8
February 1995, FBDC acquired from the national government, under a VAT-free sale transaction, the Fort Bonifacio
Global City located within Fort Bonifacio, Taguig, Metro Manila. The acquisition was done by virtue of RA 7227
and EO 40. FBDC started developing and selling lots in Global City in October 1996.

Meanwhile, on 1 January 1996, RA 7716 took effect. RA 7716 restructured the VAT system by further amending
pertinent provisions of the NIRC. RA 7716 imposed a VAT, among others, on the sale of real properties, a
transaction not previously subject to VAT.

Pursuant to RA 7716, the sale of parcels of land to FBDC’s customers became subject to 10% VAT. However,
Section 105 of the NIRC grants to a person who becomes liable to VAT or who elects to be a VAT-registered person
a transitional input tax.

FBDC invoked its right to avail of the transitional input tax credit and accordingly submitted an inventory list of real
properties it owned, with a total book value of ₱71B which results to a total transitional/presumptive input tax credit
of ₱5.6B.

On 14 October 1996, FBDC executed two contracts to sell in favor of Metro Pacific Corporation covering two lots
located in Global City. The lots were both payable in installments. To pay for the output VAT with the BIR, FBDC
used cash a portion of the total transitional input tax credit it allocated by to the two lots sold to Metro Pacific; and
its regular input tax credit on purchases of goods and services.

It then requested BIR for a ruling on whether its claimed transitional input VAT on the land inventory was in order to
which the BIR recommended the disallowance of the claimed transitional input VAT on land inventory, and the
issuance of a notice of assessment for deficiency VAT equivalent to the disallowed amount.

ISSUES:

1. Whether or not the 8% transitional input tax credit in Section 105 applied only to the improvements on the real
property

2. Whether or not prior payment of taxes is required in availing of the transitional input tax credit

LAW:

Provisions of RA 7716

SEC. 100. Value-added tax on sale of goods or properties. - (a) Rate and base of tax. - There shall be levied, assessed
and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to 10% of the
gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be
paid by the seller or transferor.

(1) The term "good or properties" shall mean all tangible and intangible objects which are capable of pecuniary
estimation and shall include:
(A) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business;

xxxx

The term "gross selling price" means the total amount of money or its equivalent which the purchaser pays or is
obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or properties, excluding the
value-added tax. The excise tax, if any, on such goods or properties shall form part of the gross selling price.

Sec. 105. Transitional input tax credits. - A person who becomes liable to value-added tax or any person who elects
to be a VAT-registered person shall, subject to the filing of an inventory as prescribed by regulations, be allowed
input tax on his beginning inventory of goods, materials and supplies equivalent to 8% of the value of such
inventory or the actual value-added paid on such goods, materials and supplies, whichever is higher, which shall be
creditable against the output tax.

ARGUMENTS:

Issue No. 1:

FBDC argument:

The transitional input tax credit should be based on the total book value its real properties.

BIR argument:

The basis of the 8% presumptive input tax of real estate dealers shall be limited to the book value of the
improvements [made upon the land], in addition to its inventory of supplies and materials for use in its business,"
and not on the book value of the actual land in FBDC’s inventory.

Issue No. 2:

FBDC argument:

Prior payment of taxes on the acquisition of the real properties is not required in availing of the transitional input tax
credit

BIR/ CTA argument:

Prior payment of taxes on the acquisition of the real properties is required in availing of the transitional input tax
credit

COURT’S RULING:

1. No. On its face, there is nothing in Section 105 of the Old NIRC that prohibits the inclusion of real properties,
together with the improvements thereon, in the beginning inventory of goods, materials and supplies, based on
which inventory the transitional input tax credit is computed. It can be conceded that when it was drafted Section
105 could not have possibly contemplated concerns specific to real properties, as real estate transactions were not
originally subject to VAT. At the same time, when transactions on real properties were finally made subject to VAT
beginning with Rep. Act No. 7716, no corresponding amendment was adopted as regards Section 105 to provide for
a differentiated treatment in the application of the transitional input tax credit with respect to real properties or real
estate dealers.

Rep. Act No. 7716 clarifies that it is the real properties "held primarily for sale to customers or held for lease in the
ordinary course of trade or business" that are subject to the VAT, and not when the real estate transactions are
engaged in by persons who do not sell or lease properties in the ordinary course of trade or business. It is clear that
those regularly engaged in the real estate business are accorded the same treatment as the merchants of other goods
or properties available in the market. In the same way that a milliner considers hats as his goods and a rancher
considers cattle as his goods, a real estate dealer holds real property, whether or not it contains improvements, as his
goods.
The very idea of excluding the real properties itself from the beginning inventory simply runs counter to what the
transitional input tax credit seeks to accomplish for persons engaged in the sale of goods, whether or not such
"goods" take the form of real properties or more mundane commodities.

Under Section 105, the beginning inventory of "goods" forms part of the valuation of the transitional input tax
credit. Goods, as commonly understood in the business sense, refers to the product which the VAT-registered person
offers for sale to the public. With respect to real estate dealers, it is the real properties themselves which constitute
their "goods." Such real properties are the operating assets of the real estate dealer.

2. No. There is hardly any constricted definition of "transitional" that will limit its possible meaning to the shift from
the sales tax regime to the VAT regime. Indeed, it could also allude to the transition one undergoes from not being a
VAT-registered person to becoming a VAT-registered person. Such transition does not take place merely by operation
of law, E.O. No. 273 or Rep. Act No. 7716 in particular. It could also occur when one decides to start a business.
Section 105 states that the transitional input tax credits become available either to (1) a person who becomes liable
to VAT; or (2) any person who elects to be VAT-registered. The clear language of the law entitles new trades or
businesses to avail of the tax credit once they become VAT-registered. The transitional input tax credit, whether
under the Old NIRC or the New NIRC, may be claimed by a newly-VAT registered person such as when a business
as it commences operations. If we view the matter from the perspective of a starting entrepreneur, greater clarity
emerges on the continued utility of the transitional input tax credit.

It is apparent that the transitional input tax credit operates to benefit newly VAT-registered persons, whether or not
they previously paid taxes in the acquisition of their beginning inventory of goods, materials and supplies. During
that period of transition from non-VAT to VAT status, the transitional input tax credit serves to alleviate the impact of
the VAT on the taxpayer. At the very beginning, the VAT-registered taxpayer is obliged to remit a significant portion
of the income it derived from its sales as output VAT. The transitional input tax credit mitigates this initial
diminution of the taxpayer’s income by affording the opportunity to offset the losses incurred through the remittance
of the output VAT at a stage when the person is yet unable to credit input VAT payments.

Under Section 105 of the Old NIRC, the rate of the transitional input tax credit is "8% of the value of such inventory
or the actual value-added tax paid on such goods, materials and supplies, whichever is higher." If indeed the
transitional input tax credit is premised on the previous payment of VAT, then it does not make sense to afford the
taxpayer the benefit of such credit based on "8% of the value of such inventory" should the same prove higher than
the actual VAT paid. This intent that the CTA alluded to could have been implemented with ease had the legislature
shared such intent by providing the actual VAT paid as the sole basis for the rate of the transitional input tax credit.

G.R. No. 180345 November 25, 2009

SAN ROQUE POWER CORPORATION, vs COMMISSIONER OF INTERNAL REVENUE, Respondent.

FACTS:

Respondent, as the Commissioner of the Bureau of Internal Revenue (BIR), is responsible for the assessment and
collection of all national internal revenue taxes, fees, and charges, including the Value Added Tax (VAT), imposed
by Section 108 of the National Internal Revenue Code (NIRC) of 1997. Moreover, it is empowered to grant refunds
or issue tax credit certificates in accordance with Section 112 of the NIRC of 1997 for unutilized input VAT paid on
zero-rated or effectively zero-rated sales and purchases of capital goods

On the other hand, petitioner is a domestic corporation organized under the corporate laws of the Republic of the
Philippines. On 14 October 1997, it was incorporated for the sole purpose of building and operating the San Roque
Multipurpose Project in San Manuel, Pangasinan, which is an indivisible project consisting of the power station, the
dam, spillway, and other related facilities.
On 11 October 1997, petitioner entered into a Power Purchase Agreement (PPA) with the National Power
Corporation (NPC) to develop the hydro potential of the Lower Agno River, and to be able to generate additional
power and energy for the Luzon Power Grid, by developing and operating the San Roque Multipurpose Project.

For the period January to December 2002, petitioner filed with the respondent its Monthly VAT Declarations and
Quarterly VAT Returns. Its Quarterly VAT Returns showed excess input VAT payments on account of its importation
and domestic purchases of goods and services

On 19 June 2002, 25 October 2002, 27 February 2003, and 29 May 2003, petitioner filed with the BIR four separate
administrative claims for refund of Unutilized Input VAT paid for the period January to March 2002, April to June
2002, July to September 2002, and October to December 2002, respectively. In these letters addressed to the BIR,
Carlos Echevarria (Echevarria), the Vice President and Director of Finance of petitioner, explained that petitioner’s
sale of power to NPC are subject to VAT at zero percent rate, in accordance with Section 108(B)(3) of the
NIRC.Petitioner sought to recover the total amount of ₱250,258,094.25, representing its unutilized excess VAT on
its importation of capital and other taxable goods and services for the year 2002,

Petitioner amended its Quarterly VAT Returns, particularly the items on (1) Input VAT on Domestic Purchases
during the first quarter of 2002; (2) Input VAT on Domestic Purchases for the fourth quarter of 2002; and (3) Input
VAT on Importation of Goods for the fourth quarter of 2002

On 30 May 2003 and 31 July 2003, petitioner filed two letters with the BIR to amend its claims for tax refund or
credit for the first and fourth quarter of 2002, respectively. Petitioner sought to recover a total amount of
₱249,397,620.18 representing its unutilized excess VAT on its importation and domestic purchases of goods and
services for the year 2002,

Respondent failed to act on the request for tax refund or credit of petitioner, which prompted the latter to file on 5
April 2004, with the CTA in Division, a Petition for Review, docketed as CTA Case No. 6916 before it could be
barred by the two-year prescriptive period within which to file its claim. Petitioner sought the refund of the amount
of ₱249,397,620.18 representing its unutilized excess VAT on its importation and local purchases of various goods

During the proceedings before the CTA Second Division, petitioner presented the following documents, among other
pieces of evidence: (1) Petitioner’s Amended Quarterly VAT return for the 4th Quarter of 2002 marked as Exhibit
"A," showing the amount of ₱42,500,000.00 paid by NTC to petitioner for all the electricity produced during test
runs; (2) the special audit report, prepared by the CPA firm of Punongbayan and Araullo through a partner, Angel A.
Aguilar (Aguilar

After a hearing on the merits, the CTA Second Division rendered a Decision denying petitioner’s claim for tax
refund or credit.

Petitioner filed an appeal with the CTA En Banc, docketed as CTA EB No. 248. The CTA En Banc promulgated its
Decision on 20 September 2007 denying petitioner’s appeal.

WHEREFORE, premises considered, the instant petition is hereby DISMISSED. Accordingly, the assailed Decision
and Resolution are hereby AFFIRMED

Hence, the present Petition for Review where the petitioner raises the following errors allegedly committed by the
CTA En banc:

ISSUES
Whether or not petitioner is entitled to refund or tax credit in the amount of ₱249,397,620.18 representing its
unutilized input VAT paid on importation and purchases of capital and other taxable goods and services from
January 1 to December 31, 2002.

LAWS

SEC. 112. Refunds or Tax Credits of Input Tax.

(A) Zero-rated or Effectively Zero-rated Sales—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 a tax credit certificate or refund of creditable input tax due or paid attributable to such
sales, except transitional input tax, to the extent that such input tax has not been applied against output tax:
Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section
108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the BangkoSentral ng Pilipinas (BSP): Provided, further, That where
the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or
properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to
any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales.

SEC 106. Value-Added Tax on Sale of Goods or Properties.

x xxx

(B) Transactions Deemed Sale.—The following transactions shall be deemed sale:

(1) Transfer, use or consumption not in the course of business of goods or properties originally intended for
sale or for use in the course of business;

(2) Distribution or transfer to:

(a) Shareholders or investors as share in the profits of the VAT-registered persons; or

(b) Creditors in payment of debt;

(3) Consignment of goods if actual sale is not made within sixty (60) days following the date such goods
were consigned; and

(4) Retirement from or cessation of business, with respect to inventories of taxable goods existing as of
such retirement or cessation. (Our emphasis.)

ARGUMENTS:

Petitioner sought the refund of the amount of ₱249,397,620.18 representing its unutilized excess VAT on its
importation and local purchases of various goods and services for the year 2002.

After a hearing on the merits, the CTA Second Division rendered a Decision dated 23 March 2006 denying
petitioner’s claim for tax refund or credit. The CTA noted that petitioner based its claim on creditable input VAT
paid, which is attributable to (1) zero-rated or effectively zero-rated sale, as provided under Section 112(A) of the
NIRC, and (2) purchases of capital goods, in accordance with Section 112(B) of the NIRC. The court ruled that in
order for petitioner to be entitled to the refund or issuance of a tax credit certificate on the basis of Section 112(A) of
the NIRC, it must establish that it had incurred zero-rated sales or effectively zero-rated sales for the taxable year
2002. Since records show that petitioner did not make any zero-rated or effectively-zero rated sales for the taxable
year 2002, the CTA reasoned that petitioner’s claim must be denied. Parenthetically, the court declared that the claim
for tax refund or credit based on Section 112(B) of the NIRC requires petitioner to prove that it paid input VAT on
capital goods purchased, based on the definition of capital goods provided under Section 4.112-1(b) of Revenue
Regulations No. 7-95—i.e., goods or properties which have an estimated useful life of greater than one year, are
treated as depreciable assets under Section 34(F) of the NIRC, and are used directly or indirectly in the production
or sale of taxable goods and services. The CTA found that the evidence offered by petitioner—the suppliers’ invoices
and official receipts and Import Entries and Internal Revenue Declarations and the audit report of the Court-
commissioned Independent Certified Public Accountant (CPA) are insufficient to prove that the importations and
domestic purchases were classified as capital goods and properties entered as part of the "Property, Plant and
Equipment" account of the petitioner.

RULING:

The present Petition is meritorious.

To claim refund or tax credit under Section 112(A), petitioner must comply with the following criteria: (1) the
taxpayer is VAT registered; (2) the taxpayer is engaged in zero-rated or effectively zero-rated sales; (3) the input
taxes are due or paid; (4) the input taxes are not transitional input taxes; (5) the input taxes have not been applied
against output taxes during and in the succeeding quarters; (6) the input taxes claimed are attributable to zero-rated
or effectively zero-rated sales; (7) for zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1)
and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP
rules and regulations; (8) where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales,
and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be
proportionately allocated on the basis of sales volume; and (9) the claim is filed within two years after the close of
the taxable quarter when such sales were made.

Based on the evidence presented, petitioner complied with the abovementioned requirements.

The main dispute in this case is whether or not petitioner’s claim complied with the sixth requirement—the
existence of zero-rated or effectively zero-rated sales, to which creditable input taxes may be attributed. The CTA in
Division and en banc denied petitioner’s claim solely on this ground. The tax courts based this conclusion on the
audited report, marked as Exhibit "J-2," stating that petitioner made no sale of electricity to NPC in 2002.Moreover,
the affidavit of Echevarria (Exhibit "L"), petitioner’s Vice President and Director for Finance, contained an
admission that no commercial sale of electricity had been made in favor of NPC in 2002 since the project was still
under construction at that time

After carefully examining of Section 106, this Court finds it an equitable construction of the law that when the term
"sale" is made to include certain transactions for the purpose of imposing a tax, these same transactions should be
included in the term "sale" when considering the availability of an exemption or tax benefit from the same revenue
measures. It is undisputed that during the fourth quarter of 2002, petitioner transferred to NPC all the electricity that
was produced during the trial period. The fact that it was not transferred through a commercial sale or in the normal
course of business does not deflect from the fact that such transaction is deemed as a sale under the law.

Having decided that petitioner is entitled to claim refund or tax credit under Section 112(A) of the NIRC or on the
basis of effectively zero-rated sales in the amount of ₱246,131,610.40, there is no more need to establish its right to
make the same claim under Section 112(B) of the NIRC or on the basis of purchase of capital goods.

Finally, respondent contends that according to well-established doctrine, a tax refund, which is in the nature of a tax
exemption, should be construed strictissimi juris against the taxpayer.However, when the claim for refund has clear
legal basis and is sufficiently supported by evidence, as in the present case, then the Court shall not hesitate to grant
the same.

WHEREFORE, the instant Petition for Review is GRANTED.


KEPCO PHILIPPINES CORPORATION VERSUS COMMISSION OF INTERNAL REVENUE

G.R. No. 179356December 14, 2009

FACTS:

Korea Electric Power Corporation ( KEPCO Philippines Corporation (petitioner) is an independent power producer
engaged in selling electricity to the (National Power Corporation). After its incorporation and registration with the
Securities and exchange commission on June 15, 1995, petitioner forged a Rehabilitation Operation Maintenance
and Management agreement with NPC for the rehabilitation and operation of Malaya Power Plant Complex in Rizal.

On September 30, 1998, petitioner filed with the Commissioner of Internal Revenue (Respondent) administrative
claims for tax refund representing unutilized input Value Added Tax payments on domestic purchases of goods and
services for the 3rdQuarter of 1996 and another representing credible VAT withheld from payments received from
NPC for the months of April and June 2016

Petitioner filed before respondent on December 29,1998 still another claim for refund representing unutilized input
VAT payments attributable to its zero-rated sale transactions with NPC, including input VAT payments on domestic
goods and services for the 4th quarter of 1996. Petitioner also filed the same claim before the CTA on December
29,1998 docketed as CTA case No. 5704.

The two petitions before the CTA for a refund in the total amount of P 22,172,003.26 were consolidated.

By Decision of March 18,2003 the CTA granted petitioner partial refund with respect to the unutilized input VAT
payment on domestic goods and services qualifying as capital goods purchased for the 3rd and 4th quarters of 1996in
the amount of P8,325,350.35. All other claims were disallowed.

Petitioner filed a urgent motion for reconsideration, claiming an additional amount of P5,012,875.67. However CTA
denied the same motion.

Petitioner appealed under Rule 43 of Rules of Court before the Court of Appeals, paying only for the refund of
P3,455,199.54 claiming that the purchases represented thereby were used in the rehabilitation of the Malaya
powerplant Complex which should be considered as capital expense to fall within the purview of capital goods.

The appellate court affirmed that of the CTA. In arriving at its decision, the appellate court considered among other
things, the account vouchers submitted by the petitioner which listed the purchases under inventory accounts.

ISSUE:

Whether or not the claim of the petitioner falls within the purview of capital goods in order to avail refund.

Law:

Under Section 4.106-1(b) of Revenue regulations No. 7-95 defines capital goods and its scope in this wise:

(b) Capital Goods – Only a VAT –registered person may apply for issuance of a tax credit certificate or refund of
input taxes paid on capital goods imported or locally purchased. The refunds shall be allowed to the extent that such
input taxes have not been applied against output taxes. The application should be made within (2) years after the
close of the taxable quarter when the importation or purchase was made.

ARGUMENT:
Petitioner contends that since the disallowed items are treated as capital goods in the general ledger and accounting
records, as testified on by its senior accountant, Karen Bulos before the CTA, this should have been given more
significance than the account vouchers which listed the items under inventory accounts.

A general ledger is a record of a business entity’s account which make up its financial statements. Information
contained in a general ledger is gathered from source documents such as account vouchers, purchase orders and
sales invoices. In case of variance between the source documents and the general ledger, the former is preferred.

However, the court answered such contention that the account vouchers presented confirm that the purchases cannot
qualify as capital goods for they are held as inventory items and not charged to any depreciable asset account.

COURT RULING:

Refund of input taxes on capital goods shall be allowed only to the extent that such capital goods are uses in VAT
Taxable business. If it is also used in exempt operations, the input tax refundable shall only be the ratable portion
corresponding to taxable operations.

The Court held that to be considered as “capital goods or properties”, three requisites must concur. First, useful life
of goods or properties must be used directly or indirectly in the production of sale of taxable goods and services.
Information contained in a general ledger is gathered from source documents such as account vouchers, purchase
orders and sales invoices. In case of variance between the source document and the general ledger, the former is
preferred.

From Petitioner KEPCO’s evidence, the account vouchers specifically indicate that the disallowed
purchases were recorded under inventory accounts , instead of depreciable accounts. The petitioner failed to indicate
under its fixed assets or depreciable assets accounts, goods and services allegedly purchases pursuant to the
rehabilitation and maintenance of Malaya Powerplant Complex, militates against its claim for refund. Petitioner has
offered no explanation why the disallowed items were not listed under depreciable asset accounts.

It is settled that tax refunds are in the nature of tax exemptions. Laws granting exemptions are construed strictly
against the taxpayer who is asking for exemption and liberally in favor of the taxing authority. Where the taxpayer
claims a refund, the CTA as a court of record is required to conduct a formal trial to prove every minute aspect of the
claim.

By the very nature of its functions, the CTA is dedicated exclusively to the resolution of tax problems and has
consequently developed an expertise on the subject. Absent a showing of abuse or reckless exercise of authority, the
Court appreciates no ground to disturb the appellate court’s decision affirming that of the CTA.

In Fine, petitioner having failed to establish that the disallowed items should be classified as capital goods, the
assailed decision of the court of appeals must be upheld. Petition is denied.

MINDANAO II GEOTHERMAL PARTNERSHIP VS. COMMISSIONER OF INTERNAL REVENUE G.R.


No. 204745 12/08/14

FACTS:

Petitioner, a partnership registered with the Securities and Exchange Commission (SEC) is a
VAT-registered entity and is engaged in the generation, collection, and distribution of electricity. On
March 11, 1997, it entered into a Build Operate-Transfer Contract with the Philippine National Oil
Company Energy Development Corporation (PNOC-EDC) for the finance, engineering, supply,
installation, testing, commissioning, operation and maintenance of a geothermal power plant provided that
PNOC-EDC shall supply and deliver steam to the petitioner without cost. Petitioner shall in turn convert
the steam into electric capacity and energy for the PNOC-EDC, and shall deliver the same to the National
Power Corporation (NAPOCOR) for and on behalf of the PNOC-EDC. Petitioner’s geothermal power
plant was accredited by the Department of Energy as a Block Power Production Facility. Likewise, the
Energy Regulatory Commission (ERC) issued certificate of Compliance.
On April 24, 2008, July 25, 2008, October 24, 2008 and January 2, 2009, petitioner filed its
quarterly VAT returns for the four (4) quarters of 2008 reflecting the amount of P 6,149,256.25 as
unutilized/excess input VAT.
On December 8, 2009, petitioner filed before the Bureau of Internal Revenue (BIR), Kidapawan
City, Cotabato an administrative claim for refund/credit of its unapplied and unutilized input VAT for the
year 2008 in the said amount. Thereafter, on March 2010, petitioner filed its judicial claim for
refund/credit of its unutilized/excess input VAT for 1 st quarter and subsequently for 2 nd to 4th quarters
before the Court of Tax Appeals (CTA). Commissioner of Internal Revenue (CIR) filed a Motion to
Dismiss the case for being prematurely filed because of petitioner’s failure to observe the 120-day period
prescribed under the National Internal Revenue Code (NIRC).
In a resolution, Court of Tax Appeal Division granted CIR’s motion to dismiss holding that the
120-day period is crucial before a taxpayer may file a judicial claim for refund before the CTA. Petitioner
moved for consideration. However, the CTA en Banc affirmed the ruling of CTA Division.

ISSUES:

Whether or not the Court of Tax Appeals (CTA) En Banc correctly affirmed the CTA Division
dismissal of petitioner’s judicial claim for the refund/credit of input VAT for being prematurely filed?

Court’s Ruling:

Section 112 of the NIRC as amended by RA 9337 provides that refunds or Tax Credits of Input
Tax of any VAT-registered person whose sales are zero-rated or effectively zero-rated may within 2 years
after the close of the taxable quarter when sales were made apply for issuance of tax credit certificate or
refund of creditable input tax due or paid. The Commissioner may grant the same within 120 days from
the date of submission of complete documents in support of such application. It ruled that taxpayers-
claimants need not observe the 120-day period before it could file judicial claim for refund of excess input
VAT before the CTA.

COMMISSIONER OF INTERNAL REVENUE vs. SONY PHILIPPINES, INC

G.R. No. 178697. November 17, 2010

FACTS:

On November 24, 1998, the CIR issued Letter of Authority No. 000019734 (LOA 19734) authorizing
certain revenue officers to examine Sony's books of accounts and other accounting records regarding revenue taxes
for "the period 1997 and unverified prior years." On December 6, 1999, a preliminary assessment for 1997
deficiency taxes and penalties was issued by the CIR which Sony protested. Thereafter, acting on the protest, the
CIR issued final assessment notices, the formal letter of demand and the details of discrepancies.

Sony sought re-evaluation of the aforementioned assessment by filing a protest on February 2, 2000. Sony
submitted relevant documents in support of its protest on the 16th of that same month.
The CTA-First Division partly granted Sony's petition by cancelling the deficiency VAT assessment but
upheld a modified deficiency EWT assessment as well as the penalties.

The CIR sought reconsideration, butCTA-First Division denied the motion for reconsideration.

Finding no cogent reason to reverse the decision of the CTA-First Division, the CTA-EB dismissed CIR's
petition on May 17, 2007. CIR's motion for reconsideration was denied by the CTA-EB on July 5, 2007. Hence, this
petition for review before this Court.

ISSUE:

Whether or not Sony Philippines, Inc is liable for deficiency of VAT?

LAW APPLICABLE IN THIS CASE:

1. Section 106 of the Tax Code

SEC. 106. Value-added Tax on Sale of Goods or Properties. —

(A) Rate and Base of Tax. — There shall be levied, assessed and collected on every sale, barter or exchange of
goods or properties, value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in
money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor.

2. Section 110 of the Tax Code

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:

(a) Purchase or importation of goods:

xxx xxxxxx.

(b) Purchase of services on which a value-added tax has been actually paid.

xxx xxxxxx.

The term 'input tax' means the value-added tax due from or paid by a VAT-registered person in the course of his
trade or business on importation of goods or local purchase of goods or services, including lease or use of property,
from a VAT-registered person. It shall also include the transitional input tax determined in accordance with Section
111 of this Code.

ARGUMENTS:

The CIR contends that since Sony's advertising expense was reimbursed by SIS, the former never incurred
any advertising expense. As a result, Sony is not entitled to a tax credit. At most, the CIR continues, the said
advertising expense should be for the account of SIS, and not Sony.

COURT RULING:
The Court is not persuaded. As aptly found by the CTA-First Division and later affirmed by the CTA-EB,
Sony's deficiency VAT assessment stemmed from the CIR's disallowance of the input VAT credits that should have
been realized from the advertising expense of the latter. It is evident under Section 110 of the 1997 Tax Code that an
advertising expense duly covered by a VAT invoice is a legitimate business expense. This is confirmed by no less
than CIR's own witness, Revenue Officer Antonio Aluquin. There is also no denying that Sony incurred advertising
expense. Aluquin testified that advertising companies issued invoices in the name of Sony and the latter paid for the
same. Indubitably, Sony incurred and paid for advertising expense/services. Where the money came from is another
matter all together but will definitely not change said fact.

To begin with, the said subsidy termed by the CIR as reimbursement was not even exclusively earmarked
for Sony's advertising expense for it was but an assistance or aid in view of Sony's dire or adverse economic
conditions, and was only "equivalent to the latter's (Sony's) advertising expenses."

Thus, there must be a sale, barter or exchange of goods or properties before any VAT may be levied.
Certainly, there was no such sale, barter or exchange in the subsidy given by SIS to Sony. It was but a dole out by
SIS and not in payment for goods or properties sold, bartered or exchanged by Sony.

WHEREFORE, the petition is DENIED.

THIRD DIVISION April 5, 2017 G.R. No. 222743

MEDICARD PHILIPPINES, INC., Petitioner, vs. COMMISSIONER OF INTERNAL


REVENUE, Respondent.

FACTS:

MEDICARD is a Health Maintenance Organization (HMO) that provides prepaid health and medical insurance
coverage to its clients. Individuals enrolled in its health care programs pay an annual membership fee and are
entitled to various preventive, diagnostic and curative medical services.

MEDICARD files its Quarterly VAT Returns through Electronic Filing and Payment System (EFPS). Upon finding
some discrepancies between MEDICARD's Income Tax Returns (ITR) and VAT Returns, the CIR informed
MEDICARD and issued a Letter Notice. On January 4, 2008, MEDICARD received CIR's Formal Assessment
Notice dated December' 10, 2007 for alleged deficiency VAT for taxable year 2006 in the total amount of P
196,614,476.69,10 inclusive of penalties.

According to the CIR, the taxable base of HMOs for VAT purposes is its gross receipts without any deduction under
Section 4.108.3(k) of Revenue Regulation (RR) No. 16-2005.

ISSUES:

L. Whether the absence of the LOA is fatal; and

2. Whether the amounts that MEDICARD earmarked and eventually paid to the medical service providers should
still form part of its gross receipts for VAT purposes.

LAW APPLICABLE:

As to whether the absence of LOA is fatal, Section 6 of the NIRC clearly provides as follows:

SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax
Administration and Enforcement. –
(A) Examination of Return and Determination of Tax Due.- After a return has been filed as required under the
provisions of this Code, the Commissioner or his duly authorized representative may authorize the
examinationof any taxpayer and the assessment of the correct amount of tax: Provided, however, That failure to
file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer.

Whether the amounts that MEDICARD earmarked and eventually paid to the medical service providers should still
form part of its gross receipts for VAT purposes, RR No. 16-2005 provides:

Section 4.108-3.xxx

HMO's gross receipts shall be the total amount of money or its equivalent representing the service fee actually or
constructively received during the taxable period for the services performed or to be performed for another person,
excluding the value-added tax. The compensation for their services representing their service fee, is presumed
to be the total amount received as enrollment fee from their members plus other charges received.

Section 4.108-4. x xx. "Gross receipts" refers to the total amount of money or its equivalent representing the
contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with
the services and deposits applied as payments for services rendered, and advance payments actually or
constructively received during the taxable period for the services performed or to be performed for another
person, excluding the VAT.

ARGUMENTS:

MEDICARD argued that: (1) the services it render is not limited merely to arranging for the provision of medical
and/or hospital services by hospitals and/or clinics but include actual and direct rendition of medical and laboratory
services; (2) out of the ₱l .9 Billion membership fees, ₱319 Million was received from clients that are registered
with the Philippine Export Zone Authority (PEZA) and/or Bureau of Investments; (3) the processing fees amounting
to ₱l 1.5 Million should be excluded from gross receipts because P5.6 Million of which represent advances for
professional fees due from clients which were paid by MEDICARD while the remainder was already previously
subjected to VAT; (4) the professional fees in the amount of Pl 1 Million should also be excluded because it
represents the amount of medical services actually and directly rendered by MEDICARD and/or its subsidiary
company; and (5) even assuming that it is liable to pay for the VAT, the 12% VAT rate should not be applied on the
entire amount but only for the period when the 12% VAT rate was already in effect, i.e., on February 1, 2006.

The CTA Division, and likewise affirmed with modification by the CTA en banc, held that: (1) the determination of
deficiency VAT is not limited to the issuance of Letter of Authority (LOA) alone as the CIR is granted vast powers to
perform examination and assessment functions; (2) in lieu of an LOA, an LN was issued to MEDICARD informing
it· of the discrepancies between its ITRs and VAT Returns and this procedure is authorized under Revenue
Memorandum Order (RMO) No. 30-2003 and 42-2003; (3) MEDICARD is estopped from questioning the validity
of the assessment on the ground of lack of LOA since the assessment issued against MEDICARD contained the
requisite legal and factual bases that put MEDICARD on notice of the deficiencies and it in fact availed of the
remedies provided by law without questioning the nullity of the assessment; (4) the amounts that MEDICARD
earmarked , and eventually paid to doctors, hospitals and clinics cannot be excluded from the computation of its
gross receipts under the provisions of RR No. 4-2007 because the act of earmarking or allocation is by itself an act
of ownership and management over the funds by MEDICARD which is beyond the contemplation of RR No. 4-
2007; (5) MEDICARD's earnings from its clinics and laboratory facilities cannot be excluded from its gross receipts
because the operation of these clinics and laboratory is merely an incident to MEDICARD's main line of business as
HMO and there is no evidence that MEDICARD segregated the amounts pertaining to this at the time it received the
premium from its members; and (6) MEDICARD was not able to substantiate the amount pertaining to its January
2006 income and therefore has no basis to impose a 10% VAT rate.

COURT RULING:

1. The absence of an LOA violated MEDICARD's right to due process

An LOA is the authority given to the appropriate revenue officer assigned to perform assessment functions. It
empowers or enables said revenue officer to examine the books of account and other accounting records of a
taxpayer for the purpose of collecting the correct amount of tax.An LOA is premised on the fact that the examination
of a taxpayer who has already filed his tax returns is a power that statutorily belongs only to the CIR himself or his
duly authorized representatives.

It is clear that unless authorized by the CIR himself or by his duly authorized representative, through an LOA, an
examination of the taxpayer cannot ordinarily be undertaken. The circumstances contemplated under Section 6
where the taxpayer may be assessed through best-evidence obtainable, inventory-taking, or surveillance among
others has nothing to do with the LOA. These are simply methods of examining the taxpayer in order to arrive at .the
correct amount of taxes. Hence, unless undertaken by the CIR himself or his duly authorized representatives, other
tax agents may not validly conduct any of these kinds of examinations without prior authority.

2. The amounts earmarked and eventually paid by MEDICARD to the medical service providers do not form
part of gross receipts for VAT purposes

Gross receipt is understood as comprising the entire receipts without any deduction. Congress limited the scope of
the term gross receipts for VAT purposes only to the amount that the taxpayer received for the services it performed
or to the amount it received as advance payment for the services it will render in the future for another person.

Thus, in the course of its business as such, MEDICARD members can either avail of medical services from
MEDICARD's accredited healthcare providers or directly from MEDICARD. In the former, MEDICARD members
obviously knew that beyond the agreement to pre-arrange the healthcare needs of its ·members, MEDICARD would
not actually be providing the actual healthcare service. Thus, based on industry practice, MEDICARD informs its
would-be member beforehand that 80% of the amount would be earmarked for medical utilization and only the
remaining 20% comprises its service fee. In the latter case, MEDICARD's sale of its services is exempt from VAT
under Section 109(G).

G.R. No. 181961 December 5, 2011

LVM CONSTRUCTION CORPORATION, represented by its Managing Director, ANDRES CHUA LAO,

Vs.

F.T. SANCHEZ/SOCOR/KIMWA (JOINT VENTURE), F.T. SANCHEZ CONSTRUCTION


CORPORATION, SOCOR CONSTRUCTION CORPORATION AND KIMWA CONSTRUCTION AND
DEVELOPMENT CORPORATION all represented by FORTUNATO O. SANCHEZ, JR.,

FACTS:

Petitioner LVM Construction Corporation (LVM) is a duly licensed construction firm primarily engaged in the
construction of roads and bridges for the Department of Public Works and Highways. The construction of the
Arterial Road Link Development Project in Southern Leyte was awarded to LVM. It sub-contracted approximately
30% of the contract amount with the Joint Venture composed of respondents F.T. Sanchez Corporation, Socor
Construction Corporation and Kimwa Construction Development Corporation for the contract price of
P90,061,917.25 which was later on reduced to P86,318,478.38.

The Joint Venture sent LVM a total of 27 Billings. For Billing Nos. 1 to 26, LVM paid the Joint Venture the total
sum of P80,414,697.12 and retained the sum of P8,041,469.79 by way of the 10% retention stipulated in the Sub-
Contract Agreement. For Billing No. 27 in the sum of P5,903,780.96, on the other hand, LVM paid the Joint Venture
the partial sum of P2,544,934.99 on 31 May 2001, claiming that it had not yet been fully paid by the DPWH.

Finding that the delays incurred by the Joint Venture were justified, the Construction Industry Arbitration
Commission likewise denied LVM’s counterclaim for liquidated damages for lack of contractual basis.The CIAC
rendered its decision granting the Joint Ventures claims for the payment of the retention money for Billing Nos. 1 to
26 as well as the interest thereon and the unpaid balance billing from 6 August 1999 to 1 January 2006 in the
aggregate sum of P11,307,646.68. Discounting the contractual and legal bases for LVMs claim that it had the right
to offset its E-VAT payments from the retention money still in its possession, the CIAC ruled that the VAT
deductions the DPWH made from its payments to LVM were for the whole project and already included all its
supplies and subcontractors. Instead of withholding said retention money, LVM was determined to have to its credit
and for its use the input VAT corresponding to the 10% equivalent VAT paid by the Joint Venture based on the BIR-
registered official receipts it issued.

Elevated by LVM to the CA through a petition for review but the CA the affirmed the CIACs decision in toto.

ISSUES:

I. Whether or not the joint venture is liable for the 8.5% E-VAT
II. Whether or not the respondents are deemed to have already paid value added tax merely because respondents had
allegedly issued receipts for services rendered.

LAW

Section 114. Return and Payment of Value-Added Tax.

(C) Withholding of Creditable Value-added Tax. - The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or -controlled corporations (GOCCs) shall, before
making payment on account of each purchase of goods from sellers and services rendered by contractors which are
subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold the value-added
tax due at the rate of three percent (3%) of the gross payment for the purchase of goods and six percent (6%) on
gross receipts for services rendered by contractors on every sale or instalment payment which shall be creditable
against the value-added tax liability of the seller or contractor: Provided, however, That in the case of government
public works contractors, the withholding rate shall be eight and one-half percent (8.5%): Provided, further, That the
payment for lease or use of properties or property rights to nonresident owners shall be subject to ten percent (10%)
withholding tax at the time of payment. For this purpose, the payor or person in control of the payment shall be
considered as the withholding agent.

ARGUMENTS

LVM maintained that it did not release the 10% retention for Billing Nos. 1 to 26 on the ground that it had yet to
make the corresponding 8.5% deductions for E-VAT which the Joint Venture should have paid to the Bureau of
Internal Revenue (BIR) and that there is, as a consequence, a need to offset the sums corresponding thereto from the
retention money still in its possession. Moreover, LVM alleged that the Joint Ventures claims failed to take into
consideration its own outstanding obligation in the total amount of P21,737,094.05, representing the liquidated
damages it incurred as a consequence of its delays in the completion of the project.

COURT RULING

I. No. There was no provision in the Sub-Contract Agreement that would hold Sanchez liable for EVAT on the
amounts paid to it by LVM. As pointed out by the CIAC in its Award, the contract documents provide only for the
payment of the awarded cost of the project less 9%. Any other deduction must be clearly stated in the provisions of
the contract or upon agreement of the parties. The tribunal finds no provision that EVAT will be deducted from the
sub-contractor. If [the Joint Venture] should pay or share in the payment of the EVAT, it must be clearly defined in
the sub-contract agreement.
Indeed, a contract constitutes the law between the parties who are, therefore, bound by its stipulations which, when
couched in clear and plain language, should be applied according to their literal tenor. The record shows that, except
for deducting sums corresponding to the 10% retention agreed upon, 9% as contingency on sub-contract, 1%
withholding tax and such other itemized miscellaneous expenses, LVM settled the Joint Ventures Billing Nos. 1 to
26 without any mention of deductions for the E-VAT payments it claims to have advanced. It was, in fact, only on 16
May 2001 that LVMs Managing Director, Andres C. Lao, apprised the Joint Venture in writing of its intention to
deduct said payments.

II. Yes. Under the VAT Law, everyone must pay 10% VAT based on their issued official receipts. These receipts must
be official receipts and registered with the BIR. Elucidating further, CIAC pointed out that Sanchez, under the
contract was required to issue official receipts registered with the BIR for every payment LVM makes for the
progress billings, which it did.For these official receipts issued by Sanchez to LVM, Sanchez already paid 10%
VAT to the BIR, thus: Respondent LVM must pay its output Vat based on its receipts. Complainant Sanchez must
also pay output VAT based on its receipts.The law however allow each entity to deduct the input VAT based on the
official receipts issued to it. Clearly, therefore, respondent LVM, has to its credit the 10% output VAT paid by
claimant Joint Venture based on the official receipts issued to it. Respondent [LVM] can use this input VAT to offset
any output VAT respondent LVM must pay for any of its other projects.

Accenture Inc. vs. Commissioner of the Internal Revenue


GR 190102, July 11, 2012
Facts:

Accenture, Inc. is a corporation engaged in the business of providing management consulting, business
strategies development, and selling and/or licensing of software. It is duly registered with the Bureau of Internal
Revenue as a Value Added Tax (VAT) taxpayer or enterprise in accordance with Section 236 of the National Internal
Revenue Code.

This case involves Accenture’s claim of a refund or for the issuance of a Tax Credit Certificate (TCC),
brought about by its excess VAT that was not applied to any output VAT that the company is liable for.

With its application for the said refund or TCC not being acted upon by the Department of Finance,
Accenture filed a Petition for Review with the First Division of the Court for Tax Appeals.

In his Answer to the company’s claim, the Commissioner of the Internal Revenue (CIR) posted the
following contentions:

1. Accenture’s sale of goods and services to its clients are not zero-rated transactions.
2. It failed to prove to its entitlement to a refund.

Consequently, the Division denied Accenture’s petition for the latter’s failure to prove that its sale of
services to alleged foreign clients qualified for zero percent VAT. Its Motion for Reconsideration was also denied,
thus, Accenture filed an appeal before the Court of Tax Appeals En Banc (CTA). However, the latter ruled that the
former failed to prove that its clients were doing business outside of the Philippines. Accenture’s subsequent Petition
for Review with the CTA En Banc was also denied with the latter affirming the Division’s Decision and Resolution,
the former’s ensuing MR also suffered the same fate.

Issues:

1. Should the recipient of the services be “doing business outside the Philippines” for the transaction to be
zero-rated under Section 108(B)(2) of the 1997 Tax Code?

2. Has Accenture successfully proven that its clients are entities doing business outside the Philippines?
Law/s:
The law involved in this case and anchored on by the petitioner relative to its claim is Section 112(A),
Refunds or Tax Credits of Input Tax, of the 1997 Tax Code, which provides:

(A) Zero-Rated or Effectively Zero-Rated Sales. - 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 a tax credit certificate or refund of creditable input tax due or paid attributable to such
sales, except transitional input tax, to the extent that such input tax has not been applied against output tax:
Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108
(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the BangkoSentralngPilipinas (BSP): Provided, further, That where the
taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods of
properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to
any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales.

(B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the Philippines
by VAT- registered persons shall be subject to zero percent (0%) rate.

(1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which
goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the BangkoSentralngPilipinas (BSP);
(2) Services other than those mentioned in the preceding paragraph, the consideration for which is paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of the
BangkoSentralngPilipinas (BSP); x xx.

The foregoing provision was amended by Section 6 of RA 9337. It reads:

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -

(B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the Philippines by VAT-
registered persons shall be subject to zero percent (0%) rate:

(1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines
which goods are subsequently exported, where the services are paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the BangkoSentralngPilipinas (BSP);

(2) Services other than those mentioned in the preceding paragraph rendered to a person engaged in
business conducted outside the Philippines or to a nonresident person not engaged in business who is outside the
Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the BangkoSentralngPilipinas (BSP); x xx.”

Arguments:
Accenture contends that, Section 108 (B), prior to its amendment, does not state that services, to be zero-
rated, should be rendered to clients doing business outside of the Philippines, the only requirement being that the
consideration therefor be in foreign currency and in accordance with the rules set by the BangkoSentralngPilipinas
(BSP), and since the same has been complied with by, it is entitled to a refund.

Meanwhile, the CTA’s contention is that the provision relied on by it is a mere reproduction of the
provision relied on by the petitioner Accenture, thus, decisions interpreting the latter may be used to interpret the
former. And it was ruled therein that the recipient of the services must be doing business outside the Philippines as
expressly provided for by law.

Conclusion: Petition denied.

The Court ruled in favor of the CTA. It found tenable the latter’s argument that the provisions relied on by
the CTA and its subsequent interpretation by this Court can be applied to the instant case for the provision relied on
by the petitioner is a mere reproduction of the same provision, thus, interpretation of the prior provision can be duly
applied to the later provision. Hence, it is mandatory that the recipient of services rendered must be doing business
outside the Philippines for the transaction to qualify for zero-rating.

Petitioner’s reliance on a case decided by this Court is also misplaced, for the issue in the instant case was
never put in question in the said case. What is controlling the place of business of the recipient, even though the
service was performed and consumed in the Philippines. A different interpretation would result to the tax measure
being voluntary instead of it being mandatory.

Moreover, the Petitioner’s failure to provide proof that its clients are doing business outside the Philippines
was fatal to its cause. What it provided as proof, on the other hand, were just documents to prove that its clients are
foreign entities.

LUZON HYDRO CORPORATION, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE,


Respondent.

FIRST DIVISION G.R. No. 188260 November 13, 2013

FACTS:

 The petitioner (LUZON HYDRO CORPORATION), a corporation duly organized under the laws of the
Philippines, has been registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer under
Taxpayer Identification No. 004-266-526. It was formed as a consortium of several corporations, namely:
Northern Mini Hydro Corporation, Aboitiz Equity Ventures, Inc., Ever Electrical Manufacturing, Inc. and
Pacific Hydro Limited.
 Pursuant to the Power Purchase Agreement entered into with the National Power Corporation (NPC), the
electricity produced by the petitioner from its operation of the Bakun Hydroelectric Power Plant was to be
sold exclusively to NPC. Relative to its sale to NPC, the petitioner was granted by the BIR a certificate for
Zero Rate for VAT purposes in the periods from January 1, 2000 to December 31, 2000; February 1, 2000
to December 31, 2000 (Certificate No. Z-162-2000); and from January 2, 2001 to December 31, 2001
(Certificate No. 2001-269).
 The petitioner alleged herein that it had incurred input VAT in the amount of ₱9,795,427.89 on its domestic
purchases of goods and services used in its generation and sales of electricity to NPC in the four quarters of
2001; and that it had declared the input VAT of ₱9,795,427.89 in its amended VAT returns for the four
quarters on 2001.
 On November 26, 2001, the petitioner filed a written claim for refund or tax credit relative to its unutilized
input VAT for the period from October 1999 to October 2001 aggregating ₱14,557,004.38. Subsequently,
on July 24, 2002, it amended the claim for refund or tax credit to cover the period from October 1999 to
May 2002 for ₱20,609,047.56.
 The BIR, through Revenue Examiner Felicidad Mangabat of Revenue District Office No. 2 in Vigan City,
concluded an investigation, and made a recommendation in its report dated August 19, 2002 favorable to
the petitioner’s claim for the period from January 1, 2001 to December 31, 2001.
 Respondent Commissioner of Internal Revenue (Commissioner) did not ultimately act on the petitioner’s
claim despite the favorable recommendation. Hence, on April 14, 2003, the petitioner filed its petition for
review in the CTA, praying for the refund or tax credit certificate (TCC) corresponding to the unutilized
input VAT paid for the four quarters of 2001 totalling ₱9,795,427.88.
 Answering on May 29, 2003, the Commissioner denied the claim, and raised the following special and
affirmative defenses, to wit:
xxxx

7. The petitioner has failed to demonstrate that the taxes sought to be refunded were erroneously
or illegally collected;

8. In an action for tax refund, the burden is upon the taxpayer to prove that he is entitled thereto,
and failure to sustain the same is fatal to the action for tax refund;

9. It is incumbent upon petitioner to show compliance with the provisions of Section 112 and
Section 229, both of the National Internal Revenue Code, as amended;

10. Claims for refund are construed strictly against the claimant for the same partakes the nature of
exemption from taxation and as such they are looked upon [with] disfavor (Western Minolco
Corp. vs. Commissioner of Internal Revenue, 124 SCRA 121);

11. Taxes paid and collected are presumed to have been made in accordance with the law and
regulations, hence, not refundable

 On October 30, 2003, the parties submitted a Joint Stipulation of Facts and Issues, which the CTA in
Division approved on November 10, 2003.

Ruling of the CTA in Division

 The CTA in Division promulgated its decision in favor of the respondent denying the petition for review,
viz:

In petitioner’s VAT returns for the four quarters of 2001, no amount of zero-rated sales was
declared. Likewise, petitioner did not submit any VAT official receipt of payments for services rendered
to NPC. The only proof submitted by petitioner is a letter from Regional Director Rene Q. Aguas,
Revenue Region No. 1, stating that the financial statements and annual income tax return constitute
sufficient secondary proof of effectively zero-rated and that based on their examination and evaluation
of the financial statements and annual income tax return of petitioner for taxable year 2000, it had
annual gross receipts of Ph₱187,992,524.00. This Court cannot give credence to the said letter as it
refers to taxable year 2000, while the instant case refers to taxable year 2001.
Without zero-rated sales for the four quarters of 2001, the input VAT payments of
Ph₱9,795,427.88 (including the present claim of Ph₱2,920,665.16) allegedly attributable thereto cannot
be refunded. It is clear under Section 112 (A) of the NIRC of 1997 that the refund/tax credit of unutilized
input VAT is premised on the existence of zero-rated or effectively zero-rated sales.

For petitioner’s non-compliance with the first requisite of proving that it had effectively zero-rated
sales for the four quarters of 2001, the claimed unutilized input VAT payments of Ph₱2,920,665.16 cannot
be granted.

Decision of the CTA En Banc

 On October 17, 2008, the petitioner filed a petition for review in the CTA En Banc (CTA E.B No. 420),
posing the main issue whether or not the CTA in Division erred in denying its claim for refund or tax credit
upon a finding that it had not established its having effectively zero-rated sales for the four quarters of
2001.

 On May 5, 2009, the CTA En Banc promulgated the assailed decision affirming the Division, and denying
the claim for refund or tax credit, stating:

The other argument of petitioner that even if the tax credit certificate will not be used as evidence,
it was able to prove that it has zero-rated sale as shown in its financial statements and income tax returns
quoting the letter opinion of Regional Director Rene Q. Aguas that the statements and the return are
considered sufficient to establish that it generated zero-rated sale of electricity is bereft of merit. As found
by the Court a quo, the letter opinion refers to taxable year 2000, while the instant case covers taxable
year 2001; hence, cannot be given credence. Even assuming for the sake of argument that the financial
statements, the return and the letter opinion relates to 2001, the same could not be taken plainly as it is
because there is still a need to produce the supporting documents proving the existence of such zero-rated
sales, which is wanting in this case. Considering that there are no zero-rated sales to speak of for taxable
year 2001, petitioner is, therefore, not entitled to a refund of Ph₱2,920,665.16 input tax allegedly
attributable thereto since it is basic requirement under Section 112 (A) of the NIRC that there should exists
a zero-rated sales in order to be entitled to a refund of unutilized input tax.

It is settled that tax refunds, like tax exemptions, are construed strictly against the taxpayer and
that the claimant has the burden of proof to establish the factual basis of its claim for tax credit or refund.
Failure in this regard, petitioner’s claim must therefore, fail.

ISSUE:
 Whether or not the Court of Tax Appeals En Banc committed a reversible error in affirming the decision of
the Court of Tax Appeals

LAW:

 Section 112 of the National Internal Revenue Code 1997 provides:

SEC. 112. Refunds or Tax Credits of Input Tax.—

(A) Zero-rated or Effectively Zero-rated Sales--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 a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales, except transitional input tax, to the
extent that such input tax has not been applied against output tax: Provided, however, That in the
case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108(B)(1) and (2),
the acceptable foreign currency exchange proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided,
further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in
taxable or exempt sale of goods or properties or services, and the amount of creditable input tax
due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be
allocated proportionately on the basis of the volume of sales.

A claim for refund or tax credit for unutilized input VAT may be allowed only if the
following requisites concur, namely: (a) the taxpayer is VAT-registered; (b) the taxpayer is
engaged in zero-rated or effectively zero-rated sales; (c) the input taxes are due or paid; (d) the
input taxes are not transitional input taxes; (e) the input taxes have not been applied against output
taxes during and in the succeeding quarters; (f) the input taxes claimed are attributable to zero-
rated or effectively zero-rated sales; (g) for zero-rated sales under Section 106(A)(2)(1) and (2);
106(B); and 108(B)(1) and (2), the acceptable foreign currency exchange proceeds have been duly
accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas; (h)
where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the
input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be
proportionately allocated on the basis of sales volume; and (i) the claim is filed within two years
after the close of the taxable quarter when such sales were made.

ARGUMENTS:

 In its August 3, 2009 petition for review, the petitioner has argued as follows:

(1) Its sale of electricity to NPC was automatically zero-rated pursuant to Republic Act No. 9136
(EPIRA Law); hence, it need not prove that it had zero-rated sales in the period from January 1, 2001
to December 31, 2001 by the presentation of VAT official receipts that would contain all the necessary
information required under Section 113 of the National Internal Revenue Code of 1997, as
implemented by Section 4.108-1 of Revenue Regulations No. 7-95. Evidence of sale of electricity to
NPC other than official receipts could prove zero-rated sales.

(2) The TCC, once issued, constituted an administrative opinion that deserved consideration and
respect by the CTA En Banc.

(3) The CTA En Banc was devoid of any authority to determine the existence of the petitioner’s zero-
rated sales, inasmuch as that would constitute an encroachment on the powers granted to an
administrative agency having expertise on the matter.

(4) The CTA En Banc manifestly overlooked evidence not disputed by the parties and which, if
properly considered, would justify a different conclusion.

 The petitioner has prayed for the reversal of the decision of the CTA En Banc, and for the remand of the
case to the CTA for the reception of its VAT official receipts as newly discovered evidence. It has supported
the latter relief prayed for by representing that the VAT official receipts had been misplaced by Edwin
Tapay, its former Finance and Accounting Manager, but had been found only after the CTA En Banc has
already affirmed the decision of the CTA in Division. In the alternative, it has asked that the Commissioner
allow the claim for refund or tax credit of ₱2,920,665.16.
 In the comment submitted on December 3, 2009, the Commissioner has insisted that the petitioner’s claim
cannot be granted because it did not incur any zero-rated sale; that its failure to comply with the invoicing
requirements on the documents supporting the sale of services to NPC resulted in the disallowance of its
claim for the input tax; and the claim should also be denied for not being substantiated by appropriate and
sufficient evidence.

COURT’S RULING:

 The petitioner did not competently establish its claim for refund or tax credit. We agree with the CTA En
Banc that the petitioner did not produce evidence showing that it had zero-rated sales for the four quarters
of taxable year 2001. As the CTA En Banc precisely found, the petitioner did not reflect any zero-rated
sales from its power generation in its four quarterly VAT returns, which indicated that it had not made any
sale of electricity. Had there been zero-rated sales, it would have reported them in the returns. Indeed, it
carried the burden not only that it was entitled under the substantive law to the allowance of its claim for
refund or tax credit but also that it met all the requirements for evidentiary substantiation of its claim before
the administrative official concerned, or in the de novo litigation before the CTA in Division.
 Although the petitioner has correctly contended here that the sale of electricity by a power generation
company like it should be subject to zero-rated VAT under Republic Act No. 9136,31 its assertion that it
need not prove its having actually made zero-rated sales of electricity by presenting the VAT official
receipts and VAT returns cannot be upheld. It ought to be reminded that it could not be permitted to
substitute such vital and material documents with secondary evidence like financial statements.
 We further find to be lacking in substance and bereft of merit the petitioner’s insistence that the CTA En
Banc should not have disregarded the letter opinion by BIR Regional Director Rene Q. Aguas to the effect
that its financial statements and its return were sufficient to establish that it had generated zero-rated sale of
electricity. To recall, the CTA En Banc rejected the insistence because, firstly, the letter opinion referred to
taxable year 2000 but this case related to taxable year 2001, and, secondly, even assuming for the sake of
argument that the financial statements, the return and the letter opinion had related to taxable year 2001,
they still could not be taken at face value for the purpose of approving the claim for refund or tax credit due
to the need to produce the supporting documents proving the existence of the zero-rated sales, which did
not happen here. In that respect, the CTA En Banc properly disregarded the letter opinion as irrelevant to
the present claim of the petitioner.
 WHEREFORE, the Court DENIES the petition for review on certiorari for its lack of merit; AFFIRMS
the decision dated May 5, 2009 of the Court of Tax Appeals En Bane; and ORDERS the petitioner to pay
the costs of suit.