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SAN ROQUE POWER CORPORATION v. CIR

FACTS:

Petitioner San Roque Power Corporation filed a Petition for Review on Certiorari against the Court of Tax Appeals (CTA) En Banc's decision affirming the dismissal of their claim for refund and/or tax credit certificate for unutilized input VAT. The claim amounted to P249,397,620.18 for the period covering January to December 2002. Respondent Commissioner of the Bureau of Internal Revenue (BIR) is responsible for the assessment and collection of national internal revenue taxes, fees, and charges including VAT. Petitioner is a domestic corporation engaged in the business of building and operating the San Roque Multipurpose Project. They are registered as a VAT taxpayer with both the Board of Investments (BOI) and the BIR. Petitioner entered into a Power Purchase Agreement (PPA) with the National Power Corporation (NPC) to develop and operate the San Roque Multipurpose Project. Petitioner's sales were considered zero-rated based on certificates granted by the BIR. Petitioner filed monthly VAT declarations and quarterly VAT returns for the period in question, showing excess input VAT payments.

The petitioner filed four separate administrative claims for refund of unutilized input VAT for the periods January to March 2002, April to June 2002, July to September 2002, and October to December 2002. The claims sought to recover a total amount of P250,258,094.25. The petitioner also filed amendments to its Quarterly VAT Returns for the said periods and submitted two letters amending its claims for the first and fourth quarter of 2002. The petitioner sought to recover a total amount of P249,397,620.18. However, the respondent failed to act on the requests for tax refund.

The petitioner filed a Petition for Review with the CTA seeking the refund of P249,397,620.18. The petitioner presented various evidence, including amended quarterly VAT returns, a special audit report, sales invoices, audited financial statements, and an affidavit. The CTA Second Division denied the petitioner's claim for tax refund or credit, stating that the petitioner did not have zero-rated or effectively zero-rated sales for the taxable year 2002. The CTA En Banc also denied the petitioner's appeal.

In this case, the petitioner questioned the assessment made by the Commissioner of Internal Revenue (CIR) for deficiency taxes. The CIR disallowed the petitioner's claim for input VAT credits on certain purchases of goods, specifically capital goods. The petitioner presented invoices and receipts as evidence, but the CIR found them insufficient to establish the nature of the purchases. The petitioner sought the reversal of the assessment through an appeal before the Court of Tax Appeals (CTA).

ISSUES:

  1. Whether petitioner may claim a tax refund or credit for creditable input tax attributable to zero-rated or effectively zero-rated sales.

  2. Whether petitioner may claim a tax refund or credit for input taxes paid on capital goods.

  3. Whether petitioner's claim for tax refund or credit complied with the requirements under Section 112(A) of the National Internal Revenue Code (NIRC) for zero-rated or effectively zero-rated sales.

  4. Whether the transactions between the petitioner and the National Power Corporation (NPC), which were not made through commercial sale or in the normal course of business, should be considered as a sale for the purpose of claiming an exemption or tax benefit under the law.

  5. Whether the petitioner is entitled to a refund or tax credit for the excess input taxes it paid on its purchases attributable to the transfer of electricity to NPC.

  6. Whether the San Roque Power Corporation (petitioner) is entitled to claim tax exemption under Republic Act No. 9136 (the EPIRA Law) and the National Internal Revenue Code (NIRC).

  7. Whether the petitioner is entitled to a refund or tax credit for the input tax paid on its capital goods.

  8. Whether or not San Roque Power Corporation is entitled to the refund of unutilized input Value-Added Tax (VAT) for the period 1 January 2002 to 31 December 2002.

RULING:

  1. The Court finds that petitioner's claim for refund or credit is justified under Section 112(A) of the National Internal Revenue Code (NIRC). Petitioner, being VAT registered and engaged in zero-rated or effectively zero-rated sales, may apply for a tax credit certificate or refund of creditable input tax due or paid attributable to such sales. However, the Court rules that petitioner cannot claim a tax refund or credit for input taxes paid on capital goods under Section 112(B) of the NIRC. Petitioner failed to prove that the purchases presented were classified as capital goods forming part of its "Property, Plant and Equipment."

  2. The Court found that petitioner's claim for tax refund or credit complied with the requirements under Section 112(A) of the NIRC. The Court held that petitioner adequately proved that it is a VAT registered taxpayer engaged in providing electricity for NPC, which is subject to zero rate. The Court also considered the audit report and documentation presented by petitioner, which showed that the input VAT being claimed was properly recorded and supported by appropriate suppliers' VAT invoices or official receipts. Moreover, the Court found that petitioner did carry out a "sale" of electricity to NPC in 2002, which is recognized as a zero-rated sale under Section 108(B)(3) of the NIRC. The Court concluded that Section 112(A) of the NIRC does not limit the definition of "sale" to commercial transactions, and therefore, petitioner's claim for tax refund or credit was valid.

  3. The transactions between the petitioner and NPC, despite not being made through commercial sale or in the normal course of business, should be considered as a sale for the purpose of claiming an exemption or tax benefit under the law. The term "sale" should be given consistent interpretation when imposing a tax and when considering the availability of an exemption or tax benefit.

  4. The petitioner is entitled to a refund or tax credit for the excess input taxes it paid on its purchases attributable to the transfer of electricity to NPC. While there were procedural lapses in filing the claim for refund, the special circumstances of the case and the fact that substantial justice, equity, and fair play are on the side of the petitioner justify granting the refund. The government should not misuse technicalities and legalisms to keep money that does not belong to it.

  5. The Supreme Court granted the petition and ruled that the petitioner is entitled to claim tax exemption and a refund or tax credit.

  6. The Supreme Court grants the petition and orders the respondent Commissioner of Internal Revenue to refund or issue a TCC to San Roque Power Corporation in the amount of Two Hundred Forty-Six Million One Hundred Thirty-One Thousand Six Hundred Ten Pesos and 40/100 (P246,131,610.40), representing the unutilized input VAT for the said period.

PRINCIPLES:

  • In claiming a tax refund or credit, the taxpayer must comply with the criteria provided under the law.

  • The burden of proof rests on the taxpayer to establish entitlement to a tax refund or credit.

  • The Court is not a trier of facts but may review the judgment if it is based on misapprehension of facts or if relevant facts were not considered.

  • Zero-rated or effectively zero-rated sales and purchases of capital goods are treated differently under the NIRC for purposes of tax refund or credit.

  • Compliance with the requirements under Section 112(A) of the NIRC is necessary for VAT registered taxpayers to claim tax refunds or credit for zero-rated or effectively zero-rated sales.

  • Zero-rated or effectively zero-rated sales may include transactions that are not commercial sales but are still deemed sales under the NIRC.

  • Documentation and proper recording of input VAT are essential in supporting claims for tax refund or credit.

  • The principle of solutio indebiti under Art. 2154 of the Civil Code, which obligates the receiver of something to return it when there was no right to demand it.

  • No one, not even the State, shall enrich oneself at the expense of another, emphasizing the principle of simple justice.

  • Effective zero-rating is intended to relieve certain exempt entities from the burden of indirect tax so as to encourage the development of particular industries.

  • The National Power Corporation (NPC) is completely exempt from all taxes, both direct and indirect, as clarified in Section 13 of Republic Act No. 6395, otherwise known as the NPC Charter.

  • The grant of tax exemption to the National Power Corporation (NPC) under Section 13 of Republic Act No. 6395 is comprehensive and includes all forms of taxes and impositions, without distinguishing between direct and indirect taxes.

  • The comprehensive tax exemption granted to the NPC is based on the significant public interest involved in the development, utilization, and conservation of Philippine water resources for power generation, as well as the total electrification of the Philippines.

  • The objectives of the EPIRA Law are to ensure and accelerate the total electrification of the country, enhance the inflow of private capital in the power sector, promote the use of indigenous and renewable energy resources, and lower electricity rates for end-users.

  • Section 75 of the EPIRA Law provides that the law should be construed in favor of the establishment, promotion, preservation of competition, and power empowerment to ensure the widest participation of the people.

  • The legislative grant of tax relief, whether in the EPIRA Law or the NIRC, is a sovereign commitment of the government to taxpayers, particularly foreign investors, who have been enticed to invest heavily in the country's infrastructure.

  • A claim for tax refund or tax credit, which has a clear legal basis and is supported by evidence, should be granted and should not be strictly construed against the taxpayer.

  • Value-Added Tax (VAT) is an indirect tax that a private person is required to pay when he purchases goods, properties, or services, whether locally manufactured or imported. It is based on the value-added to such goods, properties, or services by the taxpayer.

  • Input VAT refers to the VAT incurred by a VAT-registered person on the purchase of goods, properties, or services used or to be used in the course of his trade or business.

  • A VAT-registered person shall be entitled to a refund or tax credit of the excess of input VAT over output VAT within two years from the close of the taxable quarter when the sales were made.

  • The Commissioner of Internal Revenue has the duty to refund or issue a tax credit certificate for the unused input VAT of a VAT-registered person within 120 days from the date of submission of complete documents in support of the claim. Failure to act within the said period shall be considered as a denial of the claim for refund or tax credit, thereby entitling the taxpayer to file a judicial claim.

  • The burden of proving entitlement to a refund or tax credit rests upon the taxpayer, who must establish the factual basis of his claim by concrete and convincing evidence.