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CIR v. TEAM ENERGY CORPORATION

FACTS:

The case involves a petition for review on certiorari seeking to reverse the decision of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 1364. The respondent in this case is engaged in the business of power generation and sale to the National Power Corporation (NPC) under a Build, Operate, Transfer Scheme. The respondent is registered as a VAT taxpayer with the BIR and filed an application for effective zero-rate for the supply of electricity to the NPC. The respondent also filed its Quarterly VAT Returns and Monthly VAT Declaration reflecting its sales/receipts, taxable sales, output VAT, and input VAT. The respondent filed an administrative claim for cash refund or issuance of tax credit certificate for the input VAT reported in its VAT Returns for the first three quarters of 2005 and Monthly VAT Declaration for October 2005. Due to the petitioner's inaction on the claim, the respondent filed a Petition for Review. During trial, the respondent presented evidence while the petitioner waived the right to present evidence. The Court in Division issued a Decision partially granting the respondent's Petition for Review, ordering the refund or issuance of a tax credit certificate in favor of the respondent. The petitioner filed a Motion for Reconsideration, which was granted by the Court in Division in an Amended Decision. The respondent then filed a Petition for Review before the Court En Banc, which was denied for lack of merit.

The Commissioner of Internal Revenue (CIR) denied the claim for refund filed by respondent TMI Electric Co., Inc. (TMIE) for unutilized input VAT attributable to its zero-rated sales of electricity to the National Power Corporation (NPC). TMIE filed a petition for review before the Court of Tax Appeals (CTA) which granted the refund claim. The CIR filed a motion for reconsideration but was denied. TMIE received a favorable Decision from the Supreme Court reversing and setting aside the CTA's resolution and remanding the case for further determination of the refundable amount. The Supreme Court's Decision became final and executory. However, TMIE filed a motion for reinstatement of the CTA's decision. The CTA granted TMIE's motion and reinstated its previous decision. The CIR filed a motion for reconsideration but was denied. The CIR then filed a petition for review before the CTA en banc, which was denied. The CIR appealed the denial to the Supreme Court.

The case involves a petition filed by a generation company seeking a refund of the value-added tax (VAT) it paid on its sales of electricity to the National Power Corporation (NPC). The petitioner argued that it is entitled to a refund under Section 108(B)(3) of the Tax Code, which provides for a zero percent VAT rate on certain goods and services. The respondent, the Commissioner of Internal Revenue (CIR), argued that the petitioner must first cure a Certificate of Compliance (COC) before it can be entitled to a refund. According to the CIR, to qualify for the zero percent VAT rate, a generation company must be authorized and qualified under the law to render services to the NPC, including complying with the relevant regulatory requirements under the Electric Power Industry Reform Act (EPIRA). The petitioner countered that its entitlement to a refund is based on Section 108(B)(3) of the Tax Code and not under the EPIRA. It maintained that it should not be required to obtain a COC before being eligible for a refund. The Court analyzed Section 4 of the EPIRA, as well as Sections 1 and 4 of the Tax Code, to determine the requirements for the zero percent VAT rate on sales of electricity to the NPC.

ISSUES:

  1. Whether the respondent is entitled to a tax refund or tax credit without a Certificate of Compliance (COC) issued by the Energy Regulatory Commission (ERC).

  2. Whether the respondent's judicial claim for refund was premature due to the alleged non-submission of complete documents.

  3. Whether the taxpayer is entitled to a refund or credit of its unutilized input VAT attributable to its sales of electricity to NPC and other entities.

  4. Whether the taxpayer is required to comply with the requirements under the Electric Power Industry Reform Act (EPIRA) to qualify for VAT zero-rating.

  5. Whether the respondent's judicial claim for refund was prematurely filed for failure to exhaust administrative remedies.

  6. Whether the failure of the respondent to submit complete supporting documents for its administrative claim is a ground for dismissal of the judicial claim.

  7. Whether the respondent is entitled to a refund or credit of its unutilized input VAT attributable to its effectively zero-rated sales of electricity to NPC.

RULING:

  1. The respondent is entitled to a tax refund or tax credit even without a COC from the ERC. The petitioner's argument that a COC is necessary for the respondent to be considered a generation company under the EPIRA and qualify for zero percent VAT rate is rejected. The basis for the VAT zero-rated treatment is the tax exemption of the National Power Corporation (NPC), the purchaser of services, and not the qualification of the supplier itself.

  2. The respondent's judicial claim for refund was not premature. The petitioner failed to specifically point out which documents were not submitted by the respondent, and the petitioner's failure to inform the respondent of the need to submit additional documents bars the petitioner from arguing that the judicial claim was premature on account of alleged non-submission of complete documents.

  3. The taxpayer is entitled to a refund or credit of its unutilized input VAT attributable to its sales of electricity to NPC under Section 108(B)(3) of the Tax Code.

  4. The taxpayer is not required to comply with the requirements under the EPIRA to qualify for VAT zero-rating.

  5. The argument of the petitioner that the respondent's judicial claim for refund was prematurely filed due to the failure to exhaust administrative remedies is not meritorious. The Court settled in a previous case that a taxpayer has 30 days from the filing of an administrative claim to submit the necessary supporting documents. If the taxpayer expresses that no additional documents will be submitted, the 120-day period for the Commissioner of Internal Revenue (CIR) to decide on the claim begins to run from the date of filing. Since the respondent complied within the 30-day period, the judicial claim is not dismissed for lack of jurisdiction.

  6. The failure of the respondent to submit complete supporting documents at the administrative level does not provide a ground for the dismissal of the judicial claim. The CIR failed to send a written notice requiring the submission of additional documents, as required. Therefore, the CIR cannot argue that the judicial claim should be dismissed due to incomplete documents.

  7. The respondent is entitled to a refund or credit of its unutilized input VAT attributable to its effectively zero-rated sales of electricity to NPC under Section 108(B)(3) of the Tax Code, in relation to Section 13 of the NPC Charter.

PRINCIPLES:

  • The basis for VAT zero-rated treatment is the tax exemption of the purchaser of services, not the qualification of the supplier itself.

  • In a judicial claim for refund, the court may consider all evidence presented, including those that may not have been submitted to the petitioner.

  • To be entitled to a refund or credit of unutilized input VAT attributable to the sale of electricity under the EPIRA, a taxpayer must establish that it is a generation company and that it derived sales from power generation.

  • The requirements under the EPIRA are inapplicable when the taxpayer's refund claim is premised on Section 108(B)(3) of the Tax Code in relation to the charter of NPC.

  • The basis for the VAT zero-rated treatment of the supplier is the tax exemption of the purchaser of services, not the qualification of the supplier itself.

  • Effective zero-rating is intended to relieve certain exempt entities, such as NPC, from the burden of indirect tax to encourage the development of specific industries.

  • A taxpayer has 30 days from the filing of an administrative claim to submit the necessary supporting documents for a refund or credit of VAT.

  • The 120-day period for the CIR to decide on the claim starts running from the date of filing if the taxpayer states that no additional documents will be submitted.

  • The CIR must send a written notice requiring the submission of additional documents, and failure to do so will result in the ineffectiveness of arguments that the judicial claim should be dismissed for lack of complete documents.

  • A taxpayer is entitled to a refund or credit of unutilized input VAT on effectively zero-rated sales as provided by the relevant provisions of the Tax Code and the NPC Charter.