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WESTERN MINDANAO POWER CORP. v.

CIR Submitted by: POBLADOR, Maria Celia Nature: Petition for Review of the CTA decision denying WMPCs claim for tax credit Ponente: Sereno Date: 13 June 2012 DOCTRINE: The failure of a VAT taxpayer to print the term zero -rated on its VAT invoices or official receipts will be fatal to its claims for refund or credit of input VAT on 0-rated sales. FACTS: The Western Mindanao Power Corp. (WMPC) is a domestic corporation engaged in the production and sale of electricity and registered with the BIR as a VAT taxpayer. It claims to sell electricity exclusively to NAPOCOR, a taxexempt entity pursuant to Sec. 13, R.A. No. 6395 (NAPOCOR Charter). Thus, WMPCs power-generation services to NAPOCOR are zero-rated. On 20 June 2000 and 13 June 2001, WMPC filed with the CIR applications for a tax credit certificate of its input VAT covering the 3 rd and 4th quarters of 1999 (PhP 3.6M) and all of the quarters of 2000 (PhP 5.6M).1 WMPC filed a petition for review with the CTA given the lack of action on the CIRs part. The CIR responded and argued that WMPC was not entitled to the claimed refund given its non-compliance with the invoicing requirements under Sec. 113, NIRC and Rev. Reg. No. 7-952. WMPC contended that the invoicing and accounting requirements under the same were merely compliance requirements and were not mandatory in establishing claims for refund of excess and unutilized input VAT. The NIRC didnt expressly state that non-compliance with such invoicing requirements would result in the disallowance of the claim. Moreover, the requirement as to the printing of zero-rated sale on the VAT receipt/invoice was a result of an amendment made effective on 1 July 2005 (R.A. No. 9337) that cannot be applied retroactively. As such, Rev. Reg. 7-95 constituted undue expansion of legislation. The CTA (2nd Div.) dismissed the petition, which was later affirmed upon appeal to the CTA-EB. The receipts and evidence presented by WMPC failed
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to substantiate its claimed effectively 0-rated sales to NAPOCOR. The quarterly VAT returns presented didnt reflect any 0 -rated or effectively 0rated sales. The official receipts and VAT invoices of WMPC also did not have zero-rated printed thereon, contrary to the requirements under law. A CTA Justice (Acosta) dissented and contended that the printing of zero -rated on official receipts or invoices was not mandatory under Sec. 113, NIRC 3. The absence of the same should not affect the admissibility of the receipts in evidence or give rise to the denial of the claim for tax credit sought. ISSUE: Did the failure of WMPC to print zero-rated on its official receipts constitute sufficient ground to deny its claimed tax credits? RULING: YES. As a rule, tax exemptions are strictly construed against the claimant of the same. A claim for tax refund or credit is in the nature of an exemption. In a claim for refund or credit, the taxpayer must prove both (1) entitlement to the grant of claim under substantive law and (2) satisfaction of all the documentary and evidentiary requirements under the law and relevant revenue regulations. The NIRC requires that a creditable input tax should be evidenced by a VAT invoice or official receipt,4 which must comply with Rev. Reg. 7-95: if the sale is subject to 0% VAT, zero-rated sale shall be written or printed prominently on the receipt. The requirement under Rev. Reg. 7-95 does not constitute undue expansion of the scope of legislation (since the statutory requirement was only effective upon the 2005 amendment long after WMPC filed its claim in 2000 & 2001). This proceeds from the rule-making authority granted to the Sec. of Finance by the NIRC for the efficient enforcement of the law and its amendments. This provision is reasonable and in accord with the efficient collection of VAT from the covered sales of goods & services. The SC has consistently upheld the mandatory nature of this requirement even prior to the effectivity of R.A. No. 9337. The subsequent incorporation of Sec. 4.108-1, Rev. Reg. 7-95 in Sec. 113(B)(2)(c), R.A. No. 9337 actually confirmed the validity of the imprinting requirement on VAT invoices or official receipts, by virtue of the principle of legislative approval of administrative interpretation by reenactment. The factual findings of the CTA, as a highly specialized court, should be accorded respect when the same is based on substantial evidence. Both the CTA-Div and CTA-EB found that WMPC failed to substantiate its claimed tax credit.

Sec. 112(A), NIRC: a VAT-registered taxpayer may apply for the issuance of a tax credit or refund, within 2 years after the close of the taxable quarter, of creditable input tax due or paid and attributable to 0-rated or effectively 0-rated sales. 2 Sec. 4.108-1, Rev. Reg. No. 7-95: VAT-registered persons to issue receipts or invoices showing: (5) the word zero-rated imprinted on the invoice . . . only VAT-registered persons are required to print their TIN followed by VAT in their invoices or receipts, and this shall be considered a VAT Invoice. All purchases covered by invoices other than the same shall not give rise to any input tax.

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Invoicing & Accounting Requirements for VAT-Registered Persons Sec. 110, NIRC: Creditable input tax any input tax evidenced by a VAT invoice or official receipt issued in accordance with Sec. 113 . . . shall be creditable against the output tax.

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