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SOUTHERN PHILIPPINES POWER CORPORATION vs.

COMMISSIONER OF INTERNAL REVENUE


G.R. No. 179632 October 19, 2011
Petitioner Southern Philippines Power Corporation (SPP), a power company that generates and sells electricity to the
National Power Corporation (NPC), is a zero-rated taxpayer as approved by BIR for taxable years 1999-2000. On
June 20, 2000 SPP filed a claim with CIR tax credit or refund for 1999 and filed a second claim in 2001 tax credit or
refund for 2000. The amounts represented unutilized input VAT attributable to SPPs zero-rated sale of electricity to
NPC. On September 29, 2001, before the lapse of the two-year prescriptive period for such actions, SPP filed with
the CTA Second Division a petition for review covering its claims for refund or tax credit. CIR maintained that SPP is
not entitled to tax credit or refund since (a) the BIR was still examining SPPs claims for the same; (b) SPP failed to
substantiate its payment of input VAT; (c) its right to claim refund already prescribed, and (d) SPP has not shown
compliance with Section 204(c) in relation to Section 229 of the NIRC as amended and Revenue Regulation (RR) 587 as amended by RR 3-88. In 2006 CTA Second Division denied SPPs claims, holding that its zero-rated official
receipts did not correspond to the quarterly VAT returns and that the receipts do not bear the words zero-rated in
violation of RR 7-95. The Second Division denied SPPs MR. On appeal, the CTA En Banc affirmed the Second
Divisions decision .The CTA En Banc rejected SPPs contention that its sales invoices reflected the words zero-rated,
pointing out that it is on the official receipts that the law requires the printing of such words. MR was denied.
Issue: W/N SPP is entitled to refund or tax credit.
Ruling: Case remanded to CTA. NIRC Section 110 (A.1) provides that the input tax subject of tax refund is to be
evidenced by a VAT invoice or official receipt issued in accordance with Section 113. Section 113 has been
amended by RA 9337 but it is the unamended version that covers the period when the transactions in this case
took place. It reads:
Section 113. Invoicing and Accounting Requirements for VAT-Registered Persons.
A. Invoicing Requirements. A VAT-registered person shall, for every sale, issue an invoice or receipt. In addition to
the information required under Section 237, the following information shall be indicated in the invoice or receipt:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayers identification number (TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such
amount includes the value-added tax.
The above does not distinguish between an invoice and a receipt when used as evidence of a zero-rated
transaction. Consequently, the CTA should have accepted either or both of these documents as evidence of SPPs
zero-rated transactions. The Commissioner may, in meritorious cases, exempt any person subject to internal
revenue tax from compliance with the provisions of Section 237, NIRC.
The CTA also did not accept SPPs official receipts due to the absence of the words zero-rated on it. The omission,
said that court, made the receipts non-compliant with RR 7-95, specifically Section 4.108.1. But Section 4.108.1
requires the printing of the words zero-rated only on invoices, not on official receipts:
**Actually, it is R.A. 9337 that in 2005 required the printing of the words zero-rated on receipts. But, since the
receipts and invoices in this case cover sales made from 1999 to 2000, what applies is Section 4.108.1 above which
refers only to invoices. The principle of solutio indebiti should govern this case since the BIR received something
that it was not entitled to. Thus, it has to return the same. Only a preponderance of evidence is needed to grant a
claim for tax refund based on excess payment.
The Court finds that SPP failed to indicate its zero-rated sales in its VAT returns. But this is not sufficient reason to
deny it its claim for tax credit or refund. Consequently, even as the Court holds that SPPs sales invoices and
receipts would be sufficient to prove its zero-rated transactions, the case has to be remanded to the CTA for
determination of whether or not SPP has complied with the other requisites mentioned.

COMMISSIONER OF INTERNAL REVENUE vs. MIRANT PAGBILAO CORPORATION (Formerly


SOUTHERN ENERGY QUEZON, INC.) G.R. No. 172129 September 12, 2008
MPC, formerly Southern Energy Quezon, Inc., and also formerly known as Hopewell (Phil.) Corporation, is a domestic
firm engaged in the generation of power which it sells to the National Power Corporation (NPC). For the construction
of the electrical and mechanical equipment portion of its Quezon plant, which appears to have been undertaken
from 1993 to 1996, MPC secured the services of Mitsubishi Corporation (Mitsubishi) of Japan.
Under Section 13 of RA 6395, the NPCs revised charter, NPC is exempt from all taxes. In Maceda v. Macaraig, the
Court construed the exemption as covering both direct and indirect taxes.
In the light of the NPCs tax exempt status, MPC, on the belief that its sale of power generation services to NPC is,
pursuant to Sec. 108(B)(3) of the Tax Code, zero-rated for VAT purposes, filed in 1997 with the RDO an Application
for Effective Zero Rating. The application covered the construction and operation of its Quezon power station under
a Build, Operate, and Transfer scheme.

Not getting any response from the BIR district office, MPC refiled its application in the form of a request for ruling
with the VAT Review Committee at the BIR national office. The Commissioner of Internal Revenue issued VAT Ruling
No. 052-99, stating that the supply of electricity by Hopewell Phil. to the NPC, shall be subject to the zero percent
(0%) VAT, pursuant to Section 108 (B) (3) of the National Internal Revenue Code of 1997.
It must be noted at this juncture that consistent with its belief to be zero-rated, MPC opted not to pay the VAT
component of the progress billings from Mitsubishi for the E & M Equipment Erection Portion of MPCs contract with
Mitsubishi. This prompted Mitsubishi to advance the VAT component as this serves as its output VAT which is
essential for the determination of its VAT payment. Apparently, it was only on April 14, 1998 that MPC paid
Mitsubishi the VAT component for the progress billings from April 1993 to September 1996, and for which Mitsubishi
issued Official Receipt (OR) No. 0189 in the aggregate amount of PhP 135,993,570.
On August 25, 1998, MPC, while awaiting approval of its application aforestated, filed its quarterly VAT return for the
second quarter of 1998 where it reflected an input VAT of PhP 148,003,047.62, which included PhP 135,993,570
supported by OR No. 0189. Pursuant to the procedure prescribed in RR No. 7-95, MPC filed on December 20, 1999
an administrative claim for refund of unutilized input VAT in the amount of PhP 148,003,047.62.
Since the BIR Commissioner failed to act on its claim for refund and obviously to forestall the running of the twoyear prescriptive period under Sec. 229 of the National Internal Revenue Code (NIRC), MPC went to the CTA via a
petition for review, docketed as CTA Case No. 6133.
Answering the petition, the BIR Commissioner, citing Kumagai-Gumi Co. Ltd. v. CIR, asserted that MPCs claim for
refund cannot be granted for this main reason: MPCs sale of electricity to NPC is not zero-rated for its failure to
secure an approved application for zero-rating.
The CTA, by its Decision dated March 18, 2003, granted MPCs claim for input VAT refund or credit, but only for the
amount of PhP 10,766,939.48. The fallo of the CTAs decision reads:
In view of all the foregoing, the instant petition is PARTIALLY GRANTED. Accordingly, respondent is hereby ORDERED
to REFUND or in the alternative, ISSUE A TAX CREDIT CERTIFICATE in favor of the petitioner its unutilized input VAT
payments directly attributable to its effectively zero-rated sales for the second quarter of 1998 in the reduced
amount of P10,766,939.48, computed as follows:
Claimed Input VAT P148,003,047.62
Less: Disallowances
Refundable Input P10,766,939.48
Explaining the disallowance of over PhP 137 million claimed input VAT, the CTA stated that most of MPCs purchases
upon which it anchored its claims for refund or tax credit have not been amply substantiated by pertinent
documents, such as but not limited to VAT ORs, invoices, and other supporting documents.
As to the claimed input tax of P135,993,570.00 (P136,246,017.45 less P252,477.45 ) on purchases of services from
Mitsubishi Corporation, Japan, the same is found to be of doubtful veracity. While it is true that said amount is
substantiated by a VAT official receipt with Serial No. 0189 dated April 14, 1998 x x x, it must be observed,
however, that said VAT allegedly paid pertains to the services which were rendered for the period 1993 to 1996.
Aggrieved, MPC appealed the CTAs Decision to the CA. The CA rendered its assailed decision modifying that of the
CTA decision by granting most of MPCs claims for tax refund or credit. And in a Resolution of March 31, 2006, the CA
denied the BIR Commissioners motion for reconsideration. The CA held that the use of a different exchange rate
reflected in the OR is of no consequence as what the OR undeniably attests and acknowledges was Mitsubishis
receipt of MPCs input VAT payment.
Issue:
Whether or not MPC is entitled to the refund it allegedly paid as creditable input VAT for services and goods
purchased from Mitsubishi during the 1993 to 1996 stretch.
Ruling: Without necessarily saying that the BIR is precluded from requiring additional evidence to prove that input
tax had indeed paid or, in fine, that the taxpayer is indeed entitled to a tax refund or credit for input VAT, we agree
with the CAs above disposition. As the Court distinctly notes, the law considers a duly-executed VAT invoice or OR
referred to in the above provision as sufficient evidence to support a claim for input tax credit. And any doubt as to
what OR No. 0189 was for or tended to prove should reasonably be put to rest by the SGV report on which the CTA
notably placed much reliance.
While available records do not clearly indicate when MPC actually paid the creditable input VAT amounting to PhP
135,993,570 (USD 5,190,000) for the aforesaid 1993 to 1996 service purchases, the presumption is that payment

was made on the date appearing on OR No. 0189, i.e., April 14, 1998. In fact, said creditable input VAT was reflected
in MPCs VAT return for the second quarter of 1998.
Contrary to petitioners posture, the matter of nonpayment by MPC of the interests demanded by Mitsubishi is not
an argument against the fact of payment by MPC of its creditable input VAT or of the authenticity or genuineness of
OR No. 0189; for at the end of the day, the matter of interest payment was between Mitsubishi and MPC and may
very well be covered by another receipt. But the more important consideration is the fact that MPC, as confirmed by
the SGV, paid its obligation to Mitsubishi, and the latter issued to MPC OR No. 0189, for the VAT component of its
1993 to 1996 service purchases.
Claim for refund or tax credit filed out of time
The claim for refund or tax credit for the creditable input VAT payment made by MPC embodied in OR No. 0189 was
filed beyond the period provided by law for such claim. Sec. 112(A) of the NIRC states that unutilized input VAT
payments not otherwise used for any internal revenue tax due the taxpayer must be claimed within two years
reckoned from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT
regardless of whether said tax was paid or not---and not from the time the input VAT was paid nor from the time the
official receipt was issued. Be that as it may, and given that the last creditable input VAT due for the period covering
the progress billing of September 6, 1996 is the third quarter of 1996 ending on September 30, 1996, any claim for
unutilized creditable input VAT refund or tax credit for said quarter prescribed two years after September 30, 1996
or, to be precise, on September 30, 1998. Consequently, MPCs claim for refund or tax credit filed on December 10,
1999 had already prescribed.
Reckoning for prescriptive period under
Secs. 204(C) and 229 of the NIRC inapplicable
To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of the NIRC which, for the purpose
of refund, prescribes a different starting point for the two-year prescriptive limit for the filing of a claim therefor.
Secs. 204(C) and 229 respectively provide that in any case, no such suit or proceeding shall be filed after the
expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that
may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return upon which payment was made, such payment appears
clearly to have been erroneously paid. Notably, the above provisions also set a two-year prescriptive period,
reckoned from date of payment of the tax or penalty, for the filing of a claim of refund or tax credit. Notably too,
both provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes.
MPCs creditable input VAT not erroneously paid
For perspective, under Sec. 105 of the NIRC, creditable input VAT is an indirect tax which can be shifted or passed
on to the buyer, transferee, or lessee of the goods, properties, or services of the taxpayer. The fact that the
subsequent sale or transaction involves a wholly-tax exempt client, resulting in a zero-rated or effectively zerorated transaction, does not, standing alone, deprive the taxpayer of its right to a refund for any unutilized creditable
input VAT, albeit the erroneous, illegal, or wrongful payment angle does not enter the equation.
Sec. 112(A) of the NIRC, providing a two-year prescriptive period reckoned from the close of the taxable quarter
when the relevant sales or transactions were made pertaining to the creditable input VAT, applies to the instant
case, and not to the other actions which refer to erroneous payment of taxes.
As a final consideration, the Court wishes to remind the BIR and other tax agencies of their duty to treat claims for
refunds and tax credits with proper attention and urgency. Had RDO No. 60 and, later, the BIR proper acted, instead
of sitting, on MPCs underlying application for effective zero rating, the matter of addressing MPCs right, or lack of it,
to tax credit or refund could have plausibly been addressed at their level and perchance freed the taxpayer and the
government from the rigors of a tedious litigation.