DIGESTS
Remedies (under the NIRC of 1997) : Refund
Input VAT
Strict construction of input VAT refund claims.
Tax refunds or tax credits, just like tax exemptions, are strictly construed against the taxpayer-claimant. A claim for tax refund is a statutory privilege and the mere existence of unutilized input VAT does not entitle the taxpayer, as a matter of right, to it. As such, rules and procedure in claiming a tax refund should be faithfully complied with. Non-compliance with the pertinent laws should render any judicial claim fatally defective.
*******
Excess input tax is not an excessively, erroneously, or illegally collected tax. A claim for refund of this tax is in the nature of a tax exemption, which is based on Sections 110(B) and 112(A) of 1997 NIRC, allowing VAT-registered persons to recover the excess input taxes they have paid in relation to their zero-rated sales. The term “excess” input VAT simply means that the input VAT available as [refund] credit exceeds the output VAT, not that the input VAT is excessively collected because it is more than what is legally due. Accordingly, claims for tax refund/credit of excess input tax are governed not by Section 229 but only by Section 112 of the NIRC.
A claim for input VAT refund or credit is constructed strictly against the taxpayer. Accordingly, there must be strict compliance with the prescriptive periods and substantive requirements set by law before a claim for tax refund or credit may prosper. The mere fact that Team Energy has proved its excess input VAT does not entitle it as a matter of right to tax refund or credit. The 120+30-day periods in Section 112 is not a mere procedural technicality that can be set aside if the claim is otherwise meritorious. It is mandatory and jurisdictional condition imposed by law. Team Energy’s failure to comply with the prescriptive periods is, thus, fatal to its claim.
——————————————
Requisites under Section 112 of the NIRC of 1997.
Under Section 4.112-1(a) of RR No. 16-05, otherwise known as the Consolidated VAT Regulations of 2005, in relation to Section 112 of the Tax Code, a claimant’s entitlement to a tax refund or credit of excess input VAT attributable to zero-rated sales hinges upon the following requisites: “(1) the taxpayer must be VAT-registered; (2) the taxpayer must be engaged in sales which are zero- rated or effectively zero-rated; (3) the claim must be filed within two years after the close of the taxable quarter when such sales were made; and (4) the creditable input tax due or paid must be attributable to such sales, except the transitional input tax, to the extent that such input tax has not been applied against the output tax.”
——————————————
What must the claimant show in a claim for refund under Section 112 of the NIRC.
In a claim for refund under Section 112 of the NIRC, the claimant must show that: (1) it is engaged in zero-rated sales of goods or services; and (2) it paid input VAT that are attributable to such zero-rated sales. Otherwise stated, the claimant must prove that it made a purchase of taxable goods or services for which it paid VAT (input), and later on engaged in the sale of goods or services subject to VAT (output) but at zero rate. There is a refundable sum when the amount of input VAT (attributable to zero-rated sale) is higher than the claimant’s output during one taxable period (quarter).
The burden of a claimant who seeks a refund of his excess or unutilized creditable input VAT pursuant to Section 112 of the NIRC is two-fold: (1) prove payment of input VAT to suppliers; and (2) prove zero-rated sales to purchasers. Additionally, the taxpayer-claimant has to show the the VAT payment made, called input VAT, is attributable to his zero-rated sales.
——————————————
The taxpayer must also prove the factual basis of its claim and comply with the invoicing requirements.
For a judicial claim for VAT refund to prosper, the claim must not only be filed within the 120+30-day periods. The taxpayer must also prove the factual basis of its claim and comply with the 1997 NIRC invoicing requirements and other appropriate revenue regulations. Input VAT payments on local purchases of goods or services must be substantiated with VAT invoices or official receipts, respectively.
Claimants of tax refunds have the burden to prove their entitlement to the claim under substantive law and the factual basis of their claim. Moreover, in claims for VAT refund/credit, applicants must satisfy the substantiation and invoicing requirements under the NIRC and other implementing rules and regulations.
Under Section 110(A)(1) of the 1997 NIRC, creditable input tax must be evidenced by a VAT invoice or official receipt, which must in turn reflect the information required in Sections 113 and 237 of the Code.
Section 4.108-1 of RR No. 7-95 summarizes the information that must be contained in a VAT invoice and a VAT official receipt.
——————————————
Requisites to be entitled to a refund or credit input VAT attributable to the sale of electricity under the EPIRA (RA No. 9316); Generation facility vs. Generation company.
Section 6 of the EPIRA provides that the sale of generated power by generation companies shall be zero-rated. Section 4(x) of the same law states that a generation company “refers to any person or entity authorized by the ERC to operate facilities used in the generation of electricity.” Corollarily, 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: (1) that it is a generation company, and (2) that it derived sales from power generation.
In this case, TPC failed to present a COC from the ERC during the trial. On partial reconsideration, TPC argued that there was no need for it to present a COC because the parties already stipulated in the JSFI that TPC is a generation company and that it became entitled to the rights under the EPIRA when it filed its application with the ERC on June 20, 2002.
We find the arguments raised by TPC unavailing.
There is nothing in the JSFI to show that the parties agreed that TPC is a generation company under the EPIRA. The pertinent portions of the JSFI read:
JOINTLY STIPULATED FACTS
1. [TPC] is principally engaged in the business of power generation and subsequent sale thereof to the [NPC, CEBECO, ACMDC, and AFC].
2. On 20 June 2002, petitioner filed an application with the Energy Regulatory Commission (ERC) for the issuance of a Certificate of Compliance pursuant to the Implementing Rules and Regulations of the EPIRA.
x x x x
ADMITTED FACTS
x x x x
3. Effective 26 June 2001, sales of generated power by generation companies became VAT zero-rated by virtue of Section 4(x) in relation to Section 6 of the EPIRA and Rule 5, Section 6 of the Rules and Regulations to Implement the EPIRA.
Obviously, the parties did not stipulate that TPC is a generation company. They only stipulated that TPC is engaged in the business of power generation and that it filed an application with the ERC on June 20, 2002. However, being engaged in the business of power generation does not make TPC a generation company under the EPIRA. Neither did TPC’s filing of an application for COC with the ERC automatically entitle TPC to the rights of a generation company under the EPIRA.
At this point, a distinction must be made between a generation facility and a generation company. A generation facility is defined under the EPIRA Rules and Regulations as “a facility for the production of electricity.” While a generation company, as previously mentioned, “refers to any person or entity authorized by the ERC to operate facilities used in the generation of electricity.” Based on the foregoing definitions, what differentiates a generation facility from a generation company is that the latter is authorized by the ERC to operate, as evidenced by a COC.
Under the EPIRA, all new generation companies and existing generation facilities are required to obtain a COC from the ERC. New generation companies must show that they have complied with the requirements, standards, and guidelines of the ERC before they can operate. As for existing generation facilities, they must submit to the ERC an application for a COC together with the required documents within ninety (90) days from the effectivity of the EPIRA Rules and Regulations. Based on the documents submitted, the ERC will determine whether the applicant has complied with the standards and requirements for operating a generation company. If the applicant is found compliant, only then will the ERC issue a COC.
In this case, when the EPIRA took effect in 2001, TPC was an existing generation facility. And at the time the sales of electricity to CEBECO, ACMDC, and AFC were made in 2002, TPC was not yet a generation company under EPIRA. Although it filed an application for a COC on June 20, 2002, it did not automatically become a generation company. It was only on June 23,2005, when the ERC issued a COC in favor of TPC, that it became a generation company under EPIRA. Consequently, TPC’s sales of electricity to CEBECO, ACMDC, and AFC cannot qualify for VAT zero-rating under the EPIRA.
Neither can TPC rely on VAT Ruling No. 011-5, which considered the sales of electricity of Hedcor effectively zero-rated from the effectivity of the EPIRA despite the fact that it was issued a COC only on November 5, 2003, as this is a specific ruling, issued in response to the query made by Hedcor to the CIR. As such, it is applicable only to a particular taxpayer, which is Hedcor. Thus, it is not a general interpretative rule that can be applied to all taxpayers similarly situated.
All told, we find no error on the part of the CTA En Banc, in considering TPC’s sales of electricity to CEBECO, ACMDC, and AFC for taxable year 2002 as invalid zero-rated sales, and in consequently denying TPC’s claim for refund or credit of unutilized input VAT attributable to the said sales of electricity.
N.B.: This case involves transaction prior to the effectivity of RA No. 9337.
——————————————
A deficiency VAT may not be offset when the subject of the refund claim are input taxes.
But while TPC’s sales of electricity to CEBECO, ACMDC, and AFC are not zero-rated, we cannot hold it liable for deficiency VAT by imposing 10% VAT on said sales of electricity as what the CIR wants us to do.
As a rule, taxes cannot be subject to compensation because the government and the taxpayer are not creditors and debtors of each other. However, we are aware that in several cases, we have allowed the determination of a taxpayer’s liability in a refund case, thereby allowing the offsetting of taxes.
In Commissioner of Internal Revenue v. Court of Tax Appeals (G.R. No. 106611, 21 July 1994), we allowed offsetting of taxes in a tax refund case because there was an existing deficiency income and business tax assessment against the taxpayer. We said that “[t]o award such refund despite the existence of that deficiency assessment is an absurdity and a polarity in conceptual effects” and that “to grant the refund without determination of the proper assessment and the tax due would inevitably result in multiplicity of proceedings or suits.”
Similarly, in South African Airways v. Commissioner of Internal Revenue, we permitted offsetting of taxes because the correctness of the return filed by the taxpayer was put in issue.
In the recent case of SMI-ED Philippines Technology, Inc. v. Commissioner of Internal Revenue, we also allowed offsetting because there was a need for the court to determine if a taxpayer claiming refund of erroneously paid taxes is more properly liable for taxes other than that paid. We explained that the determination of the proper category of tax that should have been paid is not an assessment but is an incidental issue that must be resolved in order to determine whether there should be a refund. However, we clarified that while offsetting may be allowed, the BIR can no longer assess the taxpayer for deficiency taxes in excess of the amount claimed for refund if prescription has already set in.
But in all these cases, we allowed offsetting of taxes only because the determination of the taxpayer’s liability is intertwined with the resolution of the claim for tax refund of erroneously or illegally collected taxes under Section 229 of the NIRC. A situation that is not present in the instant case.
In this case, TPC filed a claim for tax refund or credit under Section 112 of the NIRC, where the issue to be resolved is whether TPC is entitled to a refund or credit of its unutilized input VAT for the taxable year 2002. And since it is not a claim for refund under Section 229 of the NIRC, the correctness of TPC s VAT returns is not an issue. Thus, there is no need for the court to determine whether TPC is liable for deficiency VAT.
Besides, it would be unfair to allow the CIR to use a claim for refund under Section 112 of the NIRC as a means to assess a taxpayer for any deficiency VAT, especially if the period to assess had already prescribed. As we have said, the courts have no assessment powers, and therefore, cannot issue assessments against taxpayers. The courts can only review the assessments issued by the CIR, who under the law is vested with the powers to assess and collect taxes and the duty to issue tax assessments within the prescribed period.
N.B.:
In the foregoing case, the “deficiency VAT” refers only to that which has been raised by petitioner CIR, not as that determined by the CTA. Here, the CTA determined, inter alia, that for the period of the claim, the refund claimant had an output VAT liability, which amount was deducted from the excess input VAT attributable to substantiated zero-rated sales. Such determination of the CTA was affirmed by the High Court.
——————————————
