CIR vs Team Energy Corporation

Doctrines:

Taxation; Electric Power Industry; Section 108(B)(3) of the Tax Code in relation to Section 13
of the National Privacy Commission (NPC) Charter, clearly provide that sale of electricity to
NPC is effectively zero (0)-rated for Value-Added Tax (VAT) purposes.—Given that respondent
in this case likewise anchors its claim for tax refund or tax credit under Section 108(B)(3) of the
Tax Code, it cannot be required to comply with the requirements under the EPIRA before its sale
of generated power to NPC should qualify for VAT zero-rating. Section 108(B)(3) of the Tax
Code in relation to Section 13 of the NPC Charter, clearly provide that sale of electricity to NPC
is effectively zero-rated for VAT purposes.

Same; Tax Exemption; The basis for the Value-Added Tax (VAT) zero (0)-rated treatment of the
supplier is the tax exemption of the purchaser of services, and not the qualification of the
supplier itself, in order to relieve the tax-exempt purchaser from tax burden considering that it
may not be able to offset or utilize any input tax passed on by its supplier of services, had the
services it purchased been subject to VAT of twelve percent (12%).—As correctly argued by the
respondent, the basis for the VAT zero-rated treatment of the supplier is the tax exemption of the
purchaser of services, and not the qualification of the supplier itself, in order to relieve the tax-
exempt purchaser from tax burden considering that it may not be able to offset or utilize any
input tax passed on by its supplier of services, had the services it purchased been subject to VAT
of 12%.

Same; Same; Effective zero (0)-rating was intended to relieve the exempt entity from being
burdened with the indirect tax which is or which will be shifted to it had there been no
exemption.—It bears emphasis that effective zero-rating is not intended as benefit to the person
legally liable to pay the tax, such as the [respondent,] but to relieve certain exempt entities, such
as the NPC, from the burden of indirect tax so as to encourage the development of particular
industries. Before, as well as after, the adoption of the VAT, certain special laws were enacted
for the benefit of various entities and international agreements were entered into by the
Philippines with foreign governments and institutions exempting sale of goods or supply of
services from indirect taxes at the level of their suppliers. Effective zero-rating was intended to
relieve the exempt entity from being burdened with the indirect tax which is or which will be
shifted to it had there been no exemption. In this case, respondent is being exempted from paying
VAT on its purchases to relieve NPC of the burden of additional costs that respondent may shift
to NPC by adding to the cost of the electricity sold to the latter.

Same; Same; The authority of the Commission of Internal Revenue (CIR) to require additional
supporting documents necessary to determine the taxpayer’s entitlement to a refund of input tax,
and the consequences of the CIR’s failure to inform the taxpayer of the need to submit additional
documents for claims for tax refund, or credit filed prior to June 11, 2014, such as this case, had
been settled in Pilipinas Total Gas, Inc. v. Commissioner of Internal Revenue, 776 SCRA 395
(2015), in this wise: To summarize, for the just disposition of the subject controversy, the rule is
that from the date an administrative claim for excess unutilized Value-Added Tax (VAT) is filed,
a taxpayer has thirty (30) days within which to submit the documentary requirements sufficient
to support his claim, unless given further extension by the CIR. Then, upon filing by the taxpayer
of his complete documents to support his application, or expiration of the period given, the CIR
has one hundred twenty (120) days within which to decide the claim for tax credit or refund.
Should the taxpayer, on the date of his filing, manifest that he no longer wishes to submit any
other addition documents to complete his administrative claim, the 120-day period allowed to
the CIR begins to run from the date of filing.—The authority of the CIR to require additional
supporting documents necessary to determine the taxpayer’s entitlement to a refund of input tax,
and the consequences of the CIR’s failure to inform the taxpayer of the need to submit additional
documents for claims for tax refund, or credit filed prior to June 11, 2014, such as this case, had
been settled in Pilipinas Total Gas, Inc. v. Commissioner of Internal Revenue, 776 SCRA 395
(2015),  in this wise: To summarize, for the just disposition of the subject controversy, the rule is
that from the date an administrative claim for excess unutilized VAT is filed, a taxpayer has
thirty (30) days within which to submit the documentary requirements sufficient to support his
claim, unless given further extension by the CIR. Then, upon filing by the taxpayer of his
complete documents to support his application, or expiration of the period given, the CIR has
120 days within which to decide the claim for tax credit or refund. Should the taxpayer, on the
date of his filing, manifest that he no longer wishes to submit any other addition documents to
complete his administrative claim, the 120[-]day period allowed to the CIR begins to run from
the date of filing.

Facts:

Respondent is principally engaged in the business of power generation and the subsequent sale
thereof to the National Power Corporation (NPC) under a Build, Operate, Transfer Scheme.
Respondent is also registered with the BIR as a VAT taxpayer.

On December 17, 2004, respondent filed with the BIR Audit Information, Tax Exemption and
Incentives Division an Application for Effective Zero-Rate for the supply of electricity to the
NPC for the period January 1, 2005 to December 31, 2005, which was subsequently approved.

On December 20, 2006, petitioner filed an administrative claim for cash refund or issuance of tax
credit certificate corresponding to the input VAT reported in its Quarterly VAT Returns for the
first three quarters of 2005 and Monthly VAT Declaration for October 2005 in the amount of
[P]80,136,251.60.

Due to petitioner's inaction on its claim, respondent filed a Petition for Review before the Court
in Division on April 18, 2007, docketed as CTA Case No. 7617.

In her Answer filed on May 25, 2007, petitioner interposed the following Special and Affirmative
Defenses: cral
xxx

xxx

(3) Respondent failed to prove compliance with: (a) the registration requirements of a value-
added taxpayer; (b) the invoicing and accounting requirements for VAT-registered
persons; (c) the filing and payment of VAT in compliance with the provisions of Sections
113 and 114 of the Tax Code of 1997, as amended; (d) the submission of complete
documents in support of the administrative claim pursuant to Section 112 (D). Respondent
likewise failed to prove that the input taxes paid were attributable to zero-rated sales, used
in the course of its trade or business, and have not been applied against any output tax and
that the claim for tax credit or refund of the unutilized input tax (VAT) was filed within
two (2) years after the close of the taxable quarter when the sales were made in accordance
with Section 112 (A) of the Tax Code of 1997, as amended; (e) the governing rules and
regulations with reference to recovery of tax erroneously or illegally collected as explicitly
found in Sections 112 (A) and 229 of the Tax Code, as amended.

CTA: WHEREFORE, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly,
respondent is hereby ORDERED TO REFUND or in the alternative, ISSUE A TAX CREDIT
CERTIFICATE in the amount of (P79,185,617.33) in favor of petitioner, representing petitioner's
unutilized input VAT.

On August 5, 2010, petitioner filed a "Motion for Reconsideration (Re: Decision promulgated 13
July 2010)."

CTA: issued an Amended Decision which granted petitioner's Motion for Reconsideration,
reversed and set aside the Decision and dismissed the Petition for Review for having been filed
prematurely.
Respondent filed a "Petition for Review" before the Court En Banc
CTA En Banc: denied due course to respondent's Petition for Review for lack of merit.

Respondent filed a "Motion for Reconsideration"

CTA En Banc: denied for lack of merit
Respondent filed a "Motion to Admit Attached Petition for Review on [Certiorari]" before the
Supreme Court
SC: issued Resolution granting respondent's Motion and issued a Decision granting respondent's
Petition for Review on Certiorari, reversing and setting aside the May 2, 2011 and July 15, 2011
Resolutions issued by the Court En Banc in CTA EB
Respondent filed a "Manifestation with Motion for Reinstatement Decision of the CTA.”
CTA Court in Division: issued a Resolution granting respondent's Motion for Reinstatement and
denied petitioner's Motion for Reconsideration.
Petitioner Commissioner of Internal Revenue [CIR] filed the present Petition for Review before
the CTA En Banc
CTA En Banc: petitioner Commissioner of Internal Revenue's Petition for Review is DENIED.
Petitioner moved for reconsideration.
CTA En Banc: Denied
Hence, present petition.
Petitioner did not agree with the CTA that respondent need not secure a COC before it may be
entitled to a refund on the ground that its claim for a refund is anchored on Section 108(B)(3) of
the Tax Code and not under the EPIRA. He argued that before VAT registered persons may be
considered to be subject to zero percent (0%) rate of VAT on its sale of services under Section
108(B)(3), it is imperative that it be authorized and qualified under the law to render such
services
Petitioner also stood pat on its claim that the judicial claim for refund that was filed by the
respondent was filed prematurely for its failure to exhaust administrative remedies.

Issue: Whether the CTA En Banc erred in reinstating the Decision of the CTA dated July 13,
2010, which ordered the petitioner to refund or, in the alternative, issue a tax credit certificate in
the amount of P79,185,617.33 in favor of the respondent.

Held:

No. Petitioner's contention lacks merit.

Respondent's failure to submit a Certificate of Compliance issued by the Energy

Regulatory Commission does not disqualify it from claiming a tax refund or tax credit.
Petitioner's argument against the grant of tax refund or tax credit in favor of the respondent is
mainly hinged on respondent's lack of COC from the ERC.

Given that respondent in this case likewise anchors its claim for tax refund or tax credit
under Section 108(B)(3) of the Tax Code, it cannot be required to comply with the requirements
under the EPIRA before its sale of generated power to NPC should qualify for VAT zero-rating.
Section 108(B)(3) of the Tax Code in relation to Section 13 of the NPC Charter, clearly provide
that sale of electricity to NPC is effectively zero-rated for VAT purposes.

As correctly argued by the respondent, the basis for the VAT zero-rated treatment of the
supplier is the tax exemption of the purchaser of services, and not the qualification of the
supplier itself, in order to relieve the tax-exempt purchaser from tax burden considering that it
may not be able to offset or utilize any input tax passed on by its supplier of services, had the
services it purchased been subject to VAT of 12%.

It bears emphasis that effective zero-rating is not intended as benefit to the person legally
liable to pay the tax, such as the [respondent,] but to relieve certain exempt entities, such as the
NPC, from the burden of indirect tax so as to encourage the development of particular industries.
Before, as well as after, the adoption of the VAT, certain special laws were enacted for the
benefit of various entities and international agreements were entered into by the Philippines with
foreign governments and institutions exempting sale of goods or supply of services from indirect
taxes at the level of their suppliers. Effective zero-rating was intended to relieve the exempt
entity from being burdened with the indirect tax which is or which will be shifted to it had there
been no exemption. In this case, respondent is being exempted from paying VAT on its
purchases to relieve NPC of the burden of additional costs that respondent may shift to NPC by
adding to the cost of the electricity sold to the latter.

Petitioner's argument that respondent's judicial claim for refund was prematurely filed for
its failure to exhaust administrative remedies when it failed to submit complete supporting
documents for its administrative claim, deserves scant consideration.

The authority of the CIR to require additional supporting documents necessary to

determine the taxpayer’s entitlement to a refund of input tax, and the consequences of the CIR’s
failure to inform the taxpayer of the need to submit additional documents for claims for tax
refund, or credit filed prior to June 11, 2014, such as this case, had been settled in Pilipinas Total
Gas, Inc. v. Commissioner of Internal Revenue, 776 SCRA 395 (2015),  in this wise: To
summarize, for the just disposition of the subject controversy, the rule is that from the date an
administrative claim for excess unutilized VAT is filed, a taxpayer has thirty (30) days within
which to submit the documentary requirements sufficient to support his claim, unless given
further extension by the CIR. Then, upon filing by the taxpayer of his complete documents to
support his application, or expiration of the period given, the CIR has 120 days within which to
decide the claim for tax credit or refund. Should the taxpayer, on the date of his filing, manifest
that he no longer wishes to submit any other addition documents to complete his administrative
claim, the 120[-]day period allowed to the CIR begins to run from the date of filing.

Wherefore, petition is DENIED. The Decision and Resolution of the Court of Tax Appeals En
Banc in CTA EB No. 1364 are AFFIRMED.