MINDANAO II GEOTHERMAL PARTNERSHIP - v - CIR

G.R. No. 193301               March 11, 2013

MINDANAO II GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF INTERNAL REVENUE

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G.R. No. 194637

MINDANAO I GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF INTERNAL REVENUE

CARPIO, J.

G.R. No. 193301
Mindanao II v. CIR

Facts:

In 1997, Mindanao II allegedly entered into a BOT contract with the Philippine National Oil Corporation – Energy Development Company (PNOC-EDC) for finance, engineering, supply, installation, testing, commissioning, operation, and maintenance of a 48.25 megawatt geothermal power plant, provided that PNOC-EDC shall supply and deliver steam to Mindanao II at no cost. In turn, Mindanao II shall convert the steam into electric capacity and energy for PNOC-EDC and shall deliver the same to the National Power Corporation (NPC) for and in behalf of PNOC-EDC. Mindanao II alleges that its sale of generated power and delivery of electric capacity and energy of Mindanao II to NPC for and in behalf of PNOC-EDC is its only revenue-generating activity which is in the ambit of VAT zero-rated sales under the EPIRA Law. Hence, the amendment of the NIRC of 1997 modified the VAT rate applicable to sales of generated power by generation companies from 10% percent to 0% percent.

In the course of its operation, Mindanao II makes domestic purchases of goods and services and accumulates therefrom creditable input taxes. Pursuant to the provisions of the NIRC, Mindanao II alleges that it can use its accumulated input tax credits to offset its output tax liability. Considering, however that its only revenue-generating activity is VAT zero-rated under RA No. 9136, Mindanao II’s input tax credits remain unutilized. On the belief that its sales qualify for VAT zero-rating, Mindanao II adopted the VAT zero-rating of the EPIRA in computing for its VAT payable when it filed its Quarterly VAT Returns. Considering that it has accumulated unutilized creditable input taxes from its only income-generating activity, Mindanao II filed an application for refund and/or issuance of tax credit certificate with the BIR’s Revenue District Office at Kidapawan City for the four quarters of 2003.

The application for refund by Mindanao II remains unacted upon by the CIR. Hence, these three petitions. At the instance of Mindanao II, these petitions were consolidated as they involve the same parties and the same subject matter. The only difference lies with the taxable periods involved in each petition.

G.R. No. 194637
Mindanao I v. CIR

Facts:

In 1994, Mindanao I entered into a contract of BOT with the PNOC-EDC for the finance, design, construction, testing, commissioning, operation, maintenance and repair of a 47-megawatt geothermal power plant. Under the said BOT contract, PNOC-EDC shall supply and deliver steam to Mindanao I at no cost. In turn, Mindanao I will convert the steam into electric capacity and energy for PNOC-EDC and shall subsequently supply and deliver the same to the NPC, for and in behalf of PNOC-EDC. Mindanao I’s 47-megawatt geothermal power plant project has been accredited by the Department of Energy (DOE) as a Private Sector Generation Facility, pursuant to the provision of Executive Order No. 215.

In 2001, R.A. No. 9136 took effect, and the relevant provisions of the NIRC were deemed modified. R.A. No. 9136, the "Electric Power Industry Reform Act of 2001 (EPIRA), was enacted by Congress to ordain reforms in the electric power industry, highlighting, among others, the importance of ensuring the reliability, security and affordability of the supply of electric power to end users. Under the provisions of this Republic Act and its implementing rules and regulations, the delivery and supply of electric energy by generation companies became VAT zero-rated, which previously were subject to 10% VAT.

Mindanao I adopted the VAT zero-rating of the EPIRA in computing for its VAT payable when it filed its VAT Returns, on the belief that its sales qualify for VAT zero-rating. Mindanao I reported its unutilized or excess creditable input taxes in its Quarterly VAT Returns for taxable year 2003, which were subsequently amended and filed with the BIR. In 2005, Mindanao I filed with the BIR separate administrative claims for the issuance of tax credit certificate on its alleged unutilized or excess input taxes for taxable year 2003, in the accumulated amount of ₱14,185, 294.80. Alleging inaction on the part of CIR, Mindanao I elevated its claims before this Court. However, Mindanao I received a copy of the letter of the BIR denying its application for tax credit/refund.

Issues:

1.       Whether or not the Mindanao II and Mindanao I filed respective administrative and judicial claims have already prescribed.

2.       Whether or not Mindanao II’s sale of a fully depreciated Nissan Patrol is not an incidental transaction in the course of its business; hence, it is an isolated transaction that should not have been subject to 10% VAT.

Ruling:

(1)    Whether or not the Mindanao II and Mindanao I filed respective administrative and judicial claims have already prescribed.

Determination of Prescriptive Period

When Mindanao II and Mindanao I filed their respective administrative and judicial claims in 2005, neither Atlas nor Mirant (previous cases involving the same procedural issue) has been promulgated. Atlas was promulgated on 8 June 2007, while Mirant was promulgated on 12 September 2008. It is therefore misleading to state that Atlas was the controlling doctrine at the time of filing of the claims. The 1997 Tax Code, which took effect on 1 January 1998, was the applicable law at the time of filing of the claims in issue.

Prescriptive Period for the Filing of Administrative Claims

In determining whether the administrative claims of Mindanao I and Mindanao II for 2003 have prescribed, we see no need to rely on either Atlas or Mirant. Section 112(A) of the 1997 Tax Code is clear: "Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within 2 years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales x x x."

Prescriptive Period for the Filing of Judicial Claims

The second paragraph of Section 112(C) of the 1997 Tax Code is clear: "In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within 30 days from the receipt of the decision denying the claim or after the expiration of the 120-period, appeal the decision or the unacted claim with the Court of Tax Appeals."

Section 112(C) expressly grants the Commissioner 120 days within which to decide the taxpayer’s claim. The law is clear, plain, and unequivocal. Following the verba legis doctrine, this law must be applied exactly as worded since it is clear, plain, and unequivocal. The taxpayer cannot simply file a petition with the CTA without waiting for the Commissioner’s decision within the 120-day mandatory and jurisdictional period. The CTA will have no jurisdiction because there will be no "decision" or "deemed a denial" decision of the Commissioner for the CTA to review.

Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction of the Commissioner. This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law should be applied exactly as worded since it is clear, plain, and unequivocal. As this law states, the taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30 days from receipt of the Commissioner’s decision, or if the Commissioner does not act on the taxpayer’s claim within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of the 120-day period.

There are three compelling reasons why the 30-day period need not necessarily fall within the two-year prescriptive period, as long as the administrative claim is filed within the two-year prescriptive period.

·         First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer "may, within 2 years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of the creditable input tax due or paid to such sales." In short, the law states that the taxpayer may apply with the Commissioner for a refund or credit "within 2 years," which means at anytime within two years. Thus, the application for refund or credit may be filed by the taxpayer with the Commissioner on the last day of the two-year prescriptive period and it will still strictly comply with the law. The two-year prescriptive period is a grace period in favor of the taxpayer and he can avail of the full period before his right to apply for a tax refund or credit is barred by prescription.

·         Second, Section 112(C) provides that the Commissioner shall decide the application for refund or credit "within 120 days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A)." The reference in Section 112(C) of the submission of documents "in support of the application filed in accordance with Subsection A" means that the application in Section 112(A) is the administrative claim that the Commissioner must decide within the 120-day period. In short, the two-year prescriptive period in Section 112(A) refers to the period within which the taxpayer can file an administrative claim for tax refund or credit. Stated otherwise, the two-year prescriptive period does not refer to the filing of the judicial claim with the CTA but to the filing of the administrative claim with the Commissioner. As held in Aichi (another case), the "phrase ‘within two years x x x apply for the issuance of a tax credit or refund’ refers to applications for refund/credit with the CIR and not to appeals made to the CTA."

·         Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive period (equivalent to 730 days), then the taxpayer must file his administrative claim for refund or credit within the first 610 days of the two-year prescriptive period. Otherwise, the filing of the administrative claim beyond the first 610 days will result in the appeal to the CTA being filed beyond the two-year prescriptive period. Thus, if the taxpayer files his administrative claim on the 611th day, the Commissioner, with his 120-day period, will have until the 731st day to decide the claim. If the Commissioner decides only on the 731st day, or does not decide at all, the taxpayer can no longer file his judicial claim with the CTA because the two-year prescriptive period (equivalent to 730 days) has lapsed. The 30-day period granted by law to the taxpayer to file an appeal before the CTA becomes utterly useless, even if the taxpayer complied with the law by filing his administrative claim within the two-year prescriptive period.

The theory that the 30-day period must fall within the two-year prescriptive period adds a condition that is not found in the law. It results in truncating 120 days from the 730 days that the law grants the taxpayer for filing his administrative claim with the Commissioner. Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language. The taxpayer can file his administrative claim for refund or credit at anytime within the two-year prescriptive period. If he files his claim on the last day of the two-year prescriptive period, his claim is still filed on time. The Commissioner will have 120 days from such filing to decide the claim. If the Commissioner decides the claim on the 120th day, or does not decide it on that day, the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only the plain meaning but also the only logical interpretation of Section 112(A) and (C). 

Recognition of BIR Ruling No. DA-489-03

In San Roque (another case), this Court ruled that "all taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal in Aichi on 6 October 2010, where this Court held that the 120+30 day periods are mandatory and jurisdictional."(This is relevant because in such period, Mindanao I and II filed their claims.)

BIR Ruling No. DA-489-03 expressly states that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review." This Court discussed that taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a difficult question of law. The abandonment of the Atlas doctrine did not result in Atlas, or other taxpayers similarly situated, being made to return the tax refund or credit they received or could have received under Atlas prior to its abandonment. Absent fraud, bad faith or misrepresentation, the reversal by this Court of a general interpretative rule issued by the Commissioner, like the reversal of a specific BIR ruling under Section 246, should also apply prospectively.

An issue arose whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable to all taxpayers or a specific ruling applicable only to a particular taxpayer. BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, not by a particular taxpayer, but by a government agency tasked with processing tax refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. This government agency is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi (another case) on 6 October 2010.

Summary of Rules on Prescriptive Periods Involving VAT

The Court summarized the rules on the determination of the prescriptive period for filing a tax refund or credit of unutilized input VAT as provided in Section 112 of the 1997 Tax Code, as follows:

(1) An administrative claim must be filed with the CIR within two years after the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made.

(2) The CIR has 120 days from the date of submission of complete documents in support of the administrative claim within which to decide whether to grant a refund or issue a tax credit certificate. The 120-day period may extend beyond the two-year period from the filing of the administrative claim if the claim is filed in the later part of the two-year period. If the 120-day period expires without any decision from the CIR, then the administrative claim may be considered to be denied by inaction.

(3) A judicial claim must be filed with the CTA within 30 days from the receipt of the CIR’s decision denying the administrative claim or from the expiration of the 120-day period without any action from the CIR.

(4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010, as an exception to the mandatory and jurisdictional 120+30 day periods.

(2)    Whether or not Mindanao II’s sale of a fully depreciated Nissan Patrol is not an incidental transaction in the course of its business; hence, it is an isolated transaction that should not have been subject to 10% VAT.

"Incidental" Transaction

Mindanao II asserts that the sale of a fully depreciated Nissan Patrol is not an incidental transaction in the course of its business; hence, it is an isolated transaction that should not have been subject to 10% VAT. Section 105 of the 1997 Tax Code does not support Mindanao II’s position:

SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.

The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act No. 7716.

The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade or business.

Mindanao II’s sale of the Nissan Patrol is said to be an isolated transaction. However, it does not follow that an isolated transaction cannot be an incidental transaction for purposes of VAT liability. Indeed, a reading of Section 105 of the 1997 Tax Code would show that a transaction "in the course of trade or business" includes "transactions incidental thereto." Mindanao II’s business is to convert the steam supplied to it by PNOC-EDC into electricity and to deliver the electricity to NPC. In the course of its business, Mindanao II bought and eventually sold a Nissan Patrol. Prior to the sale, the Nissan Patrol was part of Mindanao II’s property, plant, and equipment. Therefore, the sale of the Nissan Patrol is an incidental transaction made in the course of Mindanao II’s business which should be liable for VAT.

Substantiation Requirements

Mindanao II’s compliance with the substantiation requirements is a finding of fact. The CTA En Banc evaluated the records of the case and found that the transactions in question are purchases for services and that Mindanao II failed to comply with the substantiation requirements. We affirm the CTA En Banc’s finding of fact, which in turn affirmed the finding of the CTA First Division. We see no reason to overturn their findings.

Dispositive:

For G.R. No. 193301, the claim of Mindanao II Geothermal Partnership for the first quarter of 2003 is DENIED while its claims for the second, third, and fourth quarters of 2003 are GRANTED. For G.R. No. 194637, the claims of Mindanao I Geothermal Partnership for the first, third, and fourth quarters of 2003 are DENIED while its claim for the second quarter of 2003 is GRANTED.

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