Title
Chevron Holdings, Inc. vs. Commissioner of Internal Revenue
Case
G.R. No. 215159
Decision Date
Jul 5, 2022
Chevron Holdings sought a VAT refund for zero-rated services to foreign affiliates. The Supreme Court ruled in its favor, affirming zero-rating but disallowing claims due to insufficient remittance evidence and documentation.

Case Summary (G.R. No. 215159)

Procedural History and Key Dates

  • Administrative claim for refund filed: March 28, 2008.
  • Judicial petitions to CTA Division: April 24, 2008 (first quarter) and July 23, 2008 (second to fourth quarters); both consolidated.
  • CTA Division Decision (June 6, 2012): denied petitions as prematurely filed.
  • CTA En Banc Decision (May 6, 2014): reversed CTA Division, partially granted refund — ordered P15,085.24 refund (first quarter).
  • CTA En Banc Amended Decision (Oct. 28, 2014): increased refund to P47,409.24.
  • Supreme Court grant in part (G.R. No. 215159, July 5, 2022): affirmed with modifications; ordered refund/TCC of P1,140,381.22. Applicable constitutional framework: 1987 Constitution (decision date post‑1990).

Applicable Law and Regulatory Framework

Primary statutory and regulatory sources applied in the decision: National Internal Revenue Code (NIRC) provisions on VAT — Sections 108 (zero‑rating of services), 110 (tax credits; determination of excess output/input tax), 112 (refunds/tax credits of input tax), and 113 (invoicing/accounting requirements). Implementing regulations cited: RR No. 16‑2005 (Consolidated VAT Regulations), as amended (e.g., Sec. 4.110‑4, 4.110‑5, 4.112‑1, 4.113‑1), and related revenue rulings and legislative history cited by the Court.

Factual and Accounting Details (as found by CTA and affirmed in part)

Quarterly reported figures (selected): zero‑rated sales, VAT‑able sales, output tax, purchases and input tax. Chevron allocated input taxes proportionately between VAT‑able and zero‑rated sales, producing input tax attributable to zero‑rated sales for each quarter (first to fourth quarters: P5,391,252.04; P5,954,919.62; P6,466,776.47; P18,990,008.50 respectively). Chevron had declared an input tax carryover of P55,784,357.71 in Q4 2005 and reported total input VAT for 2006 of P40,152,123.09, of which CTA En Banc validated only P9,081,815.00 as properly substantiated with VAT invoices/official receipts. Certain sales/inward remittances (aggregate P10,025,869.35) and input tax (P24,598,395.58) were disallowed by CTA En Banc for insufficient documentation or noncompliance with invoicing/BSP inward remittance rules.

Issues Presented to the Supreme Court

The petition raised four main issues distilled by the Court: (1) whether Chevron’s services to foreign affiliates qualified as zero‑rated sales under Section 108(B)(2); (2) whether the P10,025,869.35 was inwardly remitted in acceptable foreign currency; (3) whether CTA En Banc erred in not recognizing input VAT carryovers from prior quarters to cover output VAT liability for 2006; and (4) whether the CTA En Banc erred in disallowing refund of Chevron’s claimed excess/unutilized input VAT totaling P24,598,395.58.

Governing legal test for zero‑rating under Section 108(B)(2)

Section 108(B)(2) requires concurrence of four conditions for zero‑rating of services: (i) services are not processing/manufacturing/repacking of goods; (ii) services are performed in the Philippines; (iii) the recipient is either a person engaged in business conducted outside the Philippines or a nonresident person not engaged in business who is outside the Philippines when services are performed; and (iv) consideration is paid in acceptable foreign currency and inwardly remitted and accounted for under BSP rules. The Court applied binding precedent (e.g., Deutsche Knowledge Services) that proof must show both that the client is a foreign corporation (e.g., SEC Certificates of Non‑Registration) and that it was not doing business in the Philippines at the time of the service (e.g., Articles/Certificates of Incorporation or similar).

Application of zero‑rating test to Chevron’s sales

The Court agreed with CTA En Banc’s factual findings that only certain foreign clients were supported by both SEC Certificates of Non‑Registration and foreign incorporation documents; where both were absent the CTA correctly disallowed zero‑rating. The Court upheld CTA En Banc’s disallowance of P10,025,869.35 as zero‑rated sales because Chevron failed to substantiate inward remittance in acceptable foreign currency in conformity with BSP rules (the JP Morgan on‑line reports were not sufficient and were admitted by Chevron as an “online application”), and upheld disallowance of input tax amounts where invoicing requirements under RR No. 16‑2005 (Sec. 4.113‑1) were not met (VAT must be shown as a separate item).

Legal requirements for refund/tax credit of input VAT under Section 112(A)

Section 112(A) provides that a VAT‑registered person whose sales are zero‑rated may, within two years after the close of the taxable quarter, apply for refund or TCC of creditable input tax attributable to such sales (except transitional input tax) to the extent that such input tax has not been applied against output tax. The requisites the Court emphasized for refund are: (1) VAT registration; (2) engagement in zero‑rated sales; (3) timely filing; (4) the input tax claimed is creditable and attributable to the zero‑rated sales; (5) input tax is not transitional; and (6) where mixed transactions exist and input taxes cannot be directly attributed, proportional allocation by sales volume is required (per RR Sec. 4.110‑4).

Central legal question: must zero‑rated input tax be first offset against output tax or can it be claimed in full?

The Court’s majority held that application of input VAT attributable to zero‑rated sales and the remedy of refund/TCC are alternative and cumulative options vested in the taxpayer. Section 112(A) requires only that the input tax claimed “has not been applied against output tax” — proof that it was not so applied suffices; the law does not require that the taxpayer first offset such input tax against output tax to determine an “excess” prior to refund. The Court therefore rejected the CTA En Banc’s approach of first charging validated input taxes to output taxes and allowing refund only of any resulting “excess.” The majority concluded that the CTA (and courts) cannot impose a requirement absent in the statute that the taxpayer demonstrate an “excess” after offsets; instead, the taxpayer may, at its option, claim refund of the unutilized input VAT attributable to zero‑rated sales without first applying it to output VAT.

Reasoning supporting the majority view

  • Statutory text: Section 112(A) expressly allows refund of input tax “to the extent that such input tax has not been applied against output tax,” which the Court interpreted as requiring proof only of non‑application, not proof of an “excess” after application.
  • Regulatory scheme: RR provisions (Sec. 4.110‑5 and 4.112‑1) show that claims for refund reduce the pool of creditable input tax; when a taxpayer elects refund, the input VAT can be removed from the computation of creditable input tax.
  • Legislative history and prior practice: congressional debates and administrative practice were invoked to show that refundable input tax attributable to zero‑rated transactions may be immediately refundable/credited and that the refund option is a legitimate, statutorily recognized remedy designed to avoid cascading burdens and promote exports/zero‑rated transactions.
  • Burden of proof and remedy sequence: once claimant establishes the statutory requisites and a prima facie case, burden shifts to BIR to disprove; requiring additional proof of “excess” or of prior quarter carryovers unnecessarily burdens the taxpayer and has no statutory basis.

Court’s application and computation of refund due

Applying the statutory requisites and RR Sec. 4.110‑4 apportionment method to the validated figures, the Court accepted that only P155,654,748.22 qualified as valid zero‑rated sales for 2006 and that only P9,081,815.00 of input taxes were substantiated with VAT invoices/official receipts. Using the ratable allocation formula (valid zero‑rated sales divided by total reported sales for each quarter, multiplied by valid input tax not directly attributable to any activity), the Court computed input tax attributable to zero‑rated sales per quarter and summed them to arrive at the total refundable amount of P1,140,381.22 for January 1–December 31, 2006. The Court ordered the CIR to refund or issue a tax credit certificate in this amount.

Limitations and disallowances sustained

The Court sustained CTA En Banc’s disallowance of: (a) certain clients/sales that lacked adequate proof of foreign non‑registration or non‑presence in the Philippines; (b) P10,025,869.35 for lack of inward remittance proof in acceptable foreign currency; and (c) P24,598,395.58 in input tax where VAT was not separately indicated in invoices/receipts as required by Sec. 4.113‑1 of RR No. 16‑2005.

Burden of proof and evidentiary findings

The Court accepted the CTA En Banc’s factual findings on documentary sufficiency (showing deference to CTA’s competence in evaluating documents), but held that Chevron met the statutory requisites for refund of unutilized input tax attributable to zero‑rated sales by preponderance, including independent auditor’s report indicating the claimed input VAT had not been applied against output tax and was not carried over after April 2008.

Final disposition by the Supreme Court majority

The petition was partly granted; the CTA En Banc Decision and Amended Decision were affirmed with modifications. CIR was ordered to refund or issue a tax credit certificate to Chevron in the amount of P1,140,381.22, representing unutilized input tax attributable to zero‑rated sales for the period January 1–Dece

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