Title
Commissioner of Internal Revenue vs. Toledo Power Company
Case
G.R. No. 196415
Decision Date
Dec 2, 2015
TPC sought a VAT refund for 2002, partially granted for NPC sales but denied for others due to lack of ERC COC; SC upheld CTA, ruling timely claims but no refund for non-NPC sales.

Case Summary (G.R. No. 196415)

Factual Background and Administrative Claim

On December 22, 2003, TPC filed with BIR RDO No. 83 an administrative claim for refund or tax credit of unutilized input VAT for taxable year 2002 in the amount of P14,254,013.27. TPC’s quarterly VAT returns for 2002 declared zero-rated sales of P439,660,958.77. TPC had applied for a Certificate of Compliance (COC) from the Energy Regulatory Commission (ERC) on June 20, 2002; a COC was later issued to TPC on June 23, 2004 (the record later indicates June 23, 2005 as the ERC issuance date used by the Court). Because the CIR did not act on the administrative claim within the statutory period, TPC brought a judicial petition to the Court of Tax Appeals (CTA) on April 22, 2004.

Procedural History through the CTA Division

The CTA First Division (Decision dated November 11, 2009) partially granted TPC’s claim, allowing refund/credit in the reduced amount of P7,598,279.29. The Division recognized that TPC’s sales to NPC were zero-rated (because NPC is exempt from taxes) and allowed input VAT attributable to those sales. The Division denied zero-rating for sales to CEBECO, ACMDC, and AFC because TPC failed to prove it was a generation company under EPIRA — specifically, it did not present a COC issued by the ERC for the relevant period. The Division conducted an examination of claimed input VAT, adopted some adjustments recommended by a Court-commissioned independent CPA, disallowed certain items, accepted others (including certain import VAT and additional substantiation), and allocated substantiated excess input VAT proportionately to zero-rated sales, yielding the P7,598,279.29 figure.

CTA Division’s Findings on Documentary Substantiation

The CTA Division examined TPC’s submitted lists, suppliers’ invoices/ORs, Bureau of Customs import entries, and other documents. The Court-commissioned CPA disallowed P3,210,679.75 out of total reported input VAT of P14,558,043.30. The Division restored certain items (import VAT of P6,568.00 and additional substantiated input VAT of P969,369.59) and disallowed an out-of-period claim of P102,700.85, resulting in substantiated input VAT of P12,220,600.29. After offsetting output VAT reported, the substantiated excess input VAT was P11,916,570.26, and when apportioned to substantiated zero-rated sales (P280,337,939.83) produced the excess input VAT attributable to zero-rated sales of P7,598,279.29.

CTA En Banc Ruling and Reconsideration

The CTA En Banc (Decision dated November 22, 2010) dismissed both petitions before it and affirmed the CTA Division’s findings. The En Banc concluded both administrative and judicial claims were timely and that failure to strictly comply with RMO No. 53-98 was not fatal. The En Banc agreed TPC lacked an ERC-issued COC for 2002 and thus sales to CEBECO, ACMDC, and AFC could not be zero-rated under EPIRA; it also found nothing in the Joint Stipulation of Facts and Issues (JSFI) that established TPC as a generation company. Motions for partial reconsideration were denied by the CTA En Banc in a Resolution dated April 6, 2011.

Issues Presented to the Supreme Court

The consolidated petitions raised principally: (1) whether TPC’s administrative and judicial claims were timely and validly filed (including contention that TPC failed to exhaust administrative remedies and did not comply with RMO No. 53-98); (2) whether TPC was entitled to the full amount of its claimed refund (including whether TPC qualified as a generation company under EPIRA for 2002 and whether the COC requirement was jurisdictional or could be satisfied by filing an application); and (3) whether TPC was liable for deficiency VAT on sales not recognized as zero-rated.

Parties’ Core Arguments

CIR argued TPC’s administrative claim was pro forma because TPC did not submit the complete documents enumerated in RMO No. 53-98, depriving the BIR of the opportunity to verify the claim and to determine whether unutilized input VAT had been applied against output VAT (Section 112[A] NIRC). CIR contended that sales to entities other than NPC were subject to VAT and that TPC should be liable for a computed deficiency of P4,015,731.63. TPC countered that it submitted relevant supporting documents (articles of partnership, ERC registration and compliance certificate, VAT registration, quarterly returns, purchase summaries and supporting invoices, and application for zero-rating), that it had exhausted administrative remedies by waiting for the CIR’s action, and that filing the COC application with ERC on June 20, 2002 vested it with rights as a generation company under EPIRA (citing VAT Ruling No. 011-5); TPC also argued that the BIR’s period to assess deficiency VAT had prescribed and that assessment is improper in a refund proceeding.

Legal Framework Applied by the Supreme Court

The Court applied Sections 112(A) and 112(D) of the NIRC regarding the two-year window to file administrative claims for unutilized input VAT attributable to zero-rated sales, the CIR’s 120-day period to act upon submission of complete documents, and the 30-day period to appeal to the CTA (or to appeal inaction after 120 days). The Court relied upon prior decisions interpreting the 120+30-day rule (e.g., Commissioner v. San Roque; Aichi Forging), and treated RMO No. 53-98 as a checklist rather than a jurisdictional prerequisite per se, citing Team Sual jurisprudence that the CIR’s failure to request missing documents precludes a later contention that the administrative claim was pro forma.

Analysis and Ruling on Timeliness and Sufficiency of the Administrative Claim

The Supreme Court found both the administrative claim (filed December 22, 2003) and the CTA appeal (filed April 22, 2004) timely under Section 112. The Court held the administrative claim was not pro forma because TPC submitted supporting documents and indicated willingness to furnish additional materials; more importantly, the CIR never requested additional documents pursuant to RMC No. 42-03. The Court reaffirmed Team Sual: RMO No. 53-98 does not create an absolute condition for grant of a refund under Section 112, and noncompliance is not fatal where the CIR failed to identify and request missing items. Accordingly, the Court sustained CTA’s findings that the claims were timely and validly filed.

Analysis and Ruling on Zero-Rating under EPIRA and the COC Requirement

The Court held that to qualify for zero-rating under EPIRA a taxpayer must show (1) that it is a generation company (i.e., an entity authorized by ERC to operate generation facilities, evidenced by a COC), and (2) that its sales were derived from power generation. The Court distinguished between an existing generation facility and a generation company: the former denotes a physical facility producing electricity, while the latter is an entity authorized by ERC to operate such facilities pursuant to a COC. Although TPC had an existing generation facility and had filed a COC application on June 20, 2002, it was not yet a generation company for EPIRA purposes in 2002 until the ERC issued the COC (the Court recited that the ERC issued a COC to TPC on June 23, 2004/2005 in the record). The parties’ JSFI did not stipulate that TPC was a generation company; it only established TPC’s business activity and that TPC filed a COC application. Filing an application does not automatically vest a taxpay

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