G.R. No. 255085 - Commissioner of Internal Revenue vs. Vestas Services Philippines, Inc.

Case Summary (G.R. No. 255085)

Key Dates

Administrative claim filed with BIR: March 20, 2014 (for 4th quarter CY 2013).
Submission of supporting documents (Transmittal Letter): April 11, 2014 (photocopy later presented).
BIR Letter Denial received by VSPI: August 6, 2014 (dated August 4, 2014).
Judicial claim filed with CTA: September 5, 2014.
CTA Division initial Decision dismissing for lack of jurisdiction: May 26, 2017.
CTA Division Amended Decision granting partial refund: August 31, 2018.
CTA En Banc Decision affirming CTA Division: July 20, 2020.
Supreme Court decision: March 29, 2023.

Procedural Background

VSPI sought refund or issuance of a tax credit certificate for alleged accumulated and unutilized input VAT for the 4th quarter of CY 2013, initially claiming PHP 41,659,221.63. After BIR inaction and subsequent administrative denial, VSPI filed a petition with the CTA. The CIR contested jurisdiction and the merits, arguing strict construction against tax refunds and asserting that VSPI failed to timely and properly substantiate its administrative and judicial claims. The CTA Division initially dismissed for lack of jurisdiction (May 2017), prompting VSPI to move for reconsideration and to offer supplemental evidence; the Division later admitted the evidence and partially granted the refund. The CTA En Banc affirmed. The CIR elevated the case to the Supreme Court via a Rule 45 petition, contesting the admission of supplemental evidence and the timeliness of VSPI’s judicial claim.

Facts Material to the Dispute

VSPI rendered services to EDC Burgos under an Onshore EPC Contract; it declared gross receipts of PHP 546,196,162.22 for the 4th quarter, asserting those receipts were zero-rated under RA 9513 in relation to Sec. 108(B)(3) of the Tax Code. VSPI claimed input VAT credits totaling PHP 41,659,221.63 for that quarter and asserted these input taxes were unutilized against output VAT. VSPI filed its administrative claim March 20, 2014 and, according to its supplemental evidence, submitted complete supporting documents on April 11, 2014 (Transmittal Letter). The BIR issued a denial dated August 4, 2014 (received August 6, 2014). VSPI filed its CTA petition on September 5, 2014.

Issue Presented

Whether VSPI’s judicial claim with the Court of Tax Appeals was timely filed under Section 112(C) of the National Internal Revenue Code (Tax Code), as amended — specifically, whether the 120‑day period for the CIR to act on a refund claim properly commenced from VSPI’s April 11, 2014 submission and whether VSPI’s CTA petition filed September 5, 2014 fell within the 30‑day appeal period following BIR denial or the expiration of the 120‑day period.

Applicable Law and Governing Legal Standards

Constitutional framework: 1987 Philippine Constitution (applicable to judicial review and due process considerations).
Tax Code provisions: Section 112 (refunds or tax credits of input tax) as in force prior to TRAIN amendments (120‑day BIR action period for claims filed before January 1, 2018); Section 108(B)(3) (zero-rated sales) as relevant to VAT zero-rating qualification.
Republic Act No. 9513 (Renewable Energy Act of 2008), Chapter VII Sec. 15(g) — provides for certain zero‑rating for supplies related to renewable energy projects.
Revenue Memorandum Circular No. 49‑2003 — allows a taxpayer 30 days from filing an administrative claim to submit supporting documents (relevant to claims filed prior to June 11, 2014).
RA 10963 (TRAIN Law) and RR No. 13‑2018 — amended processing periods to 90 days and provided transition rules; RR 13‑2018 preserves the 120‑day period for claims filed before 2018.
Rules of evidence and procedure before CTA: RRCTA and Sec. 36, Rule 132 Rules of Court (objection periods for written offers of evidence), as applied suppletorily; CTA proceedings are not governed strictly by technical rules of evidence (statutory and jurisprudential recognition).
Controlling jurisprudence referenced by the courts: Commissioner v. De La Salle University, Pilipinas Total Gas, CE Luzon Geothermal, Atlas Consolidated, and other cited authorities concerning (a) when the 120‑day period begins to run, (b) requirements for admissibility of secondary documentary evidence, and (c) the CTA’s latitude in admitting supplemental evidence where no timely objection is made and where substantial justice warrants admission.

CTA Division Ruling (Amended Decision, Aug. 31, 2018)

The CTA Division concluded: (1) VSPI’s administrative claim and submission of complete documents were timely — the April 11, 2014 Transmittal Letter was submitted within the 30‑day RMC 49‑2003 period and within the two‑year statutory filing window; (2) the BIR had 120 days from April 11, 2014 (until August 9, 2014) to act, and because the BIR’s denial dated August 4, 2014 was received on August 6, 2014, VSPI had 30 days thereafter (until September 5, 2014) to file with the CTA — which it did on September 5, 2014; (3) the Division admitted VSPI’s supplemental evidence (including a photocopy of the Transmittal Letter) after giving VSPI an opportunity to formally offer and substantiate the secondary evidence via witness testimony (Mary Anne U. Murphy) and found sufficient basis for admission (loss of original, attempts to secure certified copy, no bad faith); (4) on the merits, the Division found that services rendered to EDC Burgos qualify for VAT zero‑rating under RA 9513 and Sec. 108(B)(3), but that only a portion of declared zero‑rated sales and input VAT were substantiated — leading to a partial refund/order to issue TCC in the amount of PHP 4,390,198.45.

CTA En Banc Ruling (July 20, 2020)

The En Banc affirmed the Division’s Amended Decision in full. It sustained the admission of VSPI’s supplemental evidence on two principal grounds: (a) the CIR failed to timely object to the Supplemental Formal Offer of Evidence as required (records verification showed no objection to the formal offer and no supplemental memorandum opposing admission), and (b) the CTA is not strictly bound by technical rules of evidence; admission was consistent with the Court’s duty to ascertain the truth and to serve substantial justice. The En Banc also denied the CIR’s reconsideration remedies.

Supreme Court’s Standard of Review and Deference to CTA Findings

The Supreme Court reiterated the well‑established rule that factual findings of the CTA, when supported by substantial evidence, will not be disturbed on appeal. Given the CTA’s specialized expertise in tax matters, its factual determinations — including evidentiary rulings and the quantification of refundable input VAT — are accorded high respect and are reversible only for compelling reasons or abuse of discretion. The petitioner (CIR) failed to demonstrate such abuse or compelling reasons.

Analysis — Admission of Supplemental Evidence and Secondary Evidence

The Supreme Court accepted the CTA’s rationale that (1) the CIR did not file a timely objection to VSPI’s Supplemental Formal Offer of Evidence upon formal offer as required under Sec. 36, Rule 132, and RRCTA; pre‑offer oppositions did not substitute for the mandatory objection at the time of formal offering, and the CIR also did not file a supplemental memorandum to remedy the omission; (2) the CTA’s procedural rule that its proceedings are not governed strictly by technical rules of evidence supports liberal admission of evidence where substantial justice requires; and (3) the Transmittal Letter (photocopy) was properly admitted as secondary evidence because (a) testimony of VSPI’s witness established the existence and subsequent loss of the original, (b) VSPI made efforts to obtain a certified true copy from the CIR (indicating lack of bad faith), and (c) the foundational requirements for secondary evidence were sufficiently met. The Court endorsed De La Salle and related jurisprudence emphasizing that failure to timely object to the formal offer of supplemental evidence renders the evidence admissible and that the CTA may admit evidence in the interest of substantial justice.

Analysis — Timeliness under Section 112(C) and Pilipinas Total Gas Framework

Applying pre‑TRAIN rules governing claims filed before June

Case Syllabus (G.R. No. 255085)

Facts and Parties

Petitioner: Commissioner of Internal Revenue (CIR), represented by the Office of the Solicitor General in the Supreme Court appeal.
Respondent: Vestas Services Philippines, Inc. (VSPI), a domestic corporation duly organized and existing under Philippine laws, registered with the BIR as a VAT taxpayer (TIN 007-533-154-000).
VSPI amended its primary purpose on February 22, 2013 to engage in installation and construction services and services of wind power systems (wind turbine generators, spare parts and related activities).
VSPI entered into an Onshore Engineering, Procurement and Construction Contract with EDC Burgos Wind Power Corporation (EDC Burgos), an export‑oriented enterprise registered with the Board of Investments engaged in the sale of power through renewable energy.
VSPI filed its Quarterly VAT Return for the fourth quarter of CY 2013 and, on March 20, 2014, filed an administrative letter-request for refund and/or issuance of a tax credit certificate with the BIR.
VSPI subsequently filed a Petition for Review with the Court of Tax Appeals (CTA) Division on September 5, 2014, docketed as CTA Case No. 8888, claiming refund or issuance of a tax credit certificate in the amount of PHP 41,659,221.63 representing its alleged accumulated and unutilized input VAT for the fourth quarter of CY 2013.
VSPI alleged gross receipts for the fourth quarter of CY 2013 aggregating to PHP 546,196,162.22 and asserted that its only sales transactions were to EDC Burgos, causing an accumulation of input VAT credits not applied against output VAT liability.

Procedural Posture and Antecedent Proceedings

BIR administrative claim: Filed March 20, 2014; VSPI later submitted additional supporting documents on April 11, 2014 (Transmittal Letter, presented later in the CTA proceedings).
CTA Division initial disposition (Decision dated May 26, 2017): Dismissed VSPI’s petition for lack of jurisdiction because the CTA found VSPI filed its judicial claim on September 5, 2014, eighteen (18) days after the 30‑day period following the BIR’s presumed inaction had lapsed.
VSPI filed a Motion for Reconsideration with Motion for Leave to Reopen and to Present Additional Evidence on June 13, 2017, attaching a photocopy of the April 11, 2014 Transmittal Letter and asserting timely submission of complete documents to the BIR.
CTA Division Resolution dated September 28, 2017: Granted VSPI a final opportunity to present and formally offer the documents attached to its motion; VSPI presented witness Mary Anne U. Murphy by judicial affidavit and filed a Supplemental Offer of Evidence.
CTA Division Resolution dated April 4, 2018: Admitted VSPI’s additional evidence and, upon establishing bases for presenting secondary evidence, admitted the Transmittal Letter (photocopy).
CTA Division Amended Decision dated August 31, 2018: Partially granted VSPI’s Motion for Reconsideration and ordered the CIR to refund or issue a tax credit certificate to VSPI in the amount of PHP 4,390,198.45, representing unutilized input VAT for 4th quarter CY 2013 attributable to zero‑rated receipts for the same period.
CIR’s Motion for Reconsideration of the Amended Decision was denied by the CTA Division in a Resolution dated December 17, 2018.
CIR elevated the case to the CTA En Banc; the CTA En Banc rendered Decision dated July 20, 2020, and denied the petition for lack of merit, affirming the CTA Division’s Amended Decision and December 17, 2018 Resolution. CIR’s motion for reconsideration before the En Banc was denied on November 24, 2020.
CIR filed a Petition for Review on Certiorari under Rule 45 to the Supreme Court (G.R. No. 255085), raising principally the timeliness of VSPI’s judicial claim and alleging erroneous admission of supplemental evidence.

Issues Presented

Whether VSPI’s judicial claim for refund was timely filed with the CTA in accordance with Section 112(C) of the National Internal Revenue Code (Tax Code), as amended.
Whether the CTA Division properly admitted VSPI’s supplemental evidence, including the photocopied Transmittal Letter dated April 11, 2014, offered as secondary evidence.
(Subsidiary / factual) Whether VSPI substantiated entitlement to the claimed refund and the correct attributable amount — though the Supreme Court treated these factual determinations as within the purview of the CTA.

Relevant Statutory Provisions and Regulatory Framework Cited

Section 112 of the Tax Code (Refunds or Tax Credits of Input Tax) — particularly Subsection (A) (time to file for refund/tax credit) and Subsection (C) (120‑day period for the BIR to act from submission of complete documents; 30‑day judicial appeal period from receipt of denial or expiration of the 120‑day period). The text of Sec. 112(C) was quoted and described as applicable in its pre‑TRAIN Law form because the claim was filed prior to 2018.
Republic Act No. 9513 (Renewable Energy Act of 2008), Chapter VII, Sec. 15(g) — zero‑rating of certain sales of renewable energy developers and the related treatment for local suppliers of services.
RMC No. 49‑2003 — provides that a taxpayer has 30 days from filing an administrative claim to submit supporting documents; guidance on when the 120‑day BIR period commences.
RA 10963 (TRAIN Law) and Revenue Regulation No. 13‑2018 — noted for context (90‑day period under TRAIN, but expressly not applicable to claims filed prior to January 1, 2018 due to RR No. 13‑2018, Sec. 2).
Rules of the Court and Revised Rules of the Court of Tax Appeals (RRCTA) — particularly Rule 15 provisions and Sec. 36, Rule 132 of the Rules of Court (objection periods to offers of evidence) applied suppletorily.
Jurisprudence cited by the Court: Pilipinas Total Gas, Inc. v. Commissioner of Internal Revenue; Commissioner of Internal Revenue v. De La Salle University, Inc.; Commissioner of Internal Revenue v. San Miguel Corporation; CE Luzon Geothermal Power Company, Inc. v. Commissioner of Internal Revenue; Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue; and other authority cited within the decision for evidentiary and procedural principles.

Findings of the CTA Division (Amended Decision dated August 31, 2018)

Timeliness:
- VSPI filed the administrative claim on March 20, 2014 and submitted the complete supporting documents on April 11, 2014 (Transmittal Letter). The April 11, 2014 submission was within the 30‑day period allowed under RMC 49‑2003.
- No evidence that the BIR requested additional documents or notified VSPI that the April 11 submission was incomplete; therefore the 120‑day BIR period ran from April 11, 2014 to August 9, 2014.
- VSPI had 30 days from expiration of the 120‑day period until September 8, 2014 to elevate the matter to the CTA; because the BIR’s Letter Denial was received on August 6, 2014, the 30‑day period ran from that receipt date until September 5, 2014, and VSPI’s judicial claim filed on September 5, 2014 was timely.
Entitlement and zero‑rating:
- VSPI’s services to EDC Burgos qualified for zero‑percent VAT under RA 9513 (Chapter VII, Sec. 15(g)) in correlation with Sec. 108(B)(3) of the Tax Code, as amended, given that VSPI rendered services for development, construction and installation of plant facilities integral to the Burgos Wind Farm Project and EDC Burgos is a registered renewable energy developer.
- Only sales of services supported by duly registered official receipts imprinted with the words "zero‑rated sale" and containing all legally required information qualify for zero‑rating under the cited provisions.
Quantification:
- Out of declared zero‑rated sales of PHP 546,196,162.22, only PHP 156,148,192.97 qualified for zero‑rating under the evidentiary requirements.
- Out of the claimed input VAT of PHP 41,659,221.63, only PHP 15,356,626.94 was valid input VAT attributable to the declared zero‑rated sales of PHP 546,196,162.22.
- Applying the ratio of substantiated zero‑rated sales to declared zero‑rated sales yielded an input VAT attributable to substantiated zero‑rated sales of PHP 4,390,198.45, computed by: Valid input VAT (P15,356,626.94) ÷ Total declared zero‑rated sales (P546,196,162.22) × Substantiated zero‑rated sales (P156,148,192.97) = P4,390,198.45.
- The CTA Division found VSPI’s input taxes were not applied against any output VAT liability during the quarter and succeeding period