Case Summary (G.R. No. 179356)
Background of Claims
KEPCO filed a series of claims with the Bureau of Internal Revenue (BIR) and the Court of Tax Appeals (CTA) beginning on September 30, 1998, for tax refunds totaling P22,172,003.26. This amount comprised unutilized input VAT payments for the third and fourth quarters of 1996 and involved unutilized input VAT attributable to zero-rated sale transactions with NPC. The two claims before the CTA were consolidated, and a court-commissioned audit report substantiated P20,550,953.93 of the claimed amount as valid for VAT refund purposes.
CTA's Decision and Subsequent Developments
In a Decision dated March 18, 2003, the CTA granted a partial refund of P8,325,350.35, corresponding only to specific unutilized input VAT payments. KEPCO filed a motion for reconsideration for an additional P5,012,875.67, which was denied on July 8, 2003, on the basis that part of the claim pertained to purchases made in 1997 and that other amounts were not recorded under depreciable asset accounts, thereby disqualifying them as capital goods.
Appeal to the Court of Appeals
KEPCO subsequently appealed to the Court of Appeals under Rule 43 of the Rules of Court, seeking a refund for P3,455,199.54, claiming that the disallowed items were used in rehabilitating the Malaya Power Plant and should be classified as capital expenses. The appellate court affirmed the CTA's decision in a December 11, 2006 ruling, noting that the purchases were recorded under inventory accounts rather than depreciable asset accounts.
Legal Definition of Capital Goods
The pertinent definition of capital goods is outlined in Section 4.106-1 (b) of Revenue Regulations No. 7-95, which requires that such goods must possess an estimated useful life exceeding one year, be treated as depreciable assets under Section 34 (f) of the National Internal Revenue Code (NIRC), and be utilized in the production or sale of taxable goods and services. KEPCO's failure to demonstrate that the goods qualified as capital assets according to these criteria led the courts to deny the full refund.
Evaluation of Evidence
Despite KEPCO's assertions that its general ledger included the disallowed purchases as capital goods, the supporting account vouchers indicated that these items were categorized under inventory rather than any depreciable asset account. The variance between the general ledger and the source documents—specifically the account vouchers—resulted in the source documents being favore
...continue readingCase Syllabus (G.R. No. 179356)
Case Background
- Parties Involved: KEPCO Philippines Corporation (petitioner) vs. Commissioner of Internal Revenue (respondent).
- Nature of the Case: Tax refund claims concerning unutilized input Value Added Tax (VAT) payments and creditable VAT withheld.
- Date of Decision: December 14, 2009.
- Court: First Division of the Supreme Court of the Philippines.
- Citation: 623 Phil. 121; 106 OG No. 41, 5793 (October 11, 2010).
Facts of the Case
- Incorporation and Operations: KEPCO was incorporated and registered with the Securities and Exchange Commission on June 15, 1995, as an independent power producer selling electricity to the National Power Corporation (NPC).
- Agreements: Established a Rehabilitation Operation Maintenance and Management Agreement with NPC for the Malaya Power Plant Complex.
- Claims for Tax Refund:
- On September 30, 1998, KEPCO filed claims for tax refunds amounting to:
- P4,895,858.01 for unutilized input VAT for the 3rd quarter of 1996.
- P4,084,867.25 for creditable VAT withheld from NPC payments during April and June 1996.
- Filed an additional claim on December 28, 1998, for P13,191,278.00 for the 4th quarter of 1996, resulting in a total claim of P22,172,003.26.
- On September 30, 1998, KEPCO filed claims for tax refunds amounting to:
- Court Proceedings:
- Claims were consolidated under CTA Case No. 5704 and CTA Case No. 5765.
- A court-commissioned auditor confirmed the claimed amount of P20,550,953.93 as substantiated for VAT refund purposes.
Court of Tax Appeals (CTA) Decision
- Partial Grant: On March 18, 2003, the CTA granted KEPCO a partial refund of P8,325,350.35 for unutilized input VAT on domestic purchases qualifying as capital goods.
- Denial of Ot