Case Summary (G.R. No. 197663)
Background and Nature of Claim
Team Energy Corporation sought a refund/credit of unutilized input VAT attributable to its zero-rated sales of electricity to NPC for the taxable year 2003. The claim arose from its VAT-registered status and its effective zero-rating approval by BIR on November 13, 2002. Team Energy filed quarterly VAT returns, including amended returns, reflecting zero-rated sales and input VAT amounts. On December 17, 2004, it filed with the BIR a claim for refund of unutilized input VAT amounting to ₱83,465,353.50 covering all four quarters of 2003, which was followed by judicial claims filed when the BIR failed to act within the mandated period.
Prescriptive Periods and Jurisdictional Requirements for VAT Refund Claims
Under Section 112(D) of the 1997 NIRC, a taxpayer must first file an administrative refund claim supported by complete documents, to which the Commissioner has 120 days to act. If the claim is denied or the Commissioner fails to act within 120 days, the taxpayer must file an appeal with the Court of Tax Appeals (CTA) within 30 days from receipt of the denial or expiration of the 120-day period. The Supreme Court reiterated that strict compliance with these 120+30-day periods is mandatory and jurisdictional, as established in Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. and Commissioner of Internal Revenue v. San Roque Power Corporation. Filing beyond these periods results in denial of jurisdiction over the judicial claim.
In this case, Team Energy’s administrative claim was filed December 17, 2004, thus the Commissioner had until April 16, 2005, to act. Team Energy’s judicial claim filed on July 22, 2005, was 67 days late, exceeding the 30-day appellate period, rendering the CTA En Banc’s denial of the tax refund claims for the second to fourth quarters valid for lack of jurisdiction. The Court rejected Team Energy’s argument that retroactive application of this rule violated principles against retroactivity, emphasizing that the 1997 NIRC already contained the 120+30-day requirement when the claims were filed and that judicial interpretations merely declared the law as it always existed.
Substantiation Requirements for Input VAT Refunds: VAT Invoices and Official Receipts
To successfully claim a refund or credit for input VAT, a taxpayer must strictly comply with the invoicing and accounting requirements under Section 113 of the 1997 NIRC and related regulations (Revenue Regulations No. 7-95), which prescribe that:
- Purchases of goods must be supported by VAT invoices issued by VAT-registered sellers.
- Purchases of services must be supported by VAT official receipts similarly issued.
The distinction is critical because the output VAT—the tax collected on sales, either goods or services—is evidenced by the invoice or official receipt issued to the purchaser and serves as the basis for the corresponding input VAT credit claim. The Supreme Court highlighted jurisprudence in AT&T Communications Services Philippines, Inc. v. CIR to show evolving interpretations, where initially invoices and official receipts were considered interchangeable (2010 decision), but later clarified (2014 decision) that the legislature’s distinct provisions for sales of goods and services in the 1997 NIRC require strict distinction to prevent improper refund claims and ensure tax integrity.
In the subject case, P258,874.55 of input VAT claims were disallowed by the CTA for failure to comply with substantiation rules: input taxes on goods lacking VAT invoices and input taxes on services lacking VAT official receipts. Team Energy’s contention that invoices and receipts are interchangeable was rejected due to these clear statutory and regulatory provisions as well as practical considerations to prevent premature or incorrect tax refunds.
The Effect of NPC’s Tax Exemption and Team Energy’s Qualification for Zero-Rated Sales
Section 108(B)(3) of the 1997 NIRC provides for zero percent VAT rating on services rendered to entities exempt under special laws or international agreements. NPC, as a government corporation with a charter granting exemptions from all taxes (Republic Act No. 6395, Section 13), is effectively exempt from VAT. Therefore, sales of electricity by Team Energy to NPC are subject to zero percent VAT.
The Commissioner argued that under the EPIRA Law (Republic Act No. 9136), Team Energy should have also shown compliance with Energy Regulatory Commission (ERC) certification requirements to qualify as a generation company and thus for VAT zero-rating. However, the Supreme Court held that Team Energy’s claim was based on the 1997 NIRC and NPC’s charter, rendering the EPIRA requirements inapplicable. The Court distinguished this case from Commissioner of Internal Revenue v. Toledo Power Company, where the failure to produce an ERC Certificate of Compliance disqualified the zero-rating claim. Given Team Energy’s VAT registration, prior approval of its zero-rating application, and undisputed status as power generator selling to NPC, the Commissioner was estopped from denying its entitlement to the partial refund for the first quarter of 2003.
Supreme Court’s Final Ruling and Legal Principles Applied
Prescriptive Periods and Jurisdiction: The Court emphasized that the time limits for administrative and judicial claims under Section 112(D) of the 1997 NIRC are mandatory and jurisdictional. Late filing of judicial claims beyond the 120+30-day period is fatal and leads to dismissal for lack of jurisdiction, regardless of the merits of the claim. The Court affirmed denial of refund claims for the second to fourth quarters of 2003 due to late judicial filing.
Substantiation and Invoicing Requirements: Strict compliance with invoicing rules is necessary to substantiate input VAT claims. VAT invoices must be presented for purchases of goods, while VAT official receipts must be shown for purchases
Case Syllabus (G.R. No. 197663)
Parties and Nature of the Case
- Petitioners: Team Energy Corporation (formerly Mirant Pagbilao Corporation and Southern Energy Quezon, Inc.)
- Respondent: Commissioner of Internal Revenue (CIR)
- Cross-petition by the Republic of the Philippines represented by the Bureau of Internal Revenue (BIR) against Team Energy Corporation.
- The core issue concerns the judicial claim for refund of Value Added Tax (VAT) related to unutilized input VAT regarding zero-rated sales for the taxable year 2003.
- The case involves the interpretation and application of the 1997 National Internal Revenue Code (NIRC) and compliance with invoicing and substantiation requirements under pertinent Revenue Regulations.
Factual Background
- Team Energy is a VAT-registered power generation and electricity seller under the Build, Operate, and Transfer scheme, with Certificate of Registration No. 96-600-002498.
- On November 13, 2002, Team Energy filed and was approved for an application for effective zero-rating of its electricity sales to the National Power Corporation (NPC).
- For the taxable year 2003, Team Energy declared zero-rated sales totaling approximately P12.2 billion and claimed input VAT totaling approximately P83.5 million.
- Team Energy filed a claim for refund of unutilized input VAT (P83,465,353.50) on December 17, 2004.
- Subsequent judicial appeals were filed for the various quarterly VAT claims, some of which were consolidated by the Court of Tax Appeals (CTA).
Procedural History
- The CTA First Division partially granted Team Energy’s petition, allowing a refund of P70,700,533.01 after deducting disallowed items including unsubstantiated sales and input VAT failures.
- The disallowance included portions of input VAT for failure to submit proper VAT invoices or official receipts, as required by the law.
- The CTA held that zero-rated sales were generally substantiated except for a minor excluded amount due to documentation issues.
- The CTA applied the mirroring of substantiated zero-rated sales to input VAT claims.
- The CTA also ruled the statute of limitations begins at the filing of the quarterly VAT return, which meant Team Energy's administrative and judicial claims were timely.
- However, CTA En Banc ruled that judicial claims for the second to fourth quarters were filed beyond the 30-day appeal period under Section 112 of the NIRC; thus, jurisdiction to hear those claims was lacking.
- The CTA En Banc granted refund only for the first quarter amounting to P11,161,392.67.
- Motions for reconsideration were denied, prompting petitions for review by both parties before the Supreme Court.
Issues Presented for Supreme Court Review
- Whether the CTA erred in denying Team Energy’s refund claims for the second to fourth quarters for lack of jurisdiction due to late filing beyond the 30-day appeal period.
- Whether the CTA erred in disallowing part of Team Energy’s input VAT claims (P258,874.55) by failing to recognize the interchangeability of VAT invoices and VAT official receipts in substantiating refund claims.
- Whether Team Energy’s failure to submit a Registration and Certificate of Compliance (COC) from the Energy Regulatory Commission (ERC) disqualified it from claiming the tax refund or credit.
Legal Principles on Prescriptive Periods for VAT Refund Claims
- Section 112(D) of the 1997 NIRC mandates a 120-day period for the Commissioner of Internal Revenue to act on refund claims, followed by a 30-day period for the taxpayer to appeal the denial or inaction to the CTA.
- The 120+30-day period is mandatory and jurisdictional; failure to compl