KEPCO vs CIR GR 181858 (2010)

Facts:
Petitioner KEPCO is a VAT-registered independent power producer engaged in the business of
generating electricity. It exclusively sells electricity to National Power Corp (NPC), an entity
exempt from taxes under Sec 13 of RA 6395.
KEPCO filed an application an application for Zero-Rated sales, which was approved by
Regional District Office (RDO No. 54 of BIR.
IN the course of doing business with NPC, KEPCO claimed expenses reportedly sustained in
connection with the production and sale of electricity with NPC, thus, paying input
VAT(11,710,868.86 – 1st to 4th quarter of 2002).
Afterwards, KEPCO filed before CIR a claim for tax refund covering unutilized input VAT
payments attributable to its zero-rated sales transactions.  respondent CIR averred that claims
for refund were strictly construed against the taxpayer as it was similar to a tax exemption. It
asserted that the burden to show that the taxes were erroneous or illegal lay upon the taxpayer.
Thus, failure on the part of Kepco to prove the same was fatal to its cause of action because it
was its duty to prove the legal basis of the amount being claimed as a tax refund. Petitioner then
filed a petition for review before the CTA.
The CTA Second Division ruled that out of the total declared zero-rated sales of
₱3,285,308,055.85, Kepco was only able to properly substantiate ₱1,451,788,865.52 as its zero-
rated sales. It also disallowed the ₱5,170,914.20 of Kepco’s claimed input VAT due to its failure
to comply with the substantiation requirement, specifically because the purchases are not “VAT-
invoices” under the under the contemplation of the law. CTA explained that to be considered a
"VAT Invoice," the TIN-VAT must be printed, and not merely stamped. (Partially granted:
P2,890,005.96 instead of P11,710,868.86).
Hence, this petition. Kepco argues that the 1997 National Internal Revenue Code (NIRC) does
not require the imprinting of the word zero-rated on invoices and/or official receipts covering
zero-rated sales. It claims that Section 113 in relation to Section 237 of the 1997 NIRC "does not
mention the requirement of imprinting the words ‘zero-rated’ to purchases covering zero-rated
transactions." Only Section 4.108-1 of Revenue Regulation No. 7-95 (RR No. 7-95) "required the
imprinting of the word ‘zero-rated’ on the VAT invoice or receipt." "Thus, Section 4.108-1 of
RR No. 7-95 cannot be considered as a valid legislation considering the long settled rule that
administrative rules and regulations cannot expand the letter and spirit of the law they seek to
enforce."
Kepco insists that Section 4.108.1 of Revenue Regulation 07-95 does not require the
word "TIN-VAT" to be imprinted on a VAT-registered person’s supporting invoices and official
receipts
Issue:
 a. WoN the word “zero rated” should be imprinted on invoices and/or official receipts as
part of the invoicing requirement
b. WoN the word “TIN-VAT” is required to be imprinted on VAT-registered person’s
supporting invoices
Ruling:
a. Yes. In the case of Panasonic Communications Imaging Corporation of the Philippines
vs. Commissioner of Internal Revenue, petitioner did not qualify for zero-rating because
the word "zero-rated" was not printed on Panasonic’s export invoices. Here, the SC
agreed with CTA in ruling that “Section 4.108-1 of RR 7-95 proceeds from the rule-
making authority granted to the Secretary of Finance under Section 245 of the 1977
NIRC (Presidential Decree 1158) for the efficient enforcement of the tax code and of
course its amendments. The requirement is reasonable and is in accord with the efficient
collection of VAT from the covered sales of goods and services. As aptly explained by
the CTA’s First Division, the appearance of the word "zero-rated" on the face of invoices
covering zero-rated sales prevents buyers from falsely claiming input VAT from their
purchases when no VAT was actually paid. If, absent such word, a successful claim for
input VAT is made, the government would be refunding money it did not
collect.1avvphi1”

Further, the printing of the word "zero-rated" on the invoice helps segregate sales that are
subject to 10% (now 12%) VAT from those sales that are zero-rated. Unable to submit
the proper invoices, petitioner Panasonic has been unable to substantiate its claim for
refund.

Following said ruling, Section 4.108-1 of RR 7-95 neither expanded nor supplanted the
tax code but merely supplemented what the tax code already defined and discussed. 

b. Yes. The SC ruled that the said requirement is clear under Sec. 4. 108-1 of Internal
Revenue Regulation 7-95 which reads:

Only VAT registered persons are required to print their TIN followed by the word "VAT"
in their invoice or receipts and this shall be considered as a "VAT" Invoice. All purchases
covered by invoices other than ‘VAT Invoice’ shall not give rise to any input tax.

Contrary to Kepco’s allegation, the regulation specifically requires the VAT registered
person to imprint TIN-VAT on its invoices or receipts. Thus, the Court agrees with the
CTA when it wrote: "[T]o be considered a ‘VAT invoice,’ the TIN-VAT must be printed,
and not merely stamped. Consequently, purchases supported by invoices or official
receipts, wherein the TIN-VAT is not printed thereon, shall not give rise to any input
VAT. Likewise, input VAT on purchases supported by invoices or official receipts which
are NON-VAT are disallowed because these invoices or official receipts are not
considered as ‘VAT Invoices.

NOTES:
Sales Invoice vs Receipt

A "sales or commercial invoice" is a written account of goods sold or services rendered

indicating the prices charged therefor or a list by whatever name it is known which is used in the
ordinary course of business evidencing sale and transfer or agreement to sell or transfer goods
and services.

A "receipt" on the other hand is a written acknowledgment of the fact of payment in money or
other settlement between seller and buyer of goods, debtor or creditor, or person rendering
services and client or customer

Hence, the VAT invoice is the seller’s best proof of the sale of the goods or services to the buyer
while the VAT receipt is the buyer’s best evidence of the payment of goods or services received
from the seller.

******The Court has always decreed that tax refunds are in the nature of tax exemptions which
represent a loss of revenue to the government. These exemptions, therefore, must not rest on
vague, uncertain or indefinite inference, but should be granted only by a clear and unequivocal
provision of law on the basis of language too plain to be mistaken. Such exemptions must be
strictly construed against the taxpayer, as taxes are the lifeblood of the government.

______________________
Team Energy Corporation vs CIR GRs 197663 / 197770 (2018)
Facts:
Team Energy is a VAT-registered entity that is engaged in power generation and
electricity sale to National Power Corporation (NPC) under a Build, Operate, and
Transfer scheme.

It filed with the Bureau of Internal Revenue (BIR) "an Application for Effective Zero-
Rate of its supply of electricity to the NPC, which was subsequently approved.

On December 17, 2004, Team Energy filed with the Revenue District Office No. 60 in
Lucena City a claim for refund of unutilized input VAT in the amount of P83,465,353.50,
for the first to fourth quarters of taxable year 2003, which was subsequesntly appealed
to CTA. Opposing the appeal, the Commissioner averred that the amount claimed by
Team Energy was not properly documented and that NPC's exemption from taxes did
not extend to its electricity supplier such as Team Energy.

Subsequently, Team Energy appealed its VAT refund claims for the second to fourth
quarters of 2003 in the amount of P68,380,033.19.

As special and affirmative defenses, the Commissioner alleged that it was imperative
upon Team Energy to prove its compliance with the registration requirements of a VAT
taxpayer; the invoicing and accounting requirements for VAT-registered persons; and
the checklist of requirements for a VAT refund under Revenue Memorandum Order No.
53-98. Furthermore, the Commissioner contended that Team Energy must prove that
the claims were filed within the prescriptive periods and that the input taxes being
claimed had not been applied against any output tax liability or were not carried over in
the succeeding quarters.

The Court of Tax Appeals First Division partially granted Team Energy's petition. It held
that NPC's electricity purchases from independent power producers, such as Team
Energy, were subject to 0% VAT pursuant to Section 108(B)(3) of the 1997 NIRC.

The Court of Tax Appeals First Division further ruled that P20,986,302.67 out of the
reported zero-rated sales of P12,208,805,373.67 must be excluded for Team Energy's
failure to submit the corresponding official receipts, leaving a balance of
P12,187,819,071.00 as substantiated zero-rated sales.

CTA also disallowed  P12,642,304.32 of Team Energy's claimed input VAT for its failure
to meet the substantiation requirements under Sections 110(A) and 113(A) of the 1997
NIRC and Sections 4.104-1, 4.104-5, and 4.108-1 of Revenue Regulations No. 7-95 or
the Consolidated Value Added Tax Regulations.

Finally, on the issue of prescription, the Court of Tax Appeals First Division held that
"[t]he reckoning of the two-year prescriptive period for the filing of a claim for input
VAT refund starts from the date of filing of the corresponding quarterly VAT return."  It
explained that this Court's ruling in Commissioner of Internal Revenue v. Mirant
Pagbilao Corporation, to the effect that "the two-year prescriptive period for the filing of
a claim for input VAT refund starts from the close of the taxable quarter when the
relevant sales were made," must be applied to cases filed after the promulgation
of Mirant. Accordingly, Team Energy's administrative claim filed on December 17, 2004,
and judicial claims filed on April 22, 2005 and July 22, 2005 were well within the two
(2)-year prescriptive period.

CIR appealed with the CTA En Banc arguing that Team Energy's judicial claims for the
second, third, and fourth quarters of 2003 were filed beyond the 30-day period to
appeal under Section 112 of the 1997 NIRC. 31 Team Energy filed its
Comment/Opposition to the Petition.

CTA En Banc ruled that  Team Energy's judicial claim for refund for the second, third,
and fourth quarters of 2003 was filed only on July 22, 2005 or beyond the 30-day
period prescribed under Section 112(D)33 of the 1997 NIRC. Consequently, the claim for
these quarters must be denied for lack of jurisdiction. 

Hence, this petition.

Issue:

a. WoN CTA erred in disallowing Team Energy Corporation's claim for tax refund of
its unutilized input VAT for the second to fourth quarters of 2003 on the ground
of lack of jurisdiction
 b. WoN CTA erred in failing to recognize the interchangeability of VAT invoices and
VAT official receipts to comply with the substantiation requirements for refunds
of excess or unutilized input tax

Ruling:

a. No. The SC ruled that prescriptive periods regarding judicial claims for refunds or
tax credits of input VAT are explicitly set forth in Section 112(D) 42 of the 1997
NIRC which clearly provides that that resort to an appeal with the Court of Tax
Appeals should be made within 30 days either from receipt of the decision
denying the claim or the expiration of the 120-day period given to the
Commissioner to decide the claim. The SC held that compliance with the
120+30-day periods under Section 112 of the 1997 NIRC is mandatory and
jurisdictional. 

In this case, Team Energy's judicial claim was filed beyond the 30-day period
required in Section 112(D). The administrative claim for refund was filed on
December 17, 2004.49 Thus, BIR had 120 days to act on the claim, or until April
16, 2005. Team Energy, in turn, had until May 16, 2005 to file a petition with the
Court of Tax Appeals but filed its appeal only on July 22, 2005, or 67 days late.
Thus, the Court of Tax Appeals En Banc correctly denied its claim for refund due
to prescription.

b. No. The SC ruled that Claimants of tax refunds have the burden to prove their
entitlement to the claim under substantive law and the factual basis of their
claim. Moreover, in claims for VAT refund/credit, applicants must satisfy the
substantiation and invoicing requirements under the NIRC and other
implementing rules and regulations.

The SC reiterates that to claim a refund of unutilized or excess input VAT, purchase of
goods or properties must be supported by VAT invoices, while purchase of services
must be supported by VAT official receipts.

For context, VAT is a tax imposed on each sale of goods or services in the course of
trade or business, or importation of goods "as they pass along the production and
distribution chain." It is an indirect tax, which "may be shifted or passed on to the
buyer, transferee or lessee of the goods, properties or services." The output tax81 due
from VAT-registered sellers becomes the input tax paid by VAT-registered purchasers
on local purchase of goods or services, which the latter in turn may credit against their
output tax liabilities. On the other hand, for a non-VAT purchaser, the VAT shifted
forms part of the cost of goods, properties, and services purchased, which may be
deductible as an expense for income tax purposes.