### Facts:
This case involves the consolidated petitions of Mindanao II Geothermal Partnership (Mindanao II) and Mindanao I Geothermal Partnership (Mindanao I), both registered as value-added taxpayers and accredited Block Power Production Facilities, against the Commissioner of Internal Revenue (CIR). The dispute revolves around claims for refund or tax credit of accumulated unutilized and/or excess input value-added tax (VAT) due to VAT zero-rated sales in 2003.
Mindanao II and Mindanao I entered into Built-Operate-Transfer contracts with the Philippine National Oil Corporation – Energy Development Company for the operation of geothermal power plants. Under the Electric Power Industry Reform Act of 2000 (EPIRA), sales of power by generation companies were subject to a zero rate of VAT. Believing their sales qualified for VAT zero-rating, both partnerships filed claims with the CIR in 2005 for a refund/tax credit of their accumulated input VAT for four quarters of 2003. After receiving no action from the CIR, they filed petitions with the Court of Tax Appeals (CTA).
The CTA First Division granted Mindanao II’s claims for the third and fourth quarters of 2003 but denied the claims for the first two quarters due to them being filed out of time. The CTA En Banc affirmed this decision. Similarly, Mindanao I’s claims for all quarters of 2003 were initially partially granted by the CTA Second Division but were ultimately denied by the CTA En Banc after it reversed its decision upon the CIR’s motion for reconsideration, based on the ground that the claims were filed beyond the prescribed period and without adherence to procedural requirements. Both Mindanao II and Mindanao I elevated their cases to the Supreme Court via petitions for review.
### Issues:
1. The determination of the prescriptive period for filing an administrative claim and a judicial claim for a VAT refund or tax credit.
2. Whether transactions considered “isolated” can be deemed “incidental” to a petitioner’s VAT zero-rated operations, making such sales subject to VAT.
3. Compliance with substantiation requirements for the claim of input VAT.
### Court’s Decision:
The Supreme Court partially granted the petitions.
1. **Prescriptive Period**: The Court clarified the rules concerning the prescriptive period for filing VAT refund or tax credit claims, emphasizing the mandatory and jurisdictional nature of the 120+30 day periods outlined in Section 112 of the 1997 Tax Code. The Court held that administrative claims must be filed within two years after the close of the taxable quarter when the sales were made. If the CIR does not act within 120 days from the filing, a judicial claim must be filed within 30 days thereafter. However, due to BIR Ruling No. DA-489-03, which allowed taxpayers to file a judicial claim without waiting for the 120-day period to lapse, taxpayers who filed their claims from 10 December 2003 to 6 October 2010 were deemed to have an exception to the 120+30 day mandatory and jurisdictional periods.
2. **”Incidental” Transactions**: The Court affirmed that the sale of a fully depreciated Nissan Patrol by Mindanao II was incidental to its business operations and thus subject to VAT, rejecting the argument that isolated transactions cannot be incidental.
3. **Substantiation Requirements**: The Court upheld the CTA’s finding that Mindanao II failed to comply with the required substantiation requirements for certain input VAT claims, affirming the denial of these claims.
### Doctrine:
The case reiterates the doctrine on the strict observance of the prescribed periods for filing an administrative and judicial claim for VAT refund or tax credit as outlined in Section 112 of the 1997 Tax Code. It also exemplifies the application of the doctrine of equitable estoppel through BIR Ruling No. DA-489-03, allowing taxpayers to rely on administrative issuances within specific periods, even if such issuances are later overturned.
### Class Notes:
– The mandatory and jurisdictional nature of the 120+30 day periods for VAT refund claims is confirmed, with an exception granted due to BIR Ruling No. DA-489-03 within a specific timeframe.
– Transactions incidental to a petitioner’s VAT zero-rated operations, even if isolated, are subject to VAT.
– The importance of complying with substantiation requirements for VAT refund claims.
### Historical Background:
The claims arose in the context of the EPIRA amending the Tax Reform Act of 1997 to subject sales of power by generation companies to a zero rate of VAT. This legal shift underscored the complex interplay between tax law and energy regulation in the Philippines, highlighting the evolving regulatory landscape affecting renewable energy providers and their operational taxation.
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