COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. MIRANT PAGBILAO CORPORATION (FORMERLY SOUTHERN ENERGY QUEZON, INC.), RESPONDENT.

Mirant Pagbilao versus Commissioner of Internal Revenue

The Case

This is a petition for review on certiorari brought by the Commissioner of Internal Revenue against Mirant Pagbilao Corporation, formerly Southern Energy Quezon, Incorporated, a domestic corporation engaged in the generation of power which it sells to the National Power Corporation. The Commissioner asks the Supreme Court to set aside the decision of the Court of Appeals which had ordered the refund or the issuance of a tax credit certificate in favor of Mirant Pagbilao for its unutilized input value added tax for the second quarter of 1998. The case matters because it settles two things every tax practitioner must know: first, that a duly executed value added tax official receipt is by itself sufficient evidence of payment of creditable input tax; and second, that the two-year prescriptive period for claiming a refund of unutilized input value added tax is reckoned not from the date of payment but from the close of the taxable quarter when the relevant sales were made.

Procedural History

Mirant Pagbilao filed with the Court of Tax Appeals a petition for review after the Commissioner failed to act on its administrative claim for refund of unutilized input value added tax. The Court of Tax Appeals, in its decision of March 18, 2003, partially granted the claim, allowing only 10,766,939.48 pesos and disallowing the bulk of the claim, including the 135,993,570 pesos covered by the Mitsubishi official receipt, which the tax court found to be of doubtful veracity.

Mirant Pagbilao appealed to the Court of Appeals by petition for review under Rule 43. The Court of Appeals, in its decision of December 22, 2005, modified the tax court and granted most of the claims, ordering a refund or tax credit certificate in the total amount of 146,760,509.48 pesos. It upheld the disallowance of 1,242,538.14 pesos supported only by photocopies and similar documents, but allowed the 135,993,570 pesos covered by the Mitsubishi official receipt, holding that the receipt was the best evidence of payment of input value added tax. The Court of Appeals denied the Commissioner's motion for reconsideration in its resolution of March 31, 2006.

The Commissioner then came to the Supreme Court by petition for review on certiorari under Rule 45.

Facts

Mirant Pagbilao, formerly Southern Energy Quezon, Incorporated and formerly known as Hopewell Philippines Corporation, is a domestic firm engaged in the generation of power which it sells to the National Power Corporation. For the construction of the electrical and mechanical equipment portion of its Pagbilao, Quezon plant, undertaken from 1993 to 1996, it secured the services of Mitsubishi Corporation of Japan. Because the National Power Corporation is exempt from all taxes under its revised charter, and because the Court in Maceda versus Macaraig construed that exemption as covering both direct and indirect taxes, Mirant Pagbilao believed that its sale of power generation services to the National Power Corporation was zero-rated for value added tax purposes.

Consistent with that belief, Mirant Pagbilao opted not to pay the value added tax component of the progress billings from Mitsubishi for the period covering April 1993 to September 1996. This prompted Mitsubishi to advance the value added tax component, which served as its output value added tax. Mitsubishi wrote Mirant Pagbilao on May 12, 1995, apprising it of the advances made and demanding interest. It was only on April 14, 1998 that Mirant Pagbilao paid Mitsubishi the value added tax component for those progress billings, and Mitsubishi issued official receipt number 0189 in the aggregate amount of 135,993,570 pesos.

On August 25, 1998, Mirant Pagbilao filed its quarterly value added tax return for the second quarter of 1998, reflecting an input value added tax of 148,003,047.62 pesos, which included the 135,993,570 pesos supported by official receipt number 0189. On December 20, 1999, it filed an administrative claim for refund of unutilized input value added tax. When the Commissioner failed to act, and to forestall the running of the two-year prescriptive period, Mirant Pagbilao went to the Court of Tax Appeals. The Commissioner resisted, citing Kumagai-Gumi Company Limited versus Commissioner of Internal Revenue, on the ground that the sale of electricity to the National Power Corporation was not zero-rated for failure to secure an approved application for zero-rating.

Issues

• Whether or not official receipt number 0189, issued by Mitsubishi on April 14, 1998, sufficiently proves the payment by Mirant Pagbilao of its creditable input value added tax for its purchases from Mitsubishi covering 1993 to 1996.
• Whether or not Mirant Pagbilao is entitled to a refund or a tax credit certificate for the unutilized input value added tax of 135,993,570 pesos covered by that official receipt, considering the two-year prescriptive period.
• Whether or not the prescriptive periods under Section 204(C) and Section 229 of the National Internal Revenue Code, reckoned from the date of payment, may be availed of by Mirant Pagbilao.

Applicable Provisions

Section 110, paragraph A, subparagraph 1, subparagraph b of the National Internal Revenue Code provides:

Section 110. Tax Credits. A. Creditable Input Tax. (1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on the following transactions shall be creditable against the output tax: (a) Purchase or importation of goods: (b) Purchase of services on which a value-added tax has been actually paid.

This is the provision the Court uses to hold that a duly executed value added tax invoice or official receipt is sufficient evidence to support a claim for input tax credit.

Section 112, paragraph A of the National Internal Revenue Code provides:

(A) Zero-rated or Effectively Zero-rated Sales. Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax.

This is the provision that fixes the reckoning point of the two-year prescriptive period, which the Court holds runs from the close of the taxable quarter when the sales were made, regardless of when the input value added tax was paid.

Section 204, paragraph C of the National Internal Revenue Code provides:

No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund.

The Court holds this provision inapplicable, because it governs taxes erroneously or illegally received, not creditable input value added tax.

Section 229 of the National Internal Revenue Code provides:

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment.

The Court likewise holds this provision inapplicable, because it speaks of taxes erroneously or illegally collected, which creditable input value added tax is not.

Ruling

On the first issue, the Court ruled in the affirmative. It held that official receipt number 0189 by itself sufficiently proves payment of the creditable input value added tax. The law considers a duly executed value added tax invoice or official receipt as sufficient evidence to support a claim for input tax credit. The Court noted that the report of the independent auditing firm confirmed that the receipt was for the payment of the value added tax on the progress billings from Mitsubishi for the period April 7, 1993 to September 6, 1996, and that the receipt was supported by a bank statement evidencing payment to Mitsubishi in Japan. The Court also held that the presumption is that payment was made on the date appearing on the receipt, April 14, 1998, and that the nonpayment of the interest demanded by Mitsubishi was a matter between Mitsubishi and Mirant Pagbilao, not an argument against the fact of payment of the creditable input value added tax.

On the second issue, the Court ruled in the negative. Although the input value added tax was sufficiently proven, the claim for refund or tax credit was filed out of time. The Court held that the two-year period must be reckoned from the close of the taxable quarter when the relevant sales were made, regardless of whether the tax was paid or not. Since the last creditable input value added tax due for the period covering the progress billing of September 6, 1996 fell in the third quarter of 1996, which ended on September 30, 1996, any claim for refund or tax credit for that quarter prescribed on September 30, 1998. The claim filed on December 20, 1999 had therefore already prescribed.

On the third issue, the Court ruled that Mirant Pagbilao cannot avail itself of Section 204, paragraph C or Section 229 of the National Internal Revenue Code. Both provisions also set a two-year prescriptive period, but reckoned from the date of payment, and both apply only to instances of erroneous payment or illegal collection of internal revenue taxes. Creditable input value added tax is not a tax erroneously paid.

Doctrine

• A duly executed value added tax invoice or official receipt, issued in accordance with the law, is by itself sufficient evidence to support a claim for creditable input tax under Section 110, paragraph A, subparagraph 1, subparagraph b of the National Internal Revenue Code.
• The two-year prescriptive period for claiming a refund or tax credit certificate of unutilized input value added tax under Section 112, paragraph A runs from the close of the taxable quarter when the relevant sales were made, not from the date the input value added tax was paid and not from the date the official receipt was issued.
• If a zero-rated taxpayer pays its input value added tax a year after the transaction, it has only one year left to file its claim for refund or tax credit.
• The prescriptive periods under Section 204, paragraph C and Section 229, reckoned from the date of payment, apply only to taxes erroneously or illegally received or collected, and not to creditable input value added tax.
• The Supreme Court may review factual findings where the Court of Tax Appeals and the Court of Appeals diametrically differ, as when one doubts the veracity of a receipt and the other accepts it.

Disposition

The petition was partly granted. The Court affirmed the refund or tax credit certificate for 10,766,939.48 pesos, but set aside the award of 135,993,570 pesos for having been claimed beyond the two-year prescriptive period.

Remember This

Memorize this line: the two-year period for refund of unutilized input value added tax runs from the close of the taxable quarter when the sales were made, not from the date of payment. Examiners use this case to test the reckoning of the Section 112 prescriptive period and the sufficiency of a value added tax official receipt as evidence of creditable input tax.