COCA-COLA BOTTLERS PHILIPPINES, INC., PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Coca-Cola Bottlers Philippines versus Commissioner of Internal Revenue

The Case

Coca-Cola Bottlers Philippines, Incorporated, a value-added tax registered domestic corporation engaged in manufacturing and selling beverages, sought from the Commissioner of Internal Revenue a refund or the issuance of a tax credit certificate for input value-added tax it had failed to include in its quarterly return. When the Commissioner did not act favorably, Coca-Cola went to the Court of Tax Appeals, and from there the dispute climbed to the Supreme Court. The case matters because it settles, in one clean statement, that a claim to recover unutilized input value-added tax is not an ordinary claim for erroneously or excessively collected tax, and that the remedy of refund or credit is confined to the narrow instances the tax code itself allows.

Procedural History

Coca-Cola filed with the Large Taxpayers Service of the Bureau of Internal Revenue an administrative claim for refund or tax credit of its alleged overpayment of value-added tax for the quarter ended March 31, 2008. Three days later it filed a judicial claim with the Court of Tax Appeals, presenting its financial employees as witnesses. The Court of Tax Appeals Division denied the claim for lack of merit, and denied reconsideration. Coca-Cola elevated the matter to the Court of Tax Appeals En Banc, which affirmed the Division. When the En Banc likewise denied its motion for reconsideration, Coca-Cola filed with the Supreme Court a petition for review on certiorari under Rule 45 of the Rules of Court, raising only questions of law. The Supreme Court denied the petition and affirmed the tax court.

Facts

Coca-Cola filed its quarterly value-added tax return for the period January 1 to March 31, 2008, and amended it a few times thereafter. On May 27, 2009, the Bureau of Internal Revenue issued a Letter of Authority to examine its books for all internal revenue taxes for the year 2008. On April 20, 2010, Coca-Cola filed with the Large Taxpayers Service an administrative claim for refund or tax credit of alleged overpayment of value-added tax for the quarter ended March 31, 2008, in the total amount of 123,459,647.70 pesos. Three days later, on April 23, 2010, it filed its judicial claim with the Court of Tax Appeals.

At the tax court, Coca-Cola's financial employees testified that all of its records and documents for the period, including invoices and official receipts, had been completely destroyed, but that input and output value-added tax could still be determined through its computerized accounting system. The claim rested on the theory that, through the inadvertence of its employees, input tax of 123,459,647.70 pesos was not credited against the corresponding output tax for the quarter.

The tax court found that only 48,509,474.01 pesos of the claimed amount was properly supported by official receipts, and that even if this substantiated input tax had been declared in the return, it would not have been enough to offset the output tax of 1,269,933,934.95 pesos for the same quarter. Coca-Cola had paid no value-added tax for that quarter, and so, the courts reasoned, it could not have overpaid.

Issues

• Whether or not a claim for refund or tax credit of undeclared input value-added tax falls within the purview of Section 229 of the National Internal Revenue Code, in relation to Section 204(C) of the same Code.
• Whether or not undeclared input value-added tax must first be reported in the quarterly value-added tax return as a requisite for a claim for refund under Section 229.
• Whether or not a claim for tax refund should be construed in strictissimi juris, that is, strictly against the taxpayer.
• Whether or not the omitted input value-added tax may be included in the current and available input tax of the taxpayer to prevent unjust enrichment of the government.

Applicable Provisions

Section 229 of the National Internal Revenue Code, as amended, provides:

No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

This is the ordinary refund provision on which Coca-Cola anchored its claim, and the Court holds it inapplicable because the input tax was correctly and properly collected.

Section 110(B) of the same Code provides:

If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters. Provided, however, That any input tax attributable to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112.

This provision supplies the general rule that excess input tax is carried over, with refund or credit only as an option for input tax attributable to zero-rated sales.

Section 112(A) of the same Code provides:

Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two 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 only refund route for input tax under the value-added tax system, and Coca-Cola's sales were not shown to be zero-rated or effectively zero-rated.

Ruling

On the first issue, the Court held that Section 229 does not govern claims for recovery of unutilized input value-added tax. Input tax is not excessively collected, because at the time it is collected the amount paid is correct and proper. The term excess input tax simply means that the input tax available as credit exceeds the output tax, not that the input tax is more than what is legally due. Only the person legally liable to pay the input tax may claim a refund under Section 229, and that is the seller who passed the tax on, not the buyer who applies it as credit.

On the second issue, the Court found it unnecessary to resolve whether input tax must first be reported in the return, because Coca-Cola's claim failed on other grounds. Even assuming the claim were permitted, the substantiated amount of 48,509,474.01 pesos was not enough to offset the output tax, leaving no balance that may be refunded. Since Coca-Cola paid no value-added tax for the quarter, it did not overpay.

On the third issue, the Court held that a tax refund is in the nature of a claim for exemption, construed strictly against the taxpayer, and the evidence entitling a taxpayer to it is strictly scrutinized. The burden lies on the taxpayer to show strict compliance with the conditions for the grant.

On the fourth issue, the Court held that neither the law nor jurisprudence authorizes the claim, so no question of unjust enrichment arises. It added that when the law is clear and free from doubt, there is no room for construction, only for application, and the Court will not, under the guise of interpretation, rewrite the law.

Doctrine

A claim for refund or credit of unutilized or excess input value-added tax is not a claim for a tax erroneously, illegally, excessively, or wrongfully collected under Section 229, and may not be brought outside the value-added tax system. Under Section 110(B), excess input tax is carried over to succeeding quarters; only input tax attributable to zero-rated or effectively zero-rated sales may, at the taxpayer's option, be refunded or credited under Section 112(A). A tax refund partakes of the nature of a claim for exemption, is construed strictissimi juris against the taxpayer, and must be proven by the taxpayer with strict compliance. Findings of the Court of Tax Appeals, a specialized court, are accorded the highest respect and will not be disturbed absent substantial evidence to the contrary.

Disposition

The Supreme Court denied the petition and affirmed the decision and resolution of the Court of Tax Appeals En Banc, which had denied Coca-Cola's claim for refund or issuance of tax credit; the Commissioner of Internal Revenue prevailed.

Remember This

Memorize the line that excess input value-added tax is not excessively collected tax, so Section 229 cannot be used to recover it. Examiners use this case to test the distinction between an ordinary refund under Section 229 and the narrow refund or credit of input tax under Sections 110(B) and 112(A), and to test the strict construction of tax refunds as claims for exemption.