CTA Case No. 5910 (Decision)

( �/ .{ I REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SOUTHERN ENERGY NAVOTAS, INC. [formerly HOPEWELL ENERGY (PHILIPPINES), INC.], Petitioner, -versus- C.T.A. CASE NO. 5910 COMMISSIONER OF INTERNAL Promulgated: REVENUE, APR 10 2001 . tZ , Respondent. ~;v~~~~ X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X DECISION This Petition for Review is seeking for the refund of the amount of P246,541.97 allegedly representing unutilized input value-added tax.(VAT, for brevity) on domestic purchases of goods and services for the quarter ended June 30, 1997. The following facts and issues were jointly stipulated by the parties and were approved by the Court': FACTS 1. Petiti oner was or~g inall y re gistered vvith the Securities and Exchange Con1mission (S J;~) under the name "Hopewell Energy (Philippines), Inc." However, effective June 17, 1999, Petitioner's name was changed to Souther9 Energy Navotas, Inc." after it fi led an application with the SEC for ame&lfhent of its articles of incorporation. 1Resolution, dated October 14, 1999, CTA Records, p. 93. �. 419

( DECISION- CTA CASE NO. 5910 PAGE 2 2. Petitioner is principally engaged in the business of power generation and subsequent sale thereof to National Power Corporation under a Build, Operate, Transfer scheme. 3. Pe titioner is registered as Value-Added Tax (VAT) taxpayer in accordance with Section 107 of the Tax Code [now Section 236 of the national Internal Revenue Code of 1997], with BIR Certificate of Registration bearing RDO Control No. 96-05l-Oe5718. 4. Petitioner has a pending Application for Effective Zero Rating which was fil ed on March 1, 1996 with the BIR Revenue District Office No . 51 at Pasay City for the construction and operation of a gas turbine power station und er the bu ild, operate, and transfer (BOT) scheme with the National Power Corporation ("NPC"). 5. For the second quarter of 1997, Petitioner fil ed its quarterly VAT re turn on July 21 , 1997, which returns reOected a (sic) total domestic purchases of goods and services amounting to P2 ,465,419 .33 a total input tax paid the reon in the amount ofP246,541.97. 6. On June 30, 1999, Petitioner filed an administrative claim for refund of unutilized input VAT with the Bureau of Internal Revenue in the amount of P246,541. 97 for the second quarter of )997. 7. To thi s date, Respondent has not ye t approved the administrative claim for refund . ISSUES Whether or not the power generation services rendered by Pe titioner for the s upply of...~lectricity to National Power Corporation are subject to zero percent (ci%) VAT pursuant to Section 108(B)(3) of the Tax Code of 1997 (formerly) ection 102(b)(3) of the Old Tax Code); .:--:-� ..:.. i�~- ~. 2. Whether or nQt P.eti tioner has unapplied or unutilized creditable~ � ! � '� ~ ' value-added tax, inpuf~' ij~ � of .Tun~ 30, 1997 arising from its domestic f9 purchases of goods an~ ~fry~~es "'(!}ich is a proper object of a claim for i-dl.md pursuant � SecHon I08(8)(3) (formerly� Section 102(b)(3) of the Old Tax Code) and Section 112(A) (formerly Section 106(b) of the Old Tax Code) of the National Inte rnal Revenue Code, as amended; 48 0

( DECISION- CTA CASE NO. 5910 PAGE3 3. Whether or not th e said creel itable value-added tax inputs of Petitioner for the quarter ended June 30, 1997 are substantiated by documentary evidence in the form of invoices and official receipts; 4. Whether or not said unapplied or unutilized creditable value- added tax inputs for the quarter ended June 30, 1997 was applied or utili zed in the succeeding taxable quarters; 5. Whether or not Petitioner's sales are zero rated for VAT purposes; 6. Whether or not the alleged VAT input taxes are attributable to zero-rated sales; and 7. Whether or not Petitioner is entitled to a refund of the amount of P246 ,54 1.97 rep resenting alleged unappli ed or unutili zed creditable input value-added tax. Anent the first issue, Petitio ner asserts that the services it rendered to the National Power Corporation are subject to 0% VAT pursuant to Section I 02(b)(3) of the Tax Code, as amended, to wit: Sec. 102. Value-added tax on sale of services and usc or lease of pt�opcrties.- (a) xxx (b) Transactions subject to zero-rate. - The following services performed in the Philippines by VAT-registered persons shall be subject to 0%: (1) XXX (2) XXX (3) Servi qes r~pc!er~4 to per~pns or entities whose exemption under special laws 01~�� intep1~t.i~~~~l," agr�e~ments to which. the Philippi!1~s is a signatory effectively subjects the supply of such ~�erv1ces to zero rate . 481

DEC ISION- CTA CASE NO. 59 10 PAGE4 Hence it is entitled to the refund of input VAT it pa id durin g the peri od March 1, 1997 to .June 30. I99 7 pursuant to Section 106(a) of the same code. On th e other hand, Respo nd ent argues th at Petitioner is not entitl ed to the refund so ught beca use o f its fa ilure to prese nt an app roved app li cati on fo r zero-ratin g. He ci tes as bas is this Court 's rulin g in the case of ABB Power Generation Ltd. vs. Commissioner of Internal Revenue, CTA Case No. 5270, dated March 3, 19992. We ag ree w ith the Respond ent and as aptl y c ited by him , hereund er are excerpts o f th e a fore menti oned dec ision, thus: " M oreover, granting arguendo, th at petitioner's sale of services to th e NPC are considered effectively ze ro- rated sales unde r Section I 02(a)(3) of the Tax Code, s upra , neverth e less, thi s Court has to deny the instant cla im for refund as petiti oner fa il ed to co mply w ith Secti on 8(d) of Reve nu e Reg ul at ions No . 5-8 7 whi ch requi res ';hat any person c laiming that its sales of goods or services are e ffecti vely ze ro- rated und er Secti ons I 00 and I 02 shall fil e an applicati on with the Commissioner of Intern a l Revenue justifyin g th e impos iti on of zero-rate on said transacti ons. Quoted he re und er is Secti on 8(d) of Reve nu e Regul ati ons N o. 5-87, thus: (d) Appli cati on fo r zero rate. - Any perso n cl aimin g th at its sa les of goods or services are effecti ve ly ze ro-rated und er Secti ons I 00 and I 02 sha ll fil e an appli ca ti on in a form prescribed th erefor w ith th e Commi ssioner of Intern a l Revenue justify ing the imposi ti ~�~�~r, :zero-rate on the sa id transactions. Upon approva l, hi s stt\ltts as a ze ro-rated tax paye r sha ll remain valid until revoked ." -;: }; Reco rd s show th at pe titjoner raped tp ~ec ure frOPl th e Burea u of lnter~~a l Reve n ~f ~' .' �' ' � _,<' -~� �, an approved applicati on for ze ro�~ ;�at i n g. In fact, Petiti oner in its Memorandum , admitted th at such requi re ment is necessary for its cla im for refund to prosper. It is for this reason 2 With Entry of Jud gment. dated March 24, 1999. 482

/ DEC ISION- CTA CA SE NO. 59 10 PAGE 5 that Petiti oner begged the indul ge nce of thi s Court to co nsider the peculiar c ircumstances surrounding its present appeal and to grant its claim despite the absence of an approval for a zero-rating status. As correctl y po inted out by the Respondent, without an approved application for effecti ve zero-rating, the transaction otherwise entitled to ze ro-rating shall be considered exempt (VAT Rulin g N os. 033-96, 01 2-97, 0 13-97, 037-97, 038-97 , 023-9 8, 006-99, 0 15-99, 022-99, 052-99 , and 063-99). Basic is the principle that VAT-exempt sales transacti ons are not entitl ed to input tax credits as prov ided in Secti on 9(a) of Revenue Regulations 5-8 7, thus: SEC. 9. Exemptions. - (a) In ge neral exenption means that the sale of goods o r servi ces is no t subj ect to value-added tax (output tax). The seller is not allowed any tax cred it on VAT (input tax) prev iously paid. The person makin g the exempt sale f goods or services shall not separately bill any o utput tax on his customers because the sa id transaction is not subj ect to VAT. The pri ce o f the goods and services procured is the sum total paid; and the amount added beca use of the tax is pa id as part of the price to get the goods and services (Philippine. ;. 4 : ;..~� t, ;.. Acetylene Co. vs. Commissioner qf' lnt~ro al Revenue, G.R. No. L-19707, August 17, . ~ ~ ~ � . .: . ~� !( 1967). ,�, �� ..' . mai ntain~ �~, '{.A.T' ./� .�:,. t\,1'1~.f~ ~ ntit:y' pres~nf an appro~~d Thi s Co ur t .~ whicl, fa il ed to ~ /�":'~.;"'~ '� . . > .:; ~:: f\ by appl i~ano n for zero-rati ng as r~R~!ired , S~~tion S(d) of Revenue Reg~I;'('�ns N~/ .:;.: w ill not be cons idered a ze ro-rated entity, hence, not entitl ed to the refund of input taxes paid (ABB Power Generation Ltd. vs. Commissionct� of Intemal Revenue, CTA Case 483

I DEC ISION - CTA CASE NO. 59 10 PAGE6 No. 5270, Ma1�ch 3, 1999, supra.; and Kumagai-gumi Co. Ltd., vs. Commissioner of Internal Revenue, CTA Case No. 4670, July 29, 19973). WHEREFORE, in view of the forego ing, Pe titioner's claim for refund is hereby DENIED for lac k of merit. SO ORDERED. ~ ~- Q~ ER NESTO D. ACOSTA Presiding Judge I CONCUR: CERTIFICATION I here by certi fy th at the above decision was reached after du e consultati on with the membe rs of the Court of T ax A ppeals in accordance w ith Section 13, A rticl e VIII of th e Const ituti o n. '"�.:, ~~~CLA_ ERNESTO D. ACOSTA . Presiding Judge 3 With Entry o f Jud gment, dated A ugust 15, 1997. 484