HEDCOR, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS I QUEZON CITY SECOND DIVISION HEDCOR, INC., CTA CASE NO. 8990 Petitioner, Members: -versus- CASTANEDA, JR., Chairperson CASANOVA, and MANAHAN, JJ. COMMISSIONER OF Promulgated: INTERNAL REVENUE, DEC 1 22017 1.'0i fJJ1 Respondent. X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X CASTANEDA, JR., J.: For resolution are: 1. petitioner's Omnibus Motion, filed on August 17, 2017, without respondent's comment despite notice as per Records Verification dated October 3, 2017; and 2. petitioner's Motion to Set Oral Arguments, filed on October 19, 201Y. In the Omnibus Motion, petitioner seeks either a new trial and/or reconsideration of the Gourt's Decision dated August 1, 2017, the dispositive portion of which reads: "WHEREFORE, prrmises considered, the instant Petition for Review is DE~IED for lack of merit. fv

RESOLUTION erA CASE NO. 8990 SO ORDERED." Petitioner anchors its arg ments on the following grounds: A. A new trial is prop r in this case. Petitioner's claim was based on the rovisions of the Tax Code. The Decision, however, was issued on the basis of the RE Act, which nei her party, Petitioner and the Respondent, ever i voked during trial; B. The Honorable ourt's interpretation is not consistent with the context and intention of the RE Act. Statutory con truction should not kill but give life to the law; C. TheRE Act's provisi non the VAT zero-rating on RE Developers' local urchases is not self-executing. No guidelines for a ailment of the zero-rating were issued by Respondent; D. Notwithstanding th RE Act, RE Developers would still be entitled to efund under Section 112(A) of the Tax Code; E. The Coral Bay case is not analogous to the present case; F. The VAT zero-rati g on local purchases is an incentive provided nder the RE Act, and thus the enjoyment thereof i merely optional; G. Petitioner is enti led to the refund of VAT erroneously passe on to it by its suppliers, pursuant to the pri ciple of solution indebitf, H. The Honorable Co rt incorrectly applied RMC No. 42-2003 to the pres nt case; I. RE Developers can ot claim unutilized excess input tax as a deductible xpense; and J. The case involves issues that have a pervasive impact on elect icity consumers and power producers. ~

RESOLUTION CTA CASE NO. 8990 Petitioner contends that its claim was based on the provisions of the Tax Code but the assail d Decision was issued on the basis of Republic Act (R.A.) No. 9513 otherwise known as the Renewable Energy (RE) Act of 2008. It is alleged that neither petitioner nor respondent ever invoked the p ovisions of R.A. No. 9513 during trial. Petitioner avers that it did not base its claim for refund on R.A. No. 9513; thus, it never present d any proof or evidence that it was registered as an energy devel per. On that basis, petitioner posits that there is a need for new trial to enable it to completely present evidence in support of its clai on the ground of newly discovered evidence. Allegedly, the Court's in erpretation is not consistent with the context and intention of R.A. No. 9513. Petitioner stands that the aforesaid law established the f amework to accelerate the exploration and development of renew ble energy sources, increase the utilization of renewable energy and encourage the development and utilization of renewable ener y resources as tools to effectively prevent and reduce harmful missions, thereby balance economic growth with protection of heal h and environment. Petitioner posits that the provision of R.A. o. 9513 on the local purchases of renewable energy developer ubject to zero-rated value-added tax (VAT) is not self-executing nd cannot be implemented without specific mechanisms or guide ines. Petitioner further claims that notwithstanding the RE Act, R Developers would still be entitled to refund under Section 112(A) of the Tax Code. According to petitioner, ection 15(g) of the RE Act must be construed in harmony with th provisions of the Tax Code to shed light on the intent and purpos of the law. Section 15(g) of the RE Act, in conjunction with Secti ns 108(8)(7) and 112(A) of the Tax Code, allegedly establishes ne and the same principle that renewable energy generation companies are eligible to zero-rated VAT and thus allowed to clai refund of or seek issuance of tax credit certificate of its credita le input tax. Petitioner insists that such renewable energy gener tion companies are authorized under Section 112(A) of the Tax C de to seek refund or tax credit of unutilized excess input tax th y paid on purchases attributable to zero-rated sales regardless of whether or not they are registered under the RE Act. Petitioner sserts that the Coral Bay case is not analogous to the present case. Petitioner believes that his Court may better appreciate the former's arguments by allowmg an oral exposition of the said ~

RESOLUTION CTA CASE NO. 8990 arguments. As such, petitio er requests that oral arguments be heard to assist the Court in endering a resolution that is just and harmonious with the object ves of the Renewable Energy Act. Petitioner believes that oral a guments would ensure that the Court resolves the Omnibus Motion based on a complete and thorough presentation of the parties' ar uments and would allow the Court to ask clarificatory questions and receive direct and immediate answers from the parties' counsel. Section 3, Rule 15 of t e Revised Rules of the Court of Tax Appeals (RRCTA) provides: "SEC. 3. Hearing f the motion. -The motion for reconsideration or new trial, as well as the opposition thereto, shall embody a I supporting arguments and the movant shall set the arne for hearing on the next available motion day. Upon the expiration of the period set forth in the next receding section, without any opposition having been filed by the other party, the motion for reconsider tion or new trial shall be considered submitted r r resolution, unless the Court deems it necessary to h ar the parties on oral argument, in which case the Courts all issue the proper order." In the case of Simpros Vda. De �spina vs. The Hon. Otilio Abayal, the Supreme Court rul d that it is discretionary on the part of the Court whether to grant a h aring for oral argument, to wit: "Time and again, the Court stresses that the hearing of a motion for econsideration in oral argument is a matter which rests pon the sound discretion of the Court. Its refusal does not constitute a denial of due process in the absenc of a showing of abuse of discretion. (see Philippin Manufacturing Co. v. Ang Bisig ng PMC et a!., 118 Phil. 31, 434)" After a careful evaluati n of petitioner's arguments on the motion to set oral arguments, the Court finds the motion bereft of merit. There is no necessi to conduct a hearing for an oral Jv argument since petitioner h s already discussed extensively its arguments in the Omnibus Mot on. 1 G.R. No. L-45142, April 26, 1991.

RESOLUTION CTA CASE NO. 8990 Accordingly, the Court hall proceed to resolve the Omnibus Motion. Section 12, Rule 14 of th RRCTA provides that the Court is not limited to resolve the issues tipulated by the parties but also any related issues necessary to ac ieve an orderly disposition of the case; that includes the Court applyin the correct provision of the law. Even if the parties did n t invoke the provisions under RA No. 9513, the Court finds it just a d proper to apply the said law to the instant case since it covers petitioner's transactions as an RE Developer. As such, the Court reite ates that petitioner is not entitled to input VAT on the ground that he latter's purchases of local supply of goods, properties and serv ces needed for the development, construction and installation of its plant facilities are zero-rated, pursuant to Republic Act (R. .) No. 9513. Accordingly, no output VAT should be shifted to or assed on to petitioner, as well as no input VAT shall be paid by peti ioner. Thus, it necessarily follows that petitioner is not entitled to re und or issuance of TCC from the said purchases. The Court sustains the ruling in the assailed Decision, as follows: "It is clear that pe itioner is engaged in zero-rated or effectively zero-rated sales for its sales of electricity. Notwithstanding, it is orthy to note that petitioner's purchases of local su ply of goods, properties and services needed for the development, construction and installation of its plant facilities are also zero-rated in accordance with Section 5(g) of R.A. No. 9513 otherwise known as 'Renewable En rgy Act of 2008'. R.A. No. 9513, wh ch was approved on December 16, 2008, provides th t all renewable energy (RE) Developers, such as h rein petitioner, are entitled to zero-rated VAT on thei purchases of local supply of goods, properties services needed for the ~ 2 SECTION. 1. Rendition ofjudgmen - xxx. In deciding the cases, the Court rna not limit itself to the issues stipulated by the parties but may also rule upon related issues ne essary to achieve an orderly disposition of the case.

RESOLUTION erA CASE NO. 8990 development, constructi n and installation of their plant facilities and to the hole process of exploring and developing renewable energy sources up to its conversion into power, including, ut not limited to, the services performed by subcont actors and/or contractors, as follows: XXX XXX XXX The same is imp emented by Part III, Rule 5, Section 13(G)(b) of DOE Circular No. DC2009-05-0008 issued by the Departme t of Energy (DOE) on May 25, 2009, which provides as allows: XXX XXX XXX It is clear from th foregoing that petitioner, being a RE Developer, is en itled to zero-rated VAT on its purchases of local su ply of goods, properties and services needed for the development, construction and installation of its plant facilities, and to the whole process of exploring an developing renewable energy sources up to its conversi n into power. As such, no output AT shall be shifted to or passed on to RE Developers, such as herein petitioner, in connection with their p rchases of goods and services needed for the de elopment, construction, and installation of their plant facilities as well as to the whole process of exploration an development of REsources up to its conversion into po er. Conversely, no input VAT shall be paid by RE De elopers on these transactions. There being no input VA to be paid by RE Developers, it necessarily follows that t ey are not entitled to refund or issuance of TCC from the said purchases. Simply stated, petiti ner should not have paid input taxes on its purchases o goods and services from VAT- registered suppliers beca se such purchases were zero- rated, that is, no output tax was paid by the suppliers. Accordingly, no input ta should have been shifted or passed on to petitioner. The VAT is an indirect tax and the amount of tax may e shifted or passed on to the }t-

RESOLUTION crA CASE NO. 8990 buyer, transferee or les ee of the goods, properties or services. 3 Moreover, Revenu Memorandum Circular (RMC) No. 42-2003 dated July 5, 2003 provides: "Q-3: There are cas s where sales transactions of the suppl ers of exporters-claimants were alread considered as effectively zero-rated by virtue of BIR's approval of their appli ations for zero-rating. Notwithstand ng such approval, these suppliers still issued VAT invoices, which became the ources of the claim for tax credit. Will these input taxes be denied/disall wed or shall the correspondin output taxes be assessed against the s ppliers? A-3: When the supplier has an approved application for effectively era-rating on its sale to the exporter-claima t, the claimant should be aware that the invoices and receipts from that supplier should not carry any VAT component. With an approv d zero-rating from the BIR, the supplier will rep rt its sales as zero-rated. In case the s pplier alleges that it reported such sale as a axable sale, the substantiation of remittance o the output taxes of the seller (input taxes of he exporter-buyer) can only be established up n the thorough audit of the suppliers' VAT returns and corresponding books and reco ds. It is, therefore, imperative that the proces ing office recommends to the concerned BIR ffice the audit of the records of the seller. In the meantime, the claim for input tax credit by the exporter-buyer should be denied wit out prejudice to the claimant's right to seek reimbursement of the VAT pad, if any, from its supplier." (Emphasis suppled) The ruling of the Supreme Court in the case of Coral Bay Nickel Corpora ion vs. Commissioner ofInternal Revenufft is highly instr ctive. The High Tribunal held that the purchases of oods and services by a PEZA- f<- 3 Section 105 of the NIRC of 1997, as ame ded. 4 G.R. No. 190506, June 13, 2016.

RESOLUTION CTA CASE NO. 8990 registered entity that ere destined for consumption within the ecozone shoul be free of VAT, hence, no input VAT should be paid on such purchases; and in case such input VAT was paid, th PEZA-registered entity's proper recourse would be aga nst the seller who shifted the output VAT. The perti ent portions of the decision are hereunder quoted: principal office was located in Baran ay Rio Tuba, Bataraza, Palawan. Its plant ite was specifically located inside the Rio Tub Export Processing Zone - a special economi zone (ECOZONE) created by Proclamation N . 304, Series of 2002, in relation to Republi Act No. 7916. As such, the purchases o goods and services by the petitioner t at were destined for consumption ithin the ECOZONE should be free f VAT; hence, no input VAT should th n be paid on such purchases, rend ring the petitioner not entitled to claim a tax refund or credit. Verily, if the p titioner had paid the input VAT, the CTA was correct in holding that t e petitioner's proper recourse was not against the Government but against the seller who had shifted to it he output VAT following RMC No. 42-03, wh ch provides: In case the supplier alleges that it repo ed such sale as a taxable sale, he substantiation of remittance of the output taxes of the seller (input taxes of the exporter-buy r) can only be established pon the thorough audit of the s ppliers' VAT returns and corresp nding books and records. It is, therefore, imperative t at the processing office reco mends to the concerned BI Office the audit of the records o the seller. 9v

RESOLUTION erA CASE NO. 8990 In the eantime, the claim for input ax credit by the exporter-b yer should be denied wit out prejudice to the claima t's right to seek reimburse ent of the VAT paid, if any, from its supplier. We should a so take into consideration the nature of AT as an indirect tax. Although the selle is statutorily liable for the payment of VAT, the amount of the tax is allowed to be shi ed or passed on to the buyer. However, r porting and remittance of the VAT paid to t e BIR remained to be the seller/supplier's obligation. Hence, the proper party to seek the ax refund or credit should be the supplier , not the petitioner.' (Emphasis supplie Applying the ~ regoing ruling by analogy, petitioner's recourse fo its purchases of goods and services where it paid AT is not a claim for refund against the BIR, but to s ek reimbursement of its alleged input VAT paid from its suppliers of goods and services since its purchases of loc I goods, properties and services needed for the development, construction and installation of the plant facilities as well as its purchases of goods, properties and service for the whole process of exploration and devel pment of renewable energy sources up to its convers on into power, including but not limited to the services erformed by subcontractors or contractors, are subject o zero percent VAT under R.A. No. 9513." As regards petitioner's otion for new trial, the Court likewise finds the same untenable. Section 1, Rule 37 of the Rules of Court states: "SECTION 1. Gn unds of and period for filing motion for new trial o reconsideration. - Within the period for taking an appeal, the aggrieved party may p..- move the trial court to et aside the judgment or final

RESOLUTION CfA CASE NO. 8990 order and grant a ne trial for one or more of the following causes materia ly affecting the substantial rights of said party: (a) Fraud, accident, mistake or excusable negligence which rdinary prudence could not have guarded against nd by reason of which such aggrieved party h s probably been impaired in his rights; or (b) Newly iscovered evidence, which he could not, with reasonable diligence, have discovered and pr duced at the trial, and which if presented would p obably alter the result. Within the same p riod, the aggrieved party may also move for reconsider tion upon the grounds that the damages awarded are xcessive, that the evidence is insufficient to justify the decision or final order, or that the decision or final orde is contrary to law." The Supreme Court rule in the case of Manuel Ybiernas vs. Ester Tanco-Gabaldolf, that new trial is proper based on newly discovered evidence when the allowing conditions are met, to wit: "Finally, we find t at a new trial based on newly discovered evidence is w rranted. New trial is a remedy that seeks to 'temper he severity of a judgment or prevent the failure of jus ice.' Thus, the Rules allows the courts to grant a new tri I when there are errors of law or irregularities prejudicial o the substantial rights of the accused committed during the trial, or when there exists newly discovered eviden e. The grant or denial of a new trial is, generally spea ing, addressed to the sound discretion of the court hich cannot be interfered with unless a clear abuse ther of is shown. This Court has rep atedly held that before a new trial may be granted on the ground of newly discovered evidence, it must be sh wn (1) that the evidence was discovered after trial; (2) that such evidence could not have been discovered an produced at the trial even with the exercise of reason ble diligence; (3) that it is ~ 5 G.R. No. 178925, June 1, 2011.

RESOLUTION CfA CASE NO. 8990 material, not merely cumulative, corroborative, or impeaching; and (4) the evidence is of such weight that it would probably change he judgment if admitted. If the alleged newly discovere evidence could have been very well presented during the trial with the exercise of reasonable diligence, t e same cannot be considered newly discovered." Petitioner alleges that t e supposed evidence to be presented would prove its claim for refu d based on RE Act. The said evidence are in petitioner's possession but were not presented on the belief that they are not material to its claim because the said claim was anchored on Section 108(8), in relation to 112(A) of the National Internal Revenue Code (NIRC) of 1997, as amended. Apparently, the evidenc that petitioner would present are not the newly discovered evidenc contemplated under Section 1, Rule 37 of the Rules of Court. A further scrutiny of t e records also shows that petitioner failed to comply with the req irements provided under Section 2 of Rule 37 of the Rules of Court s similarly worded in Section 6 of Rule 15 of the Revised Rules of the ourt of Tax Appeals (RRCTA). Section 6 of Rule 15 of R CTA provides: SEC. 6. Contents f motion for reconsideration or new trial notice. -The otion shall be in writing stating its grounds, a written no ice of which shall be served by the movant on the adver e party. A motion for new trial shall be proved in the manner provided for pro f of motions. A motion for the cause mentioned in sub aragraph (a) of the preceding section shall be support d by affidavit of merits which may be rebutted by cou ter-affidavits. A motion for the cause mentioned 1n subparagraph (b) of the preceding section shall be supported by affidavits of the witnesses by whom such evidence is expected to be given or by duly authenticated documents which are proposed to be introduced in evidence. (Emphasis supplied.) jk-

RESOLUTION CTA CASE NO. 8990 Petitioner did not attach in the Omnibus Motion the affidavits of witnesses by whom the aile ed documents to be presented are expected to be given, or dul authenticated documents which are proposed to be introduced in evidence. Clearly, petitioner failed to comply with the requirement provided under the rules in filing the Motion for New Trial. At this juncture, it mu t be noted that procedural rules are required to be followed exc pt only for the most persuasive of reasons when they may be rei xed to relieve a litigant of an injustice not commensurate with the egree of his thoughtlessness in not complying with the procedure rescribed.6 In this case, petitioner h s the burden of proof to establish the factual basis of his or her clai for tax credit or refund.? Petitioner already had the opportunity t establish that it is entitled to the tax refund claimed during the tri I of the case; and the Court already found that petitioner failed o discharge the burden of proof in establishing its entitlement to he tax refund claimed. The Court may have, again, allowed petitione to present supplementary evidence to support its claim for tax refu d in filing the instant motion for new trial. However, petitioner faile to comply with the requirements of the rules when it had the oppo unity to do so. Since a liberal applicatio of rules of procedure in this case will only result in the wanton disr gard of the rules, the Court finds that the denial of the motion for ne trial is proper. WHEREFORE, premise considered, petitioner's Omnibus Motion and Motion to Set ral Arguments are DENIED for lack of merit. SO ORDERED. ~k c. .Qs/'~-" Q . iUANITO C. CASTANEuf(, JR. Associate Justice 6 Spouses David Bergonia and Luzviminda astillo, vs. Court ofAppeals, eta!., G.R. No. G.R. No. 189151, January 25, 2012, citing the case of Asian Spirit Airlines v. Spouses Bautista, 491 Phil 476 (2005). 7 Citibank, N.A. vs. Court of Appeals an the Commissioner of Internal Revenue, G.R. No. 107434, October 10, 1997.

RESOLUTION ~. 1�~~~-.. ~,~...~- - - CTA CASE NO. 8990 Page 13 of 13 CATHERINE T. MANAHAN We concur: Associate Justice # CAESAR A. CASANOVA Associate Justice