VISAYAS GEOTHERMAL POWER COMPANY v. COMMISSIONER OF INTERNAL REVENUE

REPUBliC OF THE HlliPPINES COURT OFT APPEAlS QUEZON ITY VISAYAS GEOTHERMAL POWER CTA EB NO. 520 COMPANY, (CTA Case No. 7394) Petitioner, -versus- COMMISSIONER OF INTERNAL CTA EB NO. 521 REVENUE, (CTA Case No. 7394) Present: Respondent, x----------------------------------------x COMMISSIONER OF INTERNAL REVENUE, Petitioner, -versus- ACOSTA, P.J., CASTANEDA, JR., BAUTISTA, UY, CASANOVA, PALANCA-ENRIQUEZ, FASON-VICTORINO, MINDARO-GRULLA, and COTANGCO-MANALASTAS,JL VISAYAS GEOTHERMAL POWER Promulgated: COMPANY, DEC 1 0 2010 /,: ~rn-.. ~ ,1], /)~~ / ~ ,. ~-"\ Respondent. L'r . x--------------------------------------------------- ----------------------------------------x DECISI N COTANGCO-MANALASTAS,L: I I EnjBanc Before the Court of Tax Appeals are consolidated Petitions for Review separately filed by Visayas Geot ermal Power Company (hereafter~ 1557 1 I

DECISION CTA EB Nos. 520 and 521 (CTA Case No. 7394) referred to as "VGPC") docketed as CTA E No. 520 and by the Commissioner of Internal Revenue (hereafter referred t as "the CIR") docketed as CTA EB No. 521, seeking the review of the Decisi n dated February 26, 2009 and the Resolution dated July 31, 2009 rendered y the Second Division of this Court in the case entitled "Visayas Geothermal ower Company vs. Commissioner of Internal Revenue, CTA Case No. 7394." The facts as stipulated by the partes in their Joint Stipulation of Facts and Issues and as borne by the records o the case are as follows: VGPC is a special purpose limit d partnership duly organized and existing under Philippine laws, with prin ipal office at Milagro, Ormoc City, Province of Leyte. It is principally e gaged in the business of power generation and operates a geothermal power plant in Leyte and all the electricity produced by the facility is old to the Philippine National Oil Corporation-Energy Development Corporl tion (PNOC-EDC), pursuant to an Energy Conversion Agreement. VGPC h d been accredited and certified as such by the Department of Energy (DOE) on June 15, 1994. It is a registered value-added tax (VAT) taxpayer, with ax Identification No. 003-832-538- VAT. On the other hand, the Commi �sioner of the Bureau of Internal Revenue is the duly appointed official emJowered to perform the duties of the said office including, among others, the bower to decide, approve and grant refunds or tax credits of erroneously o excessively paid taxes. She holds office at the 5 th Floor, Bureau of Inte nal Revenue (BIR) National Office Building, BIR Road, Diliman, Quezon City. l A / 15ra I

DECISION CTA EB Nos. 520 and 521 (CTA Case No. 7394) VGPC filed with the BIR its origina Quarterly VAT Returns for taxable year 2004 on the following dates. Taxable Quarter Date of ..iling of Original Return First April 24, 2004 Second July 26, 2004 Third October 25, 2004 Fourth January 25, 2005 VGPC also filed its final amended d uarterly VAT Returns for the same year, the details of which are as follows: 2004 DATE OF EXCESS/UNUTILIZED INPUT VAT CREDITS TOTAL TAXABLE FILING QUARTER DOMESTIC SERVI CES IMPORTATION p 7,662,196.67 November 3,381.036.32 First 26 2004 PURCHASES RENDE RED OF GOODS 3,139,344.35 Second November 4,297,133.80 Third 18 2005 BY NC N- Fourth November P18 479 711.14 TOTAL 18 2005 RESIDE NTS November 18 2005 p 7,536,137.17 p 29,~ 86.44 p 96,153.06 2,973,765 .99 51, 29.33 356,141.00 2,973,552.47 54, 73 .00 111,418.88 3,230,092.46 493,~ 12.34 573,229.00 I I Believing that the amount incurred and the accumulated input VAT on its domestic purchases of goods and services, services rendered by non- residents, and importation of goods are at ributable to its zero-rated sales of power generation services to PNOC-EDC and such was not utilized against any output VAT liability � for the said period and subsequent quarters, petitioner filed its administrative claim or refund with the BIR on the following dates: Taxable Quarter [ ate of Filing of Adr 1inistrative Claim First Second to Fourth June 7, 2005 D4cember 19, 2005

DECISION CTA EB Nos. 520 and 521 (CTA Case No. 7394) Claiming inaction on the part of t e CIR on its refund claim and in order to suspend the running of the o-year prescriptive period under Section 112(D) of the National Internal evenue Code (NIRC) of 1997 and Section 4.106-2(c) of Revenue Regulation No. 7-95, as amended, petitioner filed a Petition for Review on December 2 , 2005. The CIR filed her Answer on Marc 14, 2006, stating her Special and Affirmative Defenses. During trial, petition.er presented nd formally offered documentary and testimonial evidence; while the CIR di not present evidence. 1 On February 26, 2009, the Court of Tax Appeals Second Division (hereafter referred to as the "Court in Division") rendered its Decision, partially granting VGPC's claim for refun of its unutilized input VAT. The dispositive portion of the Decision states: "WHEREFORE, in vie of the foregoing considerations, the Petition for Revi w is hereby PARTIALLY GRANTED. Accordingly, � respon ent is ORDERED TO REFUND or, in the alternative, TO ISSUE A TAX CREDIT CERTIFICATE in favor of petition~r the reduced amount of SIXTEEN MILLION EIGHTY-F UR THOUSAND FOUR HUNDRED FIFTY NINE ESOS AND 81/100 (P16,084,459.81) representing unu ilized input VAT from its domestic purchases of goods and ervices, services rendered by non-residents, and importationr of goods for the four quarters of taxable year 2004. SO ORDERED." . On March 19, 2009, VGPC filed a M tion for Partial Reconsideration of the Decision. On the other hand, the CIR filed a Motion for Partial Reconsideration on March 20, 2009. Both motions were denied by the Court in Division in the Resolution dated July 31, 009. ~-� 1560

DECISION CTA EB Nos. 520 and 521 (CTA Case No. 7394) On August 20, 2009, VGPC filed wi h this Court a Motion for Additional Time to File Petition for Review docketed as CTA EB No. 520; while the CIR also filed her Motion for Extension of Ti e (to File Petition for Review) on August 24, 2009, which was docketed as A EB No. 521. Both motions were granted by this Court on August 24, 2009 nd August 25, 2009, respectively. VGPC filed its Petition for Review o September 8, 2009; while the CIR filed her Petition for Review on September 10, 2009. On September 14, 2009, this ourt ordered CTA EB No. 521 consolidated with CTA EB No. 520, the latt r being the lower docket number. In a Resolution dated September 2 ', 2009, the parties were ordered to file their respective Comment. On Octobe 9, 2009, VGPC filed its Motion for Additional Time to File Comment, whic was granted by this Court via Resolution dated October 12, 2009. VGP filed its Comment on October 20, 2009. On October 28, 2009, both parti s were required to submit their respective Memorandum within thirty (30) 1ays from notice. These consolidated cases were sub itted for decision on January 12, 2010, after VGPC filed its Memorandum o December 10, 2009 and the CIR filed her Memorandum on De.cember 18, 2 In its Petition for Review, VGPC uestioned the disallowance of a portion of its input VAT claim for 2004 in the amount of P2,395,251.33 and r / prayed that its entire input VAT claim for the said period in the amount of P18,479,711.14 be granted. 1561

DECISION CfA EB Nos. 520 and 521 (CfA Case No. 7394) The CIR, on the other hand, inter osed the following assigned errors in support of her Petition for Review: "THE JUDICIAL CLAIMS (SIC) FO THE FIRST QUARTER OF 2004 WAS FILED BEYOND THE PER OD ALLOWED BY LAW AND HENCE, THE HONORABLE COURT OF TAX APPEALS SECOND DIVISION HAS NO JURISDICTION VER THE SAME THE JUDICIAL CLAIMS FOR T E SECOND TO FOURTH QUARTERS OF 2004 WERE REMATURELY FILED, IN VIOLATION OF THE .DOCTRINE OF EXHAUSTION OF ADMINISTRATIVE REMEDIES RESPONDENT'S CLAIM FOR REF ND WAS NOT PROPERLY DOCUMENTED IN THE ADMINIST TIVE PROCEEDINGS AND THUS, RESPONDENT IS NOT EN ITLED TO THE RELIEF IT SOUGHT" Section 112(A) of the National In ernal Revenue Code of 1997, as amended, provides a period of two (2) y ars, after the close of the taxable quarter when the sales were made, within which a VAT-registered person whose sales are zero-rated or effe ively zero-rated, may file an administrative claim for the issuance of tal credit certificate or the refund of its unutilized input tax. On the other hand Section 112(D) of the same Code clearly states that the affected taxpayer may appeal to the Court of Tax Appeals within thirty (30) ~ays from receip of the decision or from inaction of the CIR after the lapse of one hundred tw nty (120) days. This was affirmed by the Supreme Court in the recent c se of Commissioner of Internal Revenue vs. Aichi Forging Company of A ia/ Inc. 1, the pertinent portions of which are quoted as follows:~ 1 G.R. No. 184823, October 6, 2010 562

DECISION CTA EB Nos. 520 and 521 (CTA Case No. 7394) "However, notwithstanding the timely filing of the administrative claim, we are constr ined to deny respondent's claim for tax refund/credit for havi g been filed in violation of Section 112(0) of the NIRC, which rovides that: SEC. 112. Refunds or T x Credits of Input Tax. - XXX XXX XXX (D) Period within wh ch Refund or Tax Credit of Input Taxes shall b made. - In proper cases, the Commissioner sh II grant a refund or issue the tax credit certificat for creditable input taxes within one hundr d twenty (120) days from the date o submission of complete documents in support of the application filed in ccordance with Subsections (A) and (B) h reof. In case of full or partia denial of the claim for tax refund or tax credit, r the failure on the part of the Commissione to act on the application within the perio prescribed above, the taxpayer affected ay, within thirty (30) days from the recei t of the decision denying the claim or afte the expiration of the one hundred tw nty-day period, appeal the decision or t e unacted claim with the Court of Tax ppeals. (Emphasis supplied.) Section 112(0) of the NIRC clearly provides that the CIR has '120 days, from the date of the submission of the complete documents in support o the application [for tax refund/credit],' within which to grant or deny the claim. In case of full or partial denial by the CIR, the taxpayer's recourse is to file an appeal befor the CTA within 30 days r from receipt of the decision of the IR. However, if after the 120-day period the CIR fails to act on the application for tax

,DECISION CTA EB Nos. 520 and 521 (CTACase No. 7394) refund/credit, the remedy of the axpayer is to appeal the inaction of the CIR to CTA within 3 days. In this case, the administra 1ve and the judicial claims were simultaneously filed on Septe ber 30, 2004. Obviously, respondent did not wait for th decision of the CIR or the lapse of the 120-day perio . For this reason, we find the filing of the judicial claim with the CTA premature. Respondent's assertion that he non-observance of the 120-day period is not fatal to the 1ling of a judicial claim as long as both the administrative and the judicial claims are filed within the two-year prescriptive period has no legal basis. There is nothing in Section 112 of the NIRC to support respondent's view. Subsection (A) f the said provision states that 'any VAT-registered person, wh se sales are zero-rated or effectively zero-rated may, within wo years after the close of the taxable quarter when the sa es were made, apply for the issuance of a tax credit ertificate or refund of creditable input tax due or paid attri utable to such sales.' The phrase 'within two (2) years xxx a ply for the issuance of a tax credit certificate or refund' efers to applications for refund/credit filed with the CIR an not to appeals made to the CTA. This is apparent in the fir t paragraph of subsection (D) of the same provision, which st tes that the CIR has '120 days from the submission of campi te documents in support of the application filed in accorda ce with Subsections {A) and (B)' within which to decide on t e claim. In fact, applying the two-ye r period to judicial claims would render nugatory Section 11 (D) of the NIRC, which already provides for a specific peri d within which a taxpayer should appeal the decision or inacti n of the CIR. The second paragraph of Section 112(D) of the NIRC envisions two scenarios: (1) when a decision is is ued by the CIR before the lapse of the 120-day period; and (2) when no decision is made r after the 120-day period. "In both i stances, the taxpayer has 30 days within which to file an app al with the CTA. As we

DECISION CTA EB Nos. 520 and 521 (CTA Cas~ No. 7394) see it then, the 120-day peri d is crucial in filing an appeal with the CTA. XXX XXX XXX In fine, the premature fili g of respondent's claim for refund/credit of input VAT efore the CTA warrants a dismissal inasmuch as no jurisdiction was acquired by the CTA." (Emphasis supplied) Based on the foregoing provisions nd jurisprudence, a VAT-registered person is provided a period of two yea s, after the close of the taxable quarter when the sales were made, within which he may file an administrative claim for the issuance of ta credit certificate or the refund of its unutilized input tax. Should the CIR d ny the claim or fail to act upon the claim within the 120-day period, the affec ed taxpayer is granted a period of thirty (30) days from the denial or inaction to appeal his case before the CTA. In the present case, the administra ive claims for refund filed by VGPC covering the first and the last three qua 1ers of 2004 were filed on June 7, 2005 and December 19, 2005, respective! . Counting from the close of each taxable quarter, it is clear that VGPC filed its administrative claims within the two-year prescriptive period. However, despite the timely filing of the administrative claims, this Court is constrained to deny VGPC's ref nd claim on the grounds that its judicial claim for the first quarter of 200 was filed out of time, while its judicial claim for the last three quarters wa prematurely filed. The administrative claims for the first and last three quarters of taxable year 2004 were filed by VGPC o June 7, 2005 and December 19,/-

DECISION CTA EB Nos. 520 and 521 (CTA Case No. 7394) 2005, respectively. The l.ast days of the 20-day period within which the CIR shall act upon the administrative claims ere October 5, 2005 and April 18, 2006. Consequently, VGPC had until No ember 4, 2005 and May 18, 2006 (the last day of the 30-day period) within which to file a Petition for Review before this Court's Division. Unfortunate! , VGPC filed its Petition for Review on December 29, 2005. Clearly, VGPC's udicial claim for the first quarter of 2004 was filed out of time, while its judie al claim for the last three quarters was prematurely filed. WHEREFORE, premises consider d, the CIR's Petition for Review docketed as CTA EB No. 521 is hereby G NTED, while VGPC's Petition for Review docketed as CTA EB No. 520 is ereby DISMISSED. Accordingly, the Decision of this Court in Division dat d February 26, 2009, ordering the CIR to refund or to issue a tax credit ertificate in favor of VGPC in the amount of P16,084,459.81, representing he latter's unutilized input VAT for the period covering the four quarters of 004 and the Resolution dated July 31, 2009 is SET ASIDE and another one is hereby entered denying VGPC's entire input VAT claim . SO ORDERED. AM l A R. COTANGCO-MANALASTAS Associate Justice 1 68

DECISION CTA EB Nos. 520 and 521 (CTA Case No. 7394) WE CONCUR: l~v� ERNESTO D. Presiding J ~T~f.�c~~;rR. CAESAR A. CASANOVA N-VICTORINO Associate Justice ER~P.UY Associate Justice o~lAVc;~ Associate Justice ~ N.M . . G~ CIELITO N. MIND RO-GRULLA CERTIFICA ION Pursuant to Section 13, Article VI I of the Constitution, it is hereby certified that the conclusions in the bove Decision were reached in � consultation with the members of the C urt En Bane before the case was assigned to the writer of the opinion of the Court. \._...\o ~ . u~ ERNESTO D. ACOSTA Presiding Justice 15 7

REPUBLIC OF THE HILIPPINES COURT OFTAX PPEALS QUEZON ITY EN BAN VISAYAS GEOTHERMAL POWER CTA EB NO. 520 COMPANY, (CTA Case No. 7394) Petitioner, -versus- COMMISSIONER OF INTERNAL CTA EB NO. 521 REVENUE, (CTA Case No. 7394) Respondent. Present: X--------------------------------------------------X Acosta, P.J. COMMISSIONER OF INTERNAL Castaneda, Jr., REVENUE, Bautista, Uy, Petitioner, Casanova, P alanca-Enriquez, -versus- Fabon-Victorino, Mindaro-Grulla, and VISAYAS GEOTHERMAL POWER Cotangco-Manalastas, JJ. COMPANY, Respondent. Promulgated : dif3JfrP/~~ DEC ~-=---1-0'--2-0"1-0------L._/.-".-,~ /'� :J>v, X----------------------------------------------------------- -------------------------------------------------X DISSENTING PINION BAUTISTA,[. With the Court En Bane denying the Petition for Review filed by Visayas Geothermal Power Company ("VGPC"), d cketed as CTA EB No. 520, on the ground that its judicial claim for the first qua ter of taxable year 2004 was filed out of 1 68

Dissenting Opinion CIA EB Nos. 520 & 521 (CfA Case No. 7394) time, while its judicial claim for the last three quarters of the same taxable year was prematurely filed, and accordingly granted the Petition for Review filed by the Commissioner of Internal Revenue ("CIR"), docketed as CTA EB No. 521, I am compelled to vary from the said disposition c nsidering that I maintain the view that the judicial recourse under Section 112(C)1 f the 1997 National Internal Revenue Code ("NIRC") is directory and permissive a d not mandatory nor jurisdictional as long as the claim is filed within the two (2)-y ar prescriptive period provided under Sections 112 and 229 of the 1997 NIRC, as arne ded. It is a well-settled doctrine in statut ry construction that the word "may" when used in a statute, is merely permissiv and operates to confer discretion. It crumot be construed as having a.mandatory e Thus, as this Court consistently ruled, he taxpayer-claimant has the option of seeking judicial redress for refund of exces or unutilized input value-added tax ("VAT") attributable to zero-rated sales or effectively zero-rated sales with this Court either within thirty (30) days from rece"pt of the denial of its claim for refund or tax credit, or after the lapse of the one h ndred twenty (120)-day period in the event of inaction by the CIR; provided tha both the administrative and judicial remedies must be undertaken within the 2-ye r period. It is to be stressed further that if the 2-year prescriptive period is about to expire, there is no need to wait for the denia of the claim by the CIR or its inaction after the expiration of the 120-day period be ore the taxpayer can lodge its appeal I As Amended by Republic Act No. 9337. 1569

Dissenting Opinion C;r"A EB Nos. 520 & 521 (CTA Case No. 7394) with this Court.2 Otherwise, the claim for ref nd of unutilized input tax attributable to zero-rated sales or effectively zero-rated sal swill be time-barred. Likewise, the factual milieu present in he case at bench should be considered in determining the timeliness of the filing of PC's claim. When VGPC' s filed its administrativ claims for refund on June 7, 2005 covering the first quarter of the taxable y ar 2004, and on December 19, 2005 covering the last three quarters of the same ta able year, and the consequent Petition for Review with this Court on December 29, 005, the then well-established doctrine adopted in numerous decisions is that enun iated in the case of Atlas Consolidated Mining and Development Corporation v. Commis ioner of Internal Revenue ("Atlas case"),3 wherein the 2-year prescriptive period wit � which to file both the administrative and judicial claim is reckoned not from the lose of the pertinent quarter but from the date of filing of the VAT return. In the case of Co. v. Court of Appeals,4 t e Supreme Court aptly elucidated the prospectivity principle of judicial decisions to wit: The principle of prospectivity has als been applied to judicial decisions which, "although in themselves not ws, are nevertheless evidence of what the laws mean, ... (this being) th reason why under Article 8 of the New Civil Code, 'Judicial decisions a plying or interpreting the laws or the Constitution shall form a part of th legal system . .."' So did this Court hold, for example, in eo. v. Jabinal, 55 SCRA 607, 611: It will be noted that when app llant was appointed Secret Agent by the Provincial Government � 1962, and Confidential Agent by 2 Commissioner of Internal Revenue v. Aichi Forging Comp y of Asia, Inc., CT A EB No. 416, February 4, 2009, Commissioner of Internal Revenue v. San Roque Power Corporation, CTA EB No. 408, March 25, 2009, Commissioner of Internal Revenue v. CE Cebu Geothermal P wer Company, Inc., CTA EB No. 426, May 29,2009. 3 G.R. Nos. 141104 & 148763, June 8, 2007, 524 SCRA 73. 4 G.R. No. 100776, October 28, 1993, 277 SCRA 444. 157

Dissenting Opinion OfA EB Nos. 520 & 521 (CTA Case No. 7394) Page4 of 6 the Provincial Commander in 1 64, the prevailing doctrine on the matter was that laid down by s in People v. Macarandang (1959) and People v. Lucero (1958). ur decision in People v. Mapa, reversing the aforesaid doctrin , came only in 1967. The sole question in this appeal is: sho ld appellant be acquitted on the basis of Our rulings in Macar ndang and Lucero, or should his conviction stand in view o the complete reverse of the Macarandang and Lucero doctr� e in Mapa? ... Decisions of this Court, altho gh in themselves not laws, are nevertheless evidence of what laws mean, and this is the reason why under Article 8 of the Ne Civil Code, "Judicial decisions applying or interpreting the la s or the Constitution shall form a part of the legal system ..." Th interpretation upon a law by this Court constitutes, in a way, a pa t of the law as of the date that law was originally passed, since his Court's construction merely establishes the contemporaneo s legislative intent that the law thus construed intends to effec ate. The settled rule supported by numerous authorities is a rest tement of the legal maxim "legis interpretation legis vim obtine" - he interpretation placed upon the written law by a competent c urt has the force of law. The doctrine laid down in Lucero nd Macarandang was part of the jurisprudence, hence, of the la of the land at the time appellant was found in possession of the firearm in question and where he was arraigned by the trial cour . It is true that the doctrine was overruled in the Mapa case in 967, but when a doctrine of this Court is overruled and a dif erent view is adopted, the new doctrine should be applied pr spectively, and should not apply to parties who had relied on t e old doctrine and acted on the faith thereof. This is especi lly true in the construction and application of criminal laws, where it is necessary that the punishment of an act be reaso ably foreseen for the guidance of society. (Boldfacing supplied) Therefore, while ruli.ti.gs of the Supre e Court are laws in their own right for they interpret what the law says or mean,5 an that pursuant to Article 8 of the Civil Code which expressly provides that "judicial decisions applying or interpreting the laws or the Constitution shall form part of th legal system of the Philippines," it is still subject to Article 4 of the same Code hich states that "laws shall have no 365. 1 'Philippine Vetff�n� Affrurn Offi~ v. Segundo, G.R. No. L-5 570, Augu;t 15, 1988, 164 SCRA 1571

Dissenting Opinion GTA EB Nos. 520 & 521 (0'A Case No. 7394) retroactive effect unless the contrary is provi ed." It follows then that the principle of prospectivity of statutes, original or am ndatory, shall also apply to judicial decisions, which although in themselves are ot laws, are nevertheless evidence of what the law means.6 Guided by the doctrine that rulings f the court modifying or reversing a doctrine or principle, operates prospective y, and rights acquired under such doctrine or principle prior ~o its modifica on or reversal may not be affected thereby,? it is my opinion that the ruling � the case of Commissioner of Internal Revenue v . Mirant Pagbilao Corporation (For erly Southern Energy Quezon, Inc.),B wherein the 2-year prescriptive period wi � which to make a claim for refund or tax credit is from the close of the taxable qua ter when the sales were made, should be applied prospectively i.e., only to admini trative and judicial claims filed after September 12, 2008. With this, the Atlas case s ould be applied in the case at bench. Based on the records of the case, V PC filed its Quarter VAT Returns as follows: 2004 Taxable Quarter Date of F' in of the VAT Return 151 Quarter pril 24, 2004 2 nd Quarter 3 rd Quarter July 26, 2004 4th Quarter ctober 25, 2004 J nuary 25, 2005 From the foregoing, VGPC has 2-year from the filing of the Original VAT Returns within which to make its administrati e and judicial claims for refund or tax credit. I 6 Filo teo, Jr. v. Sandiganbayan, G .R. No. 79543, October 16, 19 6, 263 SCRA 222. 7 People v. Jabinal, G.R. No. 30061, February 21, 1974, 55 SCR 607. s G.R. No. 172129, September 12, 2008, 565 SCRA 154. 1572

Dissenting Opinion G:TA EB Nos. 520 & 521 (CT A Case No. 7394) Pursuant to my discussion, I find the administrative claims filed on June 7, 2005 and December 19, 2005, and the Petition or Review filed on December 29, 2005 to be made within the prescribe periods. Accordingly, I vote for that the P titian for Review filed by Visayas Goethermal Power Company be GIVEN D E COURSE, while the Petition for Review filed by the Commissioner of Internal evenue be DISMISSED. 15.7