COMMISSIONER OF INTERNAL REVENUE v. CE CASECNAN WATER AND ENERGY COMPANY, INC.

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ENBANC COMMISSIONER OF INTERNAL CTA EB No. 1072 REVENUE, (CTA Case No. 8245) Petitioner, Members: -versus- Del Rosario, P.J., Castaneda, Jr., Bautista, Uy, Casanova, Fabon-Victorino, Mindaro-Grulla, Cotangco-Manalastas, and Ringpis-Liban, JJ. CE CASECNAN WATER AND ENERGY COMPANY, INC., Promulgated:/'41'1~~~' x- - - - - - - - - -- - - - Respondent. APR 2 8 2014 '7."P11 4 , 11-L, - - - -- - - - - - X DECISION CASTANEDA, JR., J.: Assailed in the Petition for Review are the Decision dated May 10, 2013 partially granting the refund or the issuance of tax credit certificate in favor of CE Casecnan Water and Energy Company, Inc., in the reduced amount of P16,101,029.44 representing unutilized input value added tax ['VAT'') attributable to zero-rated sales to National Irrigation Administration f'NIA") for taxable year 2009, and the Resolution dated September 19, 2013 denying the Commissioner of Internal Revenue's Motion for Partial Reconsideration for lack of merit, both issued by the Court of Tax Appeals' ("CTA'') Special Third Division in the case docketed as CTA Case No. 8245. ~

Decision CTA EB Case No. 1072 (CTA Case No. 8245) THE FACTS The Commissioner of Internal Revenue ("petitioner'') as a public official is tasked to decide disputed assessments, collection, refund of erroneously or excessively paid internal revenue taxes, fees or other charges, penalties, or other matters under the 1997 National Internal Revenue Code ("NIRC''), as amended, or other laws administered by the Bureau of Internal Revenue ("BIR"). CE Casecnan Water and Energy Company, Inc. ("respondent") is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines. It is a VAT registered entity with Taxpayer Identification Number (''TIN'') No. 004-500-931. 1 Pursuant to respondent's Articles of Incorporation, its primary purpose is "to design, develop, construct, erect, assemble, commission, finance, own and operate a combined irrigation and hydro-electric power project and related facilities in Central Luzon, Philippines for the conversion into electricity of water provided by and under the contract with the National Irrigation Administration ("NIA'') and for the supply of water for agricultural purposes to the NIA; provided that, in no event shall the corporation itself engage in the supply or distribution of electricity, in retail trade or in the business of a public utility, or furnish electricity to end-users or consumers, or provide a public service or engage in industries or activities reserved by the Constitution or by law to corporations wholly or partially owned by Filipino citizens". 2 As a power generating entity, respondent operates a multi-purpose irrigation and power project with the power plant component, consisting of a hydro-electric powerhouse with an installed capacity of 140MW, and duly accredited and certified as a Private Sector Generation Facility by y the Department of Energy ("DOE'').3 1 Joint Stipulation of Facts and Issues, CTA Case No. 8245, pp . 138-139. 2 Joint Stipulation of Facts and Issues, CTA Case No. 8245, p. 139. 3 Exhibit "C". See CTA Case No. 8245, p. 424 .

Decision CfA EB Case No. 1072 (CfA Case No. 8245) For the taxable year 2009, respondent filed its original quarterly VAT returns including amendments through the BIR electronic filing and payment system ("EFPS") on the following dates: Exhibit Period Date of Filing F Covered April 27, 2009 Original Quarterly VAT G Return for Jan. -March July 27, 2009 2009 H Original Quarterly VAT I Return for April-June J 2009 K L Original Quarterly VAT Oct. 26, 2009 M Return for July-Sept. 2009 Original Quarterly VAT Jan . 25, 2010 Return for Oct-Dec. 2009 Amended Quarterly VAT Oct. 18, 2010 I I Return for Jan.-March 2009 Amended Quarterly VAT Oct. 18, 2010 Return for April-June 2009 Amended Quarterly VAT Oct. 18, 2010 Return for July to Sept. 2009 Amended Quarterly VAT Oct. 27, 20104 Return for Oct-Dec. 2009 Under Section 108(B)(7) of the 1997 NIRC, as amended by Republic Act No. 9337, sales by power generating companies of electricity produced through renewable sources of energy, such as hydropower, are classified as zero-rated . The input VAT on power generating companies' purchases of goods and services attributable to zero-rated sales are refundable in accordance with Section 112 of the Tax Code. ~ 4 See CfA Case No. 8245, pp. 430-445.

Decision CTA EB Case No. 1072 (CTA Case No. 8245) Invoking the above-mentioned provision of the Tax Code, on November 10, 2010, respondent filed before the BIR an administrative refund claim of P16,702,501.38 attributable to zero-rated sales of power to NIA for taxable year 2009.5 Petitioner's inaction has prompted respondent to file a Petition for Review docketed as CTA Case No. 8245 with the CTA's Special Third Division on March 30, 2011. In ruling for the respondent, the Court in Division issued a Decision dated May 10, 2013 partially granting its refund claim in the reduced amount of P16,101,029.44 representing its unutilized input VAT attributable to its zero-rated sales to NIA for taxable year 2009.6 The refundable amount resulted by deducting input VAT attributable to zero- rated sales of P16,250,159.04 from net output VAT payable of P149,129.60. 7 Dissatisfied, petitioner moved for partial reconsideration of the assailed Decision; however, in the Resolution dated September 19, 2013, the Court in Division denied the same for lack of merit.8 THE ISSUES Unfazed, petitioner seeks recourse before the Court en bane raising the following grounds: I. THE JUDICIAL CLAIM FOR REFUND WAS PREMATURELY FILED, IN VIOLATION OF THE DOCTRINE OF EXHAUSTION OF ADMINISTRATIVE REMEDIES. II. THE SPECIAL THIRD DIVISION OF THE HONORABLE COURT HAS NO JURISDICTION OVER RESPONDENT'S CLAIM FOR REFUND. ~ 5 Exhibit "N ". See CTA Case No. 8245, p. 446. 6 Penned by Associate Justice Amelia Cotangco-Manalastas and concurred in by Associate Justice Lovell R. Bautista . Rollo, pp. 21 -50. 7 Rollo, p.45. 8 Rollo, pp. 52-54.

Decision CTA EB Case No. 1072 (CTA Case No. 8245) III. RESPONDENT IS NOT ENTITLED TO ITS CLAIM FOR REFUND CONSIDERING ITS FAILURE TO SATISFY THE STATUTORY AND ADMINISTRATIVE REQUIREMENT PROVIDED FOR BY THE TAX CODE.9 THE COURT'S RULING Petitioner alleges that the non-observance of the 120-day period under Rule 112 of the 1997 NIRC, as amended, demonstrates respondent's failure to adhere to the administrative process in the disposition of the administrative claim prior to the filing of the instant petition specifically the failure to afford petitioner time to act on the administrative claim. Thus, the refund claim must be denied. In an action for refund, the burden of proof is on the taxpayer to justify his claim under the law. The core issue in this case is whether or not the failure to submit complete documents in support of the claimant's refund claim of unutilized input VAT attributable to zero-rated sales divests the CTA jurisdiction to act on the refund claim. PETITIONER CANNOT DEMAND WHAT TYPE OF DOCUMENTS TO BE SUBMITTED IN SUPPORT OF THE TAX REFUND CLAIM UNDER SECTION 112 OF THE TAX CODE. Section 112 of the 1997 NIRC, as amended, prescribes the procedure in the appeal of refund of unutilized input VAT attributable to zero-rated or effectively zero-rated sales before the CTA as follows: SEC. 112. Refunds or Tax Credits of Input Tax. - ~ 9 Rollo, pp. 10, 14, 15 &16.

Decision CTA EB Case No. 1072 (CTA Case No. 8245) "(C) Period within which Refund or Tax Credit of Input Taxes shall be made. - In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) hereof. "In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from receipt of the decision denying the claim or after the expiration of the one hundred twenty-day period, appeal the decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied .) The law states that in refunds of unutilized input VAT attributable to zero-rated sales or effectively zero-rated sales, the Commissioner of Internal Revenue may grant or deny the claimant's refund claim within the period of One Hundred Twenty (120) days from submission of complete documents. Consequently, the claimant may appeal to this Court within a period of thirty (30) days from receipt of the decision denying the claim or within 30 days from the lapse of the 120-day period. Petitioner argues that the 120-day period did not commence to run since respondent has failed to present complete evidence in the administrative level. The submission of complete documents is necessary before the 120-day period shall apply, and before the taxpayer could avail of judicial remedies as provided by law. This requirement is jurisdictional. Due to respondent's violation of Section 112 of the 1997 NIRC, as amended, the CTA is devoid of jurisdiction over the case, and the refund claim should also be denied . Contrary to respondent's posture that the taxpayer will be at the mercy of the Commissioner who can now arbitrarily demand documents, these documents required in support of refund claims in Section 112 are listed with definiteness and not subject to discretion. ~

Decision CTA EB Case No. 1072 (CTA Case No. 8245) Petitioner insists that respondent did not disclose in its original Petition for Review that it submitted documents relative to its refund claim. Exhaustion of administrative remedies is a condition precedent prior to resort to judicial action. Respondent on the other hand, counters that the CTA has jurisdiction over its refund claim. Respondent has sufficiently established compliance with the legal requisites for the recovery of excess input taxes for taxable year 2009. The administrative application for refund together with the supporting documents was filed within two years from the close of the taxable quarter when the relevant zero-rated sales were made. Thus, upon the submission of these documents on November 10, 2010, the 120-day period had already commenced to run. Respondent was willing to make its books of account and other financial records available for inspection by petitioner's examiner and to prepare reconciliation of any discrepancies. Since there are no administrative regulations which contains judicially-recognized list of complete documents, petitioner cannot demand what type of supporting documents should be submitted by the taxpayer. Respondent's contentions are meritorious. In the case of Team Sua/ Corporation (formerly: Mirant Sua/ Corporation) v. Commissioner ofInternal Revenue, and Commissioner of Internal Revenue v. Team Sua/ Corporation (formerly Mirant Sua/ Corporationj0, the CTA en bane construed the meaning of complete documents under Section 112 of the 1997 NIRC, as amended, as follows: "Accordingly, the term 'complete documents' under Section 112(0) of the NIRC of 1997 should be ~ 10 CTA EB Case Nos. 649 & 651, Resolution dated March 21, 2012.

Decision CTA EB Case No . 1072 (CTA Case No. 8245) understood as those documents necessary to support the application for refund or tax credit certificate as determined by the taxpayer. Thus, should the taxpayer decide to submit only certain documents, or should the taxpayer fail, or opted not, to submit any document at all, in support of its application for refund or tax credit certificate under Section 112 of the NIRC of 1997, it is reasonable and logical to conclude that the reckoning date of the 120-day period thereunder, should be reckoned from the filing of the said application. 11 (Emphasis supplied.) Although pertaining to assessment, the Supreme Court case of Commissioner of Internal Revenue v. First Express Pawnshop, Inc.12 shall be applied by analogy to the case at bar in the determination of completeness of documents in relation to Section 112 of the Tax Code. Pertinent excerpts of the First Express Pawnshop, Inc. provide: The term "relevant supporting documents" should be understood as those documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit additional documents. The BIR cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit. (Emphasis supplied.) Here, based on the November 10, 2010 letter addressed to the BIR, the administrative claim, respondent mentioned having submitted the following documents, namely: In support of our request, we enclose the following documents for your perusal: 1.Duly accomplished BIR Form No. 1914 Application for Tax Credits/ Refunds ~ 11 See Phil. Gold Processing & Refining Corp. v. Commissioner of Internal Revenue, CTA Case No. 8270, June 11, 2013 and Diageo Philippines_ I nc. v. Commissioner of Internal Revenue, CTA Case Nos. 7846 and 7865, January 16, 2012 . 12 G.R. Nos. 172045-46, June 16, 2009, 589 SCRA 253.

Decision CfA EB Case No. 1072 (CfA Case No. 8245) 2.SEC certificate of registration and articles of incorporation 3.BIR certificate of registration 4. BOI certificate of registration S.DOE certificate of accreditation 6.VAT registration payment for the year 2009 7.Project Agreement between CE Casecnan and NIA 8.General Information Sheet 9.Annual Income Tax return for taxable year ended December 31, 2009 together with the audited financial statements lO.Monthly and Quarterly VAT returns for first to fourth quarters ll.Schedule of purchases and importations for first to fourth quarters 12.Schedule of sales for first to fourth quarters 13.Summary of actual input VAT attributable to sale of power 14.Zero-rated sales invoices issued to NIA lS.Zero-rated official receipts issued to NIA 16.VAT sales invoices issued to NIA 17.VAT official receipts issued to NIA 18.Withholding VAT returns for first to fourth quarters 19.Copy of BIR Authority to print official receipts/ sales invoices and use computerized accounting system 20.Photocopy of inventory of used official receipts/ sales invoices for the calendar year 2009 duly received by the BIR 21.0fficial receipts/ sales invoices issued by local supplier of goods and services 22.Import entry internal revenue declarations and/or official receipts issued by the Bureau of Customs 23.Soft copy of the detailed schedule of input VAT on local purchases of goods and services and importations. We shall await the issuance of the necessary authorization for your revenue officers to. conduct the required audit to process our claim. We trust that ?

Decision CTA EB Case No. 1072 (CTA Case No. 8245) the foregoing merits your favorable consideration. 13 (Emphasis supplied .) Moreover, petitioner never required respondent to submit additional documents if it deems insufficient the documents submitted by respondent in support of its refund claim . The Court in Division aptly observed that: In the instant case, record shows that petitioner filed its administrative claim for refund on November 10, 2010 together with several documents in support of its application. Notably, respondent neither sent any written notice informing petitioner that the aforesaid documents are incomplete nor required the latter to submit additional documents. Respondent cannot now belatedly argue that petitioner was not able to submit the complete documents in support of its claim for refund or tax credit certificate. In fact, perusal of the records show that there was no audit conducted on petitioner's application for refund or tax credit certificate as evidenced by lack of BIR records on petitioner's administrative claim. Since respondent failed to act on or respond to petitioner's claim within the 120-day period required by law, petitioner exercised its statutory right to appeal before this Court. 14 (Emphasis supplied.) The Supreme Court even allowed submission of documents in support of the refund claim under Section 112(C) of the 1997 NIRC, as amended, beyond the 120-day period as echoed in the Commissioner ofInternal Revenue v. San Roque Power Corporation Taganito Mining Corporation v. Commissioner of Internal Revenue, Phi/ex Mining Corporation v. Commissioner ofInternal Revenue'5 which states that: Even after the expiration of the 120-day period, the Commissioner should still evaluate internally the administrative claim for purposes of opposing the taxpayer's j udicial claim, or even for purposes of determining if the BIR should actually concede to the taxpayer's judicial claim. The internal administrative evaluation of the taxpayer's claim ?z- 13 Exhibit "N". 14 Rollo, p. 49. 15 G.R. Nos. 187485, 196113 & 197156, February 12, 20 13.

Decision CTA EB Case No. 1072 (CTA Case No. 8245) must necessarily continue to enable the BIR to oppose intelligently the judicial claim or, if the facts and the law warrant otherwise, for the BIR to concede to the judicial claim, resulting in the termination of the judicial proceedings. Moreover, the law does not recognize the documents listed in Revenue Memorandum Order ("RMO'') No. 53-98, as amended by RMO No. 16-2007 as supporting documents required from claimants seeking refund of excess or unutilized input taxes attributable to zero-rated sales as declared by this Court in the case of Commissioner of Internal Revenue v. Visayas Geothermal Power Company6 which ruled that: Otherwise stated, a taxpayer seeking for a refund or the issuance of a tax credit certificate of unutilized input VAT payments directly attributable to zero-rated or effectively zero-rated sales must satisfy the following requisites: 1. There must be zero-rated or effectively zero-rated sales; 2. The input taxes were incurred or paid; 3. Such input VAT payments are directly attributable to zero- rated or effectively zero-rated sales; 4. The input VAT payments were not applied against any output VAT liability; and 5. The claim for refund or tax credit was filed within the two year prescriptive period . Indubitably, the law does not require the taxpayer to submit the documents prescribed by RMO 53-98 and the VAT registration requirements under Revenue Regulations ("R.R.'') 6-97, in relation to Section 4.107-1 (a) of R.R. 7-95, and Section 236 of the 1997 NIRC, as amended, as a pre- condition to the claim for refund of unutilized input VAT payments. RESPONDENT TIMELY FILED AN APPEAL TO THE CTA AND COMPLIED WITH THE r ADMINISTRATIVE PROCESS UNDER SECTION 112 OF THE 16 CTA EB Case No. 282, November 20, 2007.

Decision CTA EB Case No. 1072 (CTA Case No. 8245) TAX CODE. THUS, THIS COURT HAS JURISDICTION TO RULE ON THE REFUND CLAIM. Considering that respondent has submitted supporting documents together with its administrative claim before the BIR pursuant to Section 112 of the 1997 NIRC, as amended, the 120-day period should be reckoned from November 10, 2010. Despite of the petitioner's inaction on the refund claim, respondent may appeal to this Court within thirty (30) days from expiry of the 120-day period on March 10, 2011, or until April 11, 2011. 17 Hence, respondent's appeal on March 30, 2011 was within the reglementary period. Clearly, the Court in Division correctly ordered petitioner to grant the refund or the issuance of the tax credit certificate in favor of the respondent in the amount of P16,101,029.44 representing unutilized input VAT attributable to its zero-rated sales to NIA for taxable year 2009. WHEREFORE, premises considered, the Petition for Review is hereby DISMISSED. The assailed Decision dated May 10, 2013 and the Resolution dated September 19, 2013 are AFFIRMED. SO ORDERED. QJ~~C.~o&;S2 . JR. 0iJANITO C. CASTANEDA, Associate Justice WE CONCUR: Presiding Justice 17 April 9, 2011 (holiday) & April 10, 2011 (weekend) .

Decision CfA EB Case No. 1072 (CfA Case No. 8245) .UY CAESA~VA ~~~,L Associate Justice AMELIA R. COTANGCO- MANALASTAS aiw; N. M.w4..~ C~ Associate Justice CIELITO N. MINDARO-GRULLA Associate Justice (On Leave) MA. BELEN M. RINGPIS-LIBAN Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation among the members of the Court en bane before the case was assigned to the writer for the opinion of the Court en bane. Presiding Justice