TOLEDO POWER COMPANY v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ENBANC TOLEDO POWER COMPANY, CTA EB No. 590 Petitioner, (CTA Case Nos. 7352 & 7400) Present: -versus- Acosta, P.J. Castaneda, Jr., Bautista, Uy, Casanova, Palanca-Enriquez, Fa bon-Victorino, Mindaro-Grulla, and Manalastas,JJ COMMISSIONER OF INTERNAL Promulgated: REVENUE, 20~~ JUL07 ~~()IC�>-' Respondent. x------------------------------------------------------ ------ -------------- ------------------- --- -- --- x DECISION ACOSTA, PJ: Before this Court of Tax Appeals En Bane' is a Petition for Review filed on February 24, 2010, assailing the Decision of the Court of Tax Appeals Second Division2 dated September 30, 2009 which dismissed petitioner' s claim for refund or issuance of tax cred it certificate of unutili zed input value-added tax ("VAT") arising from its domestic purchases of goods and services, and importation of goods attributable to its zero-rated sales of power generation services for the third and fourth quarters of the taxable year 2003 in the amou nts of P3 , 120,366.79 and 1 CTA En Bane. 2 CTA Second Di vision .

DEC IS IO N CTA � 8 No. 590 C TA Case Nos. 73 52 & 7400 Page 2 P6 ,685,54 1.75, respect ive ly, due to prescripti on, and the subsequent Reso lution dated January 20, 2010 , affirming the assailed D ec ision . The Facts T he CTA Second Division fo und the pertinent fac ts to be as fo ll ows: Petiti oner Toledo Power Company, is a general partnership dul y organized and existing under Philippine laws, with principal offi ce at Sangi, Toledo City, Cebu, principally engaged in the business of power generati on and subsequent sale thereof to the National Power Corporati on (N PC), Cebu Electri c Cooperati ve Ill (CEBECO), Atlas Conso lidated Minin g and Developm ent Corporati on, and Atl as Fertili zer Corporati on. It is reg istered with the BIR as a VAT tax payer in acco rdance with Secti on 23 6 of the Nati onal Internal Revenue Code (N IRC) with Tax Id entifi cati on No . 003-88 3- 626 and BIR Certifi cate of Registrati on bearin g ROO Control No. 94-083- 000300 . It was also issued a Certi fica te of Compliance under COC No. 04-06- GXT6 1-0066 dated June 23 , 2004 by the Energy Regul atory Commi ss ion. Res pondent, on the other hand , is th e dul y appointed Commi ss ioner of the Bureau of Internal Revenue (BIR) empowe red to perfo rm the duti es of sa id offi ce, in cluding, among oth ers, th e power to decide, approve, and grant refund s or tax credits of erroneously or excessivel y paid taxes, with offi ce address at the B!R Nati onal Offi ce Building, Ag ham Road, Diliman, Quezon C ity. It appears that pet1t1 oner entered into separate Electri c Power Purchase Agreements with Ce bu Electri c Cooperative Ill (CE BECO) and the Vi sayan Electri c Cooperati ve Compan y (VECO), dated August 9, 2002 and November 19, 2002, respecti ve ly. On June 26, 200 I, Republic Act No. (RA) 9 136, also known as the "E lectric Power Industry Reform Act of 200 I" (E PI RA), took effect and the relevant prov isions of th e Nat ional Internal Revenue Code (N IRC) of 1997, as amended, on zero-rated sa les we re deemed modifi ed. Sa id law was enac ted by Congress to ord ain reform s in the electric power indu stry, hi ghlightin g, among others, the importance of ensuring the reli ability, security and affordability of the suppl y of electric power to end-u sers. The pertinent provi sions of RA 9 136 and the Rules and Regul ati ons to Implement Republi c Act No. 9 136, entitled "E lectri c Powe r Indu stry Reform Act of 200 I" respecti ve ly prov ides as fo ll ows:

DECISIO N CTA EB No. 590 CTA Case Nos. 73 52 & 7400 Page 3 "SEC. 6. Ge nerati on Sector. - .. . Pursuant to the obj ective of lowerin g electricity rates to end-users, sales of generated power by generation companies shall be value added tax zero-rated. XXX XXX xxx." (Emphasis supplied) "RULE 5 Ge nerati on Sector XXX XXX XXX SECTION 6. Ge nerati on Charges and VAT. - ... (b) Pursuant to the policy of reducing electricity rates to End-users, sales of generated power by a Generation Company shall, from the effectivity of the Act, be zero-rated for the purpose of imposition of value-added tax. Towards thi s end, th e impos ition of zero percent (0%) VAT shall appl y to the sa le of generated power by a Generation Company through all stages of sa le until it reaches the End-u ser. The DO F, through the BIR, shall issue the necessary reve nue regulati on within sixty (60) ca lendar days from effecti vity of these Rul es." (Emp hases supplied) On October 27, 2003, petiti oner fil ed its Quarterl y VAT Return for the third quarter of taxa ble yea r 2003. Thereafter, on January 26, 2004, petiti oner fil ed its Qua1ierl y VAT Return for the fourth quarter of ta xable year 2003. Sa id return was amended on Jul y 26, 2004. Pursuant to the procedure prescribed in Revenue Regul ati ons No. 7-95, as amended, petiti oner fil ed on December 23, 2004 with BTR RDO No. 83 an admini strati ve claim for refund of unutilized input VAT for the four (4) quarters of 2003 in the total amount of ?15 ,838,539.48 , invokin g Section 11 2 (A) of the NlRC of 1997, as amended, as its bas is fo r the instant claim for refund or issuance of tax credit certifi cate. Due to respondent's fa ilure to act on petitioner's claim , petiti oner fil ed a Petiti on for Rev iew on October 26, 2005 , docketed as CTA Case No. 73 52 (ass igned to thi s Di vision), fo r its supposed unutili zed input VAT in the amount of P3, 120,366.79 for the third qu arte r of 2003. Subsequentl y, petitioner fil ed a second Petiti on for Rev iew on January 18, 2006, docketed as CTA Case No. 7400 (assigned to the First Di vision of thi s Court), for its supposed unutili zed input VAT in the amount ofP6,685,541 .75, fo r the fourth quarter of2003. In the Answers fil ed in CTA Case No. 7352 and 7400, except as to the respecti ve amounts invo lved in both cases and quoted in italicized manner in paragraph 5 th ereof, respondent similarl y interposes the following spec ial and affirm ati ve defenses:

DECISION C TA EB No. 590 CTA Case Nos. 7352 & 7400 Page 4 "4. Petiti oner's alleged claim fo r refund is subj ect to admini strati ve routinary investi gati on/examinati on by the Bureau; 5. The amoun t of "P3,120,366. 79 (for CTA Case No. 7352) and ?6,685,541. 75 (for CTA Case No. 7400)" be ing claimed by peti tioner all egedl y representin g unutilized input VAT from its do mestic purchases of taxa bl e goods and services and importati on of goods attributab le to zero-rated sales fo r the third quarter of ca lendar yea r 2003 was not properl y documented; 6. In an acti on fo r refund, the burden of proof is on the taxpaye r to establi sh its right to refund , and fa ilure to sustain the burden is fa tal to the claim fo r refund/cred it; 7. Petiti oner must show that it has complied wi th the provisions of Section 204 (C) and 229 of the Tax Code on the prescripti ve peri od fo r claiming tax refund/credit; 8. Claim s fo r refund are construed strictl y aga in st the claim ant fo r the same partake the nature of exemption from taxation (Commiss ioner of Intern al Revenue vs. Ledesma, 31 SCRA 95) and such, they are looked upon with di sfavo r (Western Minolco Corp . vs. Commiss ioner of Intern al Revenue, 124 SC RA 1211 )." On January 3 1, 2006, peti ti oner moved fo r the conso lid ati on of CTA Case No. 7400 with CTA Case No. 7352 before the First Div ision of thi s Court. The moti on, howeve r, was de ni ed by sa id Di vision in the Reso luti on dated March 8, 2006. Upo n peti tioner's moti on for reconsiderati on of such denial, the same was granted on Apri l 18, 2006, as both cases in vo lve the same parties and subj ect matter pertaining to claim s for refund or issuance of tax credit certificate fo r excess input VAT attributable to VAT zero-rated sa les, and the di ffe rence lies onl y on the taxa ble peri ods and th e amoun ts in vo lved in each Petiti on. Thereafter, a conso lidated pre-tri al was held on June 8, 2006, and the parties jointl y agreed to submit a Joint Sti pul ati on of Facts and Iss ues within fi ftee n (15) days fro m sa id date. On June 22, 2006, pat1i es submitted the requi red pl eading and was approved in the Reso luti on dated Jul y 3, 2006. Durin g tri al, petitioner presented testim oni al and documentary ev idence primaril y aimed at prov ing its supposed entitlement to the refund or issuance of a tax credit certifi cate in the tota l amount of P9,805 ,908.54, representing alleged unutilized input VAT fo r third and fo urth qu arters of taxabl e yea r 2003. When it was respond ent's turn to present ev idence on September 15, 2008, hi s coun se l mani fested that he is subm itting the case fo r dec ision based on the pleadings. Acco rdin gly, the parti es were granted thirty (3 0) days to fil e th eir respecti ve memora ndum , after which thi s case shall be deemed submitted fo r

DECIS ION CTA EB No. 590 CTA Case Nos. 7352 & 7400 Page 5 dec ision. Petiti oner and respondent fil ed their Memoranda on April 7, 2009 and April 8, 2009, res pect ive ly.3 The Ruling of the Court in Division On September 30, 200 9, the Court in Division di smi ssed the co nso lidated Petitions fo r Review fi led by the petiti oner on the ground of prescripti on. In particular, it rul ed that under Section 11 2 (A) of the NIRC of 1997, as amended, the following are the requisites fo r refunds or tax credits of input tax due or paid attributable to zero-rated or effecti ve ly zero-rated sales, viz: 1. there must be zero-rated or effectively zero-rated sales; 2. that input taxes were incurred or paid; 3. that such input VAT payments are directly attributable to zero-rated sales or effectively zero-rated sales; 4. that the input VAT payments were not applied against any output VAT liability; and 5. that the claim for refund was fil ed within the two-year prescriptive per iod . Anent the fifth requirement, the Court in Division stated that: The preva ilin g ju risprud ence th at establi shes the peri od within whi ch to fi le the claim fo r refund or tax credits of unutilized input VAT attributable to zero-rated or effecti ve ly zero-rated sa les is Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation (Formerly South ern En ergy Quezon, Inc.) . The pertinent porti on of the Hi gh Tribunal's Dec ision reads: "The claim fo r refund or tax credit for the creditable input VAT payment made by MPC embodi ed in OR No. 0189 was fil ed beyond the peri od prov ided by law for such claim . Sec. 11 2(A) of the N IRC pertinentl y reads: (A) Zero-rated or Effecti ve ly Zero-rated Sa les. - Any VAT-reg istered person, whose sa les are zero-rated or effecti ve ly zero-rated may, within two (2) 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 transiti onal inp ut tax, to th e extent that such input tax has not been appli ed again st output tax: . . . . (Emphasis ours.) CJ - - - - - - -- - ~~ 3 Rollo, pp. 53 -57.

DEC IS IO N CTA EB No. 590 CTA Case Nos. 7352 & 7400 Page 6 Th e above prov iso clearl y provides in no uncertain term s that unuti Iized input VAT pay ments not otherwi se used for any internal revenue tax due the tax paye r must be claimed within two years reckoned from the close of the taxable quartet� when the relevant sales were made pertaining to the input VAT regardless of whether said tax was paid or not. As th e CA aptl y puts it, albeit it erroneously applied the aforequoted Sec. I 12(A), '[P]rescripti ve peri od commences from the close of the taxa ble quarter when the sa les we re made and not from the tim e the input VAT was paid nor from the tim e the offi cia l rece ipt was issued' . Thus, when a ze ro-rated VAT tax paye r pays its input VAT a year after the pertinent transacti on, sa id taxpaye r onl y has a yea r to til e a claim for refund or tax credit of the unutili zed creditable input VAT. The reckoning frame wo uld always be the end of the quarter when th e pertinent sa les or transacti on was made, rega rdl ess when the input VAT was paid .... " (Emphasis suppli ed) Based on the afore-quoted jurisprudence, the reckoning of the prescripti ve peri od shall commence from the close of the taxa ble quarter when the releva nt sa les were made perta ining to th e input VAT, regardl ess of whether said tax was paid or not.4 H av ing po inted out the same, the Court in Division ruled that since the claim involves petiti oner's input VAT incurred fo r the third and fourth quarte rs of 2003, and counti ng fro m the close thereof, pet iti oner had until September 30, 2005 and December 3 1, 200 5, respecti vely, w ithin whi ch to fil e the in stant cla im, both in the admini strati ve a nd the judici al leve ls. Whil e the admini strative claim was fil ed within the two-year prescriptive period, both judicial claims were fil ed out of time. Thus, petiti oner's c laim s fo r refund have prescribed and it is therefore barred from pursuing its claims for refund . Consequently, the Court in D iv ision found the resoluti on of the other issues raised by the pmiies is no longer warranted. Acco rding ly, the Comi in Di vision di sposed ofthe case as fo llows: WHEREFORE, premises consid ered, the in stant conso lidated cases are hereby DISMISSED due to prescripti on. SO ORDERED. 4 Rollo, pp. 59-60.

DECISION C TA EB No. 59() CTA Case Nos.7352 & 74()() Page 7 Aggrieved, petitioner fi led a Moti on fo r Reconsideratio n on October 12, 2009. The same was deni ed fo r lack of merit by the Court in Div ision in its Reso lution promul gated on January 20, 2010.5 The Issue P etitio ner all eges that the Court in Division erred in di smi ssi ng the case, by applying the Supreme Court's ruling in the case of Commiss ione r of Internal Revenue vs. Mirant Pagbil ao Corporation (formerly Southern E nergy Quezon, Incl ('Miran t case') and conc luding that petitioner's judi cial claims fo r refund of excess input VAT for the 3rd and 4111 quarters of CY 2003 were fil ed beyond the two-year prescriptive period provided under Section 11 2 9A) of the Tax Code. Petitioner's Arguments Petitioner asse rts that as held by the Supreme Court in the case of Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue 7 ('Atlas case') th e two -year prescripti ve period fo r the fi ling of the , admini strative and j ud icial c laims for refund or tax credit of excess and unuti lized input VAT should be recko ned fro m the date of filing of the quarte rly VAT return and the payme nt of the output VAT. L ikewise, it maintains that by mandate of Article VIII, Section 4 (3) of the Constituti on, the ruling of the Seco nd Division of the Supreme Court in the Mirant case could not have overturned a nd did not validly overturn the doctrine laid down in the Atlas case which was decided by the Supreme Court En bane. Further, it submits that there are peculiar factual circumstances in the Mirant case which prompted the Supreme Court to apply a different rulin g, and such circumstances are not present in the case at bar. There is nothing in the M irant case whi ch would c learly show powerful countervailing considerati ons, so as to j usti fy sudden departure fro m established points of law. Petitioner asserts further that even assu mi ng for the sake of argument that the 5 Rollo, pp. 63-70 6 G.R. No. 172 129. September 12, 2008 7 G.R . Nos 14 11 04 & 148763, .June 8, 2007; 524 SCRA 73

DECIS ION CTA EB No. 590 CTA Case Nos. 73 52 & 7-100 Page 8 Mirant case validly overturned the doctrine laid down in the Atlas case, the ruling in the Mirant case should only be applied prospectively, and should not be made to apply to judicial claims for refund of excess input VAT pending with the courts at the time the Mirant case was decided . Lastly, petitioner claims that the seemingly conflicting rulings in Atlas case and Mirant case cannot be reconciled by ratiocinating that Atlas was decided under the National Internal Revenue Code of 1977 as amended by Executive Order No. 273 , while Mirant was decided under the 1997 Tax Code, as amended , because there is no change in the relevant provisions of the laws that would warrant the change of interpretation.8 Respondent's Arguments Respondent, on the other hand , submits that the Court in Division correctly dismissed petitioner 's claim for refund for lack of jurisdiction. She maintains that, under Section 112 (D) of the NIRC , after the submission of complete documents in support of the application for refund, a one hundred twenty(120)-day audit period shall apply before the taxpayer could avail of its judicial remedies as provided under the law. This period is reckoned from December 23 , 2004, the date when the petitioner filed its administrative claim for refund . The 120-day period expired therefore on April 21 , 2005. Hence, the thirty(3 0)-day period to file its judicial claim likewise expired on May 21, 2005. Having filed the cases on October 26, 2006 and January 18, 2006, the Court has lost its jurisdiction to act on the petitions. THE COURT EN BANC'S RULING The CTA En Bane finds the petition for review bereft of merit. The pi votal issue in thi s case is whether the Court of Tax Appeals has jurisdiction to rul e on the petitions. Pertinent therefore is a di scuss ion on the basis in law of every app lication for tax refund or credit of unutili zed input VAT. 8 Rollo, pp. 16- 17.

DECISION CTA EB No. 590 CTA Case Nos. 7352 & 7400 Page 9 Reckoning o{the Period to File A Claim {or Refund o{/nput Taxes An app lication for refund or tax credit over input taxes IS governed by Section 112 ofthe 1997 National Internal R evenue Code (NIRC). An application for refund or tax credit over input taxes arising from zero- rated or effectively zero-rated sales is govern ed by Section 112(A) of the 1997 NIRC, to wit: Section 112. Rejimds or Tax Credits ofInput Tax. - (A) Zero-rated or Effective~y Zero-rated Sales. - any VAT-registered person, whose sa les are zero-rated or effective ly zero-rated may, within two (2) 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, exce pt transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)( l ), (2) and (B) and Section 108 (B)(l) and (2), the acceptab le foreign cu rrency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentra l ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effective ly zero- rated sa le and a lso in taxable or exempt sa le of goods of properties or serv ices, and the amount of creditab le input tax due or paid cann ot be direct ly and enti re ly attr ibuted to any one of the transactions, it shall be a ll ocated proportionately on the basis of the vo lume of sa les. (E mph asis Ours). On the other hand , an app li cation for refund or tax credit over input taxes paid on capital goods imported or locall y purchased is govern ed by Section 112(B) ofthe 1997 N IRC, to wit: (B) Capital Goods. - A VAT-registered person may app ly for the iss uance of a tax credit ce rtifi cate or refund of input taxes paid on cap ita l goods impo11ed or loca ll y purchased , to the extent that such input taxes have not been app lied against output taxes. The application may be made only within two (2) years after the close of the taxable quarter when the importation or purchase was made. (Emphasis Ours).

DECIS ION CTA EB No. 590 CTA Case Nos.7352 & 7400 Page 10 In both afo rementi oned prov isions, it is worthy to note that the 1997 NIRC specifically set fo rth the reckoning of the two-year peri od for filing a cl aim for refund/tax credit over input taxes to be the close of the taxable quarter when the sales were made. In the recent case of Commissioner of Internal Revenue vs. A ichi Fo rging Company ofAsia, l nc. 9 th e Supreme Court has cited the Mirant case wherein it was , ruled that the two-year peri od to fil e a refund for input tax arising from zero-rated sales should be reckoned from the close of the taxable quarter when the sal es were made, viz: The pivotal question of when to reckon the running of the two-year prescriptive period, however, has already been resolved in Commissioner ofInternal Revenue v. Mirant Pagbilao Corporation, where we ruled that Section 112(A) of the NIRC is the applicable provision in determining the start of the two-year period for claiming a refund/credit of unutilized input VAT, and that Sections 204(C) and 229 of the NIRC are inapplicable as "both provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes." We explained that: The above proviso [Section 112 (A) of the NTRC] clearly provides in no uncertain terms that unutilized input VAT payments not othenvise used for any internal revenue tax due the taxpayer must be claimed within two years reckoned from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whether said tax was paid or not. As theCA aptly puts it, albeit it erroneously applied the aforequoted Sec. 11 2 (A), "[P]rescriptive period commences fi�om the close of the taxable quarter when the sales were made and not fi�om the time the input VAT was paid nor from the time the official receipt was issued." Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the pertinent transaction, said taxpayer only has a year to file a claim for refund or tax credit of the unutilized creditable input VAT. The reckoning fram e would always be the end of the quarter when the pertinent sa les or transaction was made, regardless when the input VAT was paid. Be that as it may, and given that the last creditable input VAT due for the period covering the progress billing of September 6, 1996 is the third quarter of 1996 ending on September 30, 1996, any claim for unutilized creditable input VAT refund or tax credit for sa id quarter prescribed two years after September 30, 1996 or, to be precise, on September 30, 1998. Consequently, MPC's claim fo r refund or tax credit filed on December I0, 1999 had already prescribed. 9 GR No. 184823. October 6. 20 I0.

DECIS ION CTA EB No . 590 C TA Case Nos. 7352 & 7400 Page I I Reckoning for prescriptive period under Sees. 204(C) and 229 ofthe NIRC inapplicable To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of the NIRC which, for the purpose of refund, prescribes a different starting point for the two-year prescriptive limit for the fi ling of a claim therefor. Sees. 204(C) and 229 respectivel y prov ide: Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes.- The Commissioner may- xxxx (c) Credit or refund taxes erroneously or illegall y received or penalties imposed without authori ty, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for cred it or refund within two (2) years after the payment of the tax or penalty: Prov ided, however, That a return fi led showing an overpayment shall be considered as a written claim for cred it or refund . xxxx Sec. 229. Recovery of Tax Erroneously or Illegally Collected. - 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, of any sum alleged to have been excessively or in any manner wrongfu ll y collected without authority, or of any sum alleged to have been excessive ly or in any manner wrongfully collected, until a claim for refund or credit has been dul y 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. In any case, no such suit or proceeding shall be filed after the expiration oft\vo (2) years from the date of payment ofthe tax or penalty regardless of any supervening cause that may ari se after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. Notably, the above prov isions also set a two-year prescriptive period, reckoned fi�om date of payment of the tax or penalty, for the filin g of a claim of refund or tax cred it. Notab ly too, both provisions apply only to instances of erroneous payment or illega l collection of interna l revenue taxes.

DECISION C TA EB No. 590 C TA Case Nos. 7352 & 7400 Page I2 MPC's creditable input VAT not erroneously paid For perspecti ve, under Sec. I05 of the NIRC, creditable input VAT is an indirect tax which can be shifted or passed on to the buyer, transferee, or lessee of the goods, properties, or services of the taxpayer. The fact that the subsequent sale or transaction involves a wholly-tax exempt client, resulting in a zero-rated or effecti vely zero-rated transaction, does not, standing alone, deprive the taxpayer of its right to a refund for any unutilized creditable input VAT, albeit the erroneous, illegal, or wrongful payment angle does not enter the equation. XXX XXX XXX Considering the foregoing di scussion, it is clear that Sec. 112 (A) of the NIRC, providing a two-year prescriptive period reckoned from the close of the taxable quat�ter when the relevant sales or transactions were made pertaining to the creditable input VAT, applies to the instant case, and not to the other actions which refer to erroneous payment of taxes. (Emphasis suppl ied.) In view of the foregoing, we find that the CTA En Bane erroneously applied Sections 114(A) and 229 of the NIRC in computing the two-year prescripti ve period fo r claiming refund/credit of unutilized input VAT. To be clear, Section 112 of the NIRC is the pertinent provision for the refund/credit of input VAT. Thus, the two-vear period should be reckoned from the close of the taxable quarter when the sales were made. Thus, it is clear that the reckoning of the two year peri od on claims for refund s/credit for input tax on zero-rated sa les should be from the close of the taxable quarter when the sales were made. The Period to File the Administrative Claim and Judicial Claim {or Refund o{lnput Taxes In the same Aichi Forging case , the Supreme Court has appli ed Section 11 2(A) in ascertaining w heth er the taxpayer timely fil ed its admini strati ve claim for refund , thus: Applying this to the present case, the two-year period to file a claim for tax refund/credit for the period July I, 2002 to September 30, 2002 expired on September 30, 2004. Hence, respondent 's admini strative claim was timely filed.

DECIS ION CTA EB No. 590 CTA Case Nos.73 52 & 7400 Page 13 As to the filing of the judicia l claim for refund s on both Sections 11 2(A) and (B) of the 1997 NIRC, the prov ision of Section 11 2(D) thereto is pertine nt, viz: SEC. I 12. Refunds or Tax Cred its of Input Tax. - x x x x (D) 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 ce11ificate 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 Subsections (A) and (B) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the fa ilure on the pa11 of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty {30) days from the 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 Ours) Aga in, in the Aichi Forging case, the High Co urt ex pla ined the applicati on of this prov ision, to wit: " In fact, applyin g the two-year period to judicial claim s wo uld render nugatory Section 11 2(0 ) of the NfRC, which already provides for a spec ific period within whi ch a taxpayer should appea l th e decision or inaction of the ClR. The second paragraph of Secti on I 12(D) of theN IRC envisions two scenarios: ( I) when a decision is issued by the CIR before the lapse of the 120-day peri od; and (2) when no dec ision is made after the 120-d ay period. In both instances, the taxpayer has 30 days within which to file an appeal with the CTA. As we see it then, the 120-d ay peri od is crucial in filin g an appea l with the CTA." (Emphas is Supplied.) Hav ing fil ed its admini strati ve claim for refund for unutilized input VAT for the four qua rters of the taxabl e yea r 2003 on D ecember 23 , 2004 , th e respondent Commiss ioner had 120 days to act on the cl aim of petiti oner or onl y unti I April 22, 2005 . Thereafter, petiti oner had 30 days or until M ay 22, 2005 to file its judicial claim for refund fo llowi ng the inaction of the respondent Co mmissioner. However, petitioner only filed its claim before thi s Court on October 26, 2005 for the third quarter VAT refund a nd January 18, 2006 for the fourth quarter VAT refund , both for taxa ble year 2006. C learly, hav ing fil ed its appeal beyond the 30-day period, the Court no longer has jurisdicti on to entertain the claim s.

DECIS ION CTA EB No. 590 CTA Case Nos. 7352 & 74 00 Page 14 WHEREFORE, the instant Petition for Review is hereby DENIED for lack of merit. The assailed Decision dated September 30, 2009 and Resolution dated January 20, 2010 ofthe CTA Second Division are hereby AFFIRMED. SO ORDERED . ~ ~ '-'>-� 0~ ERNESTO D. ACOSTA Presiding Justice WE CONCUR: ~~c~ r--~ ~- fuANiio c.� cAsTANEnA1R. Associate Justice ~te (concurs (concurs with Separate Opinion of of Justice Bautista) ~~t~ista)Opinion CAESAR A. CASANOVA ERLINDA P. UY Associate Justice Associate Justice tv. . r~<-~ ES PERANZ OLCA PALANCA-EN�IQUEZ Associate Justice (on wellness leave) (on wellness leave) CIELITO N. MINDARO-GRULLA AMELIA C. MANALASTAS Associate Justice Assoc iate Justice

DEC IS IO N CTA EB No. 590 C TA Case Nos. 7352 & 7400 Page 15 CERTIFICATION I hereby certi fy that the above dec is ion was reached afte r due consultati on with the members of the Court of Tax Appea ls in accordance w ith Section 13, Artic le VIII of the Constitution. t~l<i . Q~ ERNESTO D. ACOSTA Presiding Justice

REPUBLIC OF THE PHILIPPINES COURT OFTAX APPEALS QUEZON CITY ENBANC TOLEDO POWER COMPANY, Petitioner, CTA EB CASE NO. 590 (CTA Case Nos. 7352 & 7400) Present: Acosta, P.J. Castaneda, Jr., -versus- Bautista, Uy, Casanova, Palanca-Enriquez, Fabon-Victorino, Mindaro-Grulla, and Cotangco-Manalastas, JJ. COMMISSIONER OF INTERNAL REVENUE, Respondent. Promulgated: )(- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -:'-~':- ~~- ~~ SEPARATE OPINION BAUTISTA, I.: It is an elementary rule that "judicial decisions applying or interpreting the law or the Constitution shall form part of the legal system of the Philippines;"! and as part of the Jaw of the land, judicial decisions are also subject to the principle ~ 1 Article 8 of Republic Act N o. 386, as amended, otherwise known as the "Civil Code of the Philippines."

SEPARATE OPINION crA EB Case No. 590 (0'A Case Nos. 7352 & 7400) Page 2 of10 "laws shall have no retroactive effect unless the contrary is provided."2 Lex prospicit, non respicit, the law looks forward, not backward.3 At the time petitioner filed its administrative claims with the Bureau of Internal Revenue on December 23, 2004, and its subsequent Petitions for Review before the Second Division of this Court ("Court in Division") on October 26, 2005 and January 18, 2006, the well-entrenched ruling on the matter then is that established in the case of Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue ("A tlas Case"),4 wherein the two (2)-year period is reckoned not from the close of the pertinent quarter, but from the date of filing of the return, for it is only during that time that the tax liability or refundability can be determined. The Court En Bane affirmed such ruling in the case of JIDECO Manufacturing Philippines, Inc. v. CJR,5 stating: As we have already elucidated in our Resolution dated July 20, 1998 in the case of Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5296, the two-year prescriptive period for the filing of claims for VAT refund should be reckoned from the date of filing of the corresponding quarterly VAT returns in order to harmonize the provisions of Section 112(B) of the NIRC of 1997 with Sections 114(A) and 229 of the same Code. XXX XXX XXX In the cases of Commissioner of Internal Revenue vs. TMX Sales, Inc. and the Court of Appeals, G.R. No. 83736, dated January 15, 1992 and ACCRA Investments Corporation vs. Commissioner of Internal Revenue, 204 SCRA 957, the Supreme Court held that the two (2)-year period should be counted from the filing of the final income tax return, because it is only during that date that the exact tax liability or refundability of the tax can be determined. In the same manner, it is only after the filing of the quarterly 2 Article 4, Ibid. 3 Spouses Gauvain and Bernardita Benzonan v. Court of Appeals, et al., G.R. No. 97973, January 27, 1992, 205 SCRA 515, citing Francisco v. Ce rteza, No. L- 16849, November 29, 1961, 3 SCRA 565. ~ 4 G.R. Nos. 141104 & 148763, June 8, 2007, 524 SCRA 73. s crA Case No. 6552, September 16, 2004.

SEPARATE OPINION CfA EB Case No. 590 (CfA Case Nos. 7352 & 7400) Page 3 of10 VAT return that we can determine the VAT liability or refundability of VAT. It should be noted that the basic requirement is that VAT refund can only be granted to the extent that the input taxes have not been applied against output tax. All these matters can only be determined if a return is filed. It is logical therefore, that the two-year period should not immediately be counted from the close of the quarter but from the prescribed date of filing of the VAT return.6 In seeking refuge to this Court, taxpayers and litigants alike rely in good faith on la-;v and existing doctrines and rulings to enforce their rights. The afore-quoted jurisprudence is not one to be exempted from this. To apply a new doctrine to a pending case involving a party who already invoked a contrary view and who acted in good faith thereon prior to the issuance of the said doctrine would violate the rules on equity and fair play.? Further, the Supreme Court aptly elucidated the prospectivity principle of judicial decisions in the case of AlbinoS. Co, v . Court ofAppeals,s wherein it ruled that when a doctrine is overruled and a different view is adopted, the new doctrine should be applied prospectively, and should not apply to parties who had relied on the old doctrine and acted on the faith thereof. Thus, in the case of Team Energy Corporation (Formerly Mirant Pagbilao Corporation and Southern Energy Quezon, Inc.) v. Commissioner of Internal Revenue,9 the First Division of this Court made the following pronouncement: Although there is a recent case entitled Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation (Formerly SOUTHERN ENERGY QUEZON, INC.), wherein the Supreme Court held that the reckoning of the two-year prescriptive period for the filing of a claim for input VAT refund starts from the close of the taxable quarter when the relevant sales 6 CfA EB No. 53, June 7, 2005. 7 Land Bank of the Philippines v. De Leon, G.R. No.143275, March 20, 2003,399 SCRA 376. s G.R. No. 100776, October 28, 1993, 277 SCRA 444. 9 CfA Case Nos. 7229 and 7298, October 5, 2009.

SEPARATE OPINION CIA EB Case No. 590 (CIA Case Nos. 7352 & 7400) Page4 of 10 were made, this Court finds it proper to apply said ruling to cases filed after the promulgation date of the Mirant Case. To apply said ruling in the present case will in effect be giving the new doctrine retroactive application thereby impairing vested rights. (Boldfacing supplied.) And in the case of Mindanao II Geothermal Partnership v. Commissioner of Internal Revenue,IO the following disquisition was made: The CTA has been consistent with the foregoing rule that, even after petitioner filed its Petitions for Review with the Court in Division in 2005, the CTA has continued to invoke the rule that the reckoning of the two-year prescriptive period for the filing of claims for VAT refund/tax credit certificate starts from the date of filing of the corresponding quarterly VAT returns, in similar cases such as Takenaka Corp. Phil. Branch v. CIR, CTA Case No. 6762, March 20, 2006, Mirant (Navotas 11) Corporation v. CIR, CTA Case Nos. 7234 & 7295, October 2, 2008, CE Luzon Geothermal Power Co. v. CIR, CTA Case Nos. 6792 & 6837, November 25, 2008. Moreover, even after the promulgation of the Mirant SC Case, the CTA has continued to apply the rule that the reckoning of the two-year prescriptive period for the filing of claims for VAT refund/ tax credit certificate starts from the date of filing of the corresponding quarterly VAT returns, citing as basis the ruling of the Supreme Court in the Atlas SC case. Thus, the rule that the reckoning of the 2-year period is the date of filing of the quarterly VAT return has become a well-established doctrine and adopted in numerous decisions of the CTA, the Court of Appeals and even the Supreme Court until the Supreme Court rendered its decision in the Mirant SC Case on September 12, 2008. Consequently, taxpayers and litigants relied in good faith on such prevailing CTA jurisprudence. In light of the foregoing, the ruling in the case of Commissioner of Internal Revenue v. Mirant Pagbilao Corporation [Formerly Southern Energy Quezon, Inc.] ("Mirant Case"),11 wherein the reckoning of the two (2)-year prescriptive period is 1o CIA EB No. 513 (CIA Case Nos. 7227, 7287 and 7317), March 10, 2010, Concurring and Dissenting Opinion penned by Associate Justice Lovell R. Bautista, with Associate Justice Caesar A. Casanova, concurring. n G.R. No. 172129, September 12, 2008, 565 SCRA 154. I

SEPARATE OPINION CfA EB Case No. 590 (CfA Case Nos. 7352 & 7400) Page 5 of10 from the close of the taxable quarter should be applied prospectively, that is, to administrative and judicial claims filed after September 12, 2008. Moreover, the judicial recourse to this Court by a taxpayer-claimant within thirty (30) days, either from the lapse of the one hundred twenty (120)-day period within which the Commissioner of Internal Revenue shall decide on the claim, or after the receipt of the decision denying the same, pursuant to Section 112(C)12 of the 1997 National Internal Revenue Code ("NIRC"), as amended, is directory and permissive, and not mandatory nor jurisdictional, as long as it is made within the two (2)-year prescriptive period prescribed under Sections 112 and 229 of the same Code.13 To stress, the same issue had been thoroughly addressed in the cases of Commissioner of Internal Revenue v. Toledo Power, Inc.,14 and Commissioner of Internal Revenue v. San Roque Power Corporation .lS Based on the records of the case, petitioner filed its Original Value-Added Tax ("VAT") Return for the third (3rd) quarter of the taxable year 2003 on October 27, 2003. Thereafter, on January 26, 2004, petitioner filed its Quarterly VAT Return for the fourth (41h) quarter of taxable year 2003, and its Amended VAT Return on July 26, 2004; counting two (2) years from such filings, petitioner had until October 27, 2005 and January 26, 2006, respectively, within which to file its claims for refund of excess input VAT attributable to its zero-rated sales both in the administrative and judicial fora. Thus, both Petitions for Review filed by petitioner with the Court in I 12 As amended by Republic Act No. 9337. 13 Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc., crA EB No. 416, February 4, 2009. 14 crA EB No. 321 (CfA Case Nos. 6805 & 6851), May 7, 2008. IS crA EB No. 408 (CfA Case No. 6647), March 25, 2009.

SEPARATE OPINION CTA EB Case No. 590 (CfA Case Nos. 7352 & 7400) Page 6 oflO Division on October 26, 2005 and January 18, 2006 were made within the prescriptive period. Be that as it may, petitioner' s entire claim for refund or issuance of tax credit certificate of input VAT must be denied. Petitioner hinges its claim for refund of its excess input VAT on the provisions of Republic Act ("RA") No. 9136, also known as the "Electric Power Industry Reform Act of 2001," ("EPIRA"), purposely the following: SECTION 6. Generation Sector. - Generation of electric power, a business affected with public interest shall be competitive and open. Upon the effectivity of this Act, any new generation company shall, before it operates, secure from the Energy Regulatory Commission (ERC) a certificate of compliance pursuant to the standards set forth in this Act, as well as health, safety and environmental clearances from the appropriate government agencies under existing laws. Any law to the contrary notwithstanding, power generation shall not be considered a public utility operation. For this purpose, any person or entity engaged or which shall engage in power generation and supply of electricity shall not be required to secure a national franchise. Upon the implementation of retail competition and open access, the prices charged by a generation company for the supply of electricity shall not be subject to regulation by the ERC except as otherwise provided in this Act. Pursuant to the objective of lowering electricity rates to end- users, sales of generated power by generation companies shall be value added tax zero-rated. (Boldfacing supplied.) Pursuant thereto, the Implementing Rules and Regulations ("IRR") of the EPIRA provides as follows: RULES GENERATION SECTOR XXX XXX XXX

SEPARATE OPINION CfA EB Case No. 590 (CfA Case Nos. 7352 & 7400) Page 7 oflO Section 6. Generation Charges and VAT. XXX XXX XXX (b) Pursuant to the policy of reducing electricity rates to End- users, sales of generated power by a Generation Company shall, from the effectivity of the Act, be zero-rated for the purpose of imposition of value-added tax. Towards this end, the imposition of zero percent (0%) VAT shall apply to the sale of generated power by a Generation Company through all stages of sale until it reaches the End-user. The DOF, through the BIR, shall issue the necessary revenue regulation within sixty (60) calendar days from effectivity of these Rules. (Boldfacing supplied.) On point in this matter is the case of Visayas Geothermal Power Company v. Commissioner of Internal Revenue,16 where this Court held: xxx Section 6 of the EPIRA Law provides that "sales of generated power by generation companies shall be value-added tax zero-rated." Thus, effective June 26, 2001, the pertinent provisions of the Tax Code are deemed amended by the EPIRA Law by modifying the VAT rate applicable to sales of generated companies from ten (10%) percent to zero (0 %) percent. As to whether petitioner generated zero-rated sales for the subject period, it must establish the following requisites: 1) it is a generation company, and 2) it derived sales from power generation. (Boldfacing supplied.) To qualify for VAT zero-rating in accordance with the EPIRA, the law requires that petitioner must first prove that it is a generation company, and likewise deriving its sales from power generation. Pursuant thereto, Section 4(x) of the EPIRA defines the term "generation company" as follows: Section 4. Definition of Terms. - XXX XXX XXX 16 CfA Case Nos. 6790 and 6838, dated January 18, 2007. I

SEPARATE OPINION CfA EB Case No. 590 (CfA Case Nos. 7352 & 7400) Page 8 oflO (x) "Generation Company" refers to any person or entity authorized by the ERC17 to operate facilities used in the generation of electricity; xxx Corollary thereto, Section 4 of Rule 5 of the IRR of the EPIRA provides the following: Section 4. Obligations ofa Generation Company. (a) A COC18 shall be secured from the ERC before commercial operation of a new Generation Facility. The COC shall stipulate all obligations of a Generation Company consistent with this Section and such other operating guidelines as ERC may establish. The ERC shall establish and publish the standards and requirements for issuance of a COC. A COC shall be issued upon compliance with such standards and requirements. (i) A Person owning an existing Generation Facility or a Generation Facility under construction, shall submit within ninety (90) days from effectivity of these Rules to ERC, when applicable, a certificate of DOF/NPC accreditation, a three (3) year operation history, a general company profile and other information that ERC may require. Upon making a complete submission to the ERC, such Person shall be issued a COC by ERC to operate such existing Generation Facility. (Boldfacing supplied.) From the foregoing, a " generation company" refers to any person or entity authorized by the Energy Regulatory Commission ("ERC") to operate facilities used in the generation of electricity. Based on the foregoing, a person or entity owning an existing generation facility, as in the present case, or a generation facility under construction, is required under the EPIRA to submit, within ninety (90) days from effectivity of the Rules to ERC, when applicable, a certificate of Department of Energy/National Power 17 Energy Regulatory Commission. 18 Certificate of Compliance.

SEPARATE OPINION CTA EB Case N o. 590 (CIA Case Nos. 7352 & 7400) Corporation accreditation, a three (3) year operation history, a general company profile and other information that ERC may require, and upon making a complete submission to the ERC, such person shall be issued a Certificate of Compliance ("COC") by the ERC to operate such generation facility. Thus, the authority to operate a generation facility as a generation company referred to in the preceding provisions pertains to the duly issued COC which must be secured by both new generation company and existing generation company to operate new and existing generation facility, respectively. To address this requirement, petitioner filed an application with the ERC for the issuance of a COC pursuant to the IRR of the EPIRA on June 20,2002. A copy of the application was attached by petitioner as Annex "B" to its Petition for Review.19 Likewise, a copy of the Certificate of Compliance under COC No. 04-06-GXT61-0066 issued by the ERC dated June 23, 2004 was attached by petitioner and made part of Annex "B," which states that it shall be valid for a period of five (5) years from the date of issuance.2o However, a perusal of the records show that the present claim pertains to the third (3rd) and fourth (41h) quarters of the taxable year 2003, while the required COC was issued only on June 23, 2004; thus the same failed to prove that petitioner is duly authorized by the ERC to operate facilities used in the generation of electricity for the subject period of claim. Moreover, petitioner failed to submit its ERC registration. Hence, in the

SEPARATE OPINION CfA EB Case No. 590 (CfA Case Nos. 7352 & 7400) 9136 and its implementing rules and regulations, all of the reported sales of P505,187,907.10 cannot qualify for VAT zero-rating. Consequently, the alleged input VAT attributable thereto in the amount of P9,805,908.54 cannot be refunded. It is well to remind petitioner that as a claimant, it has the burden of proof to present all that is required for the successful prosecution of its claim. Where the taxpayer claims a refund, this Court as a court of record is required to conduct a formal trial (trial de novo) to prove every minute aspect of the claim.21 Further, it may not be amiss to note that while petitioner invokes Section 6 of the EPIRA to claim its zero-rated sale of power generation services, it particularly left out the provision- Section 4(a)(i) of Rule 5- which particularly provides for the required COC to be considered a generation company. In sum, petitioner failed to comply with the provisions of the EPIRA law and is thus not entitled to the refund of its unutilized input VAT for the third (3rd) and fourth (41h) quarters of taxable year 2003. Accordingly, I vote for the DISMISSAL of the Petiti for Review. WE CONCUR: ~ AEs~R~:~~tUicYe CAESAR A. CASANOVA Associate Justice 21 Commissioner of Internal Revenue v. Manila Mining Corporation, G.R. No. 153204, August 31, 2005, 469 SCRA 571.