Hedcor v. Commissioner of Internal Revenue
REITERATIONFacts
The Antecedents: Hedcor, Inc. (Hedcor), a domestic corporation engaged in operating hydroelectric power plants, filed a claim for Value-Added Tax (VAT) refund for the third quarter of Calendar Year (CY) 2012. Hedcor claimed that its input VAT paid on domestic purchases was attributable to its zero-rated sales of electricity. Approximately 99.32% of Hedcor's sales in the third quarter of 2012 were zero-rated. Procedural History: Hedcor filed an administrative claim for refund with the Bureau of Internal Revenue (BIR) on September 26, 2014. After the BIR failed to act within the 120-day period, Hedcor filed a Petition for Review with the Court of Tax Appeals (CTA) on February 20, 2015. The Commissioner of Internal Revenue (CIR) argued that Hedcor's claim was not properly documented and that the burden of proof was not discharged. The CTA Second Division denied Hedcor's claim, ruling that Hedcor's purchases should have been zero-rated under Section 15(g) of Republic Act No. (RA) 9513 (Renewable Energy Act of 2008), and thus Hedcor's proper recourse was to seek reimbursement from its suppliers, not a refund from the government. The CTA En Banc affirmed this ruling. Hedcor then filed a Petition for Review on Certiorari with the Supreme Court. The Petition: The Supreme Court was asked to determine whether Hedcor availed of the wrong remedy by filing a claim for refund under Section 112(A) of the NIRC instead of seeking reimbursement from its suppliers, and whether Hedcor's purchases were zero-rated under Section 15(g) of RA 9513.
Issue(s)
Whether Hedcor availed of the wrong remedy when it filed an administrative and judicial claim for refund of excess input VAT under Section 112(A) of the NIRC, instead of claiming reimbursement from the supplier that shifted to Hedcor its output VAT; and whether Hedcor's purchases in the third quarter of CY 2012 were zero-rated pursuant to Section 15(g) of RA 9513. Assuming Hedcor availed of the proper remedy, what is the consequence and how should the refundable amount be determined?
Ruling
The Petition is GRANTED. The Decision dated April 8, 2019 and the Resolution dated November 15, 2019 of the Court of Tax Appeals En Banc are REVERSED and SET ASIDE. CTA Case No. 8990 is REMANDED to the Court of Tax Appeals Second Division for the determination of the amount of unutilized Input Value-Added Tax attributable to Hedcor, Inc.'s zero-rated and effectively zero-rated sales during the third quarter of Calendar Year 2012, and for the resolution of CTA Case No. 8990 on the merits.
Ratio Decidendi
On the issue of the proper remedy and zero-rating: The Court held that the remedy under Section 112(A) of the NIRC for a VAT refund applies to unutilized input VAT attributable to zero-rated or effectively zero-rated sales. The availability of this remedy is contingent on the existence of input VAT. If a taxpayer's purchases are zero-rated, they incur 0% input taxes and have nothing to refund. In such cases, where a taxpayer mistakenly pays input VAT on zero-rated purchases, the proper recourse is to seek reimbursement from the supplier who mistakenly shifted the output VAT. However, the Court ruled that Hedcor's purchases were not zero-rated because Hedcor failed to present any DOE certification during the trial, which is required under Section 15 of RA 9513 to avail of the fiscal incentives, including zero-rated VAT on purchases. Since Hedcor's purchases were not zero-rated, it was liable for and paid 12% input taxes. This means the principle of mistaken payment of VAT on zero-rated purchases did not apply. Instead, Hedcor correctly filed an administrative and judicial claim for refund of its excess input VAT attributable to its zero-rated sales, pursuant to Section 112(A) of the NIRC. The CTA Division and CTA En Banc therefore erred in dismissing Hedcor's refund claim on the ground that it filed an improper remedy. On the determination of the refundable amount: Having established that Hedcor filed the proper remedy, the Court found that determining the exact amount of refundable or unutilized input VAT would involve factual issues. Such determination is beyond the scope of a Rule 45 petition, which is limited to pure questions of law. Thus, the Court remanded the case to the CTA Division for the determination of the amount of excess input VAT attributable to Hedcor's zero-rated and/or effectively zero-rated sales during the third quarter of CY 2012.
Main Doctrine
A Renewable Energy (RE) developer must secure a certification from the Department of Energy (DOE) to avail of the fiscal incentives under Section 15 of Republic Act No. 9513, including zero-rated VAT on purchases. Without such certification, the purchases are subject to the regular VAT rate, and the proper remedy for excess input VAT is a claim for refund under Section 112 of the National Internal Revenue Code (NIRC), not reimbursement from suppliers.