Commissioner of Internal Revenue v. Mindanao II Geothermal Partnership
MODIFICATIONFacts
The Antecedents: Mindanao II Geothermal Partnership (M2GP) filed a claim for tax refund or issuance of a tax credit certificate for its unapplied and unutilized input value-added tax (VAT) for taxable year 2008, amounting to PHP 6,149,256.25. M2GP was engaged in the generation, collection, and distribution of electricity under a Build-Operate-Transfer contract with Philippine National Oil Company-Energy Development Corporation (PNOC-EDC). Procedural History: M2GP filed its administrative claim on December 28, 2009. Subsequently, it filed petitions for review with the Court of Tax Appeals (CTA) Second Division, docketed as CTA Case Nos. 8082 and 8106, appealing its administrative claim for excess and unutilized creditable input tax for the first, second, third, and fourth quarters of 2008. The CTA Second Division initially dismissed CTA Case No. 8082 for being filed prematurely. The CTA En Banc affirmed this dismissal. M2GP appealed to the Supreme Court (G.R. No. 204745), which remanded the case to the CTA Second Division for resolution on the merits. The CTA Second Division then rendered a decision partially granting M2GP's claim for refund in the amount of PHP 220,700.89. Both parties moved for reconsideration, which were denied by the CTA Division. Both parties elevated the case to the CTA En Banc, which affirmed the decision of the CTA Division. The CTA En Banc also denied the parties' subsequent motions for reconsideration. The Commissioner of Internal Revenue (CIR) filed the present Petition for Review. The Petition: The CIR seeks to set aside the Decision and Resolution of the CTA En Banc, arguing that input tax must be directly attributable to zero-rated sales for claims of refund or tax credit certificate, citing the Atlas cases.
Issue(s)
Whether input tax is required to be directly attributable to zero-rated sales in claims for refund or issuance of tax credit certificate. Whether the CTA erred in granting M2GP's claim for refund despite alleged failure to prove direct attributability; and the applicability of the Atlas cases and the VAT Reform Act.
Ruling
The Petition for Review is DENIED for lack of merit. The Decision dated August 1, 2019, and the Resolution dated July 7, 2020, of the Court of Tax Appeals En Banc in CTA EB Nos. 1777 and 1779 are AFFIRMED in toto.
Ratio Decidendi
On the issue of direct attributability of input tax to zero-rated sales: The Court held that Section 112(A) of the National Internal Revenue Code (NIRC) of 1997, as amended, does not require input tax to be directly attributable or a factor in the chain of production to the zero-rated sale for it to be creditable or refundable. The law even allows an allocable portion of input tax that is not directly and entirely attributable to zero-rated sales. The term 'attributable' simply means that the input VAT must be regarded as being caused by such sales. Furthermore, Section 110 of the NIRC, as amended, enumerates various instances that give rise to creditable input taxes, not limited to purchases that form part of the finished product or are directly used in the chain of production. These include purchases for use as supplies in the course of business, for use in trade or business for which depreciation is allowed, and purchase of services on which VAT has accrued. The Court emphasized that even if purchased goods do not find their way into the finished product, the input tax incurred therefrom can still be credited against the output tax, provided it is incurred in the course of trade or business and supported by a VAT invoice. On the alleged failure to proffer proof of attributability and the applicability of the Atlas cases and the VAT Reform Act: The Court distinguished the present case from the 2007 Atlas and 2011 Atlas cases, which were decided under Revenue Regulations (RR) No. 5-87, as amended by RR No. 3-88. These earlier regulations limited the refund or tax credit only to VAT paid directly and entirely attributable to the zero-rated transaction. However, upon the issuance of the rules and regulations implementing the VAT Reform Act (Republic Act No. 9337), previous BIR issuances pertaining to VAT were deemed revoked. Specifically, RR No. 14-2005 and its subsequent amendments, which superseded RR Nos. 5-87 and 3-88, did not retain the requirement for input VAT to be directly and entirely attributable to zero-rated sales. Since the taxable year in question is 2008, the provisions of RR Nos. 5-87 and 3-88, as applied in the Atlas cases, are no longer validly applicable. The Court reiterated that the issue of whether M2GP failed to proffer proof of attributability of its input tax to its zero-rated sales is a factual matter. Such factual findings of the CTA, as a specialized court, are accorded respect and are deemed final and conclusive. A petition under Rule 45 of the Rules of Court is limited to questions of law, and re-examining or re-evaluating evidence presented before the CTA is prohibited under this rule. Therefore, the CIR's contention on this point falls outside the ambit of the Supreme Court's review in this case.
Main Doctrine
The National Internal Revenue Code, as amended, does not require direct attributability of input tax to zero-rated sales for claims of refund or tax credit certificate; it only requires that the input tax be attributable to such sales. Previous regulations requiring direct and entire attributability were superseded by the VAT Reform Act.