Melco Resorts Leisure (PHP) Corporation v. Commissioner of Internal Revenue
MODIFICATIONFacts
The Antecedents: Melco Resorts Leisure (PHP) Corporation (Melco) is a domestic corporation engaged in developing and operating tourist facilities, including casino entertainment complexes, holding a valid gaming license from the Philippine Amusement and Gaming Corporation (PAGCOR). For the 1st quarter of taxable year 2016, Melco paid PHP 81,119,005.84, representing erroneously or illegally collected and passed-on input Value-Added Tax (VAT) on purchases attributable to gaming revenues. Procedural History: Melco filed its quarterly VAT return for Q1 2016 on April 25, 2016, with subsequent amendments. On December 19, 2017, it filed an administrative claim for refund with the Large Taxpayer Services of the Bureau of Internal Revenue (BIR). The Commissioner of Internal Revenue (CIR) denied the claim on February 26, 2018, citing Revenue Memorandum Circular (RMC) No. 33-2013, which stated that income from gaming activities is subject to 12% VAT and thus not entitled to refund of creditable input tax. Aggrieved, Melco filed a Petition for Review before the Court of Tax Appeals (CTA) on April 12, 2018. The CTA First Division denied the claim, ruling that Melco was not engaged in zero-rated activities and failed to discharge its burden of proof. The CTA En Banc affirmed, holding that Melco's sales were VAT-exempt (pursuant to Section 109 of the National Internal Revenue Code (NIRC) of 1997, as amended), not zero-rated, and thus input VAT was not creditable or refundable under Section 112. While the CTA En Banc found the taxes erroneously paid, it ruled the claim untimely under Section 229, reckoning the two-year prescriptive period from the date of payment to the BIR by Melco's suppliers, not Melco's own VAT return filing. The Petition: Melco filed a Petition for Review on Certiorari before the Supreme Court, challenging the CTA En Banc's Decision and Resolution. Melco argued that the CTA En Banc's ruling effectively nullified its tax exemption privilege under Presidential Decree No. 1869 due to an impractical, unreasonable, and burdensome procedure for claiming refunds of erroneously passed-on input VAT. It contended that the two-year prescriptive period should be reckoned from the filing of its own quarterly VAT return, as this is when the amount of erroneously passed-on input VAT can be determined. Melco sought affirmation that it is exempt from input VAT on purchases attributable to gaming revenues, that suppliers should not pass on VAT, that it is entitled to a refund based on supporting documents, and that the claim period starts from its quarterly VAT return filing. The CIR, in its Comment, argued that the input taxes were not refundable as they formed part of the cost of purchases, and that Melco failed to prove supplier payment, timely claim, or that suppliers did not claim refunds themselves.
Issue(s)
Whether the CTA En Banc erred in ruling that Melco is not entitled to the refund or the issuance of a tax credit certificate in the total amount of PHP 81,119,005.84, representing erroneously or illegally collected and passed-on input VAT on purchases attributable to gaming revenues for the 1st quarter of taxable year 2016. Whether the CTA En Banc erred in ruling that Melco failed to timely file its administrative and judicial claims for refund as the two-year period is counted from the date of payment to the BIR of the VAT passed on to Melco by its suppliers.
Ruling
The Petition for Review on Certiorari is PARTLY GRANTED. The July 11, 2023 Decision and the January 8, 2024 Resolution of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 2608 (CTA Case No. 9811) are PARTIALLY REVERSED. Melco Resorts Leisure (PHP) Corporation timely filed its administrative and judicial claims for refund. However, it is not entitled to the refund or the issuance of tax credit certificate in the total amount of PHP 81,119,005.84, as payment of the said amount was not erroneous nor illegal; hence, not refundable.
Ratio Decidendi
On Issue 1: The Supreme Court affirmed the ruling of the Court of Tax Appeals (CTA) that Melco was not entitled to the refund or the issuance of a tax credit certificate in the total amount of PHP 81,119,005.84. The Court agreed with the CTA's factual findings and rulings that Melco's claim for refund under Section 112 of the National Internal Revenue Code (NIRC) of 1997, as amended, failed. It was emphasized that Melco's business activities are not considered zero-rated or effectively zero-rated sales under the Tax Code. While Melco is a Value-Added Tax (VAT)-exempt entity by virtue of its Philippine Amusement and Gaming Corporation (PAGCOR) license, its transactions with its suppliers are not zero-rated. Consequently, input VAT attributable to an exempt transaction is neither creditable nor refundable. The Court concluded that Melco's payment of the passed-on input VAT was not erroneous nor illegal; hence, not refundable, but instead represented and formed part of the purchase price it paid to its suppliers. On Issue 2: The Supreme Court found error and fault on the part of the Court of Tax Appeals (CTA) En Banc in ruling that Melco failed to timely file its administrative and judicial claims for refund. More importantly, the Court ascribed error to the CTA En Banc's ruling that the two-year prescriptive period under Section 229 of the National Internal Revenue Code (NIRC) of 1997, as amended, is counted from the date of payment to the Bureau of Internal Revenue (BIR) of the VAT passed on to Melco by its suppliers, i.e., the filing of its suppliers' VAT return and payment of that VAT due thereon. The Court clarified that the phrase "payment of taxes" under Section 204(C) in relation to Section 229 has been interpreted in jurisprudence in two ways: (1) the actual payment of tax or penalty sought to be refunded, regardless of any supervening cause after payment, and (2) the date of the filing of the adjusted final tax return, as established in cases like Commissioner of Internal Revenue v. TMX Sales, Inc. and Commissioner of Internal Revenue v. Univation Motor Philippines, Inc. In both interpretations, the Court did not require actual remittance by the suppliers. The Court emphasized that requiring Melco to obtain VAT returns from its hundreds of suppliers would be administratively infeasible, impractical, and oppressive, citing Philippine Airlines, Inc. v. Commissioner of Internal Revenue (2018) by analogy, which held that proving actual remittance by the payor is not required for a tax refund claim. Thus, the Court ruled that substantial justice, equity, and fair play outweigh the administrative infeasibility espoused by the tax court, and Melco timely filed its claims.
Main Doctrine
This case clarifies the application of Sections 112 and 229 of the National Internal Revenue Code (NIRC) of 1997, as amended, regarding Value-Added Tax (VAT) refunds. It distinguishes between claims for unutilized input VAT attributable to zero-rated sales (Section 112) and claims for erroneously or illegally collected taxes (Section 229). The Supreme Court affirmed that a VAT-exempt entity, whose sales are exempt from VAT, cannot claim a refund of input VAT under Section 112 because input VAT attributable to an exempt transaction is neither creditable nor refundable. Crucially, the Court modified the interpretation of the reckoning point for the two-year prescriptive period under Section 229 for passed-on input VAT, rejecting the Court of Tax Appeals' (CTA) interpretation that required proof of supplier remittance. Instead, the Court aligned with jurisprudence that the period is reckoned from the taxpayer's actual payment of the tax or the filing of the adjusted final tax return, emphasizing that requiring proof of supplier remittance is administratively infeasible and oppressive, and that substantial justice, equity, and fair play must prevail.