GR 179961; (January, 2011) (Digest)
G.R. No. 179961; January 31, 2011
KEPCO PHILIPPINES CORPORATION, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent.
FACTS
Petitioner Kepco Philippines Corporation (Kepco) is a VAT-registered domestic corporation engaged as an independent power producer, selling electricity to the National Power Corporation (NPC). For the taxable year 1999, Kepco incurred input VAT in the amount of ₱10,527,202.54 on domestic purchases used in its zero-rated sales to NPC. On January 29, 2001, Kepco filed an administrative claim for refund of this unutilized input VAT. Subsequently, on April 24, 2001, it filed a petition for review before the Court of Tax Appeals (CTA). The CTA Second Division denied the claim, ruling that Kepco failed to comply with the invoicing requirements under Section 4.108-1 of Revenue Regulations No. 7-95, specifically the failure to imprint the words “zero-rated” on its official receipts issued to NPC. The CTA En Banc affirmed this denial, dismissing Kepco’s petition. Kepco’s motion for reconsideration was also denied.
ISSUE
Whether Kepco’s failure to imprint the words “zero-rated” on its official receipts issued to NPC justifies the outright denial of its claim for refund of unutilized input tax credits.
RULING
The Supreme Court DENIED the petition and AFFIRMED the decision of the CTA En Banc. The Court held that the imprinting of the word “zero-rated” on VAT invoices or official receipts is a mandatory requirement for zero-rated transactions. This requirement is found in Section 4.108-1 of Revenue Regulations No. 7-95, which implements Section 113, in relation to Section 237, of the 1997 National Internal Revenue Code (NIRC). The Court ruled that administrative regulations, such as revenue regulations, have the force and effect of law and are binding on all concerned, including the taxpayer. Compliance with this invoicing requirement is essential for a valid claim for refund or tax credit of input VAT on zero-rated sales. Since Kepco failed to present VAT official receipts imprinted with “zero-rated,” it did not substantiate its claim for refund. The Court further held that the doctrine of solutio indebiti does not apply because the claim for refund partakes of the nature of a tax exemption, which must be construed strictly against the taxpayer. Therefore, Kepco’s non-compliance with the substantiation requirement warranted the denial of its claim.