G.R. No. 188260. November 13, 2013.
LUZON HYDRO CORPORATION, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent.

FACTS

Petitioner Luzon Hydro Corporation, a VAT-registered entity, operated the Bakun Hydroelectric Power Plant and sold electricity exclusively to the National Power Corporation (NPC) under a Power Purchase Agreement. It was granted BIR certificates for zero-rated VAT for specified periods, including January 2 to December 31, 2001. For the four quarters of 2001, petitioner incurred input VAT of ₱9,795,427.89 on domestic purchases related to its generation and sale of electricity. It filed amended VAT returns declaring this input VAT and subsequently filed a written claim for refund or tax credit for unutilized input VAT. After investigation, the BIR recommended approval of the claim for 2001, but the Commissioner of Internal Revenue did not act. Petitioner then filed a petition with the Court of Tax Appeals (CTA). During the proceedings, the Commissioner partially granted the claim, issuing a Tax Credit Certificate for ₱6,874,762.72, leaving a disputed balance of ₱2,920,665.16. The CTA Second Division denied the claim, ruling that petitioner failed to prove it had zero-rated sales for 2001. The CTA En Banc affirmed this decision. Petitioner appealed to the Supreme Court.

ISSUE

Whether petitioner is entitled to a refund or tax credit for its unutilized input VAT for the four quarters of 2001.

RULING

The Supreme Court denied the petition and affirmed the CTA En Banc’s decision. The Court held that claims for tax refunds are strictly construed against the taxpayer, who bears the burden of proving entitlement by substantiating the factual basis of the claim. Under Section 112(A) of the National Internal Revenue Code, a refund or credit of input VAT is premised on the existence of zero-rated or effectively zero-rated sales. Petitioner failed to present sufficient evidence, such as VAT official receipts or sales invoices, to prove it had zero-rated sales to NPC during 2001. The financial statements and income tax return it submitted referred to 2000, not 2001. The BIR certificates for zero-rated VAT alone do not establish the actual occurrence of zero-rated sales; they merely authorize such treatment if sales are made. Without proof of zero-rated sales, the claimed input VAT cannot be refunded. The Court also noted that the partial grant of a tax credit by the Commissioner did not constitute an admission of the validity of the entire claim. Thus, petitioner’s failure to prove zero-rated sales for 2001 was fatal to its claim for refund or tax credit.