GR 196415; (December, 2015) (Digest)
G.R. No. 196415 December 2, 2015
COMMISSIONER OF INTERNAL REVENUE vs. TOLEDO POWER COMPANY and TOLEDO POWER COMPANY vs. COMMISSIONER OF INTERNAL REVENUE
FACTS
Toledo Power Company (TPC), a power generation partnership, filed an administrative claim for refund or credit of unutilized input VAT for taxable year 2002, amounting to P14,254,013.27. The claim was based on its zero-rated sales of electricity under the EPIRA and the NIRC. Due to the inaction of the Commissioner of Internal Revenue (CIR), TPC filed a Petition for Review with the Court of Tax Appeals (CTA). The CIR opposed, arguing TPC failed to prove its entitlement to the refund.
The CTA First Division partially granted TPC’s claim but reduced the refundable amount to P7,598,279.29. It allowed the refund only for input VAT attributable to TPC’s sales to the National Power Corporation (NPC), which is tax-exempt. However, it disallowed the claim for sales to other entities (CEBECO, ACMDC, AFC). The CTA Division ruled these other sales were not valid zero-rated sales because TPC failed to prove it was a “generation company” under the EPIRA by submitting a Certificate of Compliance (COC) from the Energy Regulatory Commission (ERC) for the year 2002.
ISSUE
Whether TPC is entitled to a refund or credit of input VAT attributable to its sales of electricity to entities other than the NPC for the taxable year 2002.
RULING
No. The Supreme Court affirmed the CTA En Banc’s decision denying the refund for sales to entities other than NPC. The legal logic is anchored on the principle that tax refunds are in the nature of tax exemptions and are construed strictly against the claimant. The burden of proof rests on the taxpayer to justify the refund by presenting clear and convincing evidence of compliance with all legal requirements.
For a sale of electricity to be considered zero-rated under Section 108(B)(7) of the NIRC, in relation to the EPIRA, the seller must be a “generation company” as defined and regulated by the EPIRA. The law and its implementing rules require a generation company to secure a COC from the ERC. The COC is not a mere formality but a substantive requirement that certifies the entity’s compliance with operational, financial, and technical standards. TPC’s mere application for a COC in 2002, without proof of its actual issuance within the same taxable year, is insufficient. TPC failed to present the required COC for 2002; the COC it eventually submitted was for a later period. Consequently, for the year in question, TPC did not legally qualify as a “generation company” whose sales to private entities are zero-rated. Therefore, the input VAT attributable to those sales cannot be refunded, as they are not considered zero-rated transactions. The refund was correctly limited to input VAT from sales to the NPC, which are zero-rated by virtue of NPC’s statutory tax exemption.