G.R. No. 250313, July 22, 2024
HEDCOR, INC., PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

FACTS

Petitioner Hedcor, Inc. is a domestic corporation engaged in owning, developing, and operating hydro-electric power plants. It is registered as a VAT taxpayer. For the third quarter of Calendar Year 2012, Hedcor paid input VAT amounting to PHP 6,149,582.86 on its domestic purchases of goods and services, which it claimed were attributable to its zero-rated sales of electricity. Approximately 99.32% of its sales for that quarter were zero-rated. Hedcor did not carry over the excess input VAT to subsequent quarters. On September 26, 2014, it filed an administrative claim for refund or issuance of a Tax Credit Certificate (TCC) for the unutilized input taxes. The Bureau of Internal Revenue (BIR) did not act on the claim within the 120-day period. Consequently, on February 20, 2015, Hedcor filed a Petition for Review with the Court of Tax Appeals (CTA). The CTA Second Division denied the claim, ruling that Hedcor’s purchases for the development and construction of its plant facilities were also zero-rated under Section 15(g) of the Renewable Energy Act of 2008 (RA 9513). Therefore, no output VAT should have been shifted to Hedcor by its suppliers, and Hedcor’s proper recourse was to seek reimbursement from the supplier who wrongly shifted the VAT, not a refund from the government. The CTA En Banc affirmed this decision.

ISSUE

Whether Hedcor availed of the wrong remedy by filing a claim for refund of excess input VAT under Section 112(A) of the National Internal Revenue Code (NIRC), instead of claiming reimbursement from its supplier, given the underlying issue of whether its purchases were zero-rated under Section 15(g) of RA 9513.

RULING

The Supreme Court DENIED the petition and AFFIRMED the decisions of the CTA En Banc and the CTA Second Division. Hedcor indeed availed of the wrong remedy.
The Court held that Hedcor’s purchases of local goods and services for the development, construction, and installation of its renewable energy facilities are zero-rated transactions pursuant to Section 15(g) of RA 9513. This provision grants a zero percent value-added tax rate on such purchases. Consequently, the suppliers of these goods and services should not have passed on any output VAT to Hedcor. Since the transactions were by law zero-rated, Hedcor should not have paid any input VAT in the first place. The payment of input VAT was therefore erroneous.
Following the precedent set in Coral Bay Nickel Corporation v. Commissioner of Internal Revenue, the Court ruled that when a taxpayer pays input VAT on purchases that are legally zero-rated, the proper remedy is not a claim for refund or tax credit against the government under Section 112 of the NIRC. Instead, the taxpayer must seek reimbursement from the supplier who erroneously shifted the output VAT. The claim for refund under Section 112 applies to creditable input tax attributable to zero-rated sales, not to zero-rated purchases where the tax was incorrectly imposed. Thus, Hedcor’s judicial claim for refund was correctly denied by the CTA.