G.R. Nos. 255324 & 255353, April 12, 2023
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. TOLEDO POWER COMPANY, RESPONDENT.

FACTS

Respondent Toledo Power Company, a VAT-registered general partnership engaged in power generation, filed a judicial claim with the CTA Special First Division on April 22, 2005, for a refund or tax credit certificate amounting to P3,907,783.80. This represented unutilized input VAT from domestic purchases, services, and importations attributable to its zero-rated sales for the first quarter of taxable year 2003 (CTA Case No. 7233). The CTA Special First Division initially granted the claim but later dismissed it upon reconsideration, applying the precedent in Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc., which deemed the petition prematurely filed. The CTA En Banc affirmed this dismissal. On appeal, the Supreme Court partially granted respondent’s petition and remanded the case to the CTA Special First Division for computation of the refundable input VAT. On remand, the CTA Special First Division issued an Amended Decision partially granting the claim in the amount of P399,550.84. Both parties moved for partial reconsideration, which was denied. They then elevated the case to the CTA En Banc (CTA EB Nos. 1990 and 2000, consolidated), which denied the petitions and affirmed the Amended Decision. Petitioner Commissioner of Internal Revenue filed the instant Petition for Review on Certiorari.

ISSUE

1. Whether the CTA En Banc correctly interpreted and applied the law and jurisprudence.
2. Whether respondent presented sufficient evidence for the grant of a tax refund or issuance of a tax credit certificate.

RULING

The Supreme Court DENIED the petition, affirming the CTA En Banc’s decision.
1. On the question of law, the Court held that the applicable law is the Tax Reform Act of 1997 (Tax Code) prior to the amendments introduced by Republic Act No. 9337, as respondent’s judicial claim was filed on April 22, 2005, before RA 9337’s effectivity on July 1, 2005. Section 112(A) of the Tax Code allows a VAT-registered person with zero-rated or effectively zero-rated sales to apply for a refund or tax credit of creditable input tax attributable to such sales, provided it is not applied against output tax and the claim is filed within two years after the close of the taxable quarter. The provision requires that if the taxpayer is engaged in both zero-rated and taxable/exempt sales, and the input tax cannot be directly and entirely attributed to one transaction, it shall be allocated proportionately based on the volume of sales. The Court rejected petitioner’s contention that direct and entire attribution is required, citing its rulings in Atlas Consolidated Mining and Development Corporation v. CIR and CIR v. Team Sual Corporation, which interpreted the phrase “directly and entirely” as applying only when the input tax is not directly attributable, necessitating proportional allocation. The Court further noted that Revenue Regulations No. 3-88, which required direct attribution, was superseded by the 1997 Tax Code and subsequent regulations.
2. On the question of fact, the Court emphasized that it is not a trier of facts and that the sufficiency of evidence and determination of the refund amount are questions of fact for the CTA. The CTA Special First Division and the CTA En Banc found that respondent substantiated its claim with supporting documents, including summary lists of input VAT, invoices, receipts, import documents, and sales reports. The CTA’s factual findings, affirmed by the En Banc, are accorded finality and respect, as there was no showing of arbitrariness or disregard of evidence. Thus, the Court found no reversible error in the CTA En Banc’s decision.