CIR v. Mirant

CIR v.
Mirant Pagbilao Corporation (Formerly SOUTHERN ENERGY QUEZON INC)
G.R. No. 172129, September 12, 2008, 565 SCRA 154
FACTS:
[BASIC FACTS: Mirant is engaged in the generating and selling of electricity to NPC. From April 7, 1993 to
September 6, 1996, it secured the services of Mitsubishi to construct its plant which is necessary to the
generation of the electricity to be sold to NPC. Mitsubishi shifted the VAT to Mirant but Mirant does not
want to pay under the belief that it is exempt from VAT (because of the transactions made with NPC).
Mitsubishi advanced the payment for the VAT but later Mirant paid the VAT (it refused payment before).
However, it did not pay for the tax due during the period of 1993-1996. It only paid for the taxes due in
1998.]
MPC, formerly Southern Energy Quezon, Inc., and also formerly known as Hopewell (Phil.) Corporation,
is a domestic firm engaged in the generation of power which it sells to the National Power Corporation
(NPC). For the construction of the electrical and mechanical equipment portion of its Pagbilao, Quezon
plant, which appears to have been undertaken from 1993 to 1996, MPC secured the services of
Mitsubishi Corporation (Mitsubishi) of Japan.
Under the NPC's revised charter, NPC is exempt from all taxes. In Maceda v. Macaraig, the Court
construed the exemption as covering both direct and indirect taxes. Thus, MPC, on the belief that its
sale of power generation services to NPC is zero-rated for VAT purposes, filed on December 1, 1997 with
RDO in Lucena City an Application for Effective Zero Rating. The application covered the construction
and operation of its Pagbilao power station under a Build, Operate, and Transfer scheme.
Not getting any response from the BIR district office, MPC refiled its application in the form of a "request
for ruling" at the BIR national office on January 28, 1999. On May 13, 1999, the Commissioner of Internal
Revenue issued VAT Ruling stating that "the supply of electricity by MPC (also formerly known as
Hopewell Phil.) to the NPC, shall be subject to the zero percent (0%) VAT, pursuant to Section 108 (B) (3)
of the National Internal Revenue Code of 1997."
Due to the belief on the issued VAT Ruling, MPC opted not to pay the VAT component of the progress
billings from Mitsubishi for the period covering April 7 1993 to September 6 1996 for the E & M
Equipment Erection Portion of MPC's contract with Mitsubishi. This prompted Mitsubishi to advance the
VAT component as this serves as its output VAT which is essential for the determination of its VAT
payment. Apparently, it was only on April 14, 1998 that MPC paid Mitsubishi the VAT component for the
progress billings from April 1993 to September 1996.
On August 25, 1998, MPC, while awaiting approval of its application aforestated, filed its quarterly VAT
return for the second quarter of 1998 where it reflected an input VAT. On August 25, 1998, MPC, while
awaiting approval of its application aforestated, filed its quarterly VAT return for the second quarter of
1998 where it reflected an input VAT.
Since the BIR Commissioner failed to act on its claim for refund and obviously to forestall the running of
the two-year prescriptive period under Sec. 229 of the National Internal Revenue Code (NIRC), MPC
went to the CTA via a petition for review. CIR argued that MPC's claim for refund cannot be granted for
this main reason: MPC's sale of electricity to NPC is not zero-rated for its failure to secure an approved
application for zero-rating.
CTA Ruling: partially granted MPC’s claim for input VAT refund or credit. Explaining the disallowance of
over PhP 137 million claimed input VAT, the CTA stated that most of MPC's purchases upon which it
anchored its claims for refund or tax credit have not been amply substantiated by pertinent documents,
such as but not limited to VAT ORs, invoices, and other supporting documents. Hence, MPC elevated the
case to the CA.
CA Ruling: modifying that of the CTA decision by granting most of MPC's claims for tax refund or credit.
The CA agreed with the CTA on MPC's entitlement to (1) a zero-rating for VAT purposes for its sales and
services to tax-exempt NPC; and (2) a refund or tax credit for its unutilized input VAT for the second
quarter of 1998. Their disagreement, however, centered on the issue of proper documentation,
particularly the evidentiary value of OR. Hence, the case was elevated to the Supreme Court.
ISSUE: whether or not respondent [MPC] is entitled to the refund of its input VAT payments made from
1993 to 1996 under Sec. 112 of the Tax Code?
RULING: Yes, but the claim is already barred by prescription.
The following criteria governing claims for refund or tax credit under Section 112(A) of the NIRC:
(1) The taxpayer is VAT-registered

(2) The taxpayer is engaged in zero-rated or effectively zero-rated sales;
(3) The input taxes are due or paid;
(4) The input taxes are not transitional input taxes;
(5) The input taxes have not been applied against output taxes during and in the succeeding
quarters;
(6) The input taxes claimed are attributable to zero-rated or effectively zero-rated sales;
(7) For zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the
acceptable foreign currency exchange proceeds have been duly accounted for in accordance
with BSP rules and regulations (will not be considered as ZR if not in accordance with BSP rules
and regulations)
(8) Where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and
the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes
shall be proportionately allocated on the basis of sales volume; and
(9) The claim is filed within two years after the close of the taxable quarter when such sales were
made.
In this case,
(1) Mirant is a VAT Registered entity;

(2) The transaction between Mirant and NPC is considered as EZR;
(3) The IV is due, even if it was paid at a later time; and (MAIN ISSUE RELATED TO TOPIC)
a. DOCTRINE FROM THE CASE: Taxpayer must be claimed within two years reckoned from
the close of the taxable quarter when the relevant sales were made pertaining to the
input VAT regardless of whether said tax was paid or not.
b. In this case, Mirant argued that it paid the tax on April 14, 1998. Thus, it has until April
14, 2000 to file a refund, and it filed it on December 1999. Hence, it was filed on time.
The CIR contended that It was filed out of time. It was already barred by prescription.
c. The claim was already barred by prescription. Under Section 112, NIRC, the
administrative claim for refund must be filed two (2) years from the close of the taxable
quarter when the sales were made. It does not speak of date of payment as the
reckoning date, but rather from the close of the taxable quarter when the sales were
made.
i. In this case, the reckoning period must be from the date of purchase i.e. sales
made from April 7, 1993 to September 6, 1996. The reckoning period shall be its
close of the taxable quarter which is September 30, 1996.
ii. Thus, Mirant can only file its admin claim for refund until September 30, 1998.
(4) The IV is still attributable to an EZR, because the services it acquired from Mitsubishi is still
considered as attributable to the transaction with NPC i.e. the generation and sale of electricity.
(5) Mirant is engaged in both transactions i.e. EZR and transactions subject to 12% VAT. This is
considered as a Mix Transaction. Therefore, the IV must be proportionately allocated depending
on the sales volume.
GUIDE QS:
1) When is the reckoning date of the filing of an administrative claim for refund?
a. The above proviso clearly provides in no uncertain terms that unutilized input VAT
payments not otherwise used for any internal revenue tax due the taxpayer must be
claimed within two years reckoned from the close of the taxable quarter when the
relevant sales were made pertaining to the input VAT regardless of whether said tax
was paid or not.
b. When a zero-rated VAT taxpayer pays its input VAT a year after the pertinent
transaction, said taxpayer only has a year to file a claim for refund or tax credit of the
unutilized creditable input VAT. The reckoning frame would always be the end of the
quarter when the pertinent sales or transaction was made, regardless when the input
VAT was paid.
2) When did the transaction from which the input VAT arose take place?
a. From April 7, 1993 to September 6, 1996 when it secured the services of Mitsubishi to
construct its plant which is necessary to the generation of the electricity to be sold to
NPC.
3) When did the sale occur?
a. From April 7, 1993 to September 6, 1996 when it secured the services of Mitsubishi to
construct its plant which is necessary to the generation of the electricity to be sold to
NPC.
4) Was the refund filed on time?
a. No.
b. The claim for refund or tax credit for the creditable input VAT payment made by MPC
embodied in OR No. 0189 was filed beyond the period provided by law for such claim.
Sec. 112(A) of the NIRC pertinently reads:
i. (A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person,
whose sales are zero-rated or effectively zero-rated may, within two (2) years
after the close of the taxable quarter when the sales were made, apply for the
issuance of a tax credit certificate or refund of creditable input tax due or paid
attributable to such sales, except transitional input tax, to the extent that such
input tax has not been applied against output tax: x x x. (Emphasis ours.)
c. The above proviso clearly provides in no uncertain terms that unutilized input VAT
payments not otherwise used for any internal revenue tax due the taxpayer must be
claimed within two years reckoned from the close of the taxable quarter when the
relevant sales were made pertaining to the input VAT regardless of whether said tax was
paid or not. As the CA aptly puts it, albeit it erroneously applied the aforequoted Sec.
112(A), "[P]rescriptive period commences from the close of the taxable quarter when
the sales were made and not from the time the input VAT was paid nor from the time
the official receipt was issued"22 Thus, when a zero-rated VAT taxpayer pays its input
VAT a year after the pertinent transaction, said taxpayer only has a year to file a claim
for refund or tax credit of the unutilized creditable input VAT.
d. The reckoning frame would always be the end of the quarter when the pertinent sales
or transaction was made, regardless when the input VAT was paid. Be that as it may,
and given that the last creditable input VAT due for the period covering the progress
billing of September 6, 1996 is the third quarter of 1996 ending on September 30, 1996,
any claim for unutilized creditable input VAT refund or tax credit for said quarter
prescribed two years after September 30, 1996 or, to be precise, on September 30,
1998. Consequently, MPC's claim for refund or tax credit filed on December 10, 1999
had already prescribed.

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CIR v.

Mirant Pagbilao Corporation (Formerly SOUTHERN ENERGY QUEZON INC)

G.R. No. 172129, September 12, 2008, 565 SCRA 154

RULING: Yes, but the claim is already barred by prescription.

(1) The taxpayer is VAT-registered

(1) Mirant is a VAT Registered entity;

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