G.R. No.

188260               November 13, 2013 Exhibit Date Filed Period Covered Input VAT (P)

LUZON HYDRO CORPORATION, Petitioner, F May 25, 2001 1st quarter – 2001 1,903,443.96
vs. I July 23, 2001 2nd quarter – 2001 2,166,051.96
COMMISSIONER OF INTERNAL REVENUE, Respondent.
L July 23, 2002 3rd quarter –2001 1,598,482.39
DECISION
O July 24, 2002 4th quarter – 2001 4,127,449.58

BERSAMIN, J.: Total 9,795,427.89

This case involves a claim for refund or tax credit to cover petitioner Luzon Hydro On November 26, 2001, the petitioner filed a written claim for refund or tax credit relative to
Corporation's unutilized Input Value-Added Tax (VAT) worth 1 2,920,665 .16 corresponding to its unutilized input VAT for the period from October 1999 to October 2001 aggregating
the four quarters of taxable year 2001. ₱14,557,004.38.7 Subsequently, on July 24, 2002, it amended the claim for refund or tax credit
to cover the period from October 1999 to May 2002 for ₱20,609,047.56.8
The Case
The BIR, through Revenue Examiner Felicidad Mangabat of Revenue District Office No. 2 in
The petitioner brought this action in the Court of Tax Appeals (CTA) after the Commissioner of Vigan City, concluded an investigation, and made a recommendation in its report dated August
Internal Revenue (respondent) did not act on the claim (CTA Case No. 6669). The CTA 2nd 19, 2002 favorable to the petitioner’s claim for the period from January 1, 2001 to December
Division denied the claim on May 2, 2008 on the ground that the petitioner did not prove that 31, 2001.9
it had zero-rated sales for the four quarters of 2001.1 The CT A En Banc denied the petitioner's
motion for reconsideration, and affirmed the decision of the CTA 2nd Division through its Respondent Commissioner of Internal Revenue (Commissioner) did not ultimately act on the
decision dated May 5, 2009.2 Hence, the petitioner appeals the decision of the CTA En Banc. petitioner’s claim despite the favorable recommendation. Hence, on April 14, 2003, the
petitioner filed its petition for review in the CTA, praying for the refund or tax credit certificate
Antecedents (TCC) corresponding to the unutilized input VAT paid for the four quarters of 2001 totalling
₱9,795,427.88.10
The petitioner, a corporation duly organized under the laws of the Philippines, has been
registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer under Taxpayer Answering on May 29, 2003,11 the Commissioner denied the claim, and raised the following
Identification No. 004-266-526. It was formed as a consortium of several corporations, namely: special and affirmative defenses, to wit:
Northern Mini Hydro Corporation, Aboitiz Equity Ventures, Inc., Ever Electrical Manufacturing,
Inc. and Pacific Hydro Limited. xxxx

Pursuant to the Power Purchase Agreement entered into with the National Power Corporation 7. The petitioner has failed to demonstrate that the taxes sought to be refunded
(NPC), the electricity produced by the petitioner from its operation of the Bakun Hydroelectric were erroneously or illegally collected;
Power Plant was to be sold exclusively to NPC.3 Relative to its sale to NPC, the petitioner was
granted by the BIR a certificate for Zero Rate for VAT purposes in the periods from January 1,
8. In an action for tax refund, the burden is upon the taxpayer to prove that he is
2000 to December 31, 2000; February 1, 2000 to December 31, 2000 (Certificate No. Z-162-
entitled thereto, and failure to sustain the same is fatal to the action for tax refund;
2000); and from January 2, 2001 to December 31, 2001 (Certificate No. 2001-269).4

9. It is incumbent upon petitioner to show compliance with the provisions of Section

The petitioner alleged herein that it had incurred input VAT in the amount of ₱9,795,427.89 on
112 and Section 229, both of the National Internal Revenue Code, as amended;
its domestic purchases of goods and services used in its generation and sales of electricity to
NPC in the four quarters of 2001;5 and that it had declared the input VAT of ₱9,795,427.89 in
its amended VAT returns for the four quarters on 2001, as follows:6 10. Claims for refund are construed strictly against the claimant for the same
partakes the nature of exemption from taxation (Commissioner of Internal Revenue
 vs. Ledesma, G.R. No. L-13509, January 30, 1970, 31 SCRA 95) and as such they are Thereafter, the petitioner presented testimonial and documentary evidence to support its
looked upon [with] disfavor (Western Minolco Corp. vs. Commissioner of Internal claim. On the other hand, the Commissioner submitted the case for decision based on the
Revenue, 124 SCRA 121); pleadings.18 On May 2, 2007, the case was submitted for decision without the memorandum of
the Commissioner.19
11. Taxes paid and collected are presumed to have been made in accordance with
the law and regulations, hence, not refundable.12 Ruling of the CTA in Division

xxxx The CTA in Division promulgated its decision in favor of the respondent denying the petition
for review, viz:
On October 30, 2003, the parties submitted a Joint Stipulation of Facts and Issues,13 which the
CTA in Division approved on November 10, 2003. The issues to be resolved were consequently In petitioner’s VAT returns for the four quarters of 2001, no amount of zero-rated sales was
the following: declared. Likewise, petitioner did not submit any VAT official receipt of payments for services
rendered to NPC. The only proof submitted by petitioner is a letter from Regional Director
1. Whether or not the input value added tax being claimed by petitioner is supported Rene Q. Aguas, Revenue Region No. 1, stating that the financial statements and annual income
by sufficient documentary evidence; tax return constitute sufficient secondary proof of effectively zero-rated and that based on
their examination and evaluation of the financial statements and annual income tax return of
petitioner for taxable year 2000, it had annual gross receipts of Ph₱187,992,524.00. This Court
2. Whether petitioner has excess and unutilized input VAT from its purchases of
cannot give credence to the said letter as it refers to taxable year 2000, while the instant case
domestic goods and services, including capital goods in the amount of ₱9,795,427.88;
refers to taxable year 2001.
3. Whether or not the input VAT being claimed by petitioner is attributable to its
Without zero-rated sales for the four quarters of 2001, the input VAT payments of
zero-rated sale of electricity to the NPC;
Ph₱9,795,427.88 (including the present claim of Ph₱2,920,665.16) allegedly attributable
thereto cannot be refunded. It is clear under Section 112 (A) of the NIRC of 1997 that the
4.Whether or not the operation of the Bakun Hydroelectric Power Plant is directly refund/tax credit of unutilized input VAT is premised on the existence of zero-rated or
connected and attributable to the generation and sale of electricity to NPC, the sole effectively zero-rated sales.
business of petitioner; and 5. Whether or not the claim filed by the petitioner was
filed within the reglementary period provided by law.14
xxxx
While the case was pending hearing, the Commissioner, through the Assistant Commissioner
For petitioner’s non-compliance with the first requisite of proving that it had effectively zero-
for Assessment Services, informed the petitioner by the letter dated March 3, 2005 that its
rated sales for the four quarters of 2001, the claimed unutilized input VAT payments of
claim had been granted in the amount of ₱6,874,762.72, net of disallowances of
Ph₱2,920,665.16 cannot be granted.
₱2,920,665.16. Accompanying the letter was the TCC for ₱6,874,762.72 (TCC No. 00002618).15

WHEREFORE, the instant Petition for Review is hereby DENIED for lack of merit.
On May 3, 2005, the petitioner filed a Motion for Leave of Court to Amend Petition for Review
in consideration of the partial grant of the claim through TCC No. 00002618. The CTA in
Division granted the motion on May 11, 2005, and admitted the Amended Petition for Review, SO ORDERED.20
whereby the petitioner sought the refund or tax credit in the reduced amount of
₱2,920,665.16. The CTA in Division also directed the respondent to file a supplemental answer On May 21, 2008, the petitioner moved to reconsider the decision of the CTA in
within ten days from notice.16 Division.21 However, the CTA in Division denied the petitioner’s motion for reconsideration on
September 5, 2008.22
When no supplemental answer was filed within the period thus allowed, the CTA in Division
treated the answer filed on May 16, 2003 as the Commissioner’s answer to the Amended Decision of the CTA En Banc
Petition for Review.17
On October 17, 2008, the petitioner filed a petition for review in the CTA En Banc (CTA E.B No. (1) Its sale of electricity to NPC was automatically zero-rated pursuant to Republic Act
420), posing the main issue whether or not the CTA in Division erred in denying its claim for No. 9136 (EPIRA Law); hence, it need not prove that it had zero-rated sales in the
refund or tax credit upon a finding that it had not established its having effectively zero-rated period from January 1, 2001 to December 31, 2001 by the presentation of VAT official
sales for the four quarters of 2001. receipts that would contain all the necessary information required under Section 113
of the National Internal Revenue Code of 1997, as implemented by Section 4.108-1 of
On May 5, 2009, the CTA En Banc promulgated the assailed decision affirming the Division, and Revenue Regulations No. 7-95. Evidence of sale of electricity to NPC other than
denying the claim for refund or tax credit, stating: official receipts could prove zero-rated sales.

The other argument of petitioner that even if the tax credit certificate will not be used as (2) The TCC, once issued, constituted an administrative opinion that deserved
evidence, it was able to prove that it has zero-rated sale as shown in its financial statements consideration and respect by the CTA En Banc.
and income tax returns quoting the letter opinion of Regional Director Rene Q. Aguas that the
statements and the return are considered sufficient to establish that it generated zero-rated (3) The CTA En Banc was devoid of any authority to determine the existence of the
sale of electricity is bereft of merit. As found by the Court a quo, the letter opinion refers to petitioner’s zero-rated sales, inasmuch as that would constitute an encroachment on
taxable year 2000, while the instant case covers taxable year 2001; hence, cannot be given the powers granted to an administrative agency having expertise on the matter.
credence. Even assuming for the sake of argument that the financial statements, the return
and the letter opinion relates to 2001, the same could not be taken plainly as it is because (4) The CTA En Banc manifestly overlooked evidence not disputed by the parties and
there is still a need to produce the supporting documents proving the existence of such zero- which, if properly considered, would justify a different conclusion.26
rated sales, which is wanting in this case. Considering that there are no zero-rated sales to
speak of for taxable year 2001, petitioner is, therefore, not entitled to a refund of
The petitioner has prayed for the reversal of the decision of the CTA En Banc, and for the
Ph₱2,920,665.16 input tax allegedly attributable thereto since it is basic requirement under
remand of the case to the CTA for the reception of its VAT official receipts as newly discovered
Section 112 (A) of the NIRC that there should exists a zero-rated sales in order to be entitled to
evidence. It has supported the latter relief prayed for by representing that the VAT official
a refund of unutilized input tax.
receipts had been misplaced by Edwin Tapay, its former Finance and Accounting Manager, but
had been found only after the CTA En Banc has already affirmed the decision of the CTA in
It is settled that tax refunds, like tax exemptions, are construed strictly against the taxpayer Division. In the alternative, it has asked that the Commissioner allow the claim for refund or
and that the claimant has the burden of proof to establish the factual basis of its claim for tax tax credit of ₱2,920,665.16.
credit or refund. Failure in this regard, petitioner’s claim must therefore, fail.
In the comment submitted on December 3, 2009,27 the Commissioner has insisted that the
WHEREFORE, the instant Petition for Review is hereby DENIED for lack of merit. petitioner’s claim cannot be granted because it did not incur any zero-rated sale; that its
failure to comply with the invoicing requirements on the documents supporting the sale of
SO ORDERED.23 services to NPC resulted in the disallowance of its claim for the input tax; and the claim should
also be denied for not being substantiated by appropriate and sufficient evidence.
On June 10, 2009, the CTA En Banc also denied the petitioner’s motion for reconsideration.24
In its reply filed on February 4, 2010,28 the petitioner reiterated its contention that it had
Issue established its claim for refund or tax credit; and that it should be allowed to present the
official receipts in a new trial.
Aggrieved, the petitioner has appealed, urging as the lone issue: –
Ruling of the Court
WHETHER THE CTA EN BANC COMMITTED A REVERSIBLE ERROR IN AFFIRMING THE DECISION
OF THE CTA. The petition is without merit.

In its August 3, 2009 petition for review,25 the petitioner has argued as follows: Section 112 of the National Internal Revenue Code 1997 provides:

SEC. 112. Refunds or Tax Credits of Input Tax.—

(A) Zero-rated or Effectively Zero-rated Sales--Any VAT-registered person, whose sales are electricity by presenting the VAT official receipts and VAT returns cannot be upheld. It ought to
zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable be reminded that it could not be permitted to substitute such vital and material documents
quarter when the sales were made, apply for the issuance of a tax credit certificate or refund with secondary evidence like financial statements.
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: Provided, however, We further find to be lacking in substance and bereft of merit the petitioner’s insistence that
That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section the CTA En Banc should not have disregarded the letter opinion by BIR Regional Director Rene
108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly Q. Aguas to the effect that its financial statements and its return were sufficient to establish
accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas that it had generated zero-rated sale of electricity. To recall, the CTA En Banc rejected the
(BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero- insistence because, firstly, the letter opinion referred to taxable year 2000 but this case related
rated sale and also in taxable or exempt sale of goods or properties or services, and the to taxable year 2001, and, secondly, even assuming for the sake of argument that the financial
amount of creditable input tax due or paid cannot be directly and entirely attributed to any statements, the return and the letter opinion had related to taxable year 2001, they still could
one of the transactions, it shall be allocated proportionately on the basis of the volume of not be taken at face value for the purpose of approving the claim for refund or tax credit due
sales. to the need to produce the supporting documents proving the existence of the zero-rated
sales, which did not happen here. In that respect, the CTA En Banc properly disregarded the
xxxx letter opinion as irrelevant to the present claim of the petitioner.

A claim for refund or tax credit for unutilized input VAT may be allowed only if the following We further see no reason to grant the prayer of the petitioner for the remand of this case to
requisites concur, namely: (a) the taxpayer is VAT-registered; (b) the taxpayer is engaged in enable it to present before the CTA newly discovered evidence consisting in VAT official
zero-rated or effectively zero-rated sales; (c) the input taxes are due or paid; (d) the input receipts.
taxes are not transitional input taxes; (e) the input taxes have not been applied against output
taxes during and in the succeeding quarters; (f) the input taxes claimed are attributable to Ordinarily, the concept of newly discovered evidence is applicable to litigations in which a
zero-rated or effectively zero-rated sales; (g) for zero-rated sales under Section 106(A)(2)(1) litigant seeks a new trial or the re-opening of the case in the trial court. Seldom is the concept
and (2); 106(B); and 108(B)(1) and (2), the acceptable foreign currency exchange proceeds appropriate when the litigation is already on appeal, particularly in this Court. The absence of a
have been duly accounted for in accordance with the rules and regulations of the Bangko specific rule on newly discovered evidence at this late stage of the proceedings is not without
Sentral ng Pilipinas; (h) where there are both zero-rated or effectively zero-rated sales and reason. The propriety of remanding the case for the purpose of enabling the CTA to receive
taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any newly discovered evidence would undo the decision already on appeal and require the
of these sales, the input taxes shall be proportionately allocated on the basis of sales volume; examination of the pieces of newly discovered evidence, an act that the Court could not do by
and (i) the claim is filed within two years after the close of the taxable quarter when such sales virtue of its not being a trier of facts. Verily, the Court has emphasized in Atlas Consolidated
were made.29 Mining and Development Corporation v. Commissioner of Internal Revenue32 that a judicial
claim for tax refund or tax credit brought to the CTA is by no means an original action but an
The petitioner did not competently establish its claim for refund or tax credit.1avvphi1 We appeal by way of a petition for review of the taxpayer’s unsuccessful administrative claim;
agree with the CTA En Banc that the petitioner did not produce evidence showing that it had hence, the taxpayer has to convince the CTA that the quasi-judicial agency a quo should not
zero-rated sales for the four quarters of taxable year 2001. As the CTA En Banc precisely found, have denied the claim, and to do so the taxpayer should prove every minute aspect of its case
the petitioner did not reflect any zero-rated sales from its power generation in its four by presenting, formally offering and submitting its evidence to the CTA, including whatever
quarterly VAT returns, which indicated that it had not made any sale of electricity. Had there was required for the successful prosecution of the administrative claim as the means of
been zero-rated sales, it would have reported them in the returns. Indeed, it carried the demonstrating to the CTA that its administrative claim should have been granted in the first
burden not only that it was entitled under the substantive law to the allowance of its claim for place.
refund or tax credit but also that it met all the requirements for evidentiary substantiation of
its claim before the administrative official concerned, or in the de novo litigation before the Nonetheless, on the proposition that we may relax the stringent rules of procedure for the
CTA in Division.30 sake of rendering justice, we still hold that the concept of newly discovered evidence may not
apply herein. In order that newly discovered evidence may be a ground for allowing a new
Although the petitioner has correctly contended here that the sale of electricity by a power trial, it must be fairly shown that: (a) the evidence is discovered after the trial; (b) such
generation company like it should be subject to zero-rated VAT under Republic Act No. evidence could not have been discovered and produced at the trial even with the exercise of
9136,31 its assertion that it need not prove its having actually made zero-rated sales of reasonable diligence; (c) such evidence is material, not merely cumulative, corroborative, or
impeaching; and (d) such evidence is of such weight that it would probably change the MARIA LOURDES P. A. SERENO
judgment if admitted.33 Chief Justice

The first two requisites are not attendant. To start with, the proposed evidence was plainly not
newly discovered considering the petitioner s admission that its former Finance and
Accounting Manager had misplaced the VAT official receipts. If that was true, the misplaced
receipts were forgotten evidence. And, secondly, the receipts, had they truly existed, could
have been sooner discovered and easily produced at the trial with the exercise of reasonable
diligence. But the petitioner made no convincing demonstration that it had exercised
reasonable diligence. The Court cannot accept its tender of such receipts and return now, for,
indeed, the non-production of documents as vital and material as such receipts and return
were to the success of its claim for refund or tax credit was improbable, as it goes against the
sound business practice of safekeeping relevant documents precisely to ensure their future
use to support an eventual substantial claim for refund or tax credit.

WHEREFORE, the Court DENIES the petition for review on certiorari for its lack of merit;
AFFIRMS the decision dated May 5, 2009 of the Court of Tax Appeals En Bane; and ORDERS the
petitioner to pay the costs of suit.

SO ORDERED.

LUCAS P. BERSAMIN
Associate Justice

WE CONCUR:

MARIA LOURDES P. A. SERENO

Chief Justice

TERESITA J. LEONARDO-DE CASTRO MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

BIENVENIDO L. REYES
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the
above Decision had been reached in consultation before the case was assigned to the writer of
the opinion of the Court’s Division.