G.R. No. 181858 - KEPCO PHILIPPINES CORPORATION, VS. COMMISSIONER OF INTERNAL REVENUE.D E C I S I O N - Supreme Court E-Library

Ruling

Accordingly, for taxable year 2002, it filed four Quarterly VAT Returns declaring zero-rated sales in the aggregate amount of P3,285,308,055.85 itemized as follows: Exhibit Quarter Involved Zero-Rated Sales B 1 st Quarter P651,672,672.47 C 2 nd Quarter 725,104,468.99 D 3 rd Quarter 952,053,527.29 E 4 th Quarter 956,477,387.10 ________________ Total P3,285,308,055.85 [4] In the course of doing business with NPC, Kepco claimed expenses reportedly sustained in connection with the production and sale of electricity with NPC. Based on Kepco's calculation, it paid input VAT amounting to P11,710,868.86 attributing the same to its zero-rated sales of electricity with NPC. The table shows the purchases and corresponding input VAT it paid. Exhibit Quarter Involved Purchases Input VAT B 1 st Quarter P6,063,184.90 P606,318.49 C 2 nd Quarter 18,410,193.20 1,841,019.32 D 3 rd Quarter 16,811,819.21 1,681,181.93 E 4 th Quarter 75,823,491.20 7,582,349.12 P117,108,688.51 P11,710,868.86 [5] Thus, on April 20, 2004, Kepco filed before the Commissioner of Internal Revenue (CIR) a claim for tax refund covering unutilized input VAT payments attributable to its zero-rated sales transactions for taxable year 2002. [6] Two days later, on April 22, 2004, it filed a petition for review before the CTA. The case was docketed as C.T.A. Case No. 6965. [7] In its Answer, [8] respondent CIR averred that claims for refund were strictly construed against the taxpayer as it was similar to a tax exemption. It asserted that the burden to show that the taxes were erroneous or illegal lay upon the taxpayer. Thus, failure on the part of Kepco to prove the same was fatal to its cause of action because it was its duty to prove the legal basis of the amount being claimed as a tax refund. During the hearing, Kepco presented court-commissioned Independent Certified Public Accountant, Victor O. Machacon, who audited their bulky documentary evidence consisting of official receipts, invoices and vouchers, to prove its claim for refund of unutilized input VAT. [9] On February 26, 2007, the CTA Second Division ruled that out of the total declared zero-rated sales of P3,285,308,055.85, Kepco was only able to properly substantiate P1,451,788,865.52 as its zero-rated sales. After factoring, only 44.19% of the validly supported input VAT payments being claimed could be considered. [10] The CTA Division used the following computation in determining Kepco's total allowable input VAT: Substantiated zero-rated sales to NPC P1,451,788,865.52 Divided by the total declared zero-rated sales ÷ 3,285,308,055.85 Rate of substantiated zero-rated sales 44.19% [11] Total Input VAT Claimed P11,710,868.86 Less :Disallowance (a) Per verification of the independent CPA P125,556.40 (b) Per Court's verification 5,045,357.80 5,170,914.20 Validly Supported Input VAT P6,539,954.66 Multiply by Rate of Substantiated Zero-Rated Sales 44.19 % Total Allowed Input VAT P 2,890,005.96 [12] The CTA Second Division likewise disallowe