Under the Tax Code, a taxpayer may claim a tax refund or credit for input VAT attributable to zero-rated or effectively zero-rated sales. Is it necessary for a taxpayer to have made a commercial sale during the period it is claiming a refund of input VAT?
In San Roque Power Corporation vs. Commissioner of Internal Revenue, G.R. No. 180345, November 25, 2009, San Roque did not make any commercial sale of electricity to National Power Corporation (NPC) during the period in question as San Roque was still constructing its power plant. However, during the same period, and while the power plant was being tested, San Roque produced and transferred electricity to NPC in exchange for P42.5 million.
San Roque filed a claim for refund with the Bureau of Internal Revenue (BIR). The BIR failed to act on San Roque’s claim for refund, which prompted San Roque to file a petition for review with the Court of Tax Appeals (CTA). The CTA’s Second Division rendered a decision denying San Roque’s claim for tax refund or credit. According to the Second Division, San Roque did not make any zero-rated or effectively-zero rated sales for the taxable year 2002; hence, San Roque’s claim must be denied. The CTA En Banc eventually reiterated the ruling of the Second Division that San Roque’s claim based on Section 112(A) of the NIRC should be denied since it did not present any records of any zero-rated or effectively zero-rated transactions.
The main issue before the Supreme Court is whether or not San Roque may claim a tax refund or credit for creditable input tax attributable to zero-rated or effectively zero-rated sales pursuant to Section 112(A) of the NIRC or for input taxes paid on capital goods as provided under Section 112(B) of the NIRC.
The Supreme Court found San Roque’s petition meritorious and reversed the CTA. It laid out the requirements for claiming a tax refund or credit:
To claim refund or tax credit under Section 112(A), petitioner must comply with the following criteria: (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; (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.
The Supreme Court noted that the issue pertains to compliance with the sixth requirement, i.e., whether the input VAT claimed are attributable to zero-rated or effectively zero-rated sales: