Need for commercial sale to claim input VAT

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:

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November 2009 Philippine Supreme Court Decisions on Legal Ethics

Here are selected November 2009 Philippine Supreme Court decisions on legal ethics:

Interest;  attorney’s fees. The imposition of any interest, as prayed for in this petition, on any amount payable to petitioners is unwarranted. Contracts for attorney’s services are unlike any other contracts for the payment of compensation for any other services which allow the imposition of interest in case of delay under the provisions of the Civil Code. The practice of law is a profession, not a moneymaking venture. Jose Feliciano Loy, et al. vs. San Miguel Corporation Employees Union-Philippine Transport and General Workers Organization (SMCEU-PTGWO), et al., G.R. No. 164886. November 24, 2009

Misappropriation. Section 27, Rule 138 of the Revised Rules of Court provides for the disbarment or suspension of a lawyer for the following: (1) deceit; (2) malpractice; (3) gross misconduct in office; (4) grossly immoral conduct; (5) conviction of a crime involving moral turpitude; (6) violation of the lawyer’s oath; (7) willful disobedience of any lawful order of a superior court; and (8) willfully appearing as an attorney for a party without authority to do so.

Every lawyer has the responsibility to protect and advance the interests of his client such that he must promptly account for whatever money or property his client may have entrusted to him. As a mere trustee of said money or property, he must hold them separate from that of his own and make sure that they are used for their intended purpose. If not used, he must return the money or property immediately to his client upon demand, otherwise the lawyer shall be presumed to have misappropriated the same in violation of the trust reposed on him. A lawyer’s conversion of funds entrusted to him is a gross violation of professional ethics.

Here, respondent Mijares chose not to be heard on his evidence. Technically, the only evidence on record that the Court can consider is the University’s evidence that he got P500,000.00 from complainant for expenses in facilitating and processing its title application; that he undertook to return the money if he did not succeed in his purpose; that he falsely claimed having obtained the MMDA approval of the application; and that he nonetheless refused to return the money despite repeated demands. Unopposed, this evidence supports the finding of guilt of the Investigating Commissioner and the IBP Board of Governors.  Arellano University, Inc. vs. Atty. Leovigildo H. Mijares III, A.C. No. 8380, November 20, 2009.

Season’s Greetings

A good friend sent me this piece written by Fr. Horacio de la Costa, S.J.   Merry Christmas and a Happy New Year to All!

Heaven is Here: Down is Up and Up is Down


Christmas is when we celebrate the unexpected; it is the festival of surprise. This is the night when shepherds wake to the songs of angels; when the Earth has a star for a satellite; when wise men go on a fool’s errand, bringing gifts to a Prince they have not seen, in a country they do not know.

This is the night when one small donkey bears on its back the weight of the world’s desire, and an ox plays host to the Lord of heaven.

This is the night when we are told to seek our King, not in a palace but in a stable. Although we have stood here, year after year, as our fathers before us, the wonder has not faded, nor will it ever fade; the wonder of that moment when we push open the little door, and enter, and entering find in the arms of a Mother, who is a Virgin, a Baby Who is a God.

Chesterton has said it for all of us: the only way to view Christmas properly is to stand on one’s head.

Was there ever a house more topsy-turvy than the House of Christmas, the cave where Christ was born?

For here, suddenly, in the very heart of Earth, is Heaven; down is up and up is down, the angels and the stars look down on God who made them, and God looks up at the things He made.

There is no room in an inn for Him who made room, and to spare, for the Milky Way; and where God is homeless, all men are at home.

We were promised a Savior, but we never dreamed that God himself would come to save us. We knew that He loved us, but we never dared to think that He loved us so much as to become like us.

But that is the way God gives. His gifts are never quite what we expect, but always something better than we hoped for.

We can only dream of things too good to be true; God has a habit of giving things too good to be false.

That is why our faith is a faith in the unexpected, a religion of surprise.

Now more than ever, living in times so troubled, facing a future so uncertain, we need such faith. We need it for ourselves, and we need it to give to others.

We must remind the world that if Christmas comes in the depth of winter, it is that there may be an Easter in the spring.

President’s refusal to review DOJ decisions

Can the President legally refuse to review the decisions of the Secretary of Justice except under certain circumstances? Does that diminish the power of control of the President and bestow upon the Secretary of Justice, a subordinate officer, unfettered power?

In  Judge Adoracion G. Angeles vs. Hon. Manuel B. Gaite, et al., G.R. No. 165276, November 25, 2009, the Provincial Prosecutor denied the recommendation of the Investigating Prosecutor that Michael Vistan be indicted for violation RA 7610. He also approved the recommendation for the dismissal of the charge of violation of PD 1829.  The petitioner filed a petition for review with the Department of Justice, which eventually dismissed the petition.

The petitioner then filed a Petition for Review before the Office of President. The Office of the President dismissed the petition, citing Memorandum Circular No. 58 which bars an appeal or a petition for review of decisions, orders, and resolutions of the Secretary of Justice except those involving offenses punishable by reclusion perpetua or death.

The petitioner then appealed to the Court of Appeals, which dismissed the petition.

The petitioner argued before the Supreme Court that Memorandum Circular No. 58 is an invalid regulation because it diminishes the power of control of the President and bestows upon the Secretary of Justice, a subordinate officer, almost unfettered power.

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November 2009 Philippine Supreme Court Decisions on Civil Law

Here are selected November 2009 Philippine Supreme Court decisions on civil law and related laws:

Civil Code

Contract;  contract of adhesion.     A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of contract, which the other party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the contract, while the other party merely affixes his signature or his “adhesion” thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing. Contracts of adhesion are not invalid per se.  Contracts of adhesion, where one party imposes a ready-made form of contract on the other, are not entirely prohibited. The one who adheres to the contract is, in reality, free to reject it entirely; if he adheres, he gives his consent.  Norton Resources and Development Corporation vs. All Asia Bank Corporation, G.R. No. 162523. November 25, 2009

Contract;  freedom of contract. Petitioners allege that the Kasulatan was entered into by the parties freely and voluntarily. They maintain that there was already a meeting of the minds between the parties as regards the principal amount of the loan, the interest thereon and the property given as security for the payment of the loan, which must be complied with in good faith. Hence, they assert that the Court of Appeals should have given due respect to the provisions of the Kasulatan. They also stress that it is a settled principle that the law will not relieve a party from the effects of an unwise, foolish or disastrous contract, entered into with all the required formalities and with full awareness of what he was doing.

Petitioners’ contentions deserve scant consideration. In Abe v. Foster Wheeler Corporation, we held that the freedom of contract is not absolute. The same is understood to be subject to reasonable legislative regulation aimed at the promotion of public health, morals, safety and welfare. One such legislative regulation is found in Article 1306 of the Civil Code which allows the contracting parties to “establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy.”

To reiterate, we fully agree with the Court of Appeals in holding that the compounded interest rate of 5% per month, is iniquitous and unconscionable. Being a void stipulation, it is deemed inexistent from the beginning. The debt is to be considered without the stipulation of the iniquitous and unconscionable interest rate. Accordingly, the legal interest of 12% per annum must be imposed in lieu of the excessive interest stipulated in the agreement, in line with our ruling in Ruiz v. Court of Appeals.  Sps. Isagani & Diosdada Castro vs. Angelina de Leon Tan, G.R. No. 168940, November 24, 2009.

Contract; laches. The essence of laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which, through due diligence, could have been done earlier, thus giving rise to a presumption that the party entitled to assert it had either abandoned or declined to assert it.

Respondent discovered in 1991 that a new owner’s copy of OCT No. 535 was issued to the Eniceo heirs. Respondent filed a criminal case against the Eniceo heirs for false testimony. When respondent learned that the Eniceo heirs were planning to sell the Antipolo property, respondent caused the annotation of an adverse claim. On 16 January 1996, when respondent learned that OCT No. 535 was cancelled and new TCTs were issued, respondent filed a civil complaint with the trial court against the Eniceo heirs and petitioner. Respondent’s actions negate petitioner’s argument that respondent is guilty of laches.  Kings Properties Corporation, Inc. vs. Canuto A. Galido, G.R. No. 170023. November 27, 2009

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