SC orders BIR to refund P39.3-M VAT to geothermal firm

The Supreme Court has ordered the Bureau of Internal Revenue to refund the Philippine Geothermal Inc. some P39.3 million in erroneous value-added taxes (VAT) computed from September 1995 to February 1996.

In a 10-page decision penned by Associate Justice Leonardo Quisumbing, the SC’s first division ordered the refund or at least the issuance of a Tax Credit Certificate worth P39.3 million to the company.

Philippine Geothermal Inc. is a resident foreign corporation licensed by the Securities and Exchange Commission to undertake the exploration, development and exploitation of geothermal energy and resources in the Philippines.

Court records showed that in September 1971, the company entered into a service contract with the National Power Corp. (Napocor) for the supply of steam.

From September 1995 to February 1996, Napocor billed Philippine Geothermal for VAT computed at ten percent of the service charge on the supply of steam. Napocor did not pay VAT.

To avoid any possible tax deficiency, Philippine Geothermal remitted a VAT payment equivalent to 1/111 of the fees it received from Napocor amounting to P39. 3 million.

It paid this amount in five installments — P8.9 million on Oct. 10, 1995; P11.2 million on Jan. 18, 1996; P8.2 million on Dec. 13, 1995; P5.2 million on Feb. 19, 1996; and P5.6 percent on March 18, 1996.

On July 10, 1996, Philippine Geothermal Inc. filed an administrative claim for refund. In its petition to the BIR, the company said that the sale of steam to Napocor was a VAT-exempt transaction under Section 103 of the Tax Code. The Fiscal Incentive Review Board (FIRB) resolution no. 17-87 approved by President Corazon Aquino pursuant to Executive Order no. 93 also expressly exempted Napocor from paying VAT.

The BIR, however, said the claim for a VAT refund had "no legal basis."

The BIR explained that FIRB resolution 17-87 specifically restored the tax and duty-exemption privileges of the Napocor, including those pertaining to its domestic purchases of petroleum and petroleum products granted under the terms and conditions of the Commonwealth Act 120 as amended effective March 10, 1987. But these exemptions do not apply to importations of fuel oil (crude equivalents) and coal, commercially-funded importation or interest income derived from any source.

The BIR insisted that the subject taxes had been paid and collected from Philippine Geothermal Inc. in accordance with law and regulations.

In ruling in favor of Philippine Geothermal Inc., the SC confirmed Napocor’s exemption from all taxes, duties, fees, charges and restrictions of the Republic of the Philippines.

"This exemption is broad enough to include both direct and indirect taxes the Napocor may be required to pay. To limit the exemption granted Napocor to direct taxes, notwithstanding the general and broad language of the statute, will be to thwart the legislative intention in giving exemption from all forms of taxes and impositions, without distinguishing between those that are direct and those that are not," the High Tribunal said.

The SC also cited that on April 21, 1999, the Court of Tax Appeals (CTA) ruled that the supply of steam to Napocor by the Philippine Geothermal Inc. was a VAT-exempt transaction and neither the Philippine Geothermal Inc. nor Napocor was liable to pay VAT.

"Petitioner, therefore, may rightfully claim for a refund of the value-added tax paid," the SC said.

However, the CTA had earlier ordered a refund of only P9.01 million out of the P39.3 million total refund claim. This prompted Philippine Geothermal to file a petition with the Court of Appeals seeking a full refund of the P39.3 million. But the CA also denied this petition and instead affirmed the decision of the CTA, which prompted the company to elevate the matter to the SC. — Jose Rodel Clapano