CIR v. SEMIRARA MINING

COMMISSIONER OF INTERNAL REVENUE, Petitioner, Vs. SEMIRARA MINING CORPORATION, Respondent.

G.R. No. 202922

June 19, 2017

FACTS:

Semirara Mining Corporation (SMC) is a duly registered and existing domestic corporation, registered with the Bureau of Internal Revenue (BIR) as a non-VAT enterprise engaged in coal mining business. It conducts business by virtue of Presidential Decree (PD) No. 972, otherwise known as the "Coal Development Act of 1976."On June 8, 1983, Semirara Coal Corporation (SCC) executed a Coal Operating Contract (COC) with the Ministry of Energy (now Department of Energy) through the Bureau of Energy Development. The term of the COC is until the year 2012. In 2002, SCC changed its corporate name to SMC, the herein petitioner. As a coal mine operator, SMC sells its coal production, under the COC, to various customers, among which is the National Power Corporation (NPC), a government-owned and controlled corporation, in accordance with the duly executed Coal Supply Agreement dated May 19, 1995. SMC has been selling coal to NPC for years without paying VAT pursuant to the exemption granted under Section 16 of PD No. 972. However, after Republic Act (RA) No. 9337, which amended certain provisions of the National Internal Revenue Code (NIRC) of 1997, as amended, took effect on July 1, 2005, NPC started to withhold a tax of five percent (5%) representing the final withholding VAT on SMC's coal billings pursuant to Section 114(C) of the same law, on the belief that the sale of coal by SMC was no longer exempt from VAT.

In view thereof, SMC requested for a BIR pronouncement sustaining its position that its sale of coal to NPC was still exempt from VAT notwithstanding RA No. 9337, which the BIR granted through BIR Ruling No. 006-2007.16 Consequently, on May 21, 2007, January 21, 2008, and January 29, 2008, SMC filed with the BIR Large Taxpayers Division, Revenue District Office No. 121-Quexon City, letters with supporting documents requesting for a refund or issuance of a tax credit certificate (TCC) in the total amount of P77,253,245.39, representing the final withholding VAT withheld by NPC on its coal billing for the period of July 1, 2006 to December 31, 2006. Due to the CIR's inaction, SMC filed on August 8 and November 10, 2008 its petitions for review with the CTA Division, docketed as CTA Case No. 7822 and 7849. In a Resolution dated January 27, 2009, the CTA Division consolidated CTA Case Nos. 7822 and 7849. Ruling of the CTA Division On March 28, 2011, the CTA Division rendered its Decision granting SMC's refund claim for erroneously paid final VAT withheld by NPC. The CTA Division found that SMC is exempt from VAT pursuant to Section 109(K) of the National Internal Revenue Code (NIRC) of 1997, as amended by RA No. 9337, in relation to Section 16 of PD No. 972.22 The CTA Division also found that SMC timely filed its administrative and judicial claims and submitted relevant documents in support thereof. Thus, the dispositive portion of the CTA Division's Decision reads as follows: WHEREFORE, premises considered, the instant Petitions for Review are hereby GRANTED. Accordingly, respondent is hereby DIRECTED TO REFUND OR ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the amount of P77,253,245.39, representing the erroneously paid final VAT withheld by the National Power Corporation and remitted to the Bureau of Internal Revenue in connection with its sales of coal for the period covering July 1, 2006 to December 31, 2006.

The CIR moved for reconsideration but this was denied by the CTA Division; in a Resolution dated June 3, 2011.Undaunted, the CIR filed a Petition for Review with the CTA En Banc, docketed as CTA EB No. 793. Ruling of the CTA En Banc In the assailed Decision, the CTA En Banc dismissed the CIR's petition for lack of merit. The CTA En Banc noted that the CIR's arguments were a mere rehash of its previous arguments already raised before, discussed and resolved by the CTA Division; thus, it found no reason to disturb the CTA Division's finding that SMC is entitled to the claimed VAT refund. On July 26, 2012, the CTA En Banc issued the assailed Resolution denying the CIR' s motion for reconsideration for lack of merit.

ISSUES:

(1) Whether the CTA erred in holding that SMC is entitled to a tax credit/refund despite the latter’s failure to submit requisite documents to the BIR.

(2) Whether the CTA erred in holding that the transaction of sale or importation of coal is exempt from VAT.

HELD:

(1). No, the CTA did not erred in holding that SMC is entitled to a tax credit/refund despite the latter’s failure to submit requisite documents to the BIR.

Under G.R. No. 207112, December 8, 2015, 776 SCRA 395, Id. at 421-424; Emphasis and underscoring in the original omitted; emphasis supplied, indeed, a taxpayer's failure with the requirements listed under RMO No. 53-98 is not fatal to its claim for tax credit or refund of excess unutilized excess VAT. This holds especially true when the application for tax credit or refund of excess unutilized excess VAT has arrived at the judicial level. After all, in the judicial level or when the case is elevated to the Court, the Rules of Court governs. Simply put, the question of whether the evidence submitted by a party is sufficient to warrant the granting of its prayer lies within the sound discretion and judgment of the Court.

(2). No, the CTA did not erred in holding that the transaction of sale or importation of coal is exempt from VAT.

Under, Section 16 of PD No. 972 provides various incentives to COC operators, including tax exemptions, to wit: SEC. 16. Incentives to Operators.-The provisions of any law to the contrary notwithstanding, a contract executed under this Decree may provide that the operator shall have the following incentives: a) Exemption from all taxes except income tax; b) Exemption from payment of tariff duties and compensating tax on importation of machinery and equipment and spare parts and materials required for the coal operations subject to the following conditions:

WHEREFORE, premises considered, the instant petition for review is hereby DENIED. The Decision dated April 23, 2012 and the Resolution dated July 26, 2012 of the CTA En Banc in CT A EB No. 793 are hereby AFFIRMED. SO ORDERED.