CASE DIEGST : Commissioner of Internal Revenue v. Mirant Pagbilao Corporation G.R. No. 159593, October 12, 2006

 

FACTS

Mirant Pagbilao Corporation (MPC), a domestic corporation engaged in power generation, is a VAT-registered taxpayer. For the period from April 1 to December 31, 1996, it purchased capital goods and services for the construction and development of its power plant and paid input Value-Added Tax (VAT) amounting to ₱39.33 million. Pursuant to Section 106(b) of the National Internal Revenue Code (NIRC) of 1986, as amended by Republic Act No. 7716, and Revenue Regulations No. 7-95, MPC filed an administrative claim with the Bureau of Internal Revenue (BIR) for the refund or issuance of a tax credit certificate for its unutilized input VAT on capital goods. To avoid the expiration of the two-year prescriptive period, it also filed a petition before the Court of Tax Appeals (CTA).

After examining the documentary evidence, including invoices and official receipts, the CTA found that only ₱28,744,626.95 was sufficiently supported and ordered the Commissioner of Internal Revenue (CIR) to issue a tax credit certificate for that amount. The Court of Appeals affirmed the CTA. On appeal before the Supreme Court, however, the CIR changed its theory and argued for the first time that MPC was a public utility subject to franchise tax under Section 117 (now Section 119) of the NIRC, not VAT, and therefore was not entitled to an input VAT refund.

ISSUE

Whether the CIR may raise for the first time on appeal the argument that Mirant Pagbilao Corporation is subject to franchise tax rather than VAT, thereby disqualifying it from claiming a refund of input VAT; and whether MPC is entitled to the refund of its input VAT on capital goods under the Tax Code.

HELD

The Supreme Court denied the petition and affirmed the decisions of the CTA and the Court of Appeals. It held that a party cannot change its theory of the case on appeal, consistent with Rule 44, Section 15 of the Rules of Court, because doing so violates the principles of due process and fair play by depriving the opposing party of the opportunity to present evidence on the new issue. The Court ruled that the CIR failed to justify the relaxation of procedural rules, and thus could no longer assert that MPC was allegedly subject to franchise tax instead of VAT. Consequently, the appellate courts correctly refused to consider the new issues raised only on appeal.

The Court further held that Section 106(b) of the NIRC of 1986 (now Section 112(B) of the NIRC) expressly authorizes a VAT-registered taxpayer to claim a refund or tax credit of input VAT paid on capital goods that has not been applied against output VAT. Likewise, Section 104(a) of the NIRC recognizes input VAT on depreciable capital goods as creditable input tax. The Court found that MPC had proven through valid VAT invoices, official receipts, and supporting evidence that the purchases were necessary for its VAT-taxable business. It also emphasized that claims for refund of input VAT on capital goods are distinct from claims attributable to zero-rated sales, and therefore are governed by different requirements under Revenue Regulations No. 7-95. Finding substantial evidence to support the CTA's factual findings, the Court ordered the CIR to issue a tax credit certificate amounting to ₱28,744,626.95 in favor of MPC.