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RepublicofthePhilippines
SUPREMECOURT
FIRSTDIVISION
G.R.No.154028.July29,2005
PHILIPPINEGEOTHERMAL,INC.,Petitioners,
vs.
THECOMMISSIONEROFINTERNALREVENUE,Respondents.
DECISION
QUISUMBING,J.:
The present petition for review on certiorari assails the September 14, 2001 Decision 1 and June 14, 2002
Resolution 2oftheCourtofAppealsinCAG.R.SPNo.54730,whichaffirmedtheApril21,1999Decision 3of
theCourtofTaxAppealsinC.T.A.CaseNo.5541.
ThefactsofthecaseasfoundbytheCourtofAppealsandCourtofTaxAppealsareasfollows:
PetitionerisaresidentforeigncorporationlicensedbytheSecuritiesandExchangeCommission(SEC)toengage
in the exploration, development and exploitation of geothermal energy and resources in the Philippines. In
September1971,itenteredintoaservicecontractwiththeNationalPowerCorporation(NPC)tosupplysteamto
thelatter.
FromSeptember1995toFebruary1996,petitionerbilledNPC,ValueAddedTax(VAT)computedattenpercent
oftheservicefeechargedonthesupplyofsteam.NPCdidnotpaytheVAT.Toavoidanypossibletaxdeficiency,
petitioner remitted VAT equivalent to 1/11 of the fees received from NPC or P39,328,775.41, broken down as
follows:
Exhibit
C
H
M
S
W

Periodcovered
7/95to9/95
10/95to12/95
11/95
1/96
2/96

PaymentDate
10/18/95
1/18/96
12/13/95
2/19/96
3/18/96

VATPaid
P8,977,117.26
11,248,194.31
8,243,090.27
5,213,400.45
5,646,973.12
P39,328,775.41

PetitionerfiledanadministrativeclaimforrefundwiththeBureauofInternalRevenueonJuly10,1996.According
topetitioner,thesaleofsteamtoNPCisaVATexempttransactionunderSec.103oftheTaxCode.4Petitioner
claimed that Fiscal Incentives Review Board (FIRB) Resolution No. 1787, approved by President Aquino
pursuanttoExecutiveOrderNo.93,5expresslyexemptedNPCfromVAT.
Sincerespondentfailedtoactontheclaim,onJuly2,1997,petitionerfiledapetitiontotolltherunningofthetwo
yearprescriptiveperiodbeforetheCourtofTaxAppeals.
Respondent,inhisAnswer,6averred:
...
4.TheclaimofpetitionerPhilippineGeothermalIncorporated(PGIforshort)forValueAddedTaxrefundhasno
legalbasis.
...

6. Fiscal Incentives Review Board (FIRB) Resolution 1787 specifically restored the tax and duty exemption
privilegesoftheNPC,includingthosepertainingtoitsdomesticpurchasesofpetroleumandpetroleumproducts
grantedunderthetermsandconditionsofCommonwealthAct120asamended,effectiveMarch10,1987.
However,therestorationofthetaxanddutyexemptionprivilegesdoesnotapplytoimportationsoffueloil(crude
equivalents) and coal, commerciallyfunded importations (i.e. importations which include but are not limited to
those foreignbased private financial institutions, etc.) and interest income derived from any source. Such
exemptionalsodoesnotincludepurchasesofgoodsandservices.Hence,anycontractingservicesofNPCisnot
qualifiedforzeroratedVAT(VATRuling25089,October,1989).
7.ItisclearfromtheaforecitedFIRBresolutionthatthetaxexemptionprivilegegrantedtoNPCdoesnotinclude
purchasesofgoodsandservices,suchasthesupplyofsteamtoNPC.
...
10.Thesubjecttaxeshavebeenpaidandcollectedinaccordancewithlawandregulation.
11.Inaclaimforrefund,itisincumbentuponpetitionertoshowthatitisindubitablyentitledthereto.Petitioners
failuretoestablishthesameisfataltoitsclaimforrefund.
12. .The present case is no exception to the basic rule that claims for refund are construed strictly against
claimantforthesamepartakeofthenatureofexemptionfromtaxation.
Simplyput,thesoleissueinthiscaseiswhetherpetitionerssupplyofsteamtoNPCisaVATexempttransaction.
FIRBResolutionNo.1787datedJune24,1987,onwhichpetitioneranchorsitsclaimfortaxexemption,provides
asfollows:
BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty exemption privileges of the National
Power Corporation, including those pertaining to its domestic purchases of petroleum and petroleum products,
grantedunderthetermsandconditionsofCommonwealthActNo.120(CreatingtheNationalPowerCorporation,
definingitspowers,objectivesandfunctions,andforotherpurposes),asamended,arerestoredeffectiveMarch
10,1987,subjecttothefollowingconditions:
1.Therestorationofthetaxanddutyexemptionprivilegesdoesnotapplytothefollowing:
1.1Importationoffueloil(crudeequivalent)andcoal
1.2Commerciallyfundedimportations(i.e.,importationswhichincludebutarenotlimitedtothosefinancedbythe
NPCs own internal funds, domestic borrowings from any source whatsoever, borrowing from foreignbased
privatefinancialinstitutions,etc.)and
1.3Interestincomederivedfromanysource.7
ThisSupremeCourthasconfirmedthisexemption.InMacedav.Macaraig,Jr.,8thisCourtruledthatRepublicAct
No.3589exemptstheNPCfromalltaxes,duties,fees,imposts,charges,andrestrictionsoftheRepublicofthe
Philippines,anditsprovinces,citiesandmunicipalities.Thisexemptionisbroadenoughtoincludebothdirectand
indirect taxes the NPC may be required to pay. To limit the exemption granted the NPC to direct taxes,
notwithstandingthegeneralandbroadlanguageofthestatute,willbetothwartthelegislativeintentioningiving
exemptionfromallformsoftaxesandimpositions,withoutdistinguishingbetweenthosethataredirectandthose
thatarenot.
AchronologicalreviewoftheNPClawswillshowthatithasbeenthelawmakersintentionthattheNPCistobe
completelytaxexemptfromallformsoftaxesbothdirectandindirect.10
TherulingdatedMarch15,1996,issuedtopetitionerbyAssistantCommissionerAliciaP.ClemenooftheBureau
ofInternalRevenue,likewiseconfirmsthisexemption:
In view of the foregoing, this Office is of the opinion as it hereby holds, that the supply of steam by your client,
Philippine Geothermal, Inc. (PGI) to National Power Corporation NPC/NAPOCOR to be used in generating
electricityisexemptfromthevalueaddedtax.(BIRRulingNo.07895datedApril26,1995)11
OnApril21,1999,theCTAruledthatthesupplyofsteamtoNPCbypetitionerbeingaVATexempttransaction,
neitherpetitionernorNPCisliabletopayVAT.Petitioner,therefore,mayrightfullyclaimforarefundofthevalue
addedtaxpaid.TheCTAheld,
WHEREFORE,inthelightoftheforegoing,RESPONDENTisherebyORDEREDtoREFUNDorinthealternative,

ISSUE A TAX CREDIT CERTIFICATE to PETITIONER the sum of P9,012,310.26 representing erroneously paid
valueaddedtax.
SOORDERED.12
AccordingtotheCTA,basedontheevidencepresentedbypetitioner,outoftherefundclaimofP39,328,775.41,
onlyP9,012,310.2613orthatpertainingtooutputtaxpaidforSeptember1995andtheinterestonlatepayment
onpesocashcall,werenotpaidbyNPC.Astotherestofpetitionersclaim,itappearsthattheofficialreceipts
petitionerissuedtoNPCincludedtheVATpayableshownintheSummaryofPaymentsReceivedfromNPCfor
eachproductionperiod.
PetitionerraisedthematterbeforetheCourtofAppealsprayingthattherespondentbeorderedtorefundthesum
ofP39,328,775.41orissueataxcreditcertificaterepresentingerroneouspaymentsofVATfromSeptember1995
toFebruary1996.
TheCourtofAppealsdeniedthepetitionandaffirmedtheassaileddecisionoftheCourtofTaxAppeals.
Hencethisappeal.Petitionerassignsthefollowingerrorstotheappellatecourt:
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN AFFIRMING IN TOTO THE DECISION OF
THECOURTOFTAXAPPEALS,BECAUSE:
A). THE DECISION OF THE COURT OF TAX APPEALS WAS BASED ON A MISAPPREHENSION OF FACTS,
NAMELY,THATTHENPCPAIDP30,316,465.15ASVAT
B). THE PETITIONER HAD ESTABLISHED BY UNDISPUTABLE EVIDENCE THAT IT PAID THE VAT ON THE
SUPPLY OF STEAM TO NPC ACCORDINGLY, IT IS ENTITLED TO THE REIMBURSEMENT OF THE FULL
AMOUNTOFVATERRONEOUSLYPAID.14
The CTA Decision stated categorically that the supply of steam to NPC is exempt from VAT. However, it only
grantedapartialVATrefundofP9,012,310.26,believingthatonlythisamountwasnotreimbursedbyNPC.The
CTAruledthatpetitionerwasnolongerentitledtoarefundoftheremainingbalanceofP30,316,465.15,sinceit
appears that the official receipts petitioner issued to NPC included the VAT payable shown in the Summary of
PaymentsReceivedfromNPCforeachproductionperiod.
WedisagreewiththeCTA.Inthiscase,theonlyissueistheamountofrefundtobegrantedbasedontheamount
oftaxerroneouslypaid.Taxrefundsareinthenatureoftaxexemptions,andaretobeconstruedstrictissimijuris
againsttheentityclaimingthesame.15Thus,theburdenofproofrestsuponthetaxpayertoestablishbysufficient
andcompetentevidence,itsentitlementtoaclaimforrefund.IntheBureauofInternalRevenuesRulingdated
March 15, 1996, that the supply of steam by petitioner to NPC is exempt from VAT, petitioner has indubitably
establisheditsbasisforclaimingarefund.
ThatNPCmayhavereimbursedpetitionerthe10%VATisnotagroundforthedenialoftheclaimforrefund.The
CTA overlooked the fact that it was petitioner who paid the VAT out of its own service fee. The erroneous
paymentsoftheVATwereonlydiscontinuedwhentheBIRissueditsRulingNo.DA11196infavorofpetitioner
on March 15, 1996. By then, petitioner had already remitted a sizeable amount of P39,328,775.41 to the
Government.Theonlyrecourseofpetitioneristhecompleterestitutionoftheerroneouspaymentsoftaxes.
The amount of refund should have been based on the VAT Returns filed by the taxpayer. Whether NPC had
reimbursed petitioner is not the concern of the CTA. It is solely a matter between petitioner and NPC.16 For
indirect taxes like VAT, the proper party to question or seek a refund of the tax is the statutory taxpayer, the
person on whom the tax is imposed by law and who paid the same even when he shifts the burden thereof to
another.17
Petitioner has the legal personality to apply for a refund since it is the one who made the erroneous VAT
paymentsandwhowillsufferfinanciallybypayingingoodfaithwhatithadbelievedtobeitspotentialVATliability.
Under the principle of solutio indebiti,18 the government has to restore to petitioner the sums representing
erroneous payments of taxes.19 It is of no moment whether NPC had already reimbursed petitioner or not
becauseinthiscase,thereshouldhavebeennoVATpaidatall.
TheSummaryofPaymentsandOfficialReceiptsissuedbyasupplierisnotareliablebasisfordeterminingthe
VATpaymentsofsaidsupplier.TheCTAgrosslymisappreciatedtheevidenceanderroneouslyconcludedinthis
casethatNPCpaidtheVAT.TheCTAshouldhavereliedontheVATReturnsfiledbythetaxpayertodetermine
theactualamountremittedtotheBIRforthepurposeofascertainingtherefunddue.ThepresentationoftheVAT
Returnsisconsideredsufficienttoascertaintheamountoftherefund.Thus,uponfindingthatthesupplyofsteam

toNPCisexemptfromVAT,theCTAshouldhaveorderedrespondenttoreimbursepetitionerthefullamountof
P39,328,775.41aserroneouslypaidVAT.
WHEREFORE,thepetitionisherebyGRANTED.RespondentisORDEREDtorefundorinthealternative,issuea
TaxCreditCertificatetopetitionerinthesumofP39,328,775.41aserroneouslypaidVAT.
SOORDERED.
Davide,Jr.,C.J.,(Chairman),YnaresSantiago,Carpio,andAzcuna,JJ.,concur.

Footnotes
1 Rollo, pp. 7483. Penned by Associate Justice Eloy R. Bello, Jr., with Associate Justices Eugenio S.

Labitoria,andPerlitaJ.TriaTironaconcurring.
2Id.at85.
3Id.at304325.
4NowRepublicActNo.8424whichprovides

Sec.109.ExemptTransactions.Thefollowingshallbeexemptfromthevalueaddedtax:
...
(q)TransactionswhichareexemptunderinternationalagreementstowhichthePhilippinesisasignatoryor
underspeciallaws,exceptthoseunderPresidentialDecreeNos.66,529and1590
...
5 Withdrawing All Tax and Duty Incentives, Subject to Certain Exceptions, Expanding the Powers of the

FiscalIncentivesReviewBoardandforOtherPurposes(17December1986).
6Rollo,pp.7576.
7Id.at308309.
8G.R.No.88291,8June1993,223SCRA217,223.
9SEC.2.Tofacilitatepaymentofitsindebtedness,theNationalPowerCorporationshallbeexemptfromall

taxes,duties,fees,imposts,charges,andrestrictionsoftheRepublicofthePhilippines,itsprovinces,cities
andmunicipalities(Effective4June1949).
10Republic Act No. 6395 (10 September 1971) enumerated the details covered by the exemptions by

stating under Sec. 13 that "The Corporation shall be nonprofit and shall devote all its returns from its
capitalinvestment,aswellasexcessrevenuesfromitsoperation,forexpansiontheCorporationishereby
declared exempt from the payment of all taxes, duties, fees, imposts, charges, costs and service fees in
anycourtoradministrativeproceedingsinwhichitmaybeaparty,restrictionsanddutiestotheRepublicof
thePhilippines,itsprovinces,cities,municipalitiesandothergovernmentagenciesandinstrumentalities..
." Subsequently, Presidential Decree No. 380 (22 January 1974), Sec. 10 made even more specific the
details of the exemption of NPC to cover, among others, both direct and indirect taxes on all petroleum
products used in its operation. Presidential Decree No. 938 (27 May 1976), Sec. 13 amended the tax
exemptionbysimplifyingthesamelawingeneralterms.Itsuccinctlyexemptsservicefees,includingfiling
fees,appealbonds,supersedeasbonds,inanycourtoradministrativeproceedings.Theuseofthephrase
"allforms"oftaxesdemonstratetheintentionofthelawtogiveNPCalltheexemptionithasbeenenjoying
before.Therationaleforthisexemptionisthatbeingnonprofit,theNPC"shalldevoteallitsreturnfromits
capitalinvestmentaswellasexcessrevenuesfromitsoperation,forexpansion..."(Emphasissupplied).
11Rollo,p.154.
12Id.at312.
13P9,012,310.11insomepartsoftherecords.

14Rollo,p.44.
15CommissionerofInternalRevenuev.SolidbankCorporation,G.R.No.148191,25November2003,416

SCRA436,461.
16SeeCommissionerofInternalRevenuev.AmericanRubberCo.,No.L19667,29November1966,18

SCRA842,853.
17 See Cebu Portland Cement Co. v. Collector of Internal Revenue, No. L20563, 29 October 1968, 25

SCRA789,797andCommissionerofInternalRevenuev.AmericanRubberCo.,ibid.
18newcivilcode,Art.2154.Ifsomethingisreceivedwhenthereisnorighttodemandit,anditwasunduly

deliveredthroughmistake,theobligationtoreturnitarises.
19NationalDevelopmentCompanyv.CebuCity,G.R.No.51593,5November1992,215SCRA382,396

citingRamieTextiles,Inc.v.Mathay,Sr.,No.L32364,30April1979,89SCRA586,592.
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