Refund: Substantiation of unutilized input VAT no more.

For many years now, the right of taxpayers to claim for value added tax refund has been constrained and limited. The Court of Tax Appeals (CTA) has been consistent with its stand that in a claim for refund, before the unutilized input VAT of prior quarters can be applied to the current quarter's output tax, the same must first be substantiated. It means that a taxpayer must show the invoices or receipts from which the unutilized input VAT of the previous quarters was derived. Otherwise, only the substantiated input VAT of the current quarter may be applied to the output VAT of the current quarter. Only the remaining amount of input VAT may be refunded by a taxpayer. In effect, the refundable amount is significantly reduced.

The prevailing ruling for many years is that if a taxpayer does not have an excess input VAT over its output VAT in the current period, it can no longer claim for refund. Though it is common practice to charge first all the input VAT, including those related to zero-rated sales, to output VAT, there is no law nor regulation prohibiting the segregation of input VAT for refund from those that will be credited to output VAT during the period.

Many taxpayers have adopted this conservative approach. VAT refund claims have been limited to what remains with the input VAT of the current quarter after subtracting the current quarter's output VAT. The requirement of substantiating the accumulated unutilized input tax from prior quarters is next to impossible to comply with because taxpayers are effectively being asked to prove all their input VAT since the incorporation of a company.

But just recently, the Supreme Court En Banc has reversed the CTA in the case of Chevron Holdings, Inc. v. Commissioner of Internal Revenue (GR 215159, July 5, 2022). The SC En Banc held that it would not deny the request for refund of unutilized input VAT from zero-rated sales on the ground that the taxpayer does not have 'excess' input VAT from the output VAT of the quarter of claim since the law does not require it. The SC En Banc also held that the CTA erred in requiring the taxpayer to substantiate its excess input tax carried over from the previous quarter before it may be utilized. The SC ruled that the Tax Code merely requires that the input tax claimed for refund 'has not been applied against the output tax.'

According to the SC, 'there is nothing in the law and rules that mandate the...