The Court of Tax Appeals (CTA) has denied the P3.9 million tax refund sought by MD Isalon Organic Banana Agri-Ventures, Inc. for its alleged excess and unutilized value-added tax (VAT) for 2019.

MD Isalon, a firm based in Compostela Valley in Mindanao, originally filed with the Bureau of Internal Revenue (BIR) an application for refund in the amount of P4,408,990.25. The BIR denied the refund on Aug. 4, 2021.

The BIR explained that MD Isalon was issued a Permit to Use (PTU) Computerized Accounting System (CAS) on Oct. 10, 2018. However, MD Isalon was found to have used commercial invoices instead of charge invoices for 2019 even if the CAS permit approved the issuance of charge invoices only.

It said a taxpayer has to apply for a new permit to use CAS in case of any system enhancement that will result in change in systems release and/or version number. In case a taxpayer is found using an enhanced system without the approval of the BIR, the permit originally issued will be deemed automatically revoked from the time the enhanced system is adopted, it also said.

It added that MD Isalon was not able to show documents to prove whether an enhancement or modification on the said CAS Permit was requested or approved.

After the BIR's denial, MD Isalon filed a petition for review before the CTA and argued that it was able to substantiate its entitlement to a tax refund in the amount of P3,943,264.76.

The firm also argued that the modification of the header of system-generated sales invoice from Charge Sales Invoice to Commercial Invoice is not a system enhancement that resulted in the change in the system's release or version number.

However, the CTA denied its petition for lack of merit.

In this case, petitioner (MD Isalon) claims that a side-by-side comparison of the Charge Invoice as submitted for approval during CAS application and the Commercial Invoices eventually issued to its clients would show that both are the same on all material aspects, the tax court said.

At the same time, the court said there was insufficiency of the documents submitted by MD Isalon to prove the proper zero-rating of its sales transactions.

The 27-page decision was written by Associate Justice Maria Rowena Modesto-San Pedro with the concurrence of Associate Justices Ma. Belen M. Ringpis-Liban and Corazon G. Ferrer-Flores.