COMMISSIONER OF INTERNAL REVENUE, 

Petitioner, v. EURO-PHILIPPINES
AIRLINE SERVICES, INC., Respondent.

DECISION

REYES, JR., J.:

This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, seeking
to set aside the Decision2 dated July 14, 2015 and Resolution3 dated December 22,
2015 of the Court of Tax Appeals (CTA) En Banc in case CTA EB Case No. 1106
affirming the Decision of the CTA Special First Division which cancelled and withdrew
the assessments for deficiency value-added tax, as well as interest and surcharges.

THE ANTECEDENTS

Respondent Euro-Philippines Airline Services, Inc. (Euro-Phil) is an exclusive passenger

sales agent of British Airways, PLC, an off-line international airline in the Philippines to
service the latter's passengers in the Philippines.4

Euro-Phil received a Formal Assessment Notice (FAN)5 dated September 13, 2010 from
petitioner Commissioner of Internal Revenue (CIR) on 14 September 2010 in the
aggregate amount of P4,271,228,20.00 consisting of assessment of Value Added Tax
(VAT), among others, for the taxable year ending March 31, 2007 with Details of
Discrepancies.6

On 29 September 2010, Euro-Phil filed a final protest on CIR.7

Following the lapse of the 180-day period within which to resolve the protest, Euro-Phil
filed a petition for review before the Court of Tax Appeals Special First Division (CTA-
First Division) praying, among others, for the cancellation of the FAN issued by CIR for
deficiency VAT. Euro-Phil argued therein that the receipts that are supposedly subject
to 12% VAT actually pertained to "services rendered to persons engaged exclusively in
international air transport" hence, zero-rated.8

The CTA- Special First Division rendered a Decision9 on 25 July 2013 finding Euro-Phil is
rendering services to persons engaged in international air transport operations and, as
such, is zero-rated under Section 108 of the NIRC of 1997. The said decision disposed
thus:10

WHEREFORE, the instant Petition for Review is PARTIALLY GRANTED. The

assessments for deficiency value-added tax and documentary stamp tax, as well as the
interests and surcharges, for the taxable year ending March 31, 2007 are
hereby CANCELLED and WITHDRAWN for lack of legal basis.

xxxx

SO ORDERED."11
CIR filed a Motion for Partial Reconsideration of the said Decision covering only the
value-added tax that was denied therein. Such motion was denied for lack of merit in a
Resolution dated 18 November 2013.12

CIR then appealed before the CTA En Banc alleging that CTA Special First Division erred
in not holding that Euro-Phil's services is subject to 12% VAT.13

The CTA En Banc rendered a Decision14 denying the petition and sustaining the CTA
Special First Division with which CTA Presiding Justice Roman G. Del Rosario (Justice
Del Rosario) concurred with Dissenting Opinion.15 The said decision disposed thus:

WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED.

Accordingly, the Decision and the Resolution, dated July 25, 2013 and November 18,
2013, respectively, are hereby AFFIRMED.

SO ORDERED.16

CIR moved for reconsideration of the said decision insisting that the presentation of
VAT official receipts with the words "zero-rated" imprinted thereon is indispensable to
cancel the value-added tax (VAT) assessment against Euro-Phil.17 However, it was
denied in a Resolution18 dated December 22, 2015 with a dissenting opinion19 from CTA
Presiding Justice (Justice del Rosario), to quote as follows, pertinent to the issue of
VAT:

In the case at bar, respondent is assessed for deficiency VAT for services it rendered as
passenger sales agent of British Airways PLC. Respondent invokes that services
rendered by VAT-registered persons to persons engaged in international air transport
operations is subject to zero percent (0%) rate, pursuant to Section 108 of the National
Internal Revenue Code (NIRC) of 1997, as amended.

To reiterate, it is not enough for respondent to invoke Section 108 of the NIRC of 1997,
as amended. Respondent has likewise the burden to show compliance with the invoicing
requirements laid down in Section 113 of the NIRC of 1997, as amended, to be entitled
to zero rating. Needless to say, unless appropriately refuted, tax assessments by tax
examiners are presumed correct and made in good faith.

In fine, the issue of compliance with Section 113 of the NIRC of 1997, as amended, is
vital in the disposition of the present controversy which the Court should consider, lest
an indispensable requirement for the availment of VAT zero-rating is blatantly ignored.

For all the foregoing, I VOTE to grant petitioner's Motion for Reconsideration and
UPHOLD the VAT assessment."20

Hence, this petition with CIR adopting Justice Del Rosario's dissent and that Euro-Phil
had to comply with the invoicing requirements to be entitled to zero rating of VAT.21 CIR
also takes exception to the doctrine of "issues cannot be raised the first time on
appeal."

The Issues
 1. Whether or not the issue of non-compliance of the invoicing requirements by
Euro-Phil must be recognized despite being raised only on appeal; and

2. Whether or not the Court of Tax Appeals En Banc erred in finding that the
transaction sale made by respondent is entitled to the benefit of zero-rated VAT
despite its failure to comply with invoicing requirements as mandated by law.

Our Ruling

The petition is denied.

The CTA En Banc did not commit any

reversible error.

Euro-Phil contends that CIR raised new matters in its Petition for Review with the
CTA En Banc and does it again in this Petition for Review which should not be allowed
by this Court.

We agree.

In the case of Aguinaldo Industries Corporation (Fishing Nets Division) vs.

Commissioner of Internal Revenue and the Court of Tax Appeals,22 this doctrine was
explained by this Court as follows:

To allow a litigant to assume a different posture when he comes before the court and
challenge the position he had accepted at the administrative level would be to sanction
a procedure whereby the court – which is supposed to review administrative
determinations would not review, but determine and decide for the first time, a
question not raised at the administrative forum. This cannot be permitted, for the same
reason that underlies the requirement of prior exhaustion of administrative remedies to
give administrative authorities the prior opportunity to decide controversies within its
competence, and in much the same way that, on the judicial level, issues not raised in
the lower court cannot be raised for the first time on appeal.23

Here, it is not disputed that CIR raised the issue that the alleged failure to present VAT
official receipts with the imprinted words "zero rated" adopting the dissent of Justice
Del Rosario, only at the latter stage of the appeal on Motion for Reconsideration of the
CTA En Banc's decision. Accordingly, with the doctrine that issues may not be raised for
the first time on appeal, CIR should not be allowed by this Court to raise this matter.

Moreover, while the issue arose from the dissent of Justice Del Rosario, the law is clear
on the matter. Section 108 of the NIRC of 1997 imposes zero percent (0%) value-
added tax on services performed in the Philippines by VAT-registered persons to
persons engaged in international air transport operations, as it thus provides:

Section 108. Value-added Tax on Sale of Services and Use or Lease of

Properties. –

(A) x x x x
(B) Transactions Subject to Zero Percent (0%) Rate - The following services
performed in the Philippines by VAT- registered persons shall be subject to
zero percent (0%) rate.

(1) x x x x

xxxx

(4) Services rendered to persons engaged in international shipping

or International air-transport operations, including leases of property for use
thereof;

xxxx

Here, there is no dispute that Euro-Phil is VAT registered. Next, it is also not disputed
that the services rendered by Euro-Phil was to a person engaged in international air-
transport operations. Thus, by application, Section 108 of the NIRC of 1997 subjects
the services of Euro-Phil to British Airways PLC, to the rate of zero percent VAT.

While CIR contends that the dissenting opinion of Justice del Rosario that Euro-Phil's
failure to present and offer any proof to show that it has complied with the invoicing
requirements, deems its sale of services to British Airways PLC subject to 12% VAT, it
does not negate the established fact that British Airways PLC is engaged in international
air-transport operations.

Moreover, as dictated by Section 113 of the NIRC of 1997, on the said provisions on the
"Consequences of Issuing Erroneous VAT Invoice of VAT Official Receipt,24 nowhere
therein is a presumption created by law that the non-imprintment of the word "zero
rated" deems the transaction subject to 12 % VAT. In addition, Section 4. 113-4 of
Revenue Regulations 16-2005,25 Consolidated Value-Added Tax Regulations of 2005,
also does not state that the non-imprintment of the word "zero rated" deems the
transaction subject to 12 %VAT. Thus, in this case, failure to comply with invoicing
requirements as mandated by law does not deem the transaction subject to 12% VAT.

In view of the foregoing considerations, the Court finds that the CTA En Banc did not
commit any reversible error.

WHEREFORE, the Petition for Review is DENIED. The Decision26 dated July 14, 2015
and Resolution27 dated December 22,2015 of the Court of Tax Appeals (CTA) En Banc in
CTA EB Case No. 1106 is AFFIRMED.

SO ORDERED.

G.R. No. 147295             February 16, 2007

THE COMMISIONER OF INTERNAL REVENUE, Petitioner,
vs.
ACESITE (PHILIPPINES) HOTEL CORPORATION, Respondent.

DECISION

VELASCO, JR., J.:

The Case

Before us is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, assailing the
November 17, 2000 Decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 56816, which
affirmed the January 3, 2000 Decision3 of the Court of Tax Appeals (CTA) in CTA Case No. 5645
entitled Acesite (Philippines) Hotel Corporation v. The Commissioner of Internal Revenue for Refund
of VAT Payments.

The Facts

The facts as found by the appellate court are undisputed, thus:

Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel along United Nations
Avenue in Manila. It leases 6,768.53 square meters of the hotel’s premises to the Philippine
Amusement and Gaming Corporation [hereafter, PAGCOR] for casino operations. It also caters food
and beverages to PAGCOR’s casino patrons through the hotel’s restaurant outlets. For the period
January (sic) 96 to April 1997, Acesite incurred VAT amounting to P30,152,892.02 from its rental
income and sale of food and beverages to PAGCOR during said period. Acesite tried to shift the said
taxes to PAGCOR by incorporating it in the amount assessed to PAGCOR but the latter refused to
pay the taxes on account of its tax exempt status.1awphi1.net

Thus, PAGCOR paid the amount due to Acesite minus the P30,152,892.02 VAT while the latter paid
the VAT to the Commissioner of Internal Revenue [hereafter, CIR] as it feared the legal
consequences of non-payment of the tax. However, Acesite belatedly arrived at the conclusion that
its transaction with PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity. On
21 May 1998, Acesite filed an administrative claim for refund with the CIR but the latter failed to
resolve the same. Thus on 29 May 1998, Acesite filed a petition with the Court of Tax Appeals
[hereafter, CTA] which was decided in this wise:

As earlier stated, Petitioner is subject to zero percent tax pursuant to Section 102 (b)(3) [now 106(A)
(C)] insofar as its gross income from rentals and sales to PAGCOR, a tax exempt entity by virtue of
a special law. Accordingly, the amounts of P21,413,026.78 and P8,739,865.24, representing the
10% EVAT on its sales of food and services and gross rentals, respectively from PAGCOR shall, as
a matter of course, be refunded to the petitioner for having been inadvertently remitted to the
respondent.

Thus, taking into consideration the prescribed portion of Petitioner’s claim for refund of P98,743.40,
and considering further the principle of ‘solutio indebiti’ which requires the return of what has been
delivered through mistake, Respondent must refund to the Petitioner the amount of P30,054,148.64
computed as follows:

Total amount per claim 30,152,892.02

 Less Prescribed amount (Exhs A, X, & X-20)
January 1996 P 2,199.94
February 1996 26,205.04
March 1996 70,338.42 98,743.40

P30,054,148.64
vvvvvvvvvvvvvv

WHEREFORE, in view of all the foregoing, the instant Petition for Review is partially GRANTED.
The Respondent is hereby ORDERED to REFUND to the petitioner the amount of THIRTY MILLION
FIFTY FOUR THOUSAND ONE HUNDRED FORTY EIGHT PESOS AND SIXTY FOUR
CENTAVOS (P30,054,148.64) immediately.

SO ORDERED.4

The Ruling of the Court of Appeals

Upon appeal by petitioner, the CA affirmed in toto the decision of the CTA holding that PAGCOR
was not only exempt from direct taxes but was also exempt from indirect taxes like the VAT and
consequently, the transactions between respondent Acesite and PAGCOR were "effectively zero-
rated" because they involved the rendition of services to an entity exempt from indirect taxes. Thus,
the CA affirmed the CTA’s determination by ruling that respondent Acesite was entitled to a refund of
PhP 30,054,148.64 from petitioner.

The Issues

Hence, we have the instant petition with the following issues: (1) whether PAGCOR’s tax exemption
privilege includes the indirect tax of VAT to entitle Acesite to zero percent (0%) VAT rate; and (2)
whether the zero percent (0%) VAT rate under then Section 102 (b)(3) of the Tax Code (now Section
108 (B)(3) of the Tax Code of 1997) legally applies to Acesite.

The petition is devoid of merit.

In resolving the first issue on whether PAGCOR’s tax exemption privilege includes the indirect tax of
VAT to entitle Acesite to zero percent (0%) VAT rate, we answer in the affirmative. We will however
discuss both issues together.

PAGCOR is exempt from payment of indirect taxes

It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an exemption from
the payment of taxes. Section 13 of P.D. 1869 pertinently provides:

Sec. 13. Exemptions. –

xxxx

(2) Income and other taxes. – (a) Franchise Holder: No tax of any kind or form, income or
otherwise, as well as fees, charges or levies of whatever nature, whether National or Local,
shall be assessed and collected under this Franchise from the Corporation; nor shall any
form of tax or charge attach in any way to the earnings of the Corporation, except a Franchise
Tax of five (5%) percent of the gross revenue or earnings derived by the Corporation from its
operation under this Franchise. Such tax shall be due and payable quarterly to the National
Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature
or description, levied, established or collected by any municipal, provincial, or national government
authority.

xxxx

(b) Others: The exemptions herein granted for earnings derived from the operations
conducted under the franchise specifically from the payment of any tax, income or otherwise,
as well as any form of charges, fees or levies, shall inure to the benefit of and extend to
corporation(s), association(s), agency(ies), or individual(s) with whom the Corporation or
operator has any contractual relationship in connection with the operations of the casino(s)
authorized to be conducted under this Franchise and to those receiving compensation or other
remuneration from the Corporation or operator as a result of essential facilities furnished and/or
technical services rendered to the Corporation or operator. (Emphasis supplied.)

Petitioner contends that the above tax exemption refers only to PAGCOR’s direct tax liability and not
to indirect taxes, like the VAT.

We disagree.

A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to taxes with no
distinction on whether the taxes are direct or indirect. We are one with the CA ruling that PAGCOR is
also exempt from indirect taxes, like VAT, as follows:

Under the above provision [Section 13 (2) (b) of P.D. 1869], the term "Corporation" or operator refers
to PAGCOR. Although the law does not specifically mention PAGCOR’s exemption from indirect
taxes, PAGCOR is undoubtedly exempt from such taxes because the law exempts from taxes
persons or entities contracting with PAGCOR in casino operations. Although, differently
worded, the provision clearly exempts PAGCOR from indirect taxes. In fact, it goes one step
further by granting tax exempt status to persons dealing with PAGCOR in casino operations.
The unmistakable conclusion is that PAGCOR is not liable for the P30,152,892.02 VAT and neither
is Acesite as the latter is effectively subject to zero percent rate under Sec. 108 B (3). R.A. 8424.
(Emphasis supplied.)

Indeed, by extending the exemption to entities or individuals dealing with PAGCOR, the legislature
clearly granted exemption also from indirect taxes. It must be noted that the indirect tax of VAT, as in
the instant case, can be shifted or passed to the buyer, transferee, or lessee of the goods,
properties, or services subject to VAT. Thus, by extending the tax exemption to entities or individuals
dealing with PAGCOR in casino operations, it is exempting PAGCOR from being liable to indirect
taxes.

The manner of charging VAT does not make PAGCOR liable to said tax

It is true that VAT can either be incorporated in the value of the goods, properties, or services sold or
leased, in which case it is computed as 1/11 of such value, or charged as an additional 10% to the
value. Verily, the seller or lessor has the option to follow either way in charging its clients and
customer. In the instant case, Acesite followed the latter method, that is, charging an additional 10%
of the gross sales and rentals. Be that as it may, the use of either method, and in particular, the first
method, does not denigrate the fact that PAGCOR is exempt from an indirect tax, like VAT.

VAT exemption extends to Acesite

Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the latter is not
liable for the payment of it as it is exempt in this particular transaction by operation of law to pay the
indirect tax. Such exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code, as
amended (now Sec. 108 [b] [3] of R.A. 8424), which provides:

Section 102. Value-added tax on sale of services – (a) Rate and base of tax – There shall be levied,
assessed and collected, a value-added tax equivalent to 10% of gross receipts derived by any
person engaged in the sale of services x x x; Provided, that the following services performed in the
Philippines by VAT-registered persons shall be subject to 0%.

xxxx

(b) Transactions subject to zero percent (0%) rated.—

xxxx

(3) Services rendered to persons or entities whose exemption under special laws or

international agreements to which the Philippines is a signatory effectively subjects the supply of
such services to zero (0%) rate (emphasis supplied).

The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the extension of
such exemption to entities or individuals dealing with PAGCOR in casino operations are best
elucidated from the 1987 case of Commissioner of Internal Revenue v. John Gotamco & Sons,
Inc.,5 where the absolute tax exemption of the World Health Organization (WHO) upon an
international agreement was upheld. We held in said case that the exemption of contractee WHO
should be implemented to mean that the entity or person exempt is the contractor itself who
constructed the building owned by contractee WHO, and such does not violate the rule that tax
exemptions are personal because the manifest intention of the agreement is to exempt the
contractor so that no contractor’s tax may be shifted to the contractee WHO. Thus, the proviso
in P.D. 1869, extending the exemption to entities or individuals dealing with PAGCOR in casino
operations, is clearly to proscribe any indirect tax, like VAT, that may be shifted to PAGCOR.

Acesite paid VAT by mistake

Considering the foregoing discussion, there are undoubtedly erroneous payments of the VAT
pertaining to the effectively zero-rate transactions between Acesite and PAGCOR. Verily, Acesite
has clearly shown that it paid the subject taxes under a mistake of fact, that is, when it was not
aware that the transactions it had with PAGCOR were zero-rated at the time it made the payments.
In UST Cooperative Store v. City of Manila,6 we explained that "there is erroneous payment of taxes
when a taxpayer pays under a mistake of fact, as for the instance in a case where he is not aware of
an existing exemption in his favor at the time the payment was made."7 Such payment is held to be
not voluntary and, therefore, can be recovered or refunded.8

Moreover, it must be noted that aside from not raising the issue of Acesite’s compliance with
pertinent Revenue Regulations on exemptions during the proceedings in the CTA, it cannot be
gainsaid that Acesite should have done so as it paid the VAT under a mistake of fact. Hence,
petitioner’s argument on this point is utterly tenuous.

Solutio indebiti applies to the Government

Tax refunds are based on the principle of quasi-contract or solutio indebiti and the pertinent laws
governing this principle are found in Arts. 2142 and 2154 of the Civil Code, which provide, thus:

Art. 2142. Certain lawful, voluntary, and unilateral acts give rise to the juridical relation of quasi-
contract to the end that no one shall be unjustly enriched or benefited at the expense of another.

Art. 2154. If something is received when there is no right to demand it, and it was unduly delivered
through mistake, the obligation to return it arises.

When money is paid to another under the influence of a mistake of fact, that is to say, on the
mistaken supposition of the existence of a specific fact, where it would not have been known that the
fact was otherwise, it may be recovered. The ground upon which the right of recovery rests is that
money paid through misapprehension of facts belongs in equity and in good conscience to the
person who paid it.9

The Government comes within the scope of solutio indebiti principle as elucidated in Commissioner
of Internal Revenue v. Fireman’s Fund Insurance Company, where we held that: "Enshrined in the
basic legal principles is the time-honored doctrine that no person shall unjustly enrich himself at the
expense of another. It goes without saying that the Government is not exempted from the application
of this doctrine."10

Action for refund strictly construed; Acesite discharged the burden of proof

Since an action for a tax refund partakes of the nature of an exemption, which cannot be allowed
unless granted in the most explicit and categorical language, it is strictly construed against the
claimant who must discharge such burden convincingly.11 In the instant case, respondent Acesite
had discharged this burden as found by the CTA and the CA. Indeed, the records show that Acesite
proved its actual VAT payments subject to refund, as attested to by an independent Certified Public
Accountant who was duly commissioned by the CTA. On the other hand, petitioner never disputed
nor contested respondent’s testimonial and documentary evidence. In fact, petitioner never
presented any evidence on its behalf.

One final word. The BIR must release the refund to respondent without any unreasonable delay.
Indeed, fair dealing is expected by our taxpayers from the BIR and this duty demands that the BIR
should refund without any unreasonable delay what it has erroneously collected.12

WHEREFORE, the petition is DENIED for lack of merit and the November 17, 2000 Decision of the
CA is hereby AFFIRMED. No costs.

SO ORDERED.

G.R. No. 172087               March 15, 2011

PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR), Petitioner,

vs.
THE BUREAU OF INTERNAL REVENUE (BIR), represented herein by HON. JOSE MARIO
BUÑAG, in his official capacity as COMMISSIONER OF INTERNAL REVENUE, Public
Respondent,
JOHN DOE and JANE DOE, who are persons acting for, in behalf, or under the authority of
Respondent. Public and Private Respondents.

DECISION

PERALTA, J.:

For resolution of this Court is the Petition for Certiorari and Prohibition1 with prayer for the issuance
of a Temporary Restraining Order and/or Preliminary Injunction, dated April 17, 2006, of petitioner
Philippine Amusement and Gaming Corporation (PAGCOR), seeking the declaration of nullity of
Section 1 of Republic Act (R.A.) No. 9337 insofar as it amends Section 27 (c) of the National Internal
Revenue Code of 1997, by excluding petitioner from exemption from corporate income tax for being
repugnant to Sections 1 and 10 of Article III of the Constitution. Petitioner further seeks to prohibit
the implementation of Bureau of Internal Revenue (BIR) Revenue Regulations No. 16-2005 for being
contrary to law.

The undisputed facts follow.

PAGCOR was created pursuant to Presidential Decree (P.D.) No. 1067-A2 on January 1, 1977.
Simultaneous to its creation, P.D. No. 1067-B3 (supplementing P.D. No. 1067-A) was issued
exempting PAGCOR from the payment of any type of tax, except a franchise tax of five percent (5%)
of the gross revenue.4 Thereafter, on June 2, 1978, P.D. No. 1399 was issued expanding the scope
of PAGCOR's exemption.5

To consolidate the laws pertaining to the franchise and powers of PAGCOR, P.D. No. 18696 was
issued. Section 13 thereof reads as follows:

Sec. 13. Exemptions. — x x x

(1) Customs Duties, taxes and other imposts on importations. - All importations of
equipment, vehicles, automobiles, boats, ships, barges, aircraft and such other
gambling paraphernalia, including accessories or related facilities, for the sole and
exclusive use of the casinos, the proper and efficient management and
administration thereof and such other clubs, recreation or amusement places to be
established under and by virtue of this Franchise shall be exempt from the payment
of duties, taxes and other imposts, including all kinds of fees, levies, or charges of
any kind or nature.

Vessels and/or accessory ferry boats imported or to be imported by any corporation

having existing contractual arrangements with the Corporation, for the sole and
exclusive use of the casino or to be used to service the operations and requirements
of the casino, shall likewise be totally exempt from the payment of all customs duties,
taxes and other imposts, including all kinds of fees, levies, assessments or charges
of any kind or nature, whether National or Local.

(2) Income and other taxes. - (a) Franchise Holder: No tax of any kind or form,
income or otherwise, as well as fees, charges, or levies of whatever nature, whether
National or Local, shall be assessed and collected under this Franchise from the
Corporation; nor shall any form of tax or charge attach in any way to the earnings of
 the Corporation, except a Franchise Tax of five percent (5%)of the gross revenue or
earnings derived by the Corporation from its operation under this Franchise. Such tax
shall be due and payable quarterly to the National Government and shall be in lieu of
all kinds of taxes, levies, fees or assessments of any kind, nature or description,
levied, established, or collected by any municipal, provincial or national government
authority.

(b) Others: The exemption herein granted for earnings derived from the
operations conducted under the franchise, specifically from the payment of
any tax, income or otherwise, as well as any form of charges, fees or levies,
shall inure to the benefit of and extend to corporation(s), association(s),
agency(ies), or individual(s) with whom the Corporation or operator has any
contractual relationship in connection with the operations of the casino(s)
authorized to be conducted under this Franchise and to those receiving
compensation or other remuneration from the Corporation as a result of
essential facilities furnished and/or technical services rendered to
the Corporation or operator.

The fee or remuneration of foreign entertainers contracted by the Corporation or

operator in pursuance of this provision shall be free of any tax.

(3) Dividend Income. − Notwithstanding any provision of law to the contrary, in the

event the Corporation should declare a cash dividend income corresponding to the
participation of the private sector shall, as an incentive to the beneficiaries, be
subject only to a final flat income rate of ten percent (10%) of the regular income tax
rates. The dividend income shall not in such case be considered as part of the
beneficiaries' taxable income; provided, however, that such dividend income shall be
totally exempted from income or other form of taxes if invested within six (6) months
from the date the dividend income is received in the following:

(a) operation of the casino(s) or investments in any affiliate activity that will
ultimately redound to the benefit of the Corporation; or any other corporation
with whom the Corporation has any existing arrangements in connection with
or related to the operations of the casino(s);

(b) Government bonds, securities, treasury notes, or government debentures;

or

(c) BOI-registered or export-oriented corporation(s).7

PAGCOR's tax exemption was removed in June 1984 through P.D. No. 1931, but it was later
restored by Letter of Instruction No. 1430, which was issued in September 1984.

On January 1, 1998, R.A. No. 8424,8 otherwise known as the National Internal Revenue Code of
1997, took effect. Section 27 (c) of R.A. No. 8424 provides that government-owned and controlled
corporations (GOCCs) shall pay corporate income tax, except petitioner PAGCOR, the Government
Service and Insurance Corporation, the Social Security System, the Philippine Health Insurance
Corporation, and the Philippine Charity Sweepstakes Office, thus:

(c) Government-owned or Controlled Corporations, Agencies or Instrumentalities. - The provisions of

existing special general laws to the contrary notwithstanding, all corporations, agencies or
instrumentalities owned and controlled by the Government, except the Government Service and
Insurance Corporation (GSIS), the Social Security System (SSS), the Philippine Health Insurance
Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO), and the Philippine
Amusement and Gaming Corporation (PAGCOR), shall pay such rate of tax upon their taxable
income as are imposed by this Section upon corporations or associations engaged in similar
business, industry, or activity.9

With the enactment of R.A. No. 933710 on May 24, 2005, certain sections of the National Internal
Revenue Code of 1997 were amended. The particular amendment that is at issue in this case is
Section 1 of R.A. No. 9337, which amended Section 27 (c) of the National Internal Revenue Code of
1997 by excluding PAGCOR from the enumeration of GOCCs that are exempt from payment of
corporate income tax, thus:

(c) Government-owned or Controlled Corporations, Agencies or Instrumentalities. - The provisions of

existing special general laws to the contrary notwithstanding, all corporations, agencies, or
instrumentalities owned and controlled by the Government, except the Government Service and
Insurance Corporation (GSIS), the Social Security System (SSS), the Philippine Health Insurance
Corporation (PHIC), and the Philippine Charity Sweepstakes Office (PCSO), shall pay such rate of
tax upon their taxable income as are imposed by this Section upon corporations or associations
engaged in similar business, industry, or activity.

Different groups came to this Court via petitions for certiorari and prohibition11 assailing the validity
and constitutionality of R.A. No. 9337, in particular:

1) Section 4, which imposes a 10% Value Added Tax (VAT) on sale of goods and properties;
Section 5, which imposes a 10% VAT on importation of goods; and Section 6, which imposes
a 10% VAT on sale of services and use or lease of properties, all contain a uniform
proviso authorizing the President, upon the recommendation of the Secretary of Finance, to
raise the VAT rate to 12%. The said provisions were alleged to be violative of Section 28 (2),
Article VI of the Constitution, which section vests in Congress the exclusive authority to fix
the rate of taxes, and of Section 1, Article III of the Constitution on due process, as well as of
Section 26 (2), Article VI of the Constitution, which section provides for the "no amendment
rule" upon the last reading of a bill;

2) Sections 8 and 12 were alleged to be violative of Section 1, Article III of the Constitution,
or the guarantee of equal protection of the laws, and Section 28 (1), Article VI of the
Constitution; and

3) other technical aspects of the passage of the law, questioning the manner it was passed.

On September 1, 2005, the Court dismissed all the petitions and upheld the constitutionality of R.A.
No. 9337.12

On the same date, respondent BIR issued Revenue Regulations (RR) No. 16-2005,13 specifically
identifying PAGCOR as one of the franchisees subject to 10% VAT imposed under Section 108 of
the National Internal Revenue Code of 1997, as amended by R.A. No. 9337. The said revenue
regulation, in part, reads:

Sec. 4. 108-3. Definitions and Specific Rules on Selected Services. —

xxxx
(h) x x x

Gross Receipts of all other franchisees, other than those covered by Sec. 119 of the Tax Code,
regardless of how their franchisees may have been granted, shall be subject to the 10% VAT
imposed under Sec.108 of the Tax Code. This includes, among others, the Philippine Amusement
and Gaming Corporation (PAGCOR), and its licensees or franchisees.

Hence, the present petition for certiorari.

PAGCOR raises the following issues:

WHETHER OR NOT RA 9337, SECTION 1 (C) IS NULL AND VOID AB INITIO FOR BEING

REPUGNANT TO THE EQUAL PROTECTION [CLAUSE] EMBODIED IN SECTION 1, ARTICLE III
OF THE 1987 CONSTITUTION.

II

WHETHER OR NOT RA 9337, SECTION 1 (C) IS NULL AND VOID AB INITIO FOR BEING
REPUGNANT TO THE NON-IMPAIRMENT [CLAUSE] EMBODIED IN SECTION 10, ARTICLE III
OF THE 1987 CONSTITUTION.

III

WHETHER OR NOT RR 16-2005, SECTION 4.108-3, PARAGRAPH (H) IS NULL AND VOID AB
INITIO FOR BEING BEYOND THE SCOPE OF THE BASIC LAW, RA 8424, SECTION 108,
INSOFAR AS THE SAID REGULATION IMPOSED VAT ON THE SERVICES OF THE PETITIONER
AS WELL AS PETITIONER’S LICENSEES OR FRANCHISEES WHEN THE BASIC LAW, AS
INTERPRETED BY APPLICABLE JURISPRUDENCE, DOES NOT IMPOSE VAT ON PETITIONER
OR ON PETITIONER’S LICENSEES OR FRANCHISEES.14

The BIR, in its Comment15 dated December 29, 2006, counters:

SECTION 1 OF R.A. NO. 9337 AND SECTION 13 (2) OF P.D. 1869 ARE BOTH VALID AND
CONSTITUTIONAL PROVISIONS OF LAWS THAT SHOULD BE HARMONIOUSLY CONSTRUED
TOGETHER SO AS TO GIVE EFFECT TO ALL OF THEIR PROVISIONS WHENEVER POSSIBLE.

II

SECTION 1 OF R.A. NO. 9337 IS NOT VIOLATIVE OF SECTION 1 AND SECTION 10, ARTICLE III
OF THE 1987 CONSTITUTION.

III

BIR REVENUE REGULATIONS ARE PRESUMED VALID AND CONSTITUTIONAL UNTIL

STRICKEN DOWN BY LAWFUL AUTHORITIES.
The Office of the Solicitor General (OSG), by way of Manifestation In Lieu of Comment,16 concurred
with the arguments of the petitioner. It added that although the State is free to select the subjects of
taxation and that the inequity resulting from singling out a particular class for taxation or exemption is
not an infringement of the constitutional limitation, a tax law must operate with the same force and
effect to all persons, firms and corporations placed in a similar situation. Furthermore, according to
the OSG, public respondent BIR exceeded its statutory authority when it enacted RR No. 16-2005,
because the latter's provisions are contrary to the mandates of P.D. No. 1869 in relation to R.A. No.
9337.

The main issue is whether or not PAGCOR is still exempt from corporate income tax and VAT with
the enactment of R.A. No. 9337.

After a careful study of the positions presented by the parties, this Court finds the petition partly
meritorious.

Under Section 1 of R.A. No. 9337, amending Section 27 (c) of the National Internal Revenue Code
of 1977, petitioner is no longer exempt from corporate income tax as it has been effectively omitted
from the list of GOCCs that are exempt from it. Petitioner argues that such omission is
unconstitutional, as it is violative of its right to equal protection of the laws under Section 1, Article III
of the Constitution:

Sec. 1. No person shall be deprived of life, liberty, or property without due process of law, nor shall
any person be denied the equal protection of the laws.

In City of Manila v. Laguio, Jr.,17 this Court expounded the meaning and scope of equal protection,
thus:

Equal protection requires that all persons or things similarly situated should be treated alike, both as
to rights conferred and responsibilities imposed. Similar subjects, in other words, should not be
treated differently, so as to give undue favor to some and unjustly discriminate against others. The
guarantee means that no person or class of persons shall be denied the same protection of laws
which is enjoyed by other persons or other classes in like circumstances. The "equal protection of
the laws is a pledge of the protection of equal laws." It limits governmental discrimination. The equal
protection clause extends to artificial persons but only insofar as their property is concerned.

xxxx

Legislative bodies are allowed to classify the subjects of legislation. If the classification is
reasonable, the law may operate only on some and not all of the people without violating the equal
protection clause. The classification must, as an indispensable requisite, not be arbitrary. To be
valid, it must conform to the following requirements:

1) It must be based on substantial distinctions.

2) It must be germane to the purposes of the law.

3) It must not be limited to existing conditions only.

4) It must apply equally to all members of the class.18

It is not contested that before the enactment of R.A. No. 9337, petitioner was one of the five GOCCs
exempted from payment of corporate income tax as shown in R.A. No. 8424, Section 27 (c) of
which, reads:

(c) Government-owned or Controlled Corporations, Agencies or Instrumentalities. - The provisions of

existing special or general laws to the contrary notwithstanding, all corporations, agencies or
instrumentalities owned and controlled by the Government, except the Government Service and
Insurance Corporation (GSIS), the Social Security System (SSS), the Philippine Health Insurance
Corporation (PHIC), the Philippine Charity Sweepstakes Office (PCSO), and the Philippine
Amusement and Gaming Corporation (PAGCOR), shall pay such rate of tax upon their taxable
income as are imposed by this Section upon corporations or associations engaged in similar
business, industry, or activity.19

A perusal of the legislative records of the Bicameral Conference Meeting of the Committee on Ways
on Means dated October 27, 1997 would show that the exemption of PAGCOR from the payment of
corporate income tax was due to the acquiescence of the Committee on Ways on Means to the
request of PAGCOR that it be exempt from such tax.20 The records of the Bicameral Conference
Meeting reveal:

HON. R. DIAZ. The other thing, sir, is we --- I noticed we imposed a tax on lotto winnings.

CHAIRMAN ENRILE. Wala na, tinanggal na namin yon.

HON. R. DIAZ. Tinanggal na ba natin yon?

CHAIRMAN ENRILE. Oo.

HON. R. DIAZ. Because I was wondering whether we covered the tax on --- Whether on a universal
basis, we included a tax on cockfighting winnings.

CHAIRMAN ENRILE. No, we removed the ---

HON. R. DIAZ. I . . . (inaudible) natin yong lotto?

CHAIRMAN ENRILE. Pati PAGCOR tinanggal upon request.

CHAIRMAN JAVIER. Yeah, Philippine Insurance Commission.

CHAIRMAN ENRILE. Philippine Insurance --- Health, health ba. Yon ang request ng Chairman, I will
accept. (laughter) Pag-Pag-ibig yon, maliliit na sa tao yon.

HON. ROXAS. Mr. Chairman, I wonder if in the revenue gainers if we factored in an amount that
would reflect the VAT and other sales taxes---

CHAIRMAN ENRILE. No, we’re talking of this measure only. We will not --- (discontinued)

HON. ROXAS. No, no, no, no, from the --- arising from the exemption. Assuming that when we
release the money into the hands of the public, they will not use that to --- for wallpaper. They will
spend that eh, Mr. Chairman. So when they spend that---

CHAIRMAN ENRILE. There’s a VAT.

HON. ROXAS. There will be a VAT and there will be other sales taxes no. Is there a quantification?
Is there an approximation?

CHAIRMAN JAVIER. Not anything.

HON. ROXAS. So, in effect, we have sterilized that entire seven billion. In effect, it is not circulating
in the economy which is unrealistic.

CHAIRMAN ENRILE. It does, it does, because this is taken and spent by government, somebody
receives it in the form of wages and supplies and other services and other goods. They are not being
taken from the public and stored in a vault.

CHAIRMAN JAVIER. That 7.7 loss because of tax exemption. That will be extra income for the
taxpayers.

HON. ROXAS. Precisely, so they will be spending it.21

The discussion above bears out that under R.A. No. 8424, the exemption of PAGCOR from paying
corporate income tax was not based on a classification showing substantial distinctions which make
for real differences, but to reiterate, the exemption was granted upon the request of PAGCOR that it
be exempt from the payment of corporate income tax.

With the subsequent enactment of R.A. No. 9337, amending R.A. No. 8424, PAGCOR has been
excluded from the enumeration of GOCCs that are exempt from paying corporate income tax. The
records of the Bicameral Conference Meeting dated April 18, 2005, of the Committee on the
Disagreeing Provisions of Senate Bill No. 1950 and House Bill No. 3555, show that it is the
legislative intent that PAGCOR be subject to the payment of corporate income tax, thus:

THE CHAIRMAN (SEN. RECTO). Yes, Osmeña, the proponent of the amendment.

SEN. OSMEÑA. Yeah. Mr. Chairman, one of the reasons why we're even considering this VAT bill is
we want to show the world who our creditors, that we are increasing official revenues that go to the
national budget. Unfortunately today, Pagcor is unofficial.

Now, in 2003, I took a quick look this morning, Pagcor had a net income of 9.7 billion after paying
some small taxes that they are subjected to. Of the 9.7 billion, they claim they remitted to national
government seven billion. Pagkatapos, there are other specific remittances like to the Philippine
Sports Commission, etc., as mandated by various laws, and then about 400 million to the President's
Social Fund. But all in all, their net profit today should be about 12 billion. That's why I am
questioning this two billion. Because while essentially they claim that the money goes to
government, and I will accept that just for the sake of argument. It does not pass through the
appropriation process. And I think that at least if we can capture 35 percent or 32 percent
through the budgetary process, first, it is reflected in our official income of government
which is applied to the national budget, and secondly, it goes through what is
constitutionally mandated as Congress appropriating and defining where the money is spent
and not through a board of directors that has absolutely no accountability.

REP. PUENTEBELLA. Well, with all due respect, Mr. Chairman, follow up lang.

There is wisdom in the comments of my good friend from Cebu, Senator Osmeña.
SEN. OSMEÑA. And Negros.

REP. PUENTEBELLA. And Negros at the same time ay Kasimanwa. But I would not want to put my
friends from the Department of Finance in a difficult position, but may we know your comments on
this knowing that as Senator Osmeña just mentioned, he said, "I accept that that a lot of it is going to
spending for basic services," you know, going to most, I think, supposedly a lot or most of it should
go to government spending, social services and the like. What is your comment on this? This is
going to affect a lot of services on the government side.

THE CHAIRMAN (REP. LAPUS). Mr. Chair, Mr. Chair.

SEN. OSMEÑA. It goes from pocket to the other, Monico.

REP. PUENTEBELLA. I know that. But I wanted to ask them, Mr. Senator, because you may have
your own pre-judgment on this and I don't blame you. I don't blame you. And I know you have your
own research. But will this not affect a lot, the disbursements on social services and other?

REP. LOCSIN. Mr. Chairman. Mr. Chairman, if I can add to that question also. Wouldn't it be easier
for you to explain to, say, foreign creditors, how do you explain to them that if there is a fiscal gap
some of our richest corporations has [been] spared [from] taxation by the government which is one
rich source of revenues. Now, why do you save, why do you spare certain government corporations
on that, like Pagcor? So, would it be easier for you to make an argument if everything was exposed
to taxation?

REP. TEVES. Mr. Chair, please.

THE CHAIRMAN (REP. LAPUS). Can we ask the DOF to respond to those before we call
Congressman Teves?

MR. PURISIMA. Thank you, Mr. Chair.

Yes, from definitely improving the collection, it will help us because it will then enter as an
official revenue although when dividends declare it also goes in as other income. (sic)

xxxx

REP. TEVES. Mr. Chairman.

xxxx

THE CHAIRMAN (REP. LAPUS). Congressman Teves.

REP. TEVES. Yeah. Pagcor is controlled under Section 27, that is on income tax. Now, we are
talking here on value-added tax. Do you mean to say we are going to amend it from income
tax to value-added tax, as far as Pagcor is concerned?

THE CHAIRMAN (SEN. RECTO). No. We are just amending that section with regard to the
exemption from income tax of Pagcor.

xxxx
REP. NOGRALES. Mr. Chairman, Mr. Chairman. Mr. Chairman.

THE CHAIRMAN (REP. LAPUS). Congressman Nograles.

REP. NOGRALES. Just a point of inquiry from the Chair. What exactly are the functions of Pagcor
that are VATable? What will we VAT in Pagcor?

THE CHAIRMAN (REP. LAPUS). This is on own income tax. This is Pagcor income tax.

REP. NOGRALES. No, that's why. Anong i-va-Vat natin sa kanya. Sale of what?

xxxx

REP. VILLAFUERTE. Mr. Chairman, my question is, what are we VATing Pagcor with, is it the . . .

REP. NOGRALES. Mr. Chairman, this is a secret agreement or the way they craft their contract,
which basis?

THE CHAIRMAN (SEN. RECTO). Congressman Nograles, the Senate version does not discuss
a VAT on Pagcor but it just takes away their exemption from non-payment of income tax.22

Taxation is the rule and exemption is the exception.23 The burden of proof rests upon the party
claiming exemption to prove that it is, in fact, covered by the exemption so claimed.24 As a rule, tax
exemptions are construed strongly against the claimant.25 Exemptions must be shown to exist clearly
and categorically, and supported by clear legal provision.26

In this case, PAGCOR failed to prove that it is still exempt from the payment of corporate income
tax, considering that Section 1 of R.A. No. 9337 amended Section 27 (c) of the National Internal
Revenue Code of 1997 by omitting PAGCOR from the exemption. The legislative intent, as shown
by the discussions in the Bicameral Conference Meeting, is to require PAGCOR to pay corporate
income tax; hence, the omission or removal of PAGCOR from exemption from the payment of
corporate income tax. It is a basic precept of statutory construction that the express mention of one
person, thing, act, or consequence excludes all others as expressed in the familiar maxim expressio
unius est exclusio alterius.27 Thus, the express mention of the GOCCs exempted from payment of
corporate income tax excludes all others. Not being excepted, petitioner PAGCOR must be regarded
as coming within the purview of the general rule that GOCCs shall pay corporate income tax,
expressed in the maxim: exceptio firmat regulam in casibus non exceptis.28

PAGCOR cannot find support in the equal protection clause of the Constitution, as the legislative
records of the Bicameral Conference Meeting dated October 27, 1997, of the Committee on Ways
and Means, show that PAGCOR’s exemption from payment of corporate income tax, as provided in
Section 27 (c) of R.A. No. 8424, or the National Internal Revenue Code of 1997, was not made
pursuant to a valid classification based on substantial distinctions and the other requirements of a
reasonable classification by legislative bodies, so that the law may operate only on some, and not
all, without violating the equal protection clause. The legislative records show that the basis of the
grant of exemption to PAGCOR from corporate income tax was PAGCOR’s own request to be
exempted.

Petitioner further contends that Section 1 (c) of R.A. No. 9337 is null and void ab initio for violating
the non-impairment clause of the Constitution. Petitioner avers that laws form part of, and is read
into, the contract even without the parties expressly saying so. Petitioner states that the private
parties/investors transacting with it considered the tax exemptions, which inure to their benefit, as
the main consideration and inducement for their decision to transact/invest with it. Petitioner argues
that the withdrawal of its exemption from corporate income tax by R.A. No. 9337 has the effect of
changing the main consideration and inducement for the transactions of private parties with it; thus,
the amendatory provision is violative of the non-impairment clause of the Constitution.

Petitioner’s contention lacks merit.

The non-impairment clause is contained in Section 10, Article III of the Constitution, which provides
that no law impairing the obligation of contracts shall be passed. The non-impairment clause is
limited in application to laws that derogate from prior acts or contracts by enlarging, abridging or in
any manner changing the intention of the parties.29 There is impairment if a subsequent law changes
the terms of a contract between the parties, imposes new conditions, dispenses with those agreed
upon or withdraws remedies for the enforcement of the rights of the parties.30

As regards franchises, Section 11, Article XII of the Constitution31 provides that no franchise or right
shall be granted except under the condition that it shall be subject to amendment, alteration, or
repeal by the Congress when the common good so requires.32

In Manila Electric Company v. Province of Laguna,33 the Court held that a franchise partakes the
nature of a grant, which is beyond the purview of the non-impairment clause of the
Constitution.34 The pertinent portion of the case states:

While the Court has, not too infrequently, referred to tax exemptions contained in special franchises
as being in the nature of contracts and a part of the inducement for carrying on the franchise, these
exemptions, nevertheless, are far from being strictly contractual in nature. Contractual tax
exemptions, in the real sense of the term and where the non-impairment clause of the Constitution
can rightly be invoked, are those agreed to by the taxing authority in contracts, such as those
contained in government bonds or debentures, lawfully entered into by them under enabling laws in
which the government, acting in its private capacity, sheds its cloak of authority and waives its
governmental immunity. Truly, tax exemptions of this kind may not be revoked without impairing the
obligations of contracts. These contractual tax exemptions, however, are not to be confused with tax
exemptions granted under franchises. A franchise partakes the nature of a grant which is beyond the
purview of the non-impairment clause of the Constitution. Indeed, Article XII, Section 11, of the 1987
Constitution, like its precursor provisions in the 1935 and the 1973 Constitutions, is explicit that no
franchise for the operation of a public utility shall be granted except under the condition that such
privilege shall be subject to amendment, alteration or repeal by Congress as and when the common
good so requires.35

In this case, PAGCOR was granted a franchise to operate and maintain gambling casinos, clubs and
other recreation or amusement places, sports, gaming pools, i.e., basketball, football, lotteries, etc.,
whether on land or sea, within the territorial jurisdiction of the Republic of the Philippines.36 Under
Section 11, Article XII of the Constitution, PAGCOR’s franchise is subject to amendment, alteration
or repeal by Congress such as the amendment under Section 1 of R.A. No. 9377. Hence, the
provision in Section 1 of R.A. No. 9337, amending Section 27 (c) of R.A. No. 8424 by withdrawing
the exemption of PAGCOR from corporate income tax, which may affect any benefits to PAGCOR’s
transactions with private parties, is not violative of the non-impairment clause of the Constitution.

Anent the validity of RR No. 16-2005, the Court holds that the provision subjecting PAGCOR to 10%
VAT is invalid for being contrary to R.A. No. 9337. Nowhere in R.A. No. 9337 is it provided that
petitioner can be subjected to VAT. R.A. No. 9337 is clear only as to the removal of petitioner's
exemption from the payment of corporate income tax, which was already addressed above by this
Court.

As pointed out by the OSG, R.A. No. 9337 itself exempts petitioner from VAT pursuant to Section 7
(k) thereof, which reads:

Sec. 7. Section 109 of the same Code, as amended, is hereby further amended to read as follows:

Section 109. Exempt Transactions. - (1) Subject to the provisions of Subsection (2) hereof, the
following transactions shall be exempt from the value-added tax:

xxxx

(k) Transactions which are exempt under international agreements to which the Philippines is a

signatory or under special laws, except Presidential Decree No. 529.37

Petitioner is exempt from the payment of VAT, because PAGCOR’s charter, P.D. No. 1869, is a
special law that grants petitioner exemption from taxes.

Moreover, the exemption of PAGCOR from VAT is supported by Section 6 of R.A. No. 9337, which
retained Section 108 (B) (3) of R.A. No. 8424, thus:

[R.A. No. 9337], SEC. 6. Section 108 of the same Code (R.A. No. 8424), as amended, is hereby
further amended to read as follows:

SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. —

(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services,
including the use or lease of properties: x x x

xxxx

(B) Transactions Subject to Zero Percent (0%) Rate. — The following services performed in the
Philippines by VAT-registered persons shall be subject to zero percent (0%) rate;

xxxx

(3) Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services to
zero percent (0%) rate;

x x x x38

As pointed out by petitioner, although R.A. No. 9337 introduced amendments to Section 108 of R.A.
No. 8424 by imposing VAT on other services not previously covered, it did not amend the portion of
Section 108 (B) (3) that subjects to zero percent rate services performed by VAT-registered persons
to persons or entities whose exemption under special laws or international agreements to which the
Philippines is a signatory effectively subjects the supply of such services to 0% rate.
Petitioner's exemption from VAT under Section 108 (B) (3) of R.A. No. 8424 has been thoroughly
and extensively discussed in Commissioner of Internal Revenue v. Acesite (Philippines) Hotel
Corporation.39 Acesite was the owner and operator of the Holiday Inn Manila Pavilion Hotel. It leased
a portion of the hotel’s premises to PAGCOR. It incurred VAT amounting to ₱30,152,892.02 from its
rental income and sale of food and beverages to PAGCOR from January 1996 to April 1997. Acesite
tried to shift the said taxes to PAGCOR by incorporating it in the amount assessed to PAGCOR.
However, PAGCOR refused to pay the taxes because of its tax-exempt status. PAGCOR paid only
the amount due to Acesite minus VAT in the sum of ₱30,152,892.02. Acesite paid VAT in the
amount of ₱30,152,892.02 to the Commissioner of Internal Revenue, fearing the legal
consequences of its non-payment. In May 1998, Acesite sought the refund of the amount it paid as
VAT on the ground that its transaction with PAGCOR was subject to zero rate as it was rendered to
a tax-exempt entity. The Court ruled that PAGCOR and Acesite were both exempt from paying VAT,
thus:

xxxx

PAGCOR is exempt from payment of indirect taxes

It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an exemption from
the payment of taxes. Section 13 of P.D. 1869 pertinently provides:

Sec. 13. Exemptions. —

xxxx

(2) Income and other taxes. - (a) Franchise Holder: No tax of any kind or form, income or otherwise,
as well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed
and collected under this Franchise from the Corporation; nor shall any form of tax or charge attach in
any way to the earnings of the Corporation, except a Franchise Tax of five (5%) percent of the gross
revenue or earnings derived by the Corporation from its operation under this Franchise. Such tax
shall be due and payable quarterly to the National Government and shall be in lieu of all kinds of
taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected
by any municipal, provincial, or national government authority.

(b) Others: The exemptions herein granted for earnings derived from the operations conducted
under the franchise specifically from the payment of any tax, income or otherwise, as well as any
form of charges, fees or levies, shall inure to the benefit of and extend to corporation(s),
association(s), agency(ies), or individual(s) with whom the Corporation or operator has any
contractual relationship in connection with the operations of the casino(s) authorized to be
conducted under this Franchise and to those receiving compensation or other remuneration from the
Corporation or operator as a result of essential facilities furnished and/or technical services rendered
to the Corporation or operator.

Petitioner contends that the above tax exemption refers only to PAGCOR's direct tax liability and not
to indirect taxes, like the VAT.

We disagree.

A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to taxes with no
distinction on whether the taxes are direct or indirect. We are one with the CA ruling that PAGCOR is
also exempt from indirect taxes, like VAT, as follows:
Under the above provision [Section 13 (2) (b) of P.D. 1869], the term "Corporation" or operator refers
to PAGCOR. Although the law does not specifically mention PAGCOR's exemption from indirect
taxes, PAGCOR is undoubtedly exempt from such taxes because the law exempts from taxes
persons or entities contracting with PAGCOR in casino operations. Although, differently worded, the
provision clearly exempts PAGCOR from indirect taxes. In fact, it goes one step further by granting
tax exempt status to persons dealing with PAGCOR in casino operations. The unmistakable
conclusion is that PAGCOR is not liable for the P30, 152,892.02 VAT and neither is Acesite as the
latter is effectively subject to zero percent rate under Sec. 108 B (3), R.A. 8424. (Emphasis
supplied.)

Indeed, by extending the exemption to entities or individuals dealing with PAGCOR, the legislature
clearly granted exemption also from indirect taxes. It must be noted that the indirect tax of VAT, as in
the instant case, can be shifted or passed to the buyer, transferee, or lessee of the goods,
properties, or services subject to VAT. Thus, by extending the tax exemption to entities or
individuals dealing with PAGCOR in casino operations, it is exempting PAGCOR from being
liable to indirect taxes.

The manner of charging VAT does not make PAGCOR liable to said tax.

It is true that VAT can either be incorporated in the value of the goods, properties, or services sold or
leased, in which case it is computed as 1/11 of such value, or charged as an additional 10% to the
value. Verily, the seller or lessor has the option to follow either way in charging its clients and
customer. In the instant case, Acesite followed the latter method, that is, charging an additional 10%
of the gross sales and rentals. Be that as it may, the use of either method, and in particular, the first
method, does not denigrate the fact that PAGCOR is exempt from an indirect tax, like VAT.

VAT exemption extends to Acesite

Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the latter is not
liable for the payment of it as it is exempt in this particular transaction by operation of law to pay the
indirect tax. Such exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code, as
amended (now Sec. 108 [b] [3] of R.A. 8424), which provides:

Section 102. Value-added tax on sale of services.- (a) Rate and base of tax - There shall be levied,
assessed and collected, a value-added tax equivalent to 10% of gross receipts derived by any
person engaged in the sale of services x x x; Provided, that the following services performed in the
Philippines by VAT registered persons shall be subject to 0%.

xxxx

(3) Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services to
zero (0%) rate (emphasis supplied).

The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the extension of
such exemption to entities or individuals dealing with PAGCOR in casino operations are best
elucidated from the 1987 case of Commissioner of Internal Revenue v. John Gotamco & Sons,
Inc., where the absolute tax exemption of the World Health Organization (WHO) upon an
international agreement was upheld. We held in said case that the exemption of contractee WHO
should be implemented to mean that the entity or person exempt is the contractor itself who
constructed the building owned by contractee WHO, and such does not violate the rule that tax
exemptions are personal because the manifest intention of the agreement is to exempt the
contractor so that no contractor's tax may be shifted to the contractee WHO. Thus, the proviso in
P.D. 1869, extending the exemption to entities or individuals dealing with PAGCOR in casino
operations, is clearly to proscribe any indirect tax, like VAT, that may be shifted to PAGCOR.40

Although the basis of the exemption of PAGCOR and Acesite from VAT in the case of The
Commissioner of Internal Revenue v. Acesite (Philippines) Hotel Corporation was Section 102 (b) of
the 1977 Tax Code, as amended, which section was retained as Section 108 (B) (3) in R.A. No.
8424,41 it is still applicable to this case, since the provision relied upon has been retained in R.A. No.
9337.421avvphi1

It is settled rule that in case of discrepancy between the basic law and a rule or regulation issued to
implement said law, the basic law prevails, because the said rule or regulation cannot go beyond the
terms and provisions of the basic law.43 RR No. 16-2005, therefore, cannot go beyond the provisions
of R.A. No. 9337. Since PAGCOR is exempt from VAT under R.A. No. 9337, the BIR exceeded its
authority in subjecting PAGCOR to 10% VAT under RR No. 16-2005; hence, the said regulatory
provision is hereby nullified.

WHEREFORE, the petition is PARTLY GRANTED. Section 1 of Republic Act No. 9337, amending
Section 27 (c) of the National Internal Revenue Code of 1997, by excluding petitioner Philippine
Amusement and Gaming Corporation from the enumeration of government-owned and controlled
corporations exempted from corporate income tax is valid and constitutional, while BIR Revenue
Regulations No. 16-2005 insofar as it subjects PAGCOR to 10% VAT is null and void for being
contrary to the National Internal Revenue Code of 1997, as amended by Republic Act No. 9337.

No costs.

SO ORDERED.

G.R. No. 173425               September 4, 2012

FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE and REVENUE DISTRICT OFFICER, REVENUE
DISTRICT NO. 44, TAGUIG and PATEROS, BUREAU OF INTERNAL REVENUE, Respondents.

DECISION

DEL CASTILLO, J.:

Courts cannot limit the application or coverage of a law, nor can it impose conditions not provided
therein. To do so constitutes judicial legislation.

This Petition for Review on Certiorari under Rule 45 of the Rules of Court assails the July 7, 2006
Decision of the Court of Appeals (CA) in CA-G.R. SP No. 61436, the dispositive portion of which
1 

reads.

WHEREFORE, the instant petition is hereby DISMISSED. ACCORDINGLY, the Decision dated

October 12, 2000 of the Court of Tax Appeals in CTA Case No. 5735, denying petitioner’s claim for
refund in the amount of Three Hundred Fifty-Nine Million Six Hundred Fifty-Two Thousand Nine
Pesos and Forty-Seven Centavos (₱ 359,652,009.47), is hereby AFFIRMED.
 SO ORDERED. 2

Factual Antecedents

Petitioner Fort Bonifacio Development Corporation (FBDC) is a duly registered domestic corporation
engaged in the development and sale of real property. The Bases Conversion Development
3 

Authority (BCDA), a wholly owned government corporation created under Republic Act (RA) No.
7227, owns 45% of petitioner’s issued and outstanding capital stock; while the Bonifacio Land
4 

Corporation, a consortium of private domestic corporations, owns the remaining 55%. 5

On February 8, 1995, by virtue of RA 7227 and Executive Order No. 40, dated December 8, 1992,
6 

petitioner purchased from the national government a portion of the Fort Bonifacio reservation, now
known as the Fort Bonifacio Global City (Global City). 7

On January 1, 1996, RA 7716 restructured the Value-Added Tax (VAT) system by amending certain
8 

provisions of the old National Internal Revenue Code (NIRC). RA 7716 extended the coverage of
VAT to real properties held primarily for sale to customers or held for lease in the ordinary course of
trade or business. 9

On September 19, 1996, petitioner submitted to the Bureau of Internal Revenue (BIR) Revenue
District No. 44, Taguig and Pateros, an inventory of all its real properties, the book value of which
aggregated ₱ 71,227,503,200. Based on this value, petitioner claimed that it is entitled to a
10 

transitional input tax credit of ₱ 5,698,200,256, pursuant to Section 105 of the old NIRC.
11  12 

In October 1996, petitioner started selling Global City lots to interested buyers. 13

For the first quarter of 1997, petitioner generated a total amount of ₱ 3,685,356,539.50 from its sales
and lease of lots, on which the output VAT payable was ₱ 368,535,653.95. Petitioner paid the
14 

output VAT by making cash payments to the BIR totalling ₱ 359,652,009.47 and crediting its
unutilized input tax credit on purchases of goods and services of ₱ 8,883,644.48. 15

Realizing that its transitional input tax credit was not applied in computing its output VAT for the first
quarter of 1997, petitioner on November 17, 1998 filed with the BIR a claim for refund of the amount
of ₱ 359,652,009.47 erroneously paid as output VAT for the said period. 16

Ruling of the Court of Tax Appeals

On February 24, 1999, due to the inaction of the respondent Commissioner of Internal Revenue
(CIR), petitioner elevated the matter to the Court of Tax Appeals (CTA) via a Petition for Review. 17

In opposing the claim for refund, respondents interposed the following special and affirmative
defenses:

xxxx

8. Under Revenue Regulations No. 7-95, implementing Section 105 of the Tax Code as amended by
E.O. 273, the basis of the presumptive input tax, in the case of real estate dealers, is the
improvements, such as buildings, roads, drainage systems, and other similar structures, constructed
on or after January 1, 1988.
9. Petitioner, by submitting its inventory listing of real properties only on September 19, 1996, failed
to comply with the aforesaid revenue regulations mandating that for purposes of availing the
presumptive input tax credits under its Transitory Provisions, "an inventory as of December 31,
1995, of such goods or properties and improvements showing the quantity, description, and amount
should be filed with the RDO no later than January 31, 1996. x x x" 18

On October 12, 2000, the CTA denied petitioner’s claim for refund. According to the CTA, "the
benefit of transitional input tax credit comes with the condition that business taxes should have been
paid first." In this case, since petitioner acquired the Global City property under a VAT-free sale
19 

transaction, it cannot avail of the transitional input tax credit. The CTA likewise pointed out that
20 

under Revenue Regulations No. (RR) 7-95, implementing Section 105 of the old NIRC, the 8%
transitional input tax credit should be based on the value of the improvements on land such as
buildings, roads, drainage system and other similar structures, constructed on or after January 1,
1998, and not on the book value of the real property. Thus, the CTA disposed of the case in this
21 

manner:

WHEREFORE, in view of all the foregoing, the claim for refund representing alleged overpaid value-
added tax covering the first quarter of 1997 is hereby DENIED for lack of merit.

SO ORDERED. 22

Ruling of the Court of Appeals

Aggrieved, petitioner filed a Petition for Review under Rule 43 of the Rules of Court before the CA.
23 

On July 7, 2006, the CA affirmed the decision of the CTA. The CA agreed that petitioner is not
entitled to the 8% transitional input tax credit since it did not pay any VAT when it purchased the
Global City property. The CA opined that transitional input tax credit is allowed only when business
24 

taxes have been paid and passed-on as part of the purchase price. In arriving at this conclusion, the
25 

CA relied heavily on the historical background of transitional input tax credit. As to the validity of RR
26 

7-95, which limited the 8% transitional input tax to the value of the improvements on the land, the CA
said that it is entitled to great weight as it was issued pursuant to Section 245 of the old NIRC.
27  28

Issues

Hence, the instant petition with the principal issue of whether petitioner is entitled to a refund of ₱
359,652,009.47 erroneously paid as output VAT for the first quarter of 1997, the resolution of which
depends on:

3.05.a. Whether Revenue Regulations No. 6-97 effectively repealed or repudiated Revenue
Regulations No. 7-95 insofar as the latter limited the transitional/presumptive input tax credit which
may be claimed under Section 105 of the National Internal Revenue Code to the "improvements" on
real properties.

3.05.b. Whether Revenue Regulations No. 7-95 is a valid implementation of Section 105 of the
National Internal Revenue Code.

3.05.c. Whether the issuance of Revenue Regulations No. 7-95 by the Bureau of Internal Revenue,
and declaration of validity of said Regulations by the Court of Tax Appeals and Court of Appeals,
were in violation of the fundamental principle of separation of powers.
3.05.d. Whether there is basis and necessity to interpret and construe the provisions of Section 105
of the National Internal Revenue Code.

3.05.e. Whether there must have been previous payment of business tax by petitioner on its land
before it may claim the input tax credit granted by Section 105 of the National Internal Revenue
Code.

3.05.f. Whether the Court of Appeals and Court of Tax Appeals merely speculated on the purpose of
the transitional/presumptive input tax provided for in Section 105 of the National Internal Revenue
Code.

3.05.g. Whether the economic and social objectives in the acquisition of the subject property by
petitioner from the Government should be taken into consideration. 29

Petitioner’s Arguments

Petitioner claims that it is entitled to recover the amount of ₱ 359,652,009.47 erroneously paid as
output VAT for the first quarter of 1997 since its transitional input tax credit of ₱ 5,698,200,256 is
more than sufficient to cover its output VAT liability for the said period.30

Petitioner assails the pronouncement of the CA that prior payment of taxes is required to avail of the
8% transitional input tax credit. Petitioner contends that there is nothing in Section 105 of the old
31 

NIRC to support such conclusion. 32

Petitioner further argues that RR 7-95, which limited the 8% transitional input tax credit to the value
of the improvements on the land, is invalid because it goes against the express provision of Section
105 of the old NIRC, in relation to Section 100 of the same Code, as amended by RA 7716.
33  34

Respondents’ Arguments

Respondents, on the other hand, maintain that petitioner is not entitled to a transitional input tax
credit because no taxes were paid in the acquisition of the Global City property. Respondents assert
35 

that prior payment of taxes is inherent in the nature of a transitional input tax. Regarding RR 7-95,
36 

respondents insist that it is valid because it was issued by the Secretary of Finance, who is
mandated by law to promulgate all needful rules and regulations for the implementation of Section
105 of the old NIRC. 37

Our Ruling

The petition is meritorious.

The issues before us are no longer new or novel as these have been resolved in the related case
of Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue. 38

Prior payment of taxes is not required

for a taxpayer to avail of the 8%
transitional input tax credit

Section 105 of the old NIRC reads:

SEC. 105. Transitional input tax credits. – A person who becomes liable to value-added tax or any
person who elects to be a VAT-registered person shall, subject to the filing of an inventory as
prescribed by regulations, be allowed input tax on his beginning inventory of goods, materials and
supplies equivalent to 8% of the value of such inventory or the actual value-added tax paid on such
goods, materials and supplies, whichever is higher, which shall be creditable against the output tax.
(Emphasis supplied.)

Contrary to the view of the CTA and the CA, there is nothing in the above-quoted provision to
indicate that prior payment of taxes is necessary for the availment of the 8% transitional input tax
credit. Obviously, all that is required is for the taxpayer to file a beginning inventory with the BIR.

To require prior payment of taxes, as proposed in the Dissent is not only tantamount to judicial
legislation but would also render nugatory the provision in Section 105 of the old NIRC that the
transitional input tax credit shall be "8% of the value of [the beginning] inventory or the actual [VAT]
paid on such goods, materials and supplies, whichever is higher" because the actual VAT (now
12%) paid on the goods, materials, and supplies would always be higher than the 8% (now 2%) of
the beginning inventory which, following the view of Justice Carpio, would have to exclude all goods,
materials, and supplies where no taxes were paid. Clearly, limiting the value of the beginning
inventory only to goods, materials, and supplies, where prior taxes were paid, was not the intention
of the law. Otherwise, it would have specifically stated that the beginning inventory excludes goods,
materials, and supplies where no taxes were paid. As retired Justice Consuelo Ynares-Santiago has
pointed out in her Concurring Opinion in the earlier case of Fort Bonifacio:

If the intent of the law were to limit the input tax to cases where actual VAT was paid, it could have
simply said that the tax base shall be the actual value-added tax paid. Instead, the law as framed
contemplates a situation where a transitional input tax credit is claimed even if there was no actual
payment of VAT in the underlying transaction. In such cases, the tax base used shall be the value of
the beginning inventory of goods, materials and supplies. 39

Moreover, prior payment of taxes is not required to avail of the transitional input tax credit because it
is not a tax refund per se but a tax credit. Tax credit is not synonymous to tax refund. Tax refund is
defined as the money that a taxpayer overpaid and is thus returned by the taxing authority. Tax 40 

credit, on the other hand, is an amount subtracted directly from one’s total tax liability. It is any
41 

amount given to a taxpayer as a subsidy, a refund, or an incentive to encourage investment. Thus,

unlike a tax refund, prior payment of taxes is not a prerequisite to avail of a tax credit. In fact, in
Commissioner of Internal Revenue v. Central Luzon Drug Corp., we declared that prior payment of
42 

taxes is not required in order to avail of a tax credit. Pertinent portions of the Decision read:
43 

While a tax liability is essential to the availment or use of any tax credit, prior tax payments are not.
On the contrary, for the existence or grant solely of such credit, neither a tax liability nor a prior tax
payment is needed. The Tax Code is in fact replete with provisions granting or allowing tax credits,
even though no taxes have been previously paid.

For example, in computing the estate tax due, Section 86(E) allows a tax credit -- subject to certain
limitations -- for estate taxes paid to a foreign country. Also found in Section 101(C) is a similar
provision for donor’s taxes -- again when paid to a foreign country -- in computing for the donor’s tax
due. The tax credits in both instances allude to the prior payment of taxes, even if not made to our
government.

Under Section 110, a VAT (Value-Added Tax) - registered person engaging in transactions --
whether or not subject to the VAT -- is also allowed a tax credit that includes a ratable portion of any
input tax not directly attributable to either activity. This input tax may either be the VAT on the
purchase or importation of goods or services that is merely due from -- not necessarily paid by --
such VAT-registered person in the course of trade or business; or the transitional input tax
determined in accordance with Section 111(A). The latter type may in fact be an amount equivalent
to only eight percent of the value of a VAT-registered person’s beginning inventory of goods,
materials and supplies, when such amount -- as computed -- is higher than the actual VAT paid on
the said items. Clearly from this provision, the tax credit refers to an input tax that is either due only
or given a value by mere comparison with the VAT actually paid -- then later prorated. No tax is
actually paid prior to the availment of such credit.

In Section 111(B), a one and a half percent input tax credit that is merely presumptive is allowed. For
the purchase of primary agricultural products used as inputs -- either in the processing of sardines,
mackerel and milk, or in the manufacture of refined sugar and cooking oil -- and for the contract price
of public works contracts entered into with the government, again, no prior tax payments are needed
for the use of the tax credit.

More important, a VAT-registered person whose sales are zero-rated or effectively zero-rated may,
under Section 112(A), apply for the issuance of a tax credit certificate for the amount of creditable
input taxes merely due -- again not necessarily paid to -- the government and attributable to such
sales, to the extent that the input taxes have not been applied against output taxes. Where a
taxpayer is engaged in zero-rated or effectively zero-rated sales and also in taxable or exempt sales,
the amount of creditable input taxes due that are not directly and entirely attributable to any one of
these transactions shall be proportionately allocated on the basis of the volume of sales. Indeed, in
availing of such tax credit for VAT purposes, this provision -- as well as the one earlier mentioned --
shows that the prior payment of taxes is not a requisite.

It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of a tax credit
allowed, even though no prior tax payments are not required. Specifically, in this provision, the
imposition of a final withholding tax rate on cash and/or property dividends received by a nonresident
foreign corporation from a domestic corporation is subjected to the condition that a foreign tax credit
will be given by the domiciliary country in an amount equivalent to taxes that are merely deemed
paid. Although true, this provision actually refers to the tax credit as a condition only for the
imposition of a lower tax rate, not as a deduction from the corresponding tax liability. Besides, it is
not our government but the domiciliary country that credits against the income tax payable to the
latter by the foreign corporation, the tax to be foregone or spared.

In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as credits,

against the income tax imposable under Title II, the amount of income taxes merely incurred -- not
necessarily paid -- by a domestic corporation during a taxable year in any foreign country. Moreover,
Section 34(C)(5) provides that for such taxes incurred but not paid, a tax credit may be allowed,
subject to the condition precedent that the taxpayer shall simply give a bond with sureties
satisfactory to and approved by petitioner, in such sum as may be required; and further conditioned
upon payment by the taxpayer of any tax found due, upon petitioner’s redetermination of it.

In addition to the above-cited provisions in the Tax Code, there are also tax treaties and special laws
that grant or allow tax credits, even though no prior tax payments have been made.

Under the treaties in which the tax credit method is used as a relief to avoid double taxation, income
that is taxed in the state of source is also taxable in the state of residence, but the tax paid in the
former is merely allowed as a credit against the tax levied in the latter. Apparently, payment is made
to the state of source, not the state of residence. No tax, therefore, has been previously paid to the
latter.
Under special laws that particularly affect businesses, there can also be tax credit incentives. To
illustrate, the incentives provided for in Article 48 of Presidential Decree No. (PD) 1789, as amended
by Batas Pambansa Blg. (BP) 391, include tax credits equivalent to either five percent of the net
value earned, or five or ten percent of the net local content of export. In order to avail of such credits
under the said law and still achieve its objectives, no prior tax payments are necessary.

From all the foregoing instances, it is evident that prior tax payments are not indispensable to the
availment of a tax credit. Thus, the CA correctly held that the availment under RA 7432 did not
require prior tax payments by private establishments concerned. However, we do not agree with its
finding that the carry-over of tax credits under the said special law to succeeding taxable periods,
and even their application against internal revenue taxes, did not necessitate the existence of a tax
liability.

The examples above show that a tax liability is certainly important in the availment or use, not the
existence or grant, of a tax credit. Regarding this matter, a private establishment reporting a net loss
in its financial statements is no different from another that presents a net income. Both are entitled to
the tax credit provided for under RA 7432, since the law itself accords that unconditional benefit.
However, for the losing establishment to immediately apply such credit, where no tax is due, will be
an improvident usance. 44

In this case, when petitioner realized that its transitional input tax credit was not applied in computing
its output VAT for the 1st quarter of 1997, it filed a claim for refund to recover the output VAT it
erroneously or excessively paid for the 1st quarter of 1997. In filing a claim for tax refund, petitioner
is simply applying its transitional input tax credit against the output VAT it has paid. Hence, it is
merely availing of the tax credit incentive given by law to first time VAT taxpayers. As we have said
in the earlier case of Fort Bonifacio, the provision on transitional input tax credit was enacted to
benefit first time VAT taxpayers by mitigating the impact of VAT on the taxpayer. Thus, contrary to
45 

the view of Justice Carpio, the granting of a transitional input tax credit in favor of petitioner, which
would be paid out of the general fund of the government, would be an appropriation authorized by
law, specifically Section 105 of the old NIRC.

The history of the transitional input tax credit likewise does not support the ruling of the CTA and CA.
In our Decision dated April 2, 2009, in the related case of Fort Bonifacio, we explained that:

If indeed the transitional input tax credit is integrally related to previously paid sales taxes, the
purported causal link between those two would have been nonetheless extinguished long ago. Yet
Congress has reenacted the transitional input tax credit several times; that fact simply belies the
absence of any relationship between such tax credit and the long-abolished sales taxes.

Obviously then, the purpose behind the transitional input tax credit is not confined to the transition
from sales tax to VAT.

There is hardly any constricted definition of "transitional" that will limit its possible meaning to the
shift from the sales tax regime to the VAT regime. Indeed, it could also allude to the transition one
undergoes from not being a VAT-registered person to becoming a VAT-registered person. Such
transition does not take place merely by operation of law, E.O. No. 273 or Rep. Act No. 7716 in
particular. It could also occur when one decides to start a business. Section 105 states that the
transitional input tax credits become available either to (1) a person who becomes liable to VAT; or
(2) any person who elects to be VAT-registered. The clear language of the law entitles new trades or
businesses to avail of the tax credit once they become VAT-registered. The transitional input tax
credit, whether under the Old NIRC or the New NIRC, may be claimed by a newly-VAT registered
person such as when a business as it commences operations. If we view the matter from the
perspective of a starting entrepreneur, greater clarity emerges on the continued utility of the
transitional input tax credit.

Following the theory of the CTA, the new enterprise should be able to claim the transitional input tax
credit because it has presumably paid taxes, VAT in particular, in the purchase of the goods,
materials and supplies in its beginning inventory. Consequently, as the CTA held below, if the new
enterprise has not paid VAT in its purchases of such goods, materials and supplies, then it should
not be able to claim the tax credit. However, it is not always true that the acquisition of such goods,
materials and supplies entail the payment of taxes on the part of the new business. In fact, this could
occur as a matter of course by virtue of the operation of various provisions of the NIRC, and not only
on account of a specially legislated exemption.

Let us cite a few examples drawn from the New NIRC. If the goods or properties are not acquired
from a person in the course of trade or business, the transaction would not be subject to VAT under
Section 105. The sale would be subject to capital gains taxes under Section 24 (D), but since capital
gains is a tax on passive income it is the seller, not the buyer, who generally would shoulder the tax.

If the goods or properties are acquired through donation, the acquisition would not be subject to VAT
but to donor’s tax under Section 98 instead. It is the donor who would be liable to pay the donor’s
tax, and the donation would be exempt if the donor’s total net gifts during the calendar year does not
exceed ₱ 100,000.00.

If the goods or properties are acquired through testate or intestate succession, the transfer would not
be subject to VAT but liable instead for estate tax under Title III of the New NIRC. If the net estate
does not exceed ₱ 200,000.00, no estate tax would be assessed.

The interpretation proffered by the CTA would exclude goods and properties which are acquired
through sale not in the ordinary course of trade or business, donation or through succession, from
the beginning inventory on which the transitional input tax credit is based. This prospect all but
highlights the ultimate absurdity of the respondents’ position. Again, nothing in the Old NIRC (or
even the New NIRC) speaks of such a possibility or qualifies the previous payment of VAT or any
other taxes on the goods, materials and supplies as a pre-requisite for inclusion in the beginning
inventory.

It is apparent that the transitional input tax credit operates to benefit newly VAT-registered persons,
whether or not they previously paid taxes in the acquisition of their beginning inventory of goods,
materials and supplies. During that period of transition from non-VAT to VAT status, the transitional
input tax credit serves to alleviate the impact of the VAT on the taxpayer. At the very beginning, the
VAT-registered taxpayer is obliged to remit a significant portion of the income it derived from its
sales as output VAT. The transitional input tax credit mitigates this initial diminution of the taxpayer's
income by affording the opportunity to offset the losses incurred through the remittance of the output
VAT at a stage when the person is yet unable to credit input VAT payments.

There is another point that weighs against the CTA’s interpretation. Under Section 105 of the Old
NIRC, the rate of the transitional input tax credit is "8% of the value of such inventory or the actual
value-added tax paid on such goods, materials and supplies, whichever is higher." If indeed the
transitional input tax credit is premised on the previous payment of VAT, then it does not make
sense to afford the taxpayer the benefit of such credit based on "8% of the value of such inventory"
should the same prove higher than the actual VAT paid. This intent that the CTA alluded to could
have been implemented with ease had the legislature shared such intent by providing the actual
VAT paid as the sole basis for the rate of the transitional input tax credit.
46
In view of the foregoing, we find petitioner entitled to the 8% transitional input tax credit provided in
Section 105 of the old NIRC. The fact that it acquired the Global City property under a tax-free
transaction makes no difference as prior payment of taxes is not a pre-requisite.

Section 4.105-1 of RR 7-95 is

inconsistent with Section 105 of the old
NIRC

As regards Section 4.105-1 of RR 7-95 which limited the 8% transitional input tax credit to the value
47 

of the improvements on the land, the same contravenes the provision of Section 105 of the old
NIRC, in relation to Section 100 of the same Code, as amended by RA 7716, which defines "goods
or properties," to wit:

SEC. 100. Value-added tax on sale of goods or properties. – (a) Rate and base of tax. – There shall
be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-
added tax equivalent to 10% of the gross selling price or gross value in money of the goods or
properties sold, bartered or exchanged, such tax to be paid by the seller or transferor.

(1) The term "goods or properties" shall mean all tangible and intangible objects which are capable
of pecuniary estimation and shall include:

(A) Real properties held primarily for sale to customers or held for lease in the
ordinary course of trade or business; x x x

In fact, in our Resolution dated October 2, 2009, in the related case of Fort Bonifacio, we ruled that
Section 4.105-1 of RR 7-95, insofar as it limits the transitional input tax credit to the value of the
improvement of the real properties, is a nullity. Pertinent portions of the Resolution read:
48 

As mandated by Article 7 of the Civil Code, an administrative rule or regulation cannot contravene
the law on which it is based. RR 7-95 is inconsistent with Section 105 insofar as the definition of the
term "goods" is concerned. This is a legislative act beyond the authority of the CIR and the Secretary
of Finance. The rules and regulations that administrative agencies promulgate, which are the
product of a delegated legislative power to create new and additional legal provisions that have the
effect of law, should be within the scope of the statutory authority granted by the legislature to the
objects and purposes of the law, and should not be in contradiction to, but in conformity with, the
standards prescribed by law.

To be valid, an administrative rule or regulation must conform, not contradict, the provisions of the
enabling law.  An implementing rule or regulation cannot modify, expand, or subtract from the law it
1âwphi1

is intended to implement. Any rule that is not consistent with the statute itself is null and void.

While administrative agencies, such as the Bureau of Internal Revenue, may issue regulations to
implement statutes, they are without authority to limit the scope of the statute to less than what it
provides, or extend or expand the statute beyond its terms, or in any way modify explicit provisions
of the law. Indeed, a quasi-judicial body or an administrative agency for that matter cannot amend an
act of Congress. Hence, in case of a discrepancy between the basic law and an interpretative or
administrative ruling, the basic law prevails.

To recapitulate, RR 7-95, insofar as it restricts the definition of "goods" as basis of transitional input
tax credit under Section 105 is a nullity. 49
As we see it then, the 8% transitional input tax credit should not be limited to the value of the
improvements on the real properties but should include the value of the real properties as well.

In this case, since petitioner is entitled to a transitional input tax credit of ₱ 5,698,200,256, which is
more than sufficient to cover its output VAT liability for the first quarter of 1997, a refund of the
amount of ₱ 359,652,009.47 erroneously paid as output VAT for the said quarter is in order.

WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated July 7, 2006 of the
Court of Appeals in CA-G.R. SP No. 61436 is REVERSED and SET ASIDE. Respondent
Commissioner of Internal Revenue is ordered to refund to petitioner Fort Bonifacio Development
Corporation the amount of ₱ 359,652,009.47 paid as output VAT for the first quarter of 1997 in light
of the transitional input tax credit available to petitioner for the said quarter, or in the alternative, to
issue a tax credit certificate corresponding to such amount.

SO ORDERED.

FIRST DIVISION

G.R. No. 184823               October 6, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
AICHI FORGING COMPANY OF ASIA, INC., Respondent.

DECISION

DEL CASTILLO, J.:

A taxpayer is entitled to a refund either by authority of a statute expressly granting such right,
privilege, or incentive in his favor, or under the principle of solutio indebiti requiring the return of
taxes erroneously or illegally collected. In both cases, a taxpayer must prove not only his entitlement
to a refund but also his compliance with the procedural due process as non-observance of the
prescriptive periods within which to file the administrative and the judicial claims would result in the
denial of his claim.

This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the July
30, 2008 Decision1 and the October 6, 2008 Resolution2 of the Court of Tax Appeals (CTA) En Banc.

Factual Antecedents

Respondent Aichi Forging Company of Asia, Inc., a corporation duly organized and existing under
the laws of the Republic of the Philippines, is engaged in the manufacturing, producing, and
processing of steel and its by-products.3 It is registered with the Bureau of Internal Revenue (BIR) as
a Value-Added Tax (VAT) entity4 and its products, "close impression die steel forgings" and "tool and
dies," are registered with the Board of Investments (BOI) as a pioneer status.5

On September 30, 2004, respondent filed a claim for refund/credit of input VAT for the period July 1,
2002 to September 30, 2002 in the total amount of ₱3,891,123.82 with the petitioner Commissioner
of Internal Revenue (CIR), through the Department of Finance (DOF) One-Stop Shop Inter-Agency
Tax Credit and Duty Drawback Center.6
Proceedings before the Second Division of the CTA

On even date, respondent filed a Petition for Review7 with the CTA for the refund/credit of the same
input VAT. The case was docketed as CTA Case No. 7065 and was raffled to the Second Division of
the CTA.

In the Petition for Review, respondent alleged that for the period July 1, 2002 to September 30,
2002, it generated and recorded zero-rated sales in the amount of ₱131,791,399.00,8 which was
paid pursuant to Section 106(A) (2) (a) (1), (2) and (3) of the National Internal Revenue Code of
1997 (NIRC);9 that for the said period, it incurred and paid input VAT amounting to ₱3,912,088.14
from purchases and importation attributable to its zero-rated sales;10 and that in its application for
refund/credit filed with the DOF One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center,
it only claimed the amount of ₱3,891,123.82.11

In response, petitioner filed his Answer12 raising the following special and affirmative defenses, to wit:

4. Petitioner’s alleged claim for refund is subject to administrative investigation by the

Bureau;

5. Petitioner must prove that it paid VAT input taxes for the period in question;

6. Petitioner must prove that its sales are export sales contemplated under Sections 106(A)
(2) (a), and 108(B) (1) of the Tax Code of 1997;

7. Petitioner must prove that the claim was filed within the two (2) year period prescribed in
Section 229 of the Tax Code;

8. In an action for refund, the burden of proof is on the taxpayer to establish its right to
refund, and failure to sustain the burden is fatal to the claim for refund; and

9. Claims for refund are construed strictly against the claimant for the same partake of the
nature of exemption from taxation.13

Trial ensued, after which, on January 4, 2008, the Second Division of the CTA rendered a Decision
partially granting respondent’s claim for refund/credit. Pertinent portions of the Decision read:

For a VAT registered entity whose sales are zero-rated, to validly claim a refund, Section 112 (A) of
the NIRC of 1997, as amended, provides:

SEC. 112. Refunds or Tax Credits of Input Tax. –

(A) Zero-rated or Effectively Zero-rated Sales. – Any VAT-registered person, whose sales are zero-
rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when
the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax
due or paid attributable to such sales, except transitional input tax, to the extent that such input tax
has not been applied against output tax: x x x

Pursuant to the above provision, petitioner must comply with the following requisites: (1) the
taxpayer is engaged in sales which are zero-rated or effectively zero-rated; (2) the taxpayer is VAT-
registered; (3) the claim must be filed within two years after the close of the taxable quarter when
such sales were made; and (4) the creditable input tax due or paid must be attributable to such
sales, except the transitional input tax, to the extent that such input tax has not been applied against
the output tax.

The Court finds that the first three requirements have been complied [with] by petitioner.

With regard to the first requisite, the evidence presented by petitioner, such as the Sales Invoices
(Exhibits "II" to "II-262," "JJ" to "JJ-431," "KK" to "KK-394" and "LL") shows that it is engaged in sales
which are zero-rated.

The second requisite has likewise been complied with. The Certificate of Registration with OCN
1RC0000148499 (Exhibit "C") with the BIR proves that petitioner is a registered VAT taxpayer.

In compliance with the third requisite, petitioner filed its administrative claim for refund on September
30, 2004 (Exhibit "N") and the present Petition for Review on September 30, 2004, both within the
two (2) year prescriptive period from the close of the taxable quarter when the sales were made,
which is from September 30, 2002.

As regards, the fourth requirement, the Court finds that there are some documents and claims of
petitioner that are baseless and have not been satisfactorily substantiated.

xxxx

In sum, petitioner has sufficiently proved that it is entitled to a refund or issuance of a tax credit
certificate representing unutilized excess input VAT payments for the period July 1, 2002 to
September 30, 2002, which are attributable to its zero-rated sales for the same period, but in the
reduced amount of ₱3,239,119.25, computed as follows:

Amount of Claimed Input VAT ₱ 3,891,123.82

Less:
Exceptions as found by the ICPA 41,020.37

Net Creditable Input VAT ₱ 3,850,103.45

Less:
Output VAT Due 610,984.20
Excess Creditable Input VAT ₱ 3,239,119.25

WHEREFORE, premises considered, the present Petition for Review is PARTIALLY GRANTED.
Accordingly, respondent is hereby ORDERED TO REFUND OR ISSUE A TAX CREDIT
CERTIFICATE in favor of petitioner [in] the reduced amount of THREE MILLION TWO HUNDRED
THIRTY NINE THOUSAND ONE HUNDRED NINETEEN AND 25/100 PESOS (₱3,239,119.25),
representing the unutilized input VAT incurred for the months of July to September 2002.

SO ORDERED.14

Dissatisfied with the above-quoted Decision, petitioner filed a Motion for Partial
Reconsideration,15 insisting that the administrative and the judicial claims were filed beyond the two-
year period to claim a tax refund/credit provided for under Sections 112(A) and 229 of the NIRC. He
reasoned that since the year 2004 was a leap year, the filing of the claim for tax refund/credit on
September 30, 2004 was beyond the two-year period, which expired on September 29, 2004.16 He
cited as basis Article 13 of the Civil Code,17 which provides that when the law speaks of a year, it is
equivalent to 365 days. In addition, petitioner argued that the simultaneous filing of the
administrative and the judicial claims contravenes Sections 112 and 229 of the NIRC.18 According to
the petitioner, a prior filing of an administrative claim is a "condition precedent"19 before a judicial
claim can be filed. He explained that the rationale of such requirement rests not only on the doctrine
of exhaustion of administrative remedies but also on the fact that the CTA is an appellate body which
exercises the power of judicial review over administrative actions of the BIR. 20

The Second Division of the CTA, however, denied petitioner’s Motion for Partial Reconsideration for
lack of merit. Petitioner thus elevated the matter to the CTA En Banc via a Petition for Review.21

Ruling of the CTA En Banc

On July 30, 2008, the CTA En Banc affirmed the Second Division’s Decision allowing the partial tax
refund/credit in favor of respondent. However, as to the reckoning point for counting the two-year
period, the CTA En Banc ruled:

Petitioner argues that the administrative and judicial claims were filed beyond the period allowed by
law and hence, the honorable Court has no jurisdiction over the same. In addition, petitioner further
contends that respondent's filing of the administrative and judicial [claims] effectively eliminates the
authority of the honorable Court to exercise jurisdiction over the judicial claim.

We are not persuaded.

Section 114 of the 1997 NIRC, and We quote, to wit:

SEC. 114. Return and Payment of Value-added Tax. –

(A) In General. – Every person liable to pay the value-added tax imposed under this Title shall file a
quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the
close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered
persons shall pay the value-added tax on a monthly basis.

[x x x x ]

Based on the above-stated provision, a taxpayer has twenty five (25) days from the close of each
taxable quarter within which to file a quarterly return of the amount of his gross sales or receipts. In
the case at bar, the taxable quarter involved was for the period of July 1, 2002 to September 30,
2002. Applying Section 114 of the 1997 NIRC, respondent has until October 25, 2002 within which to
file its quarterly return for its gross sales or receipts [with] which it complied when it filed its VAT
Quarterly Return on October 20, 2002.

In relation to this, the reckoning of the two-year period provided under Section 229 of the 1997 NIRC
should start from the payment of tax subject claim for refund. As stated above, respondent filed its
VAT Return for the taxable third quarter of 2002 on October 20, 2002. Thus, respondent's
administrative and judicial claims for refund filed on September 30, 2004 were filed on time because
AICHI has until October 20, 2004 within which to file its claim for refund.

In addition, We do not agree with the petitioner's contention that the 1997 NIRC requires the
previous filing of an administrative claim for refund prior to the judicial claim. This should not be the
case as the law does not prohibit the simultaneous filing of the administrative and judicial claims for
refund. What is controlling is that both claims for refund must be filed within the two-year prescriptive
period.

In sum, the Court En Banc finds no cogent justification to disturb the findings and conclusion spelled
out in the assailed January 4, 2008 Decision and March 13, 2008 Resolution of the CTA Second
Division. What the instant petition seeks is for the Court En Banc to view and appreciate the
evidence in their own perspective of things, which unfortunately had already been considered and
passed upon.

WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and DISMISSED
for lack of merit. Accordingly, the January 4, 2008 Decision and March 13, 2008 Resolution of the
CTA Second Division in CTA Case No. 7065 entitled, "AICHI Forging Company of Asia, Inc.
petitioner vs. Commissioner of Internal Revenue, respondent" are hereby AFFIRMED in toto.

SO ORDERED.22

Petitioner sought reconsideration but the CTA En Banc denied23 his Motion for Reconsideration.

Issue

Hence, the present recourse where petitioner interposes the issue of whether respondent’s judicial
and administrative claims for tax refund/credit were filed within the two-year prescriptive period
provided in Sections 112(A) and 229 of

the NIRC.24

Petitioner’s Arguments

Petitioner maintains that respondent’s administrative and judicial claims for tax refund/credit were
filed in violation of Sections 112(A) and 229 of the NIRC.25 He posits that pursuant to Article 13 of the
Civil Code,26 since the year 2004 was a leap year, the filing of the claim for tax refund/credit on
September 30, 2004 was beyond the two-year period, which expired on September 29, 2004.27

Petitioner further argues that the CTA En Banc erred in applying Section 114(A) of the NIRC in
determining the start of the two-year period as the said provision pertains to the compliance
requirements in the payment of VAT.28 He asserts that it is Section 112, paragraph (A), of the same
Code that should apply because it specifically provides for the period within which a claim for tax
refund/ credit should be made.29

Petitioner likewise puts in issue the fact that the administrative claim with the BIR and the judicial
claim with the CTA were filed on the same day.30 He opines that the simultaneous filing of the
administrative and the judicial claims contravenes Section 229 of the NIRC, which requires the prior
filing of an administrative claim.31 He insists that such procedural requirement is based on the
doctrine of exhaustion of administrative remedies and the fact that the CTA is an appellate body
exercising judicial review over administrative actions of the CIR.32

Respondent’s Arguments

For its part, respondent claims that it is entitled to a refund/credit of its unutilized input VAT for the
period July 1, 2002 to September 30, 2002 as a matter of right because it has substantially complied
with all the requirements provided by law.33 Respondent likewise defends the CTA En Banc in
applying Section 114(A) of the NIRC in computing the prescriptive period for the claim for tax
refund/credit. Respondent believes that Section 112(A) of the NIRC must be read together with
Section 114(A) of the same Code.34

As to the alleged simultaneous filing of its administrative and judicial claims, respondent contends
that it first filed an administrative claim with the One-Stop Shop Inter-Agency Tax Credit and Duty
Drawback Center of the DOF before it filed a judicial claim with the CTA.35 To prove this, respondent
points out that its Claimant Information Sheet No. 4970236 and BIR Form No. 1914 for the third
quarter of 2002,37 which were filed with the DOF, were attached as Annexes "M" and "N,"
respectively, to the Petition for Review filed with the CTA.38 Respondent further contends that the
non-observance of the 120-day period given to the CIR to act on the claim for tax refund/credit in
Section 112(D) is not fatal because what is important is that both claims are filed within the two-year
prescriptive period.39 In support thereof, respondent cites Commissioner of Internal Revenue v.
Victorias Milling Co., Inc.40 where it was ruled that "[i]f, however, the [CIR] takes time in deciding the
claim, and the period of two years is about to end, the suit or proceeding must be started in the
[CTA] before the end of the two-year period without awaiting the decision of the [CIR]."41 Lastly,
respondent argues that even if the period had already lapsed, it may be suspended for reasons of
equity considering that it is not a jurisdictional requirement.42

Our Ruling

The petition has merit.

Unutilized input VAT must be claimed within two years after the close of the taxable quarter when
the sales were made

In computing the two-year prescriptive period for claiming a refund/credit of unutilized input VAT, the
Second Division of the CTA applied Section 112(A) of the NIRC, which states:

SEC. 112. Refunds or Tax Credits of Input Tax. –

(A) Zero-rated or Effectively Zero-rated Sales – Any VAT-registered person, whose sales are zero-
rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when
the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax
due or paid attributable to such sales, except transitional input tax, to the extent that such input tax
has not been applied against output tax: Provided, however, That in the case of zero-rated sales
under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign
currency exchange proceeds thereof had been duly accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is
engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or
properties or services, and the amount of creditable input tax due or paid cannot be directly and
entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of
the volume of sales. (Emphasis supplied.)

The CTA En Banc, on the other hand, took into consideration Sections 114 and 229 of the NIRC,
which read:

SEC. 114. Return and Payment of Value-Added Tax. –

(A) In General. – Every person liable to pay the value-added tax imposed under this Title shall file a
quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the
close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered
persons shall pay the value-added tax on a monthly basis.

Any person, whose registration has been cancelled in accordance with Section 236, shall file a
return and pay the tax due thereon within twenty-five (25) days from the date of cancellation of
registration: Provided, That only one consolidated return shall be filed by the taxpayer for his
principal place of business or head office and all branches.

xxxx

SEC. 229. Recovery of tax erroneously or illegally collected. –

No suit or proceeding shall be maintained in any court for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any
penalty claimed to have been collected without authority, or of any sum alleged to have been
excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly
filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such
tax, penalty or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the
date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even without written claim therefor,
refund or credit any tax, where on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid. (Emphasis supplied.)

Hence, the CTA En Banc ruled that the reckoning of the two-year period for filing a claim for
refund/credit of unutilized input VAT should start from the date of payment of tax and not from the
close of the taxable quarter when the sales were made.43

The pivotal question of when to reckon the running of the two-year prescriptive period, however, has
already been resolved in Commissioner of Internal Revenue v. Mirant Pagbilao Corporation,44 where
we ruled that Section 112(A) of the NIRC is the applicable provision in determining the start of the
two-year period for claiming a refund/credit of unutilized input VAT, and that Sections 204(C) and
229 of the NIRC are inapplicable as "both provisions apply only to instances of erroneous payment
or illegal collection of internal revenue taxes."45 We explained that:

The above proviso [Section 112 (A) of the NIRC] clearly provides in no uncertain terms
that unutilized input VAT payments not otherwise used for any internal revenue tax due the
taxpayer must be claimed within two years reckoned from the close of the taxable quarter
when the relevant sales were made pertaining to the input VAT regardless of whether said tax
was paid or not. As the CA aptly puts it, albeit it erroneously applied the aforequoted Sec. 112 (A),
"[P]rescriptive period commences from the close of the taxable quarter when the sales were made
and not from the time the input VAT was paid nor from the time the official receipt was issued." Thus,
when a zero-rated VAT taxpayer pays its input VAT a year after the pertinent transaction, said
taxpayer only has a year to file a claim for refund or tax credit of the unutilized creditable input VAT.
The reckoning frame would always be the end of the quarter when the pertinent sales or transaction
was made, regardless when the input VAT was paid. Be that as it may, and given that the last
creditable input VAT due for the period covering the progress billing of September 6, 1996 is the
third quarter of 1996 ending on September 30, 1996, any claim for unutilized creditable input VAT
refund or tax credit for said quarter prescribed two years after September 30, 1996 or, to be precise,
on September 30, 1998. Consequently, MPC’s claim for refund or tax credit filed on December 10,
1999 had already prescribed.
 Reckoning for prescriptive period under
Secs. 204(C) and 229 of the NIRC inapplicable

To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of the NIRC which,
for the purpose of refund, prescribes a different starting point for the two-year prescriptive limit for
the filing of a claim therefor. Secs. 204(C) and 229 respectively provide:

Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. – The
Commissioner may –

xxxx

(c) Credit or refund taxes erroneously or illegally received or penalties imposed without authority,
refund the value of internal revenue stamps when they are returned in good condition by the
purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit
for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties
shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or
refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return
filed showing an overpayment shall be considered as a written claim for credit or refund.

xxxx

Sec. 229. Recovery of Tax Erroneously or Illegally Collected. – No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, of any sum alleged to have been excessively or in any manner wrongfully
collected without authority, or of any sum alleged to have been excessively or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but
such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid
under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the
date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid.

Notably, the above provisions also set a two-year prescriptive period, reckoned from date of
payment of the tax or penalty, for the filing of a claim of refund or tax credit. Notably too, both
provisions apply only to instances of erroneous payment or illegal collection of internal
revenue taxes.

MPC’s creditable input VAT not erroneously paid

For perspective, under Sec. 105 of the NIRC, creditable input VAT is an indirect tax which can be
shifted or passed on to the buyer, transferee, or lessee of the goods, properties, or services of the
taxpayer. The fact that the subsequent sale or transaction involves a wholly-tax exempt client,
resulting in a zero-rated or effectively zero-rated transaction, does not, standing alone, deprive the
taxpayer of its right to a refund for any unutilized creditable input VAT, albeit the erroneous, illegal,
or wrongful payment angle does not enter the equation.
xxxx

Considering the foregoing discussion, it is clear that Sec. 112 (A) of the NIRC, providing a two-
year prescriptive period reckoned from the close of the taxable quarter when the relevant
sales or transactions were made pertaining to the creditable input VAT, applies to the instant
case, and not to the other actions which refer to erroneous payment of taxes. 46 (Emphasis
supplied.)

In view of the foregoing, we find that the CTA En Banc erroneously applied Sections 114(A) and 229
of the NIRC in computing the two-year prescriptive period for claiming refund/credit of unutilized
input VAT. To be clear, Section 112 of the NIRC is the pertinent provision for the refund/credit of
input VAT. Thus, the two-year period should be reckoned from the close of the taxable quarter when
the sales were made.

The administrative claim was timely filed

Bearing this in mind, we shall now proceed to determine whether the administrative claim was timely
filed.

Relying on Article 13 of the Civil Code,47 which provides that a year is equivalent to 365 days, and
taking into account the fact that the year 2004 was a leap year, petitioner submits that the two-year
period to file a claim for tax refund/ credit for the period July 1, 2002 to September 30, 2002 expired
on September 29, 2004.48

We do not agree.

In Commissioner of Internal Revenue v. Primetown Property Group, Inc.,49 we said that as between
the Civil Code, which provides that a year is equivalent to 365 days, and the Administrative Code of
1987, which states that a year is composed of 12 calendar months, it is the latter that must prevail
following the legal maxim, Lex posteriori derogat priori.50 Thus:

Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of
1987 deal with the same subject matter – the computation of legal periods. Under the Civil Code, a
year is equivalent to 365 days whether it be a regular year or a leap year. Under the Administrative
Code of 1987, however, a year is composed of 12 calendar months. Needless to state, under the
Administrative Code of 1987, the number of days is irrelevant.

There obviously exists a manifest incompatibility in the manner of

computing legal periods under the Civil Code and the Administrative Code of 1987. For this reason,
we hold that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more
recent law, governs the computation of legal periods. Lex posteriori derogat priori.

Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this case, the two-
year prescriptive period (reckoned from the time respondent filed its final adjusted return on April 14,
1998) consisted of 24 calendar months, computed as follows:

Year 1 1st calendar month April 15, 1998 to May 14, 1998
2nd calendar month May 15, 1998 to June 14, 1998
 3rd calendar month June 15, 1998 to July 14, 1998
4th calendar month July 15, 1998 to August 14, 1998
5th calendar month August 15, 1998 to September 14, 1998
6th calendar month September 15, 1998 to October 14, 1998
7th calendar month October 15, 1998 to November 14, 1998
8th calendar month November 15, 1998 to December 14, 1998
9th calendar month December 15, 1998 to January 14, 1999
10th calendar month January 15, 1999 to February 14, 1999
11th calendar month February 15, 1999 to March 14, 1999
12th calendar month March 15, 1999 to April 14, 1999
Year 2 13th calendar month April 15, 1999 to May 14, 1999
14th calendar month May 15, 1999 to June 14, 1999
15th calendar month June 15, 1999 to July 14, 1999
16th calendar month July 15, 1999 to August 14, 1999
17th calendar month August 15, 1999 to September 14, 1999
18th calendar month September 15, 1999 to October 14, 1999
19th calendar month October 15, 1999 to November 14, 1999
20th calendar month November 15, 1999 to December 14, 1999
21st calendar month December 15, 1999 to January 14, 2000
22nd calendar month January 15, 2000 to February 14, 2000
23rd calendar month February 15, 2000 to March 14, 2000
24th calendar month March 15, 2000 to April 14, 2000

We therefore hold that respondent's petition (filed on April 14, 2000) was filed on the last day of the
24th calendar month from the day respondent filed its final adjusted return. Hence, it was filed within
the reglementary period.51

Applying this to the present case, the two-year period to file a claim for tax refund/credit for the
period July 1, 2002 to September 30, 2002 expired on September 30, 2004. Hence, respondent’s
administrative claim was timely filed.

The filing of the judicial claim was premature

However, notwithstanding the timely filing of the administrative claim, we

are constrained to deny respondent’s claim for tax refund/credit for having been filed in violation of
Section 112(D) of the NIRC, which provides that:
SEC. 112. Refunds or Tax Credits of Input Tax. –

xxxx

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within
one hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration
of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax
Appeals. (Emphasis supplied.)

Section 112(D) of the NIRC clearly provides that the CIR has "120 days, from the date of the
submission of the complete documents in support of the application [for tax refund/credit]," within
which to grant or deny the claim. In case of full or partial denial by the CIR, the taxpayer’s recourse
is to file an appeal before the CTA within 30 days from receipt of the decision of the CIR. However, if
after the 120-day period the CIR fails to act on the application for tax refund/credit, the remedy of the
taxpayer is to appeal the inaction of the CIR to CTA within 30 days.

In this case, the administrative and the judicial claims were simultaneously filed on September 30,
2004. Obviously, respondent did not wait for the decision of the CIR or the lapse of the 120-day
period. For this reason, we find the filing of the judicial claim with the CTA premature.

Respondent’s assertion that the non-observance of the 120-day period is not fatal to the filing of a
judicial claim as long as both the administrative and the judicial claims are filed within the two-year
prescriptive period52 has no legal basis.

There is nothing in Section 112 of the NIRC to support respondent’s view. Subsection (A) of the said
provision states that "any VAT-registered person, whose sales are zero-rated or effectively zero-
rated may, within two years after the close of the taxable quarter when the sales were made, apply
for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to
such sales." The phrase "within two (2) years x x x apply for the issuance of a tax credit certificate or
refund" refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA.
This is apparent in the first paragraph of subsection (D) of the same provision, which states that the
CIR has "120 days from the submission of complete documents in support of the application filed in
accordance with Subsections (A) and (B)" within which to decide on the claim.

In fact, applying the two-year period to judicial claims would render nugatory Section 112(D) of the
NIRC, which already provides for a specific period within which a taxpayer should appeal the
decision or inaction of the CIR. The second paragraph of Section 112(D) of the NIRC envisions two
scenarios: (1) when a decision is issued by the CIR before the lapse of the 120-day period; and (2)
when no decision is made after the 120-day period. In both instances, the taxpayer has 30 days
within which to file an appeal with the CTA. As we see it then, the 120-day period is crucial in filing
an appeal with the CTA.

With regard to Commissioner of Internal Revenue v. Victorias Milling, Co., Inc.53 relied upon by
respondent, we find the same inapplicable as the tax provision involved in that case is Section 306,
now Section 229 of the NIRC. And as already discussed, Section 229 does not apply to
refunds/credits of input VAT, such as the instant case.
In fine, the premature filing of respondent’s claim for refund/credit of input VAT before the CTA
warrants a dismissal inasmuch as no jurisdiction was acquired by the CTA.

WHEREFORE, the Petition is hereby GRANTED. The assailed July 30, 2008 Decision and the
October 6, 2008 Resolution of the Court of Tax Appeals are hereby REVERSED and SET ASIDE.
The Court of Tax Appeals Second Division is DIRECTED to dismiss CTA Case No. 7065 for having
been prematurely filed.

SO ORDERED.

G.R. No. 187485               February 12, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
SAN ROQUE POWER CORPORATION, Respondent.

X----------------------------X

G.R. No. 196113

TAGANITO MINING CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

x----------------------------x

G.R. No. 197156

PHILEX MINING CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

CARPIO, J.:

The Cases

G.R. No. 187485 is a petitiOn for review1 assailing the Decision2 promulgated on 25 March 2009 as
well as the Resolution3 promulgated on 24 April 2009 by the Court of Tax Appeals En Banc (CTA
EB) in CTA EB No. 408. The CTA EB affirmed the 29 November 2007 Amended Decision4 as well as
the 11 July 2008 Resolution5 of the Second Division of the Court of Tax Appeals (CTA Second
Division) in CTA Case No. 6647. The CTA Second Division ordered the Commissioner of Internal
Revenue (Commissioner) to refund or issue a tax credit for P483,797,599.65 to San Roque Power
Corporation (San Roque) for unutilized input value-added tax (VAT) on purchases of capital goods
and services for the taxable year 2001.

G.R. No. 196113 is a petition for review6 assailing the Decision7 promulgated on 8 December 2010
as well as the Resolution8 promulgated on 14 March 2011 by the CTA EB in CTA EB No. 624. In its
Decision, the CTA EB reversed the 8 January 2010 Decision9 as well as the 7 April 2010
Resolution10of the CTA Second Division and granted the CIR’s petition for review in CTA Case No.
7574. The CTA EB dismissed, for having been prematurely filed, Taganito Mining Corporation’s
(Taganito) judicial claim for P8,365,664.38 tax refund or credit.

G.R. No. 197156 is a petition for review11 assailing the Decision12promulgated on 3 December 2010
as well as the Resolution13 promulgated on 17 May 2011 by the CTA EB in CTA EB No. 569. The
CTA EB affirmed the 20 July 2009 Decision as well as the 10 November 2009 Resolution of the CTA
Second Division in CTA Case No. 7687. The CTA Second Division denied, due to prescription,
Philex Mining Corporation’s (Philex) judicial claim for P23,956,732.44 tax refund or credit.

On 3 August 2011, the Second Division of this Court resolved14 to consolidate G.R. No. 197156 with
G.R. No. 196113, which were pending in the same Division, and with G.R. No. 187485, which was
assigned to the Court En Banc. The Second Division also resolved to refer G.R. Nos. 197156 and
196113 to the Court En Banc, where G.R. No. 187485, the lower-numbered case, was assigned.

G.R. No. 187485

CIR v. San Roque Power Corporation

The Facts

The CTA EB’s narration of the pertinent facts is as follows:

[CIR] is the duly appointed Commissioner of Internal Revenue, empowered, among others, to act
upon and approve claims for refund or tax credit, with office at the Bureau of Internal Revenue
("BIR") National Office Building, Diliman, Quezon City.

[San Roque] is a domestic corporation duly organized and existing under and by virtue of the laws of
the Philippines with principal office at Barangay San Roque, San Manuel, Pangasinan. It was
incorporated in October 1997 to design, construct, erect, assemble, own, commission and operate
power-generating plants and related facilities pursuant to and under contract with the Government of
the Republic of the Philippines, or any subdivision, instrumentality or agency thereof, or any
governmentowned or controlled corporation, or other entity engaged in the development, supply, or
distribution of energy.

As a seller of services, [San Roque] is duly registered with the BIR with TIN/VAT No. 005-017-501. It
is likewise registered with the Board of Investments ("BOI") on a preferred pioneer status, to engage
in the design, construction, erection, assembly, as well as to own, commission, and operate electric
power-generating plants and related activities, for which it was issued Certificate of Registration No.
97-356 on February 11, 1998.

On October 11, 1997, [San Roque] entered into a Power Purchase Agreement ("PPA") with the
National Power Corporation ("NPC") to develop hydro-potential of the Lower Agno River and
generate additional power and energy for the Luzon Power Grid, by building the San Roque Multi-
Purpose Project located in San Manuel, Pangasinan. The PPA provides, among others, that [San
Roque] shall be responsible for the design, construction, installation, completion, testing and
commissioning of the Power Station and shall operate and maintain the same, subject to NPC
instructions. During the cooperation period of twenty-five (25) years commencing from the
completion date of the Power Station, NPC will take and pay for all electricity available from the
Power Station.

On the construction and development of the San Roque Multi- Purpose Project which comprises of
the dam, spillway and power plant, [San Roque] allegedly incurred, excess input VAT in the amount
of ₱559,709,337.54 for taxable year 2001 which it declared in its Quarterly VAT Returns filed for the
same year. [San Roque] duly filed with the BIR separate claims for refund, in the total amount of
₱559,709,337.54, representing unutilized input taxes as declared in its VAT returns for taxable year
2001.

However, on March 28, 2003, [San Roque] filed amended Quarterly VAT Returns for the year 2001
since it increased its unutilized input VAT to the amount of ₱560,200,283.14. Consequently, [San
Roque] filed with the BIR on even date, separate amended claims for refund in the aggregate
amount of ₱560,200,283.14.

[CIR’s] inaction on the subject claims led to the filing by [San Roque] of the Petition for Review with
the Court [of Tax Appeals] in Division on April 10, 2003.

Trial of the case ensued and on July 20, 2005, the case was submitted for decision.15

The Court of Tax Appeals’ Ruling: Division

The CTA Second Division initially denied San Roque’s claim. In its Decision16 dated 8 March 2006, it
cited the following as bases for the denial of San Roque’s claim: lack of recorded zero-rated or
effectively zero-rated sales; failure to submit documents specifically identifying the purchased
goods/services related to the claimed input VAT which were included in its Property, Plant and
Equipment account; and failure to prove that the related construction costs were capitalized in its
books of account and subjected to depreciation.

The CTA Second Division required San Roque to show that it complied with the following
requirements of Section 112(B) of Republic Act No. 8424 (RA 8424)17 to be entitled to a tax refund or
credit of input VAT attributable to capital goods imported or locally purchased: (1) it is a VAT-
registered entity; (2) its input taxes claimed were paid on capital goods duly supported by VAT
invoices and/or official receipts; (3) it did not offset or apply the claimed input VAT payments on
capital goods against any output VAT liability; and (4) its claim for refund was filed within the two-
year prescriptive period both in the administrative and judicial levels.

The CTA Second Division found that San Roque complied with the first, third, and fourth
requirements, thus:

The fact that [San Roque] is a VAT registered entity is admitted (par. 4, Facts Admitted, Joint
Stipulation of Facts, Records, p. 157). It was also established that the instant claim of
₱560,200,823.14 is already net of the ₱11,509.09 output tax declared by [San Roque] in its
amended VAT return for the first quarter of 2001. Moreover, the entire amount of ₱560,200,823.14
was deducted by [San Roque] from the total available input tax reflected in its amended VAT returns
for the last two quarters of 2001 and first two quarters of 2002 (Exhibits M-6, O-6, OO-1 & QQ-1).
This means that the claimed input taxes of ₱560,200,823.14 did not form part of the excess input
taxes of ₱83,692,257.83, as of the second quarter of 2002 that was to be carried-over to the
succeeding quarters. Further, [San Roque’s] claim for refund/tax credit certificate of excess input
VAT was filed within the two-year prescriptive period reckoned from the dates of filing of the
corresponding quarterly VAT returns.

For the first, second, third, and fourth quarters of 2001, [San Roque] filed its VAT returns on April 25,
2001, July 25, 2001, October 23, 2001 and January 24, 2002, respectively (Exhibits "H, J, L, and
N"). These returns were all subsequently amended on March 28, 2003 (Exhibits "I, K, M, and O").
On the other hand, [San Roque] originally filed its separate claims for refund on July 10, 2001,
October 10, 2001, February 21, 2002, and May 9, 2002 for the first, second, third, and fourth
quarters of 2001, respectively, (Exhibits "EE, FF, GG, and HH") and subsequently filed amended
claims for all quarters on March 28, 2003 (Exhibits "II, JJ, KK, and LL"). Moreover, the Petition for
Review was filed on April 10, 2003. Counting from the respective dates when [San Roque] originally
filed its VAT returns for the first, second, third and fourth quarters of 2001, the administrative claims
for refund (original and amended) and the Petition for Review fall within the two-year prescriptive
period.18

San Roque filed a Motion for New Trial and/or Reconsideration on 7 April 2006. In its 29 November
2007 Amended Decision,19 the CTA Second Division found legal basis to partially grant San Roque’s
claim. The CTA Second Division ordered the Commissioner to refund or issue a tax credit in favor of
San Roque in the amount of ₱483,797,599.65, which represents San Roque’s unutilized input VAT
on its purchases of capital goods and services for the taxable year 2001. The CTA based the
adjustment in the amount on the findings of the independent certified public accountant. The
following reasons were cited for the disallowed claims: erroneous computation; failure to ascertain
whether the related purchases are in the nature of capital goods; and the purchases pertain to
capital goods. Moreover, the reduction of claims was based on the following: the difference between
San Roque’s claim and that appearing on its books; the official receipts covering the claimed input
VAT on purchases of local services are not within the period of the claim; and the amount of VAT
cannot be determined from the submitted official receipts and invoices. The CTA Second Division
denied San Roque’s claim for refund or tax credit of its unutilized input VAT attributable to its zero-
rated or effectively zero-rated sales because San Roque had no record of such sales for the four
quarters of 2001.

The dispositive portion of the CTA Second Division’s 29 November 2007 Amended Decision reads:

WHEREFORE, [San Roque’s] "Motion for New Trial and/or Reconsideration" is hereby PARTIALLY
GRANTED and this Court’s Decision promulgated on March 8, 2006 in the instant case is hereby
MODIFIED.

Accordingly, [the CIR] is hereby ORDERED to REFUND or in the alternative, to ISSUE A TAX
CREDIT CERTIFICATE in favor of [San Roque] in the reduced amount of Four Hundred Eighty
Three Million Seven Hundred Ninety Seven Thousand Five Hundred Ninety Nine Pesos and Sixty
Five Centavos (₱483,797,599.65) representing unutilized input VAT on purchases of capital goods
and services for the taxable year 2001.

SO ORDERED.20

The Commissioner filed a Motion for Partial Reconsideration on 20 December 2007. The CTA
Second Division issued a Resolution dated 11 July 2008 which denied the CIR’s motion for lack of
merit.

The Court of Tax Appeals’ Ruling: En Banc

The Commissioner filed a Petition for Review before the CTA EB praying for the denial of San
Roque’s claim for refund or tax credit in its entirety as well as for the setting aside of the 29
November 2007 Amended Decision and the 11 July 2008 Resolution in CTA Case No. 6647.

The CTA EB dismissed the CIR’s petition for review and affirmed the challenged decision and
resolution.
The CTA EB cited Commissioner of Internal Revenue v. Toledo Power, Inc.21 and Revenue
Memorandum Circular No. 49-03,22 as its bases for ruling that San Roque’s judicial claim was not
prematurely filed. The pertinent portions of the Decision state:

More importantly, the Court En Banc has squarely and exhaustively ruled on this issue in this wise:

It is true that Section 112(D) of the abovementioned provision applies to the present case.
However, what the petitioner failed to consider is Section 112(A) of the same provision. The
respondent is also covered by the two (2) year prescriptive period. We have repeatedly held that the
claim for refund with the BIR and the subsequent appeal to the Court of Tax Appeals must be filed
within the two-year period.

Accordingly, the Supreme Court held in the case of Atlas Consolidated Mining and Development
Corporation vs. Commissioner of Internal Revenue that the two-year prescriptive period for filing a
claim for input tax is reckoned from the date of the filing of the quarterly VAT return and payment of
the tax due. If the said period is about to expire but the BIR has not yet acted on the
application for refund, the taxpayer may interpose a petition for review with this Court within
the two year period.

In the case of Gibbs vs. Collector, the Supreme Court held that if, however, the Collector (now
Commissioner) takes time in deciding the claim, and the period of two years is about to end, the suit
or proceeding must be started in the Court of Tax Appeals before the end of the two-year period
without awaiting the decision of the Collector.

Furthermore, in the case of Commissioner of Customs and Commissioner of Internal Revenue vs.
The Honorable Court of Tax Appeals and Planters Products, Inc., the Supreme Court held that the
taxpayer need not wait indefinitely for a decision or ruling which may or may not be
forthcoming and which he has no legal right to expect. It is disheartening enough to a taxpayer
to keep him waiting for an indefinite period of time for a ruling or decision of the Collector (now
Commissioner) of Internal Revenue on his claim for refund. It would make matters more
exasperating for the taxpayer if we were to close the doors of the courts of justice for such a relief
until after the Collector (now Commissioner) of Internal Revenue, would have, at his personal
convenience, given his go signal.

This Court ruled in several cases that once the petition is filed, the Court has already acquired
jurisdiction over the claims and the Court is not bound to wait indefinitely for no reason for whatever
action respondent (herein petitioner) may take. At stake are claims for refund and unlike
disputed assessments, no decision of respondent (herein petitioner) is required before one
can go to this Court. (Emphasis supplied and citations omitted)

Lastly, it is apparent from the following provisions of Revenue Memorandum Circular No. 49-03
dated August 18, 2003, that [the CIR] knows that claims for VAT refund or tax credit filed with the
Court [of Tax Appeals] can proceed simultaneously with the ones filed with the BIR and that
taxpayers need not wait for the lapse of the subject 120-day period, to wit:

In response to [the] request of selected taxpayers for adoption of procedures in handling refund
cases that are aligned to the statutory requirements that refund cases should be elevated to the
Court of Tax Appeals before the lapse of the period prescribed by law, certain provisions of RMC
No. 42-2003 are hereby amended and new provisions are added thereto.

In consonance therewith, the following amendments are being introduced to RMC No. 42-2003, to
wit:
I.) A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as follows:

In cases where the taxpayer has filed a "Petition for Review" with the Court of Tax Appeals
involving a claim for refund/TCC that is pending at the administrative agency (Bureau of
Internal Revenue or OSS-DOF), the administrative agency and the tax court may act on the
case separately. While the case is pending in the tax court and at the same time is still under
process by the administrative agency, the litigation lawyer of the BIR, upon receipt of the summons
from the tax court, shall request from the head of the investigating/processing office for the docket
containing certified true copies of all the documents pertinent to the claim. The docket shall be
presented to the court as evidence for the BIR in its defense on the tax credit/refund case filed by
the taxpayer. In the meantime, the investigating/processing office of the administrative agency shall
continue processing the refund/TCC case until such time that a final decision has been reached by
either the CTA or the administrative agency.

If the CTA is able to release its decision ahead of the evaluation of the administrative agency,
the latter shall cease from processing the claim. On the other hand, if the administrative agency
is able to process the claim of the taxpayer ahead of the CTA and the taxpayer is amenable to the
findings thereof, the concerned taxpayer must file a motion to withdraw the claim with the
CTA.23 (Emphasis supplied)

G.R. No. 196113

Taganito Mining Corporation v. CIR

The Facts

The CTA Second Division’s narration of the pertinent facts is as follows:

Petitioner, Taganito Mining Corporation, is a corporation duly organized and existing under and by
virtue of the laws of the Philippines, with principal office at 4th Floor, Solid Mills Building, De La Rosa
St., Lega[s]pi Village, Makati City. It is duly registered with the Securities and Exchange Commission
with Certificate of Registration No. 138682 issued on March 4, 1987 with the following primary
purpose:

To carry on the business, for itself and for others, of mining lode and/or placer mining, developing,
exploiting, extracting, milling, concentrating, converting, smelting, treating, refining, preparing for
market, manufacturing, buying, selling, exchanging, shipping, transporting, and otherwise producing
and dealing in nickel, chromite, cobalt, gold, silver, copper, lead, zinc, brass, iron, steel, limestone,
and all kinds of ores, metals and their by-products and which by-products thereof of every kind and
description and by whatsoever process the same can be or may hereafter be produced, and
generally and without limit as to amount, to buy, sell, locate, exchange, lease, acquire and deal in
lands, mines, and mineral rights and claims and to conduct all business appertaining thereto, to
purchase, locate, lease or otherwise acquire, mining claims and rights, timber rights, water rights,
concessions and mines, buildings, dwellings, plants machinery, spare parts, tools and other
properties whatsoever which this corporation may from time to time find to be to its advantage to
mine lands, and to explore, work, exercise, develop or turn to account the same, and to acquire,
develop and utilize water rights in such manner as may be authorized or permitted by law; to
purchase, hire, make, construct or otherwise, acquire, provide, maintain, equip, alter, erect, improve,
repair, manage, work and operate private roads, barges, vessels, aircraft and vehicles, private
telegraph and telephone lines, and other communication media, as may be needed by the
corporation for its own purpose, and to purchase, import, construct, machine, fabricate, or otherwise
acquire, and maintain and operate bridges, piers, wharves, wells, reservoirs, plumes, watercourses,
waterworks, aqueducts, shafts, tunnels, furnaces, cook ovens, crushing works, gasworks, electric
lights and power plants and compressed air plants, chemical works of all kinds, concentrators,
smelters, smelting plants, and refineries, matting plants, warehouses, workshops, factories, dwelling
houses, stores, hotels or other buildings, engines, machinery, spare parts, tools, implements and
other works, conveniences and properties of any description in connection with or which may be
directly or indirectly conducive to any of the objects of the corporation, and to contribute to, subsidize
or otherwise aid or take part in any operations;

and is a VAT-registered entity, with Certificate of Registration (BIR Form No. 2303) No. OCN
8RC0000017494. Likewise, [Taganito] is registered with the Board of Investments (BOI) as an
exporter of beneficiated nickel silicate and chromite ores, with BOI Certificate of Registration No. EP-
88-306.

Respondent, on the other hand, is the duly appointed Commissioner of Internal Revenue vested with
authority to exercise the functions of the said office, including inter alia, the power to decide refunds
of internal revenue taxes, fees and other charges, penalties imposed in relation thereto, or other
matters arising under the National Internal Revenue Code (NIRC) or other laws administered by
Bureau of Internal Revenue (BIR) under Section 4 of the NIRC. He holds office at the BIR National
Office Building, Diliman, Quezon City.

[Taganito] filed all its Monthly VAT Declarations and Quarterly Vat Returns for the period January 1,
2005 to December 31, 2005. For easy reference, a summary of the filing dates of the original and
amended Quarterly VAT Returns for taxable year 2005 of [Taganito] is as follows:

Exhibit(s) Quarter Nature of Mode of filing Filing Date

the Return
L to L-4 1st Original Electronic April 15, 2005
M to M-3 Amended Electronic July 20, 2005
N to N-4 Amended Electronic October 18, 2006
Q to Q-3 2nd Original Electronic July 20, 2005
R to R-4 Amended Electronic October 18, 2006
U to U-4 3rd Original Electronic October 19, 2005
V to V-4 Amended Electronic October 18, 2006
Y to Y-4 4th Original Electronic January 20, 2006
Z to Z-4 Amended Electronic October 18, 2006

As can be gleaned from its amended Quarterly VAT Returns, [Taganito] reported zero-rated sales
amounting to P1,446,854,034.68; input VAT on its domestic purchases and importations of goods
(other than capital goods) and services amounting to P2,314,730.43; and input VAT on its domestic
purchases and importations of capital goods amounting to P6,050,933.95, the details of which are
summarized as follows:

Period Zero-Rated Sales Input VAT on Input VAT on Total Input VAT
Covered Domestic Domestic
Purchases and Purchases and
Importations Importations
 of Goods and of Capital
Services Goods
01/01/05 - P551,179,871.58 P1,491,880.56 P239,803.22 P1,731,683.78
03/31/05
04/01/05 - 64,677,530.78 204,364.17 5,811,130.73 6,015,494.90
06/30/05
07/01/05 - 480,784,287.30 144,887.67 - 144,887.67
09/30/05
10/01/05 - 350,212,345.02 473,598.03 - 473,598.03
12/31/05
TOTAL P1,446,854,034.68 P2,314,730.43 P6,050,933.95 P8,365,664.38

On November 14, 2006, [Taganito] filed with [the CIR], through BIR’s Large Taxpayers Audit and
Investigation Division II (LTAID II), a letter dated November 13, 2006 claiming a tax credit/refund of
its supposed input VAT amounting to ₱8,365,664.38 for the period covering January 1, 2004 to
December 31, 2004. On the same date, [Taganito] likewise filed an Application for Tax
Credits/Refunds for the period covering January 1, 2005 to December 31, 2005 for the same
amount.

On November 29, 2006, [Taganito] sent again another letter dated November 29, 2004 to [the CIR],
to correct the period of the above claim for tax credit/refund in the said amount of ₱8,365,664.38 as
actually referring to the period covering January 1, 2005 to December 31, 2005.

As the statutory period within which to file a claim for refund for said input VAT is about to lapse
without action on the part of the [CIR], [Taganito] filed the instant Petition for Review on February 17,
2007.

In his Answer filed on March 28, 2007, [the CIR] interposes the following defenses:

4. [Taganito’s] alleged claim for refund is subject to administrative investigation/examination

by the Bureau of Internal Revenue (BIR);

5. The amount of ₱8,365,664.38 being claimed by [Taganito] as alleged unutilized input VAT
on domestic purchases of goods and services and on importation of capital goods for the
period January 1, 2005 to December 31, 2005 is not properly documented;

6. [Taganito] must prove that it has complied with the provisions of Sections 112 (A) and (D)
and 229 of the National Internal Revenue Code of 1997 (1997 Tax Code) on the prescriptive
period for claiming tax refund/credit;

7. Proof of compliance with the prescribed checklist of requirements to be submitted

involving claim for VAT refund pursuant to Revenue Memorandum Order No. 53-
98, otherwise there would be no sufficient compliance with the filing of administrative
claim for refund, the administrative claim thereof being mere proforma, which is a
condition sine qua non prior to the filing of judicial claim in accordance with the
provision of Section 229 of the 1997 Tax Code. Further, Section 112 (D) of the Tax Code, as
amended, requires the submission of complete documents in support of the application
filed with the BIR before the 120-day audit period shall apply, and before the taxpayer
 could avail of judicial remedies as provided for in the law. Hence, [Taganito’s] failure to
submit proof of compliance with the above-stated requirements warrants immediate
dismissal of the petition for review.

8. [Taganito] must prove that it has complied with the invoicing requirements mentioned in
Sections 110 and 113 of the 1997 Tax Code, as amended, in relation to provisions of
Revenue Regulations No. 7-95.

9. In an action for refund/credit, the burden of proof is on the taxpayer to establish its right to
refund, and failure to sustain the burden is fatal to the claim for refund/credit (Asiatic
Petroleum Co. vs. Llanes, 49 Phil. 466 cited in Collector of Internal Revenue vs. Manila
Jockey Club, Inc., 98 Phil. 670);

10. Claims for refund are construed strictly against the claimant for the same partake the
nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 31
SCRA 95) and as such, they are looked upon with disfavor (Western Minolco Corp. vs.
Commissioner of Internal Revenue, 124 SCRA 1211).

SPECIAL AND AFFIRMATIVE DEFENSES

11. The Court of Tax Appeals has no jurisdiction to entertain the instant petition for review for failure
on the part of [Taganito] to comply with the provision of Section 112 (D) of the 1997 Tax Code which
provides, thus:

Section 112. Refunds or Tax Credits of Input Tax. –

x x x           x x x          x x x

(D) Period within which refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within
one hundred (120) days from the date of submission of complete documents in support of
the application filed in accordance with Subsections (A) and (B) hereof.

In cases of full or partial denial for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim or after the
expiration of the one hundred twenty dayperiod, appeal the decision or the unacted claim
with the Court of Tax Appeals. (Emphasis supplied.)

12. As stated, [Taganito] filed the administrative claim for refund with the Bureau of Internal Revenue
on November 14, 2006. Subsequently on February 14, 2007, the instant petition was filed. Obviously
the 120 days given to the Commissioner to decide on the claim has not yet lapsed when the petition
was filed. The petition was prematurely filed, hence it must be dismissed for lack of jurisdiction.

During trial, [Taganito] presented testimonial and documentary evidence primarily aimed at proving
its supposed entitlement to the refund in the amount of ₱8,365,664.38, representing input taxes for
the period covering January 1, 2005 to December 31, 2005. [The CIR], on the other hand, opted not
to present evidence. Thus, in the Resolution promulgated on January 22, 2009, this case was
submitted for decision as of such date, considering [Taganito’s] "Memorandum" filed on January 19,
2009 and [the CIR’s] "Memorandum" filed on December 19, 2008.24
The Court of Tax Appeals’ Ruling: Division

The CTA Second Division partially granted Taganito’s claim. In its Decision25 dated 8 January 2010,
the CTA Second Division found that Taganito complied with the requirements of Section 112(A) of
RA 8424, as amended, to be entitled to a tax refund or credit of input VAT attributable to zero-rated
or effectively zero-rated sales.26

The pertinent portions of the CTA Second Division’s Decision read:

Finally, records show that [Taganito’s] administrative claim filed on November 14, 2006, which was
amended on November 29, 2006, and the Petition for Review filed with this Court on February 14,
2007 are well within the two-year prescriptive period, reckoned from March 31, 2005, June 30, 2005,
September 30, 2005, and December 31, 2005, respectively, the close of each taxable quarter
covering the period January 1, 2005 to December 31, 2005.

In fine, [Taganito] sufficiently proved that it is entitled to a tax credit certificate in the amount of
₱8,249,883.33 representing unutilized input VAT for the four taxable quarters of 2005.

WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY
GRANTED. Accordingly, [the CIR] is hereby ORDERED to REFUND to [Taganito] the amount of
EIGHT MILLION TWO HUNDRED FORTY NINE THOUSAND EIGHT HUNDRED EIGHTY THREE
PESOS AND THIRTY THREE CENTAVOS (P8,249,883.33) representing its unutilized input taxes
attributable to zero-rated sales from January 1, 2005 to December 31, 2005.

SO ORDERED.27

The Commissioner filed a Motion for Partial Reconsideration on 29 January 2010. Taganito, in turn,
filed a Comment/Opposition on the Motion for Partial Reconsideration on 15 February 2010.

In a Resolution28 dated 7 April 2010, the CTA Second Division denied the CIR’s motion. The CTA
Second Division ruled that the legislature did not intend that Section 112 (Refunds or Tax Credits of
Input Tax) should be read in isolation from Section 229 (Recovery of Tax Erroneously or Illegally
Collected) or vice versa. The CTA Second Division applied the mandatory statute of limitations in
seeking judicial recourse prescribed under Section 229 to claims for refund or tax credit under
Section 112.

The Court of Tax Appeals’ Ruling: En Banc

On 29 April 2010, the Commissioner filed a Petition for Review before the CTA EB assailing the 8
January 2010 Decision and the 7 April 2010 Resolution in CTA Case No. 7574 and praying that
Taganito’s entire claim for refund be denied.

In its 8 December 2010 Decision,29 the CTA EB granted the CIR’s petition for review and reversed
and set aside the challenged decision and resolution.

The CTA EB declared that Section 112(A) and (B) of the 1997 Tax Code both set forth the reckoning
of the two-year prescriptive period for filing a claim for tax refund or credit over input VAT to be the
close of the taxable quarter when the sales were made. The CTA EB also relied on this Court’s
rulings in the cases of Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.
(Aichi)30 and Commisioner of Internal Revenue v. Mirant Pagbilao Corporation
(Mirant).31 Both Aichi and Mirant ruled that the two-year prescriptive period to file a refund for input
VAT arising from zero-rated sales should be reckoned from the close of the taxable quarter when the
sales were made. Aichi further emphasized that the failure to await the decision of the Commissioner
or the lapse of 120-day period prescribed in Section 112(D) amounts to a premature filing.

The CTA EB found that Taganito filed its administrative claim on 14 November 2006, which was well
within the period prescribed under Section 112(A) and (B) of the 1997 Tax Code. However, the CTA
EB found that Taganito’s judicial claim was prematurely filed. Taganito filed its Petition for Review
before the CTA Second Division on 14 February 2007. The judicial claim was filed after the lapse of
only 92 days from the filing of its administrative claim before the CIR, in violation of the 120-day
period prescribed in Section 112(D) of the 1997 Tax Code.

The dispositive portion of the Decision states:

WHEREFORE, the instant Petition for Review is hereby GRANTED. The assailed Decision dated
January 8, 2010 and Resolution dated April 7, 2010 of the Special Second Division of this Court are
hereby REVERSED and SET ASIDE. Another one is hereby entered DISMISSING the Petition for
Review filed in CTA Case No. 7574 for having been prematurely filed.

SO ORDERED.32

In his dissent,33 Associate Justice Lovell R. Bautista insisted that Taganito timely filed its claim before
the CTA. Justice Bautista read Section 112(C) of the 1997 Tax Code (Period within which Refund or
Tax Credit of Input Taxes shall be Made) in conjunction with Section 229 (Recovery of Tax
Erroneously or Illegally Collected). Justice Bautista also relied on this Court’s ruling in Atlas
Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue
(Atlas),34 which stated that refundable or creditable input VAT and illegally or erroneously collected
national internal revenue tax are the same, insofar as both are monetary amounts which are
currently in the hands of the government but must rightfully be returned to the taxpayer. Justice
Bautista concluded:

Being merely permissive, a taxpayer claimant has the option of seeking judicial redress for refund or
tax credit of excess or unutilized input tax with this Court, either within 30 days from receipt of the
denial of its claim, or after the lapse of the 120-day period in the event of inaction by the
Commissioner, provided that both administrative and judicial remedies must be undertaken within
the 2-year period.35

Taganito filed its Motion for Reconsideration on 29 December 2010. The Commissioner filed an
Opposition on 26 January 2011. The CTA EB denied for lack of merit Taganito’s motion in a
Resolution36 dated 14 March 2011. The CTA EB did not see any justifiable reason to depart from this
Court’s rulings in Aichi and Mirant.

G.R. No. 197156

Philex Mining Corporation v. CIR

The Facts

The CTA EB’s narration of the pertinent facts is as follows:

[Philex] is a corporation duly organized and existing under the laws of the Republic of the
Philippines, which is principally engaged in the mining business, which includes the exploration and
operation of mine properties and commercial production and marketing of mine products, with office
address at 27 Philex Building, Fairlaine St., Kapitolyo, Pasig City.

[The CIR], on the other hand, is the head of the Bureau of Internal Revenue ("BIR"), the government
entity tasked with the duties/functions of assessing and collecting all national internal revenue taxes,
fees, and charges, and enforcement of all forfeitures, penalties and fines connected therewith,
including the execution of judgments in all cases decided in its favor by [the Court of Tax Appeals]
and the ordinary courts, where she can be served with court processes at the BIR Head Office, BIR
Road, Quezon City.

On October 21, 2005, [Philex] filed its Original VAT Return for the third quarter of taxable year 2005
and Amended VAT Return for the same quarter on December 1, 2005.

On March 20, 2006, [Philex] filed its claim for refund/tax credit of the amount of ₱23,956,732.44 with
the One Stop Shop Center of the Department of Finance. However, due to [the CIR’s] failure to act
on such claim, on October 17, 2007, pursuant to Sections 112 and 229 of the NIRC of 1997, as
amended, [Philex] filed a Petition for Review, docketed as C.T.A. Case No. 7687.

In [her] Answer, respondent CIR alleged the following special and affirmative defenses:

4. Claims for refund are strictly construed against the taxpayer as the same partake the
nature of an exemption;

5. The taxpayer has the burden to show that the taxes were erroneously or illegally paid.
Failure on the part of [Philex] to prove the same is fatal to its cause of action;

6. [Philex] should prove its legal basis for claiming for the amount being refunded.37

The Court of Tax Appeals’ Ruling: Division

The CTA Second Division, in its Decision dated 20 July 2009, denied Philex’s claim due to
prescription. The CTA Second Division ruled that the two-year prescriptive period specified in
Section 112(A) of RA 8424, as amended, applies not only to the filing of the administrative claim with
the BIR, but also to the filing of the judicial claim with the CTA. Since Philex’s claim covered the 3rd
quarter of 2005, its administrative claim filed on 20 March 2006 was timely filed, while its judicial
claim filed on 17 October 2007 was filed late and therefore barred by prescription.

On 10 November 2009, the CTA Second Division denied Philex’s Motion for Reconsideration.

The Court of Tax Appeals’ Ruling: En Banc

Philex filed a Petition for Review before the CTA EB praying for a reversal of the 20 July 2009
Decision and the 10 November 2009 Resolution of the CTA Second Division in CTA Case No. 7687.

The CTA EB, in its Decision38 dated 3 December 2010, denied Philex’s petition and affirmed the CTA
Second Division’s Decision and Resolution.

The pertinent portions of the Decision read:

In this case, while there is no dispute that [Philex’s] administrative claim for refund was filed within
the two-year prescriptive period; however, as to its judicial claim for refund/credit, records show that
on March 20, 2006, [Philex] applied the administrative claim for refund of unutilized input VAT in the
amount of ₱23,956,732.44 with the One Stop Shop Center of the Department of Finance, per
Application No. 52490. From March 20, 2006, which is also presumably the date [Philex] submitted
supporting documents, together with the aforesaid application for refund, the CIR has 120 days, or
until July 18, 2006, within which to decide the claim. Within 30 days from the lapse of the 120-day
period, or from July 19, 2006 until August 17, 2006, [Philex] should have elevated its claim for refund
to the CTA. However, [Philex] filed its Petition for Review only on October 17, 2007, which is 426
days way beyond the 30- day period prescribed by law.

Evidently, the Petition for Review in CTA Case No. 7687 was filed 426 days late. Thus, the Petition
for Review in CTA Case No. 7687 should have been dismissed on the ground that the Petition for
Review was filed way beyond the 30-day prescribed period; thus, no jurisdiction was acquired by the
CTA in Division; and not due to prescription.

WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED DUE
COURSE, and accordingly, DISMISSED. The assailed Decision dated July 20, 2009, dismissing the
Petition for Review in CTA Case No. 7687 due to prescription, and Resolution dated November 10,
2009 denying [Philex’s] Motion for Reconsideration are hereby AFFIRMED, with modification that the
dismissal is based on the ground that the Petition for Review in CTA Case No. 7687 was filed way
beyond the 30-day prescribed period to appeal.

SO ORDERED.39

G.R. No. 187485

CIR v. San Roque Power Corporation

The Commissioner raised the following grounds in the Petition for Review:

I. The Court of Tax Appeals En Banc erred in holding that [San Roque’s] claim for refund
was not prematurely filed.

II. The Court of Tax Appeals En Banc erred in affirming the amended decision of the Court of
Tax Appeals (Second Division) granting [San Roque’s] claim for refund of alleged unutilized
input VAT on its purchases of capital goods and services for the taxable year 2001 in the
amount of P483,797,599.65. 40

G.R. No. 196113

Taganito Mining Corporation v. CIR

Taganito raised the following grounds in its Petition for Review:

I. The Court of Tax Appeals En Banc committed serious error and acted with grave abuse of
discretion tantamount to lack or excess of jurisdiction in erroneously applying
the Aichi doctrine in violation of [Taganito’s] right to due process.

II. The Court of Tax Appeals committed serious error and acted with grave abuse of
discretion amounting to lack or excess of jurisdiction in erroneously interpreting the
provisions of Section 112 (D).41

G.R. No. 197156

Philex Mining Corporation v. CIR
Philex raised the following grounds in its Petition for Review:

I. The CTA En Banc erred in denying the petition due to alleged prescription. The fact is that
the petition was filed with the CTA within the period set by prevailing court rulings at the time
it was filed.

II. The CTA En Banc erred in retroactively applying the Aichi ruling in denying the petition in
this instant case.42

The Court’s Ruling

For ready reference, the following are the provisions of the Tax Code applicable to the present
cases:

Section 105:

Persons Liable. — Any person who, in the course of trade or business, sells, barters,
exchanges, leases goods or properties, renders services, and any person who imports
goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.

The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to
the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise
apply to existing contracts of sale or lease of goods, properties or services at the time of the
effectivity of Republic Act No. 7716.

xxxx

Section 110(B):

Sec. 110. Tax Credits. —

(B) Excess Output or Input Tax. — If at the end of any taxable quarter the output tax exceeds the
input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the
output tax, the excess shall be carried over to the succeeding quarter or quarters: [Provided,
That the input tax inclusive of input VAT carried over from the previous quarter that may be credited
in every quarter shall not exceed seventy percent (70%) of the output VAT:]43 Provided, however,
That any input tax attributable to zero-rated sales by a VAT-registered person may at his
option be refunded or credited against other internal revenue taxes, subject to the provisions
of Section 112.

Section 112:44

Sec. 112. Refunds or Tax Credits of Input Tax. —

(A) Zero-Rated or Effectively Zero-Rated Sales.— Any VAT-registered person, whose

sales are zero-rated or effectively zero-rated may, within two (2) years after the close
of the taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales,
except transitional input tax, to the extent that such input tax has not been applied against
output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)
(a)(1), (2) and (B) and Section 108(B)(1) and (2), the acceptable foreign currency exchange
 proceeds thereof had been duly accounted for in accordance with the rules and regulations
of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is
engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of
goods or properties or services, and the amount of creditable input tax due or paid cannot be
directly and entirely attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales.

(B) Capital Goods.- A VAT — registered person may apply for the issuance of a tax credit
certificate or refund of input taxes paid on capital goods imported or locally purchased, to the
extent that such input taxes have not been applied against output taxes. The application may
be made only within two (2) years after the close of the taxable quarter when the importation
or purchase was made.

(C) Cancellation of VAT Registration. — A person whose registration has been cancelled
due to retirement from or cessation of business, or due to changes in or cessation of status
under Section 106(C) of this Code may, within two (2) years from the date of cancellation,
apply for the issuance of a tax credit certificate for any unused input tax which may be used
in payment of his other internal revenue taxes

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. — In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable
input taxes within one hundred twenty (120) days from the date of submission of
complete documents in support of the application filed in accordance with Subsection (A)
and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the
part of the Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from the receipt of the decision denying
the claim or after the expiration of the one hundred twenty day-period, appeal the
decision or the unacted claim with the Court of Tax Appeals.

(E) Manner of Giving Refund. — Refunds shall be made upon warrants drawn by the
Commissioner or by his duly authorized representative without the necessity of being
countersigned by the Chairman, Commission on Audit, the provisions of the Administrative
Code of 1987 to the contrary notwithstanding: Provided, that refunds under this paragraph
shall be subject to post audit by the Commission on Audit.

Section 229:

Recovery of Tax Erroneously or Illegally Collected. — No suit or proceeding shall be maintained in

any court for the recovery of any national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, or of any penalty claimed to have been collected
without authority, or of any sum alleged to have been excessively or in any manner wrongfully
collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit
or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under
protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the
date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid.
(All emphases supplied)

I. Application of the 120+30 Day Periods

a. G.R. No. 187485 - CIR v. San Roque Power Corporation

On 10 April 2003, a mere 13 days after it filed its amended administrative claim with the
Commissioner on 28 March 2003, San Roque filed a Petition for Review with the CTA docketed as
CTA Case No. 6647. From this we gather two crucial facts: first, San Roque did not wait for the 120-
day period to lapse before filing its judicial claim; second, San Roque filed its judicial claim more
than four (4) years before the Atlas45 doctrine, which was promulgated by the Court on 8 June 2007.

Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given by law
to the Commissioner to decide whether to grant or deny San Roque’s application for tax refund or
credit. It is indisputable that compliance with the 120-day waiting period is mandatory and
jurisdictional. The waiting period, originally fixed at 60 days only, was part of the provisions of the
first VAT law, Executive Order No. 273, which took effect on 1 January 1988. The waiting period was
extended to 120 days effective 1 January 1998 under RA 8424 or the Tax Reform Act of
1997. Thus, the waiting period has been in our statute books for more than fifteen (15)
years before San Roque filed its judicial claim.

Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates
the doctrine of exhaustion of administrative remedies and renders the petition premature and thus
without a cause of action, with the effect that the CTA does not acquire jurisdiction over the
taxpayer’s petition. Philippine jurisprudence is replete with cases upholding and reiterating these
doctrinal principles.46

The charter of the CTA expressly provides that its jurisdiction is to review on appeal "decisions of
the Commissioner of Internal Revenue in cases involving x x x refunds of internal revenue
taxes."47 When a taxpayer prematurely files a judicial claim for tax refund or credit with the CTA
without waiting for the decision of the Commissioner, there is no "decision" of the Commissioner to
review and thus the CTA as a court of special jurisdiction has no jurisdiction over the appeal. The
charter of the CTA also expressly provides that if the Commissioner fails to decide within "a specific
period" required by law, such "inaction shall be deemed a denial"48 of the application for tax
refund or credit. It is the Commissioner’s decision, or inaction "deemed a denial," that the taxpayer
can take to the CTA for review. Without a decision or an "inaction x x x deemed a denial" of the
Commissioner, the CTA has no jurisdiction over a petition for review.49

San Roque’s failure to comply with the 120-day mandatory period renders its petition for review with
the CTA void. Article 5 of the Civil Code provides, "Acts executed against provisions of mandatory or
prohibitory laws shall be void, except when the law itself authorizes their validity." San Roque’s void
petition for review cannot be legitimized by the CTA or this Court because Article 5 of the Civil Code
states that such void petition cannot be legitimized "except when the law itself authorizes [its]
validity." There is no law authorizing the petition’s validity.

It is hornbook doctrine that a person committing a void act contrary to a mandatory provision of law
cannot claim or acquire any right from his void act. A right cannot spring in favor of a person from his
own void or illegal act. This doctrine is repeated in Article 2254 of the Civil Code, which states, "No
vested or acquired right can arise from acts or omissions which are against the law or which infringe
upon the rights of others."50 For violating a mandatory provision of law in filing its petition with the
CTA, San Roque cannot claim any right arising from such void petition. Thus, San Roque’s petition
with the CTA is a mere scrap of paper.
This Court cannot brush aside the grave issue of the mandatory and jurisdictional nature of the 120-
day period just because the Commissioner merely asserts that the case was prematurely filed with
the CTA and does not question the entitlement of San Roque to the refund. The mere fact that a
taxpayer has undisputed excess input VAT, or that the tax was admittedly illegally, erroneously or
excessively collected from him, does not entitle him as a matter of right to a tax refund or credit.
Strict compliance with the mandatory and jurisdictional conditions prescribed by law to claim such
tax refund or credit is essential and necessary for such claim to prosper. Well-settled is the rule
that tax refunds or credits, just like tax exemptions, are strictly construed against the
taxpayer.51 The burden is on the taxpayer to show that he has strictly complied with the conditions
for the grant of the tax refund or credit.

This Court cannot disregard mandatory and jurisdictional conditions mandated by law simply
because the Commissioner chose not to contest the numerical correctness of the claim for tax
refund or credit of the taxpayer. Non-compliance with mandatory periods, non-observance of
prescriptive periods, and non-adherence to exhaustion of administrative remedies bar a taxpayer’s
claim for tax refund or credit, whether or not the Commissioner questions the numerical correctness
of the claim of the taxpayer. This Court should not establish the precedent that non-compliance with
mandatory and jurisdictional conditions can be excused if the claim is otherwise meritorious,
particularly in claims for tax refunds or credit. Such precedent will render meaningless compliance
with mandatory and jurisdictional requirements, for then every tax refund case will have to be
decided on the numerical correctness of the amounts claimed, regardless of non-compliance with
mandatory and jurisdictional conditions.

San Roque cannot also claim being misled, misguided or confused by the Atlas doctrine
because San Roque filed its petition for review with the CTA more than four years
before Atlas was promulgated. The Atlas doctrine did not exist at the time San Roque failed to
comply with the 120- day period. Thus, San Roque cannot invoke the Atlas doctrine as an excuse for
its failure to wait for the 120-day period to lapse. In any event, the Atlas doctrine merely stated that
the two-year prescriptive period should be counted from the date of payment of the output VAT, not
from the close of the taxable quarter when the sales involving the input VAT were
made. The Atlas doctrine does not interpret, expressly or impliedly, the 120+30 52 day periods.

In fact, Section 106(b) and (e) of the Tax Code of 1977 as amended, which was the law cited by the
Court in Atlas as the applicable provision of the law did not yet provide for the 30-day period for the
taxpayer to appeal to the CTA from the decision or inaction of the Commissioner.53 Thus,
the Atlas doctrine cannot be invoked by anyone to disregard compliance with the 30-day
mandatory and jurisdictional period. Also, the difference between the Atlas doctrine on one hand,
and the Mirant54 doctrine on the other hand, is a mere 20 days. The Atlas doctrine counts the two-
year prescriptive period from the date of payment of the output VAT, which means within 20 days
after the close of the taxable quarter. The output VAT at that time must be paid at the time of filing of
the quarterly tax returns, which were to be filed "within 20 days following the end of each quarter."

Thus, in Atlas, the three tax refund claims listed below were deemed timely filed because the
administrative claims filed with the Commissioner, and the petitions for review filed with the CTA,
were all filed within two years from the date of payment of the output VAT, following Section 229:

Date of Filing Return Date of Filing Date of Filing

Period Covered
& Payment of Tax Administrative Claim Petition With CTA
2nd Quarter, 1990 20 July 1990 21 August 1990 20 July 1992
Close of Quarter
30 June 1990
 3rd Quarter, 1990 18 October 1990 21 November 1990 9 October 1992
Close of Quarter
30 September 1990
4th Quarter, 1990 20 January 1991 19 February 1991 14 January 1993
Close of Quarter
31 December 1990

Atlas paid the output VAT at the time it filed the quarterly tax returns on the 20th, 18th, and 20th
day after the close of the taxable quarter. Had the twoyear prescriptive period been counted from
the "close of the taxable quarter" as expressly stated in the law, the tax refund claims of Atlas would
have already prescribed. In contrast, the Mirant doctrine counts the two-year prescriptive period from
the "close of the taxable quarter when the sales were made" as expressly stated in the law, which
means the last day of the taxable quarter. The 20-day difference55 between the Atlas doctrine
and the later Mirant doctrine is not material to San Roque’s claim for tax refund.

Whether the Atlas doctrine or the Mirant doctrine is applied to San Roque is immaterial because

what is at issue in the present case is San Roque’s non-compliance with the 120-day mandatory and
jurisdictional period, which is counted from the date it filed its administrative claim with the
Commissioner. The 120-day period may extend beyond the two-year prescriptive period, as long as
the administrative claim is filed within the two-year prescriptive period. However, San Roque’s fatal
mistake is that it did not wait for the Commissioner to decide within the 120-day period, a mandatory
period whether the Atlas or the Mirant doctrine is applied.

At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods
were already in the law. Section 112(C)56 expressly grants the Commissioner 120 days within which
to decide the taxpayer’s claim. The law is clear, plain, and unequivocal: "x x x the Commissioner
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred
twenty (120) days from the date of submission of complete documents." Following the verba
legis doctrine, this law must be applied exactly as worded since it is clear, plain, and unequivocal.
The taxpayer cannot simply file a petition with the CTA without waiting for the Commissioner’s
decision within the 120-day mandatory and jurisdictional period. The CTA will have no jurisdiction
because there will be no "decision" or "deemed a denial" decision of the Commissioner for the CTA
to review. In San Roque’s case, it filed its petition with the CTA a mere 13 days after it filed its
administrative claim with the Commissioner. Indisputably, San Roque knowingly violated the
mandatory 120-day period, and it cannot blame anyone but itself.

Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision
or inaction of the Commissioner, thus:

x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision denying
the claim or after the expiration of the one hundred twenty day-period, appeal the decision or
the unacted claim with the Court of Tax Appeals. (Emphasis supplied)

This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law
should be applied exactly as worded since it is clear, plain, and unequivocal. As this law states, the
taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30 days from
receipt of the Commissioner’s decision, or if the Commissioner does not act on the taxpayer’s claim
within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of
the 120-day period.

b. G.R. No. 196113 - Taganito Mining Corporation v. CIR

Like San Roque, Taganito also filed its petition for review with the CTA without waiting for the 120-
day period to lapse. Also, like San Roque, Taganito filed its judicial claim before the promulgation of
the Atlas doctrine. Taganito filed a Petition for Review on 14 February 2007 with the CTA. This is
almost four months before the adoption of the Atlas doctrine on 8 June 2007. Taganito is similarly
situated as San Roque - both cannot claim being misled, misguided, or confused by
the Atlas doctrine.

However, Taganito can invoke BIR Ruling No. DA-489-0357 dated 10 December 2003, which
expressly ruled that the "taxpayer-claimant need not wait for the lapse of the 120-day period
before it could seek judicial relief with the CTA by way of Petition for Review." Taganito filed its
judicial claim after the issuance of BIR Ruling No. DA-489-03 but before the adoption of
the Aichi doctrine. Thus, as will be explained later, Taganito is deemed to have filed its judicial claim
with the CTA on time.

c. G.R. No. 197156 – Philex Mining Corporation v. CIR

Philex (1) filed on 21 October 2005 its original VAT Return for the third quarter of taxable year 2005;
(2) filed on 20 March 2006 its administrative claim for refund or credit; (3) filed on 17 October 2007
its Petition for Review with the CTA. The close of the third taxable quarter in 2005 is 30 September
2005, which is the reckoning date in computing the two-year prescriptive period under Section
112(A).

Philex timely filed its administrative claim on 20 March 2006, within the two-year prescriptive period.
Even if the two-year prescriptive period is computed from the date of payment of the output VAT
under Section 229, Philex still filed its administrative claim on time. Thus, the Atlas doctrine is
immaterial in this case. The Commissioner had until 17 July 2006, the last day of the 120-day
period, to decide Philex’s claim. Since the Commissioner did not act on Philex’s claim on or before
17 July 2006, Philex had until 17 August 2006, the last day of the 30-day period, to file its judicial
claim. The CTA EB held that 17 August 2006 was indeed the last day for Philex to file its
judicial claim. However, Philex filed its Petition for Review with the CTA only on 17 October 2007,
or four hundred twenty-six (426) days after the last day of filing. In short, Philex was late by one
year and 61 days in filing its judicial claim. As the CTA EB correctly found:

Evidently, the Petition for Review in C.T.A. Case No. 7687 was filed 426 days late. Thus, the
Petition for Review in C.T.A. Case No. 7687 should have been dismissed on the ground that the
Petition for Review was filed way beyond the 30-day prescribed period; thus, no jurisdiction was
acquired by the CTA Division; x x x58 (Emphasis supplied)

Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late filing. Philex
did not file any petition with the CTA within the 120-day period. Philex did not also file any petition
with the CTA within 30 days after the expiration of the 120-day period. Philex filed its judicial
claim long after the expiration of the 120-day period, in fact 426 days after the lapse of the 120-day
period. In any event, whether governed by jurisprudence before, during, or after
the Atlas case, Philex’s judicial claim will have to be rejected because of late filing. Whether
the two-year prescriptive period is counted from the date of payment of the output VAT following
the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to the input
VAT were made following the Mirant and Aichi doctrines, Philex’s judicial claim was indisputably filed
late.

The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the
Commissioner on Philex’s claim during the 120-day period is, by express provision of law, "deemed
a denial" of Philex’s claim. Philex had 30 days from the expiration of the 120-day period to file its
judicial claim with the CTA. Philex’s failure to do so rendered the "deemed a denial" decision of the
Commissioner final and inappealable. The right to appeal to the CTA from a decision or "deemed a
denial" decision of the Commissioner is merely a statutory privilege, not a constitutional right. The
exercise of such statutory privilege requires strict compliance with the conditions attached by the
statute for its exercise.59 Philex failed to comply with the statutory conditions and must thus bear the
consequences.

II. Prescriptive Periods under Section 112(A) and (C)

There are three compelling reasons why the 30-day period need not necessarily fall within the two-
year prescriptive period, as long as the administrative claim is filed within the two-year prescriptive
period.

First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer
"may, within two (2) years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of the creditable input
tax due or paid to such sales." In short, the law states that the taxpayer may apply with the
Commissioner for a refund or credit "within two (2) years," which means at anytime
within two years. Thus, the application for refund or credit may be filed by the taxpayer with
the Commissioner on the last day of the two-year prescriptive period and it will still strictly
comply with the law. The twoyear prescriptive period is a grace period in favor of the
taxpayer and he can avail of the full period before his right to apply for a tax refund or credit
is barred by prescription.

Second, Section 112(C) provides that the Commissioner shall decide the application for
refund or credit "within one hundred twenty (120) days from the date of submission of
complete documents in support of the application filed in accordance with Subsection (A)."
The reference in Section 112(C) of the submission of documents "in support of the
application filed in accordance with Subsection A" means that the application in Section
112(A) is the administrative claim that the Commissioner must decide within the 120-day
period. In short, the two-year prescriptive period in Section 112(A) refers to the period within
which the taxpayer can file an administrative claim for tax refund or credit. Stated otherwise,
the two-year prescriptive period does not refer to the filing of the judicial claim with
the CTA but to the filing of the administrative claim with the Commissioner. As held
in Aichi, the "phrase ‘within two years x x x apply for the issuance of a tax credit or
refund’ refers to applications for refund/credit with the CIR and not to appeals made to
the CTA."

Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive
period (equivalent to 730 days60), then the taxpayer must file his administrative claim for
refund or credit within the first 610 days of the two-year prescriptive period. Otherwise, the
filing of the administrative claim beyond the first 610 days will result in the appeal to
the CTA being filed beyond the two-year prescriptive period. Thus, if the taxpayer files
his administrative claim on the 611th day, the Commissioner, with his 120-day period, will
have until the 731st day to decide the claim. If the Commissioner decides only on the 731st
day, or does not decide at all, the taxpayer can no longer file his judicial claim with the CTA
because the two-year prescriptive period (equivalent to 730 days) has lapsed. The 30-day
period granted by law to the taxpayer to file an appeal before the CTA becomes utterly
useless, even if the taxpayer complied with the law by filing his administrative claim within
the two-year prescriptive period.
The theory that the 30-day period must fall within the two-year prescriptive period adds a condition
that is not found in the law. It results in truncating 120 days from the 730 days that the law grants the
taxpayer for filing his administrative claim with the Commissioner. This Court cannot interpret a law
to defeat, wholly or even partly, a remedy that the law expressly grants in clear, plain, and
unequivocal language.

Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language.
The taxpayer can file his administrative claim for refund or credit at anytime within the two-year
prescriptive period. If he files his claim on the last day of the two-year prescriptive period, his claim is
still filed on time. The Commissioner will have 120 days from such filing to decide the claim. If the
Commissioner decides the claim on the 120th day, or does not decide it on that day, the taxpayer
still has 30 days to file his judicial claim with the CTA. This is not only the plain meaning but also the
only logical interpretation of Section 112(A) and (C).

III. "Excess" Input VAT and "Excessively" Collected Tax

The input VAT is not "excessively" collected as understood under Section 229 because at the time
the input VAT is collected the amount paid is correct and proper. The input VAT is a tax liability
of, and legally paid by, a VAT-registered seller61 of goods, properties or services used as input by
another VAT-registered person in the sale of his own goods, properties, or services. This tax liability
is true even if the seller passes on the input VAT to the buyer as part of the purchase price. The
second VAT-registered person, who is not legally liable for the input VAT, is the one who applies the
input VAT as credit for his own output VAT.62 If the input VAT is in fact "excessively" collected as
understood under Section 229, then it is the first VAT-registered person - the taxpayer who is legally
liable and who is deemed to have legally paid for the input VAT - who can ask for a tax refund or
credit under Section 229 as an ordinary refund or credit outside of the VAT System. In such event,
the second VAT-registered taxpayer will have no input VAT to offset against his own output VAT.

In a claim for refund or credit of "excess" input VAT under Section 110(B) and Section 112(A), the
input VAT is not "excessively" collected as understood under Section 229. At the time of payment of
the input VAT the amount paid is the correct and proper amount. Under the VAT System, there is no
claim or issue that the input VAT is "excessively" collected, that is, that the input VAT paid is more
than what is legally due. The person legally liable for the input VAT cannot claim that he overpaid the
input VAT by the mere existence of an "excess" input VAT. The term "excess" input VAT simply
means that the input VAT available as credit exceeds the output VAT, not that the input VAT is
excessively collected because it is more than what is legally due. Thus, the taxpayer who legally
paid the input VAT cannot claim for refund or credit of the input VAT as "excessively" collected under
Section 229.

Under Section 229, the prescriptive period for filing a judicial claim for refund is two years from the
date of payment of the tax "erroneously, x x x illegally, x x x excessively or in any manner wrongfully
collected." The prescriptive period is reckoned from the date the person liable for the tax pays the
tax. Thus, if the input VAT is in fact "excessively" collected, that is, the person liable for the tax
actually pays more than what is legally due, the taxpayer must file a judicial claim for refund within
two years from his date of payment. Only the person legally liable to pay the tax can file the
judicial claim for refund. The person to whom the tax is passed on as part of the purchase
price has no personality to file the judicial claim under Section 229.63

Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for
"excess" input VAT is two years from the close of the taxable quarter when the sale was made by
the person legally liable to pay the output VAT. This prescriptive period has no relation to the date
of payment of the "excess" input VAT. The "excess" input VAT may have been paid for more than
two years but this does not bar the filing of a judicial claim for "excess" VAT under Section 112(A),
which has a different reckoning period from Section 229. Moreover, the person claiming the refund
or credit of the input VAT is not the person who legally paid the input VAT. Such person seeking the
VAT refund or credit does not claim that the input VAT was "excessively" collected from him, or that
he paid an input VAT that is more than what is legally due. He is not the taxpayer who legally paid
the input VAT.

As its name implies, the Value-Added Tax system is a tax on the value added by the taxpayer in the
chain of transactions. For simplicity and efficiency in tax collection, the VAT is imposed not just on
the value added by the taxpayer, but on the entire selling price of his goods, properties or services.
However, the taxpayer is allowed a refund or credit on the VAT previously paid by those who sold
him the inputs for his goods, properties, or services. The net effect is that the taxpayer pays the VAT
only on the value that he adds to the goods, properties, or services that he actually sells.

Under Section 110(B), a taxpayer can apply his input VAT only against his output VAT. The only
exception is when the taxpayer is expressly "zero-rated or effectively zero-rated" under the law, like
companies generating power through renewable sources of energy.64 Thus, a non zero-rated VAT-
registered taxpayer who has no output VAT because he has no sales cannot claim a tax refund or
credit of his unused input VAT under the VAT System. Even if the taxpayer has sales but his input
VAT exceeds his output VAT, he cannot seek a tax refund or credit of his "excess" input VAT under
the VAT System. He can only carry-over and apply his "excess" input VAT against his future
output VAT. If such "excess" input VAT is an "excessively" collected tax, the taxpayer should be
able to seek a refund or credit for such "excess" input VAT whether or not he has output VAT. The
VAT System does not allow such refund or credit. Such "excess" input VAT is not an "excessively"
collected tax under Section 229. The "excess" input VAT is a correctly and properly collected tax.
However, such "excess" input VAT can be applied against the output VAT because the VAT is a tax
imposed only on the value added by the taxpayer. If the input VAT is in fact "excessively" collected
under Section 229, then it is the person legally liable to pay the input VAT, not the person to whom
the tax was passed on as part of the purchase price and claiming credit for the input VAT under the
VAT System, who can file the judicial claim under Section 229.

Any suggestion that the "excess" input VAT under the VAT System is an "excessively" collected tax
under Section 229 may lead taxpayers to file a claim for refund or credit for such "excess" input VAT
under Section 229 as an ordinary tax refund or credit outside of the VAT System. Under Section
229, mere payment of a tax beyond what is legally due can be claimed as a refund or credit. There is
no requirement under Section 229 for an output VAT or subsequent sale of goods, properties, or
services using materials subject to input VAT.

From the plain text of Section 229, it is clear that what can be refunded or credited is a tax that is
"erroneously, x x x illegally, x x x excessively or in any manner wrongfully collected." In short,
there must be a wrongful payment because what is paid, or part of it, is not legally due. As the
Court held in Mirant, Section 229 should "apply only to instances of erroneous payment or
illegal collection of internal revenue taxes." Erroneous or wrongful payment includes excessive
payment because they all refer to payment of taxes not legally due. Under the VAT System,
there is no claim or issue that the "excess" input VAT is "excessively or in any manner wrongfully
collected." In fact, if the "excess" input VAT is an "excessively" collected tax under Section 229, then
the taxpayer claiming to apply such "excessively" collected input VAT to offset his output VAT may
have no legal basis to make such offsetting. The person legally liable to pay the input VAT can claim
a refund or credit for such "excessively" collected tax, and thus there will no longer be any "excess"
input VAT. This will upend the present VAT System as we know it.

IV. Effectivity and Scope of the Atlas , Mirant and Aichi Doctrines

The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the two-
year prescriptive period under Section 229, should be effective only from its promulgation on 8
June 2007 until its abandonment on 12 September 2008 in Mirant. The Atlas doctrine was
limited to the reckoning of the two-year prescriptive period from the date of payment of the output
VAT. Prior to the Atlas doctrine, the two-year prescriptive period for claiming refund or credit of input
VAT should be governed by Section 112(A) following the verba legis rule. The Mirant ruling, which
abandoned the Atlas doctrine, adopted the verba legis rule, thus applying Section 112(A) in
computing the two-year prescriptive period in claiming refund or credit of input VAT.

The Atlas doctrine has no relevance to the 120+30 day periods under Section 112(C) because the
application of the 120+30 day periods was not in issue in Atlas. The application of the 120+30 day
periods was first raised in Aichi, which adopted the verba legis rule in holding that the 120+30 day
periods are mandatory and jurisdictional. The language of Section 112(C) is plain, clear, and
unambiguous. When Section 112(C) states that "the Commissioner shall grant a refund or issue the
tax credit within one hundred twenty (120) days from the date of submission of complete
documents," the law clearly gives the Commissioner 120 days within which to decide the taxpayer’s
claim. Resort to the courts prior to the expiration of the 120-day period is a patent violation of the
doctrine of exhaustion of administrative remedies, a ground for dismissing the judicial suit due to
prematurity. Philippine jurisprudence is awash with cases affirming and reiterating the doctrine of
exhaustion of administrative remedies.65 Such doctrine is basic and elementary.

When Section 112(C) states that "the taxpayer affected may, within thirty (30) days from receipt of
the decision denying the claim or after the expiration of the one hundred twenty-day period, appeal
the decision or the unacted claim with the Court of Tax Appeals," the law does not make the 120+30
day periods optional just because the law uses the word "may." The word "may" simply means that
the taxpayer may or may not appeal the decision of the Commissioner within 30 days from receipt
of the decision, or within 30 days from the expiration of the 120-day period. Certainly, by no stretch
of the imagination can the word "may" be construed as making the 120+30 day periods optional,
allowing the taxpayer to file a judicial claim one day after filing the administrative claim with the
Commissioner.

The old rule66 that the taxpayer may file the judicial claim, without waiting for the Commissioner’s
decision if the two-year prescriptive period is about to expire, cannot apply because that rule was
adopted before the enactment of the 30-day period. The 30-day period was adopted precisely to
do away with the old rule, so that under the VAT System the taxpayer will always have 30
days to file the judicial claim even if the Commissioner acts only on the 120th day, or does
not act at all during the 120-day period. With the 30-day period always available to the taxpayer,
the taxpayer can no longer file a judicial claim for refund or credit of input VAT without waiting for the
Commissioner to decide until the expiration of the 120-day period.

To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against
the taxpayer. One of the conditions for a judicial claim of refund or credit under the VAT System is
compliance with the 120+30 day mandatory and jurisdictional periods. Thus, strict compliance with
the 120+30 day periods is necessary for such a claim to prosper, whether before, during, or after the
effectivity of the Atlas doctrine, except for the period from the issuance of BIR Ruling No. DA-489-03
on 10 December 2003 to 6 October 2010 when the Aichi doctrine was adopted, which again
reinstated the 120+30 day periods as mandatory and jurisdictional.

V. Revenue Memorandum Circular No. 49-03 (RMC 49-03) dated 15 April 2003

There is nothing in RMC 49-03 that states, expressly or impliedly, that the taxpayer need not wait for
the 120-day period to expire before filing a judicial claim with the CTA. RMC 49-03 merely authorizes
the BIR to continue processing the administrative claim even after the taxpayer has filed its judicial
claim, without saying that the taxpayer can file its judicial claim before the expiration of the 120-day
period. RMC 49-03 states: "In cases where the taxpayer has filed a ‘Petition for Review’ with the
Court of Tax Appeals involving a claim for refund/TCC that is pending at the administrative agency
(either the Bureau of Internal Revenue or the One- Stop Shop Inter-Agency Tax Credit and Duty
Drawback Center of the Department of Finance), the administrative agency and the court may act on
the case separately." Thus, if the taxpayer files its judicial claim before the expiration of the 120-day
period, the BIR will nevertheless continue to act on the administrative claim because such premature
filing cannot divest the Commissioner of his statutory power and jurisdiction to decide the
administrative claim within the 120-day period.

On the other hand, if the taxpayer files its judicial claim after the 120- day period, the Commissioner
can still continue to evaluate the administrative claim. There is nothing new in this because even
after the expiration of the 120-day period, the Commissioner should still evaluate internally the
administrative claim for purposes of opposing the taxpayer’s judicial claim, or even for purposes of
determining if the BIR should actually concede to the taxpayer’s judicial claim. The internal
administrative evaluation of the taxpayer’s claim must necessarily continue to enable the BIR to
oppose intelligently the judicial claim or, if the facts and the law warrant otherwise, for the BIR to
concede to the judicial claim, resulting in the termination of the judicial proceedings.

What is important, as far as the present cases are concerned, is that the mere filing by a
taxpayer of a judicial claim with the CTA before the expiration of the 120-day period cannot
operate to divest the Commissioner of his jurisdiction to decide an administrative claim
within the 120-day mandatory period, unless the Commissioner has clearly given cause for
equitable estoppel to apply as expressly recognized in Section 246 of the Tax Code.67

VI. BIR Ruling No. DA-489-03 dated 10 December 2003

BIR Ruling No. DA-489-03 does provide a valid claim for equitable estoppel under Section 246 of the
Tax Code. BIR Ruling No. DA-489-03 expressly states that the "taxpayer-claimant need not wait
for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of
Petition for Review." Prior to this ruling, the BIR held, as shown by its position in the Court of
Appeals,68 that the expiration of the 120-day period is mandatory and jurisdictional before a judicial
claim can be filed.

There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA does
not acquire jurisdiction over a judicial claim that is filed before the expiration of the 120-day period.
There are, however, two exceptions to this rule. The first exception is if the Commissioner, through a
specific ruling, misleads a particular taxpayer to prematurely file a judicial claim with the CTA. Such
specific ruling is applicable only to such particular taxpayer. The second exception is where the
Commissioner, through a general interpretative rule issued under Section 4 of the Tax Code,
misleads all taxpayers into filing prematurely judicial claims with the CTA. In these cases, the
Commissioner cannot be allowed to later on question the CTA’s assumption of jurisdiction over such
claim since equitable estoppel has set in as expressly authorized under Section 246 of the Tax
Code.

Section 4 of the Tax Code, a new provision introduced by RA 8424, expressly grants to the
Commissioner the power to interpret tax laws, thus:

Sec. 4. Power of the Commissioner To Interpret Tax Laws and To Decide Tax Cases. — The power
to interpret the provisions of this Code and other tax laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws
or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner,
subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.

Since the Commissioner has exclusive and original jurisdiction to interpret tax laws, taxpayers
acting in good faith should not be made to suffer for adhering to general interpretative rules of the
Commissioner interpreting tax laws, should such interpretation later turn out to be erroneous and be
reversed by the Commissioner or this Court. Indeed, Section 246 of the Tax Code expressly
provides that a reversal of a BIR regulation or ruling cannot adversely prejudice a taxpayer who in
good faith relied on the BIR regulation or ruling prior to its reversal. Section 246 provides as follows:

Sec. 246. Non-Retroactivity of Rulings. — Any revocation, modification or reversal of any of

the rules and regulations promulgated in accordance with the preceding Sections or any of the
rulings or circulars promulgated by the Commissioner shall not be given retroactive application if
the revocation, modification or reversal will be prejudicial to the taxpayers, except in the
following cases:

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any
document required of him by the Bureau of Internal Revenue;

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially
different from the facts on which the ruling is based; or

(c) Where the taxpayer acted in bad faith. (Emphasis supplied)

Thus, a general interpretative rule issued by the Commissioner may be relied upon by taxpayers
from the time the rule is issued up to its reversal by the Commissioner or this Court. Section 246 is
not limited to a reversal only by the Commissioner because this Section expressly states,
"Any revocation, modification or reversal" without specifying who made the revocation, modification
or reversal. Hence, a reversal by this Court is covered under Section 246.

Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly

on a difficult question of law. The abandonment of the Atlas doctrine by Mirant and Aichi69 is proof
that the reckoning of the prescriptive periods for input VAT tax refund or credit is a difficult question
of law. The abandonment of the Atlas doctrine did not result in Atlas, or other taxpayers similarly
situated, being made to return the tax refund or credit they received or could have received
under Atlas prior to its abandonment. This Court is applying Mirant and Aichi prospectively. Absent
fraud, bad faith or misrepresentation, the reversal by this Court of a general interpretative rule issued
by the Commissioner, like the reversal of a specific BIR ruling under Section 246, should also apply
prospectively. As held by this Court in CIR v. Philippine Health Care Providers, Inc.:70

In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this Court held that under Section 246 of
the 1997 Tax Code, the Commissioner of Internal Revenue is precluded from adopting a
position contrary to one previously taken where injustice would result to the taxpayer. Hence,
where an assessment for deficiency withholding income taxes was made, three years after a new
BIR Circular reversed a previous one upon which the taxpayer had relied upon, such an assessment
was prejudicial to the taxpayer. To rule otherwise, opined the Court, would be contrary to the tenets
of good faith, equity, and fair play.

This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting Corp.  in the later cases
1âwphi1

of Commissioner of Internal Revenue v. Borroughs, Ltd., Commissioner of Internal Revenue v. Mega

Gen. Mdsg. Corp., Commissioner of Internal Revenue v. Telefunken Semiconductor (Phils.) Inc.,
and Commissioner of Internal Revenue v. Court of Appeals. The rule is that the BIR rulings have
no retroactive effect where a grossly unfair deal would result to the prejudice of the taxpayer,
as in this case.

More recently, in Commissioner of Internal Revenue v. Benguet Corporation, wherein the taxpayer
was entitled to tax refunds or credits based on the BIR’s own issuances but later was suddenly
saddled with deficiency taxes due to its subsequent ruling changing the category of the taxpayer’s
transactions for the purpose of paying its VAT, this Court ruled that applying such ruling retroactively
would be prejudicial to the taxpayer. (Emphasis supplied)

Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable
to all taxpayers or a specific ruling applicable only to a particular taxpayer.

BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query
made, not by a particular taxpayer, but by a government agency tasked with processing tax refunds
and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the
Department of Finance. This government agency is also the addressee, or the entity responded to,
in BIR Ruling No. DA-489-03. Thus, while this government agency mentions in its query to the
Commissioner the administrative claim of Lazi Bay Resources Development, Inc., the agency was in
fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay Resources
Development, Inc., where the taxpayer did not wait for the lapse of the 120-day period.

Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on
BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by
this Court in Aichi on 6 October 2010, where this Court held that the 120+30 day periods are
mandatory and jurisdictional

However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four reasons: first, it is
admittedly an erroneous interpretation of the law; second, prior to its issuance, the BIR held that the
120-day period was mandatory and jurisdictional, which is the correct interpretation of the law; third,
prior to its issuance, no taxpayer can claim that it was misled by the BIR into filing a judicial claim
prematurely; and fourth, a claim for tax refund or credit, like a claim for tax exemption, is strictly
construed against the taxpayer.

San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its judicial
claim prematurely on 10 April 2003, before the issuance of BIR Ruling No. DA-489-03 on 10
December 2003. To repeat, San Roque cannot claim that it was misled by the BIR into filing its
judicial claim prematurely because BIR Ruling No. DA-489-03 was issued only after San Roque filed
its judicial claim. At the time San Roque filed its judicial claim, the law as applied and administered
by the BIR was that the Commissioner had 120 days to act on administrative claims. This was in fact
the position of the BIR prior to the issuance of BIR Ruling No. DA-489-03. Indeed, San Roque
never claimed the benefit of BIR Ruling No. DA-489-03 or RMC 49-03, whether in this Court,
the CTA, or before the Commissioner.

Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the issuance of
BIR Ruling No. DA-489-03 on 10 December 2003. Truly, Taganito can claim that in filing its judicial
claim prematurely without waiting for the 120-day period to expire, it was misled by BIR Ruling No.
DA-489-03. Thus, Taganito can claim the benefit of BIR Ruling No. DA-489-03, which shields the
filing of its judicial claim from the vice of prematurity.
Philex’s situation is not a case of premature filing of its judicial claim but of late filing,
indeed very late filing. BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim, which
means non-exhaustion of the 120-day period for the Commissioner to act on an administrative claim.
Philex cannot claim the benefit of BIR Ruling No. DA-489-03 because Philex did not file its judicial
claim prematurely but filed it long after the lapse of the 30-day period following the expiration of
the 120-day period. In fact, Philex filed its judicial claim 426 days after the lapse of the 30-day
period.

VII. Existing Jurisprudence

There is no basis whatsoever to the claim that in five cases this Court had already made a ruling that
the filing dates of the administrative and judicial claims are inconsequential, as long as they are
within the two-year prescriptive period. The effect of the claim of the dissenting opinions is that San
Roque’s failure to wait for the 120-day mandatory period to lapse is inconsequential, thus allowing
San Roque to claim the tax refund or credit. However, the five cases cited by the dissenting opinions
do not support even remotely the claim that this Court had already made such a ruling. None of
these five cases mention, cite, discuss, rule or even hint that compliance with the 120-day
mandatory period is inconsequential as long as the administrative and judicial claims are
filed within the two-year prescriptive period.

In CIR v. Toshiba Information Equipment (Phils.), Inc.,71 the issue was whether any output VAT was
actually passed on to Toshiba that it could claim as input VAT subject to tax credit or refund. The
Commissioner argued that "although Toshiba may be a VAT-registered taxpayer, it is not engaged in
a VAT-taxable business." The Commissioner cited Section 4.106-1 of Revenue Regulations No. 75
that "refund of input taxes on capital goods shall be allowed only to the extent that such capital
goods are used in VAT-taxable business." In the words of the Court, "Ultimately, however, the issue
still to be resolved herein shall be whether respondent Toshiba is entitled to the tax credit/refund of
its input VAT on its purchases of capital goods and services, to which this Court answers in the
affirmative." Nowhere in this case did the Court discuss, state, or rule that the filing dates of the
administrative and judicial claims are inconsequential, as long as they are within the two-year
prescriptive period.

In Intel Technology Philippines, Inc. v. CIR,72 the Court stated: "The issues to be resolved in the
instant case are (1) whether the absence of the BIR authority to print or the absence of the TIN-V in
petitioner’s export sales invoices operates to forfeit its entitlement to a tax refund/credit of its
unutilized input VAT attributable to its zero-rated sales; and (2) whether petitioner’s failure to indicate
"TIN-V" in its sales invoices automatically invalidates its claim for a tax credit certification." Again,
nowhere in this case did the Court discuss, state, or rule that the filing dates of the administrative
and judicial claims are inconsequential, as long as they are within the two-year prescriptive period.

In AT&T Communications Services Philippines, Inc. v. CIR,73 the Court stated: "x x x the CTA First
Division, conceding that petitioner’s transactions fall under the classification of zero-rated sales,
nevertheless denied petitioner’s claim ‘for lack of substantiation,’ x x x." The Court quoted the
ruling of the First Division that "valid VAT official receipts, and not mere sale invoices, should
have been submitted" by petitioner to substantiate its claim. The Court further stated: "x x x the
CTA En Banc, x x x affirmed x x x the CTA First Division," and "petitioner’s motion for
reconsideration having been denied x x x, the present petition for review was filed." Clearly, the sole
issue in this case is whether petitioner complied with the substantiation requirements in claiming for
tax refund or credit. Again, nowhere in this case did the Court discuss, state, or rule that the filing
dates of the administrative and judicial claims are inconsequential, as long as they are within the
two-year prescriptive period.
In CIR v. Ironcon Builders and Development Corporation,74 the Court put the issue in this manner:
"Simply put, the sole issue the petition raises is whether or not the CTA erred in granting respondent
Ironcon’s application for refund of its excess creditable VAT withheld." The Commissioner argued
that "since the NIRC does not specifically grant taxpayers the option to refund excess creditable
VAT withheld, it follows that such refund cannot be allowed." Thus, this case is solely about whether
the taxpayer has the right under the NIRC to ask for a cash refund of excess creditable VAT
withheld. Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the
administrative and judicial claims are inconsequential, as long as they are within the two-year
prescriptive period.

In CIR v. Cebu Toyo Corporation,75 the issue was whether Cebu Toyo was exempt or subject to
VAT. Compliance with the 120-day period was never an issue in Cebu Toyo. As the Court explained:

Both the Commissioner of Internal Revenue and the Office of the Solicitor General argue that
respondent Cebu Toyo Corporation, as a PEZA-registered enterprise, is exempt from national and
local taxes, including VAT, under Section 24 of Rep. Act No. 7916 and Section 109 of the NIRC.
Thus, they contend that respondent Cebu Toyo Corporation is not entitled to any refund or credit on
input taxes it previously paid as provided under Section 4.103-1 of Revenue Regulations No. 7-95,
notwithstanding its registration as a VAT taxpayer. For petitioner claims that said registration was
erroneous and did not confer upon the respondent any right to claim recognition of the input tax
credit.

The respondent counters that it availed of the income tax holiday under E.O. No. 226 for four years
from August 7, 1995 making it exempt from income tax but not from other taxes such as
VAT. Hence, according to respondent, its export sales are not exempt from VAT, contrary to
petitioner’s claim, but its export sales is subject to 0% VAT. Moreover, it argues that it was able
to establish through a report certified by an independent Certified Public Accountant that the input
taxes it incurred from April 1, 1996 to December 31, 1997 were directly attributable to its export
sales. Since it did not have any output tax against which said input taxes may be offset, it had the
option to file a claim for refund/tax credit of its unutilized input taxes.

Considering the submission of the parties and the evidence on record, we find the petition bereft of
merit.

Petitioner’s contention that respondent is not entitled to refund for being exempt from VAT is
untenable. This argument turns a blind eye to the fiscal incentives granted to PEZA-registered
enterprises under Section 23 of Rep. Act No. 7916. Note that under said statute, the respondent had
two options with respect to its tax burden. It could avail of an income tax holiday pursuant to
provisions of E.O. No. 226, thus exempt it from income taxes for a number of years but not from
other internal revenue taxes such as VAT; or it could avail of the tax exemptions on all taxes,
including VAT under P.D. No. 66 and pay only the preferential tax rate of 5% under Rep. Act No.
7916. Both the Court of Appeals and the Court of Tax Appeals found that respondent availed of the
income tax holiday for four (4) years starting from August 7, 1995, as clearly reflected in its 1996 and
1997 Annual Corporate Income Tax Returns, where respondent specified that it was availing of the
tax relief under E.O. No. 226. Hence, respondent is not exempt from VAT and it correctly
registered itself as a VAT taxpayer. In fine, it is engaged in taxable rather than exempt
transactions. (Emphasis supplied)

Clearly, the issue in Cebu Toyo was whether the taxpayer was exempt from VAT or subject to
VAT at 0% tax rate. If subject to 0% VAT rate, the taxpayer could claim a refund or credit of its input
VAT. Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the
administrative and judicial claims are inconsequential, as long as they are within the two-year
prescriptive period.

While this Court stated in the narration of facts in Cebu Toyo that the taxpayer "did not bother to wait
for the Resolution of its (administrative) claim by the CIR" before filing its judicial claim with the CTA,
this issue was not raised before the Court. Certainly, this statement of the Court is not a binding
precedent that the taxpayer need not wait for the 120-day period to lapse.

Any issue, whether raised or not by the parties, but not passed upon by the Court, does not
have any value as precedent. As this Court has explained as early as 1926:

It is contended, however, that the question before us was answered and resolved against the
contention of the appellant in the case of Bautista vs. Fajardo (38 Phil. 624). In that case no question
was raised nor was it even suggested that said section 216 did not apply to a public officer. That
question was not discussed nor referred to by any of the parties interested in that case. It has been
frequently decided that the fact that a statute has been accepted as valid, and invoked and applied
for many years in cases where its validity was not raised or passed on, does not prevent a court
from later passing on its validity, where that question is squarely and properly raised and
presented. Where a question passes the Court sub silentio, the case in which the question
was so passed is not binding on the Court (McGirr vs. Hamilton and Abreu, 30 Phil. 563), nor
should it be considered as a precedent. (U.S. vs. Noriega and Tobias, 31 Phil. 310; Chicote vs.
Acasio, 31 Phil. 401; U.S. vs. More, 3 Cranch [U.S.] 159, 172; U.S. vs. Sanges, 144 U.S. 310,
319; Cross vs. Burke, 146 U.S. 82.) For the reasons given in the case of McGirr vs. Hamilton and
Abreu, supra, the decision in the case of Bautista vs. Fajardo, supra, can have no binding force in
the interpretation of the question presented here.76 (Emphasis supplied)

In Cebu Toyo, the nature of the 120-day period, whether it is mandatory or optional, was not even
raised as an issue by any of the parties. The Court never passed upon this issue. Thus, Cebu
Toyo does not constitute binding precedent on the nature of the 120-day period.

There is also the claim that there are numerous CTA decisions allegedly supporting the argument
that the filing dates of the administrative and judicial claims are inconsequential, as long as they are
within the two-year prescriptive period. Suffice it to state that CTA decisions do not constitute
precedents, and do not bind this Court or the public. That is why CTA decisions are appealable to
this Court, which may affirm, reverse or modify the CTA decisions as the facts and the law may
warrant. Only decisions of this Court constitute binding precedents, forming part of the Philippine
legal system.77 As held by this Court in The Philippine Veterans Affairs Office v. Segundo:78

x x x Let it be admonished that decisions of the Supreme Court "applying or interpreting the laws or
the Constitution . . . form part of the legal system of the Philippines," and, as it were, "laws" by their
own right because they interpret what the laws say or mean. Unlike rulings of the lower courts,
which bind the parties to specific cases alone, our judgments are universal in their scope and
application, and equally mandatory in character. Let it be warned that to defy our decisions is to
court contempt. (Emphasis supplied)

The same basic doctrine was reiterated by this Court in De Mesa v. Pepsi Cola Products Phils.,
Inc.:79

The principle of stare decisis et non quieta movere is entrenched in Article 8 of the Civil Code, to wit:

ART. 8. Judicial decisions applying or interpreting the laws or the Constitution shall form a part of the
legal system of the Philippines.
It enjoins adherence to judicial precedents. It requires our courts to follow a rule already
established in a final decision of the Supreme Court. That decision becomes a judicial precedent
to be followed in subsequent cases by all courts in the land. The doctrine of stare decisis is based on
the principle that once a question of law has been examined and decided, it should be deemed
settled and closed to further argument. (Emphasis supplied)

VIII. Revenue Regulations No. 7-95 Effective 1 January 1996

Section 4.106-2(c) of Revenue Regulations No. 7-95, by its own express terms, applies only if the
taxpayer files the judicial claim "after" the lapse of the 60-day period, a period with which San Roque
failed to comply. Under Section 4.106-2(c), the 60-day period is still mandatory and
jurisdictional.

Moreover, it is a hornbook principle that a prior administrative regulation can never prevail over a

later contrary law, more so in this case where the later law was enacted precisely to amend the prior
administrative regulation and the law it implements.

The laws and regulation involved are as follows:

1977 Tax Code, as amended by Republic Act No. 7716 (1994)

Sec. 106. Refunds or tax credits of creditable input tax. —

(a) x x x x

(d) Period within which refund or tax credit of input tax shall be made - In proper cases, the
Commissioner shall grant a refund or issue the tax credit for creditable input taxes within
sixty (60) days from the date of submission of complete documents in support of the
application filed in accordance with subparagraphs (a) and (b) hereof. In case of full or
partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from receipt of the decision denying the
claim or after the expiration of the sixty-day period, appeal the decision or the unacted
claim with the Court of Tax Appeals.

Revenue Regulations No. 7-95 (1996)

Section 4.106-2. Procedures for claiming refunds or tax credits of input tax — (a) x x x

xxxx

(c) Period within which refund or tax credit of input taxes shall be made. — In proper cases, the
Commissioner shall grant a tax credit/refund for creditable input taxes within sixty (60) days from the
date of submission of complete documents in support of the application filed in accordance with
subparagraphs (a) and (b) above.

In case of full or partial denial of the claim for tax credit/refund as decided by the Commissioner of
Internal Revenue, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from
the receipt of said denial, otherwise the decision will become final. However, if no action on the
claim for tax credit/refund has been taken by the Commissioner of Internal Revenue after the
sixty (60) day period from the date of submission of the application but before the lapse of
the two (2) year period from the date of filing of the VAT return for the taxable quarter, the
taxpayer may appeal to the Court of Tax Appeals.

xxxx

1997 Tax Code

Section 112. Refunds or Tax Credits of Input Tax —

(A) x x x

xxxx

(D) Period within which Refund or Tax Credit of Input Taxes shall be made. — In proper cases, the
Commissioner shall grant the refund or issue the tax credit certificate for creditable input
taxes within one hundred twenty (120) days from the date of submission of complete documents
in support of the application filed in accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the
part of the Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from the receipt of the decision denying the
claim or after the expiration of the hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals.

There can be no dispute that under Section 106(d) of the 1977 Tax Code, as amended by RA 7716,
the Commissioner has a 60-day period to act on the administrative claim. This 60-day period is
mandatory and jurisdictional.

Did Section 4.106-2(c) of Revenue Regulations No. 7-95 change this, so that the 60-day period is no
longer mandatory and jurisdictional? The obvious answer is no.

Section 4.106-2(c) itself expressly states that if, "after the sixty (60) day period," the
Commissioner fails to act on the administrative claim, the taxpayer may file the judicial claim even
"before the lapse of the two (2) year period." Thus, under Section 4.106-2(c) the 60-day period is
still mandatory and jurisdictional.

Section 4.106-2(c) did not change Section 106(d) as amended by RA 7716, but merely implemented
it, for two reasons. First, Section 4.106-2(c) still expressly requires compliance with the 60-day
period. This cannot be disputed. 1âwphi1

Second, under the novel amendment introduced by RA 7716, mere inaction by the Commissioner
during the 60-day period is deemed a denial of the claim. Thus, Section 4.106-2(c) states that "if no
action on the claim for tax refund/credit has been taken by the Commissioner after the sixty (60)
day period," the taxpayer "may" already file the judicial claim even long before the lapse of the two-
year prescriptive period. Prior to the amendment by RA 7716, the taxpayer had to wait until the two-
year prescriptive period was about to expire if the Commissioner did not act on the claim.80 With the
amendment by RA 7716, the taxpayer need not wait until the two-year prescriptive period is about to
expire before filing the judicial claim because mere inaction by the Commissioner during the 60-day
period is deemed a denial of the claim. This is the meaning of the phrase "but before the lapse
of the two (2) year period" in Section 4.106-2(c). As Section 4.106- 2(c) reiterates that the judicial
claim can be filed only "after the sixty (60) day period," this period remains mandatory and
jurisdictional. Clearly, Section 4.106-2(c) did not amend Section 106(d) but merely faithfully
implemented it.

Even assuming, for the sake of argument, that Section 4.106-2(c) of Revenue Regulations No. 7-95,
an administrative issuance, amended Section 106(d) of the Tax Code to make the period given to
the Commissioner non-mandatory, still the 1997 Tax Code, a much later law, reinstated the original
intent and provision of Section 106(d) by extending the 60-day period to 120 days and re-adopting
the original wordings of Section 106(d). Thus, Section 4.106-2(c), a mere administrative
issuance, becomes inconsistent with Section 112(D), a later law. Obviously, the later law prevails
over a prior inconsistent administrative issuance.

Section 112(D) of the 1997 Tax Code is clear, unequivocal, and categorical that the Commissioner
has 120 days to act on an administrative claim. The taxpayer can file the judicial claim (1) only
within thirty days after the Commissioner partially or fully denies the claim within the 120- day
period, or (2) only within thirty days from the expiration of the 120- day period if the
Commissioner does not act within the 120-day period.

There can be no dispute that upon effectivity of the 1997 Tax Code on 1 January 1998, or more
than five years before San Roque filed its administrative claim on 28 March 2003, the law has
been clear: the 120- day period is mandatory and jurisdictional. San Roque’s claim, having been
filed administratively on 28 March 2003, is governed by the 1997 Tax Code, not the 1977 Tax Code.
Since San Roque filed its judicial claim before the expiration of the 120-day mandatory and
jurisdictional period, San Roque’s claim cannot prosper.

San Roque cannot also invoke Section 4.106-2(c), which expressly provides that the taxpayer can
only file the judicial claim "after" the lapse of the 60-day period from the filing of the administrative
claim. San Roque filed its judicial claim just 13 days after filing its administrative claim. To
recall, San Roque filed its judicial claim on 10 April 2003, a mere 13 days after it filed its
administrative claim.

Even if, contrary to all principles of statutory construction as well as plain common sense, we
gratuitously apply now Section 4.106-2(c) of Revenue Regulations No. 7-95, still San Roque cannot
recover any refund or credit because San Roque did not wait for the 60-day period to lapse,
contrary to the express requirement in Section 4.106-2(c). In short, San Roque does not even
comply with Section 4.106-2(c). A claim for tax refund or credit is strictly construed against the
taxpayer, who must prove that his claim clearly complies with all the conditions for granting the tax
refund or credit. San Roque did not comply with the express condition for such statutory grant.

A final word. Taxes are the lifeblood of the nation. The Philippines has been struggling to improve its
tax efficiency collection for the longest time with minimal success. Consequently, the Philippines has
suffered the economic adversities arising from poor tax collections, forcing the government to
continue borrowing to fund the budget deficits. This Court cannot turn a blind eye to this economic
malaise by being unduly liberal to taxpayers who do not comply with statutory requirements for tax
refunds or credits. The tax refund claims in the present cases are not a pittance. Many other
companies stand to gain if this Court were to rule otherwise. The dissenting opinions will turn on its
head the well-settled doctrine that tax refunds are strictly construed against the taxpayer.

WHEREFORE, the Court hereby (1) GRANTS the petition of the Commissioner of Internal Revenue

in G.R. No. 187485 to DENY the P483,797,599.65 tax refund or credit claim of San Roque Power
Corporation; (2) GRANTS the petition of Taganito Mining Corporation in G.R. No. 196113 for a tax
refund or credit of P8,365,664.38; and (3) DENIES the petition of Philex Mining Corporation in G.R.
No. 197156 for a tax refund or credit of P23,956,732.44.
SO ORDERED.

G.R. No. 194105               February 5, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
TEAM SUAL CORPORATION (formerly MIRANT SUAL CORPORATION), Respondent.

DECISION

REYES, J.:

Before this Court is a petition for review on certiorari  under Rule 45 of the Rules of Court seeking to
1

annul and set aside the Decision  dated June 16, 2010 and the Resolution  dated October 14, 2010
2 3

of the Court of Tax Appeals (CTA) en bane in CTA EB No. 504. The CTA en bane affirmed the
Decision  dated January 26, 2009 as well as the Resolution  dated June 19, 2009 of the CTA First
4 5

Division in CTA Case No. 6421. The CTA First Division ordered the Commissioner of Internal
Revenue (CIR) to refund or credit to Team Sual Corporation (TSC) its unutilized input value-added
tax (VAT) for the taxable year 2000.

The Facts

TSC is a corporation that is principally engaged in the business of power generation and the
subsequent sale thereof solely to National Power Corporation (NPC); it is registered with the Bureau
of Internal Revenue (BIR) as a VAT taxpayer.

On November 26, 1999, the CIR granted TSC's application for zero-rating arising from its sale of
power generation services to NPC for the taxable year 2000. As a VAT-registered entity, TSC filed
its VAT returns for the first, second, third, and fourth quarters of taxable year 2000 on April 24, 2000,
July 25, 2000, October 25, 2000, and January 25, 2001, respectively.

On March 11, 2002, TSC filed with the BIR an administrative claim for refund, claiming that it is
entitled to the unutilized input VAT in the amount of ₱179,314,926.56 arising from its zero-rated
sales to NPC for the taxable year 2000.

On April 1, 2002, without awaitmg the CIR's resolution of its administrative claim for refund/tax credit,
TSC filed a petition for review with the CT A seeking the refund or the issuance of a tax credit
certificate in the amount of ₱179,314,926.56 for its unutilized input VAT for the taxable year 2000.
The case was subsequently raffled to the CTA First Division.

In his Answer, the CIR claimed that TSC's claim for refund/tax credit should be denied, asserting that
TSC failed to comply with the conditions precedent for claiming refund/tax credit of unutilized input
VAT. The CIR pointed out that TSC failed to submit complete documents in support of its application
for refund/tax credit contrary to Section 112(C)  of the National Internal Revenue Code (NIRC).
6

On January 26, 2009, the CTA First Division rendered a Decision,  which granted TSC's claim for
7

refund/tax credit of input VAT. Nevertheless, the CTA First Division found that, from the total
unutilized input VAT of ₱179,314,926.56 that it claimed, TSC was only able to substantiate the
amount of ₱173,265,261.30. Thus:
WHEREFORE, the instant Petition for Review is hereby GRANTED. Accordingly, [CIR] is hereby
ORDERED to REFUND or to ISSUE TAX CREDIT CERTIFICATE in favor of [TSC] in the amount of
[I!] 173,265,261.30.

SO ORDERED. 8

The CIR sought a reconsideration of the CT A First Division Decision dated January 26, 2009
maintaining that TSC is not entitled to a refund/tax credit of its unutilized input VAT for the taxable
year 2000 since it failed to submit all the necessary and relevant documents in support of its
administrative claim.

The CIR further claimed that TSC's petition for review was prematurely filed, alleging that under
Section 112( C) of the NIRC, the CIR is given 120 days from the submission of complete documents
within which to either grant or deny TSC's application for refund/tax credit of its unutilized input VAT.
The CIR pointed out that TSC filed its petition for review with the CTA sans any decision on its claim
and without waiting for the 120-day period to lapse.

On June 19, 2009, the CTA First Division issued a Resolution,  which denied the CIR' s motion for
9

reconsideration. The CT A First Division opined that TSC's petition for review was not prematurely
filed notwithstanding that the 120-day period given to the CIR under Section 112(C) of the NIRC had
not yet lapsed. It ruled that, pursuant to Section 112(A) of the NIRC, claims for refund/tax credit of
unutilized input VAT should be filed within two years after the close of the taxable quarter when the
sales were made; that the 120-day period under Section 112(C) of the NIRC is also covered by the
two-year prescriptive period within which to claim the refund/tax credit ofunutilized input VAT. Thus:

Admittedly, Section 112([C]) of the NIRC of 1997 provides for a one hundred twenty (120)-day
period from the submission of the complete documents within which respondent may grant or deny
the taxpayer's application for refund or issuance of tax credit certificate. The said 120-day period
however is also covered by the two-year prescriptive period to file a claim for refund or tax credit
before this Court, as specified in Section 112(A) of the same Code.

It has been consistently held that the administrative claim and the subsequent appeal to this Court
must be filed within the two-year period. In the case of Allison J. Gibbs, et al. vs. Collector of Internal
Revenue, et al., the High Tribunal declared that the suit or proceeding must be started in this Court
before the end of the two-year period without awaiting the decision of the Collector (now
Commissioner). Accordingly, as long as an administrative claim is filed prior to the filing of a judicial
case, both within the two-year prescriptive period, this Court has jurisdiction to take cognizance of
the claim. And once a Petition for Review is filed, this Court already acquires jurisdiction over the
claim and is not bound to wait indefinitely for whatever action respondent may take. After all, at stake
are claims for refund and unlike assessments, no decision of respondent is required before one can
go to this Court.  (Citations omitted)
10

Aggrieved by the foregoing disquisition of the CT A First Division, the CIR filed a Petition for
Review  with the CTA en bane. He maintains that TSC's petition with the CTA First Division was
11

prematurely filed; that TSC can only elevate its claim for refund/tax credit of its unutilized input VAT
with the CTA only within 30 days from the lapse of the 120-day period granted to the CIR, under
Section 112(C) of the NIRC, within which to decide administrative claims for refund/tax credit or from
the CIR decision denying its claim.

On June 16, 2010, the CTA en bane rendered the herein assailed Decision,  which affirmed the
12

Decision dated January 26, 2009 of the CT A First Division, viz:

WHEREFORE, premises considered, the Petition for Review is hereby DENIED. The Commissioner
is hereby ordered to refund TSC the aggregate amount of ₱173,265,261.30 representing unutilized
input VAT on its domestic purchases and importation of goods and services attributable to zero-
rated sales to NPC for the taxable year 2000.

SO ORDERED. 13

The CTA en bane ruled that, pursuant to Section 112(A) of the NIRC, both the administrative and
judicial remedies under Section 112(C) of the NIRC must be undertaken within the two-year period
from the close of the taxable quarter when the relevant sales were made. Thus:

Under the law, the taxpayer-claimant may seek judicial redress for refund on excess or unutilized
input VAT attributable to zero-rated sales or effectively zero-rated sales with the Court of Tax
Appeals either within thirty (30) days from receipt of the denial of its claim for refund/tax credit, or
after the lapse of the one hundred twenty (120)-day period in the event of inaction by the
Commissioner; provided that both administrative and judicial remedies must be undertaken within
the two (2)-year period from the close of the taxable quarter when the relevant sales were made. If
the two-year period is about to lapse, but the BIR has not yet acted on the application for refund, the
taxpayer should file a Petition for Review with this Court within the two[-]year period. Otherwise, the
refund claim for unutilized input value added tax attributable to zero-rated sales or effectively zero-
rated sales is time-barred.

Subsections (A) and (C) of Section 112 of the 1997 NIRC under the heading "Refunds or Tax
Credits of Input Tax" should be read in its entirety not in separate parts. Subsection ([C]) cannot be
isolated from the rest of the subsections of Section 112 of the 1997 NIRC. A statute is passed as a
whole, and is animated by one general purpose and intent. Its meaning cannot be extracted from
any single part thereof but from a general consideration of the statute as a whole.  (Citations
14

omitted)

The CIR sought a reconsideration of the CT A en bane Decision dated June 16, 2010 but it was
denied by the CTA en bane in its Resolution  dated October 14, 2010.
15

The Issue

Essentially, the issue presented to the Court for resolution is whether the CTA en bane erred in
holding that TSC's petition for review with the CT A was not prematurely filed.

The Court's Ruling

The petition is meritorious.

Section 112 of the NIRC provides for the rules to be followed in claiming a refund/tax credit of
unutilized input VAT. Subsections (A) and (C) thereof provide that:

Sec. 112. Refunds or Tax Credits of Input Tax. –

Zero-Rated or Effectively Zero-Rated Sales. – Any VAT-registered person, whose sales are zero-
rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when
the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax
due or paid attributable to such sales, except transitional input tax, to the extent that such input tax
has not been applied against output tax: Provided, however, That in the case of zero-rated sales
under Section 106(A)(2)(a)(1), (2) and (b) and Section 108 (B)(1) and (2), the acceptable foreign
currency exchange proceeds thereof had been duly accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is
engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods of
properties or services, and the amount of creditable input tax due or paid cannot be directly and
entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of
the volume of sales: Provided, finally, That for a person making sales that are zero-rated under
Section 108 (B)(6), the input taxes shall be allocated ratably between his zero-rated and non-zero-
rated sales.

xxxx

(C) Period within which Refund or Tax Credit of Input Taxes shall be Made.-In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within
one hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsection (A) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration
of the one hundred twenty-day period, appeal the decision or the unacted claim with the Court of Tax
Appeals.

xxxx

Any unutilized input VAT attributable to zero-rated or effectively zero-rated sales may be claimed as
a refund/tax credit. Initially, claims for refund/tax credit for unutilized input VAT should be filed with
the BIR, together with the complete documents in support of the claim. Pursuant to Section 112(A) of
the NIRC, the administrative claim for refund/tax credit must be filed with the BIR within two years
after the close of the taxable quarter when the sales were made.

Under Section 112(C) of the NIRC, the CIR is given 120 days from the submission of complete
documents in support of the application for refund/tax credit within which to either grant or deny the
claim. In case of (1) full or partial denial of the claim or (2) the failure of the CIR to act on the claim
within 120 days from the submission of complete documents, the taxpayer-claimant may, within 30
days from receipt of the CIR decision denying the claim or after the lapse of the 120-day period, file
a petition for review with the CT A.

The CTA en bane and the CTA First Division opined that a taxpayer- claimant is permitted to file a
judicial claim for refund/tax credit with the CTA notwithstanding that the 120-day period given to the
CIR to decide an administrative claim had not yet lapsed. That TSC, in view of the fact that the two-
year prescriptive period for claiming refund/tax credit of unutilized input VAT under Section 112(A) of
the NIRC is about to lapse, had the right to seek judicial redress for its claim for refund/tax credit
sans compliance with the 120-day period under Section 112(C) of the NIRC.

The Court does not agree.

The pivotal question of whether the imminent lapse of the two-year period under Section 112(A) of
the NIRC justifies the filing of a judicial claim with the CTA without awaiting the lapse of the 120-day
period given to the CIR to decide the administrative claim for refund/tax credit had already been
settled by the Court. In Commissioner of Internal Revenue v. Aichi Forging Company of Asia,
Inc.,  the Court held that:
16
However, notwithstanding the timely filing of the administrative claim, we are constrained to deny
respondent's claim for tax refund/credit for having been filed in violation of Section 112([C]) of the
NIRC, x x x:

xxxx

Section 112([C]) of the NIRC clearly provides that the CIR has "120 days, from the date of the
submission of the complete documents in support of the application [for tax refund/credit]," within
which to grant or deny the claim. In case of full or partial denial by the CIR, the taxpayer's recourse
is to file an appeal before the CTA within 30 days from receipt of the decision of the CIR. However, if
after the 120-day period the CIR fails to act on the application for tax refund/credit, the remedy of the
taxpayer is to appeal the inaction of the CIR to CTA within 30 days.

In this case, the administrative and the judicial claims were simultaneously filed on September 30,
2004. Obviously, respondent did not wait for the decision of the CIR or the lapse of the 120-day
period. For this reason, we find the filing of the judicial claim with the CTA premature.

Respondent's assertion that the non-observance of the 120-day period is not fatal to the filing of a
judicial claim as long as both the administrative and the judicial claims are filed within the two-year
prescriptive period has no legal basis.

There is nothing in Section 112 of the NIRC to support respondent's view. Subsection (A) of the said
provision states that "any VAT-registered person, whose sales are zero-rated or effectively zero-
rated may, within two years after the close of the taxable quarter when the sales were made, apply
for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to
such sales." The phrase "within two (2) years x x x apply for the issuance of a tax credit certificate or
refund" refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA.
This is apparent in the first paragraph of subsection (C) of the same provision, which states that the
CIR has "120 days from the submission of complete documents in support of the application filed in
accordance with Subsections (A) and (B)" within which to decide on the claim.

In fact, applying the two-year period to judicial claims would render nugatory Section 112(C) of the
NIRC, which already provides for a specific period within which a taxpayer should appeal the
decision or inaction of the CIR. The second paragraph of Section 112(C) of the NIRC envisions two
scenarios: (1) when a decision is issued by the CIR before the lapse of the 120-day period; and (2)
when no decision is made after the 120-day period. In both instances, the taxpayer has 30 days
within which to file an appeal with the CT A. As we see it then, the 120-day period is crucial in filing
an appeal with the CT A. 17

(Citations omitted and emphasis ours)

Further, in Commissioner of Internal Revenue v. San Roque Power Corporation,  the Court
18

emphasized that the 120-day period that is given to the CIR within which to decide claims for
refund/tax credit of unutilized input VAT is mandatory and jurisdictional. The Court categorically held
that the taxpayer-claimant must wait for the 120-day period to lapse, should there be no decision
fully or partially denying the claim, before a petition for review may be filed with the CTA. Otherwise,
the petition would be rendered premature and without a cause of action. Consequently, the CTA
does not have the jurisdiction to take cognizance of a petition for review filed by the taxpayer-
claimant should there be no decision by the CIR on the claim for refund/tax credit or the 120-day
period had not yet lapsed. Thus:
Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given by law
to the Commissioner to decide whether to grant or deny San Roque' s application for tax refund or
credit. It is indisputable that compliance with the 120-day waiting period is mandatory and
jurisdictional. x x x.

Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates
the doctrine of exhaustion of administrative remedies and renders the petition premature and thus
without a cause of action, with the effect that the CTA does not acquire jurisdiction over the
taxpayer's petition. Philippine jurisprudence is replete with cases upholding and reiterating these
doctrinal principles.

The charter of the CTA expressly provides that its jurisdiction is to review on appeal "decisions of the
Commissioner of Internal Revenue in cases involving x x x refunds of internal revenue taxes." When
a taxpayer prematurely files a judicial claim for tax refund or credit with the CTA without waiting for
the decision of the Commissioner, there is no "decision" of the Commissioner to review and thus the
CTA as a court of special jurisdiction has no jurisdiction over the appeal. The charter of the CTA also
expressly provides that if the Commissioner fails to decide within "a specific period" required by law,
such "inaction shall be deemed a denial" of the application for tax refund or credit. It is the
Commissioner's decision, or inaction "deemed a denial," that the taxpayer can take to the CTA for
review. Without a decision or an "inaction x x x deemed a denial" of the Commissioner, the CTA has
no jurisdiction over a petition for review.  (Citations omitted and emphasis supplied)
19

That the two-year prescriptive period within which to file a claim for refund/tax credit ofunutilized
input VAT under Section 112(A) of the NIRC is about to lapse is inconsequential and would not
justify the immediate filing of a petition for review with the CTA sans compliance with the 120-day
mandatory period. To stress, under Section 112(C) of the NIRC, a taxpayer-claimant may only file a
petition for review with the CT A within 30 days from either: (1) the receipt of the decision of the CIR
denying, in full or in part, the claim for refund/tax credit; or (2) the lapse of the 120-day period given
to the CIR to decide the claim for refund/tax credit.

The 120-day mandatory period may extend beyond the two-year prescriptive period for filing a claim
for refund/tax credit under Section 112(A) of the NIRC. Consequently, the 30-day period given to the
taxpayer-claimant likewise need not fall under the two-year prescriptive period. What matters is that
the administrative claim for refund/tax credit of unutilized input VAT is filed with the BIR within the
two-year prescriptive period. In San Roque, the Court explained that:

There are three compelling reasons why the 30-day period need not necessarily fall within the two-
year prescriptive period, as long as the administrative claim is filed within the two-year prescriptive
period.

First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer "may, within two
(2) years after the close of the taxable quarter when the sales were made, apply for the issuance of
a tax credit certificate or refund of the creditable input tax due or paid to such sales." In short, the law
states that the taxpayer may apply with the Commissioner for a refund or credit "within two (2)
years," which means at anytime within two years. Thus, the application for refund or credit may be
filed by the taxpayer with the Commissioner on the last day of the two-year prescriptive period and it
will still strictly comply with the law. The two-year prescriptive period is a grace period in favor of the
taxpayer and he can avail of the full period before his right to apply for a tax refund or credit is barred
by prescription.

Second, Section 112(C) provides that the Commissioner shall decide the application for refund or
credit "within one hundred twenty (120) days from the date of submission of complete documents in
support of the application filed in accordance with Subsection (A)." The reference in Section 112(C)
of the submission of documents "in support of the application filed in accordance with Subsection A"
means that the application in Section 112(A) is the administrative claim that the Commissioner must
decide within the 120-day period. In short, the two-year prescriptive period in Section 112(A) refers
to the period within which the taxpayer can file an administrative claim for tax refund or credit. Stated
otherwise, the two-year prescriptive period does not refer to the filing of the judicial claim with the
CTA but to the filing of the administrative claim with the Commissioner. As held in Aichi, the "phrase
'within two years x x x apply for the issuance of a tax credit or refund' refers to applications for
refund/credit with the CIR and not to appeals made to the CTA."

Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive period
(equivalent to 730 days), then the taxpayer must file his administrative claim for refund or credit
within the first 610 days of the two-year prescriptive period. Otherwise, the filing of the administrative
claim beyond the first 610 days will result in the appeal to the CTA being filed beyond the two-year
prescriptive period. Thus, if the taxpayer files his administrative claim on the 611th day, the
Commissioner, with his 120-day period, will have until the 731st day to decide the claim. If the
Commissioner decides only on the 731st day, or does not decide at all, the taxpayer can no longer
file his judicial claim with the CTA because the two-year prescriptive period (equivalent to 730 days)
has lapsed. The 30-day period granted by law to the taxpayer to file an appeal before the CTA
becomes utterly useless, even if the taxpayer complied with the law by filing his administrative claim
within the two-year prescriptive period.

The theory that the 30-day period must fall within the two-year prescriptive period adds a condition
that is not found in the law. It results in truncating 120 days from the 730 days that the law grants the
taxpayer for filing his administrative claim with the Commissioner. This Court cannot interpret a law
to defeat, wholly or even partly, a remedy that the law expressly grants in clear, plain, and
unequivocal language.  (Citation omitted and emphasis supplied)
20

It is undisputed that TSC filed its administrative claim for refund/tax credit with the BIR on March 11,
2002, which is still within the two-year prescriptive period under Section 112(A) of the NIRC.
However, without waiting for the CIR decision or the lapse of the 120-day period from the time it
submitted its complete documents in support of its claim, TSC filed a petition for review with the CTA
on April 1, 2002 - a mere 21 days after it filed its administrative claim with the BIR. Clearly, TSC's
petition for review with the CTA was prematurely filed; the CTA had no jurisdiction to take
cognizance of TSC's petition since there was no decision as yet by the CIR denying TSC's claim,
fully or partially, and the 120-day period under Section 112(C) of the NIRC had not yet lapsed.

Nevertheless, TSC submits that the requirement to exhaust the 120-day period under Section
112(C) of the NIRC prior to filing the judicial claim with the CTA is a species of the doctrine of
exhaustion of administrative remedies; that the non-observance of the doctrine merely results in lack
of cause of action, which ground may be waived for failure to timely invoke the same. TSC claims
that the issue of its non-compliance with the 120-day period, as a ground to deny its claim, was
already waived since the CIR did not raise it m the proceedings before the CTA First Division.

The Court does not agree. In San Roque, the Court opined that a petition for review that is filed with
the CTA without waiting for the 120-day mandatory period renders the same void. The Court then
pointed out that a person committing a void act cannot claim or acquire any right from such void act.
Thus:

San Roque's failure to comply with the 120-day mandatory period renders its petition for review with
the CTA void. Article 5 of the Civil Code provides, "Acts executed against provisions of mandatory or
prohibitory laws shall be void, except when the law itself authorizes their validity." San Roque's void
petition for review cannot be legitimized by the CTA or this Court because Article 5 of the Civil Code
states that such void petition cannot be legitimized "except when the law itself authorizes its validity."
There is no law authorizing the petition's validity.

It is hombook doctrine that a person committing a void act contrary to a mandatory provision of law
cannot claim or acquire any right from his void act. A right cannot spring in favor of a person from his
own void or illegal act. This doctrine is repeated in Article 2254 of the Civil Code, which states, "No
vested or acquired right can arise from acts or omissions which are against the law or which infringe
upon the rights of others." For violating a mandatory provision of law in filing its petition with the
CTA, San Roque cannot claim any right arising from such void petition. Thus, San Roque' s petition
with the CTA is a mere scrap of paper.  (Citation omitted and emphasis supplied)
21

Accordingly, TSC's failure to comply with the 120-day mandatory period under Section 112(C) of the
NIRC renders its petition for review with the CT A void. It is a mere scrap of paper from which TSC
cannot derive or acquire any right notwithstanding the supposed failure on the part of the CIR to
raise the issue of TSC' s non-compliance with the 120-day period in the proceedings before the CTA
First Division. In any case, the Court finds that the CIR raised the issue of TSC's non-compliance
with the 120-days mandatory period in the motion for reconsideration that was filed with the CT A
First Division. Further, the CIR likewise raised the same issue in the petition for review that was filed
with the CTA en banc.

In insisting that the 120-day period under Section 112(C) of the NIRC is not mandatory, TSC further
points out that the BIR, under BIR Ruling No. DA-489-03 dated December 10, 2003 and Revenue
Memorandum Circular No. 49-03 (RMC No. 49-03) dated April 15, 2003, had already laid down the
rule that the taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek
judicial relief with the CTA. As such, the TSC claims, its failure to comply with the 120-day
mandatory period is not cause to deny its judicial claim for refund/tax credit.

TSC's assertion is untenable. RMC No. 49-03, in part, reads:

In cases where the taxpayer has filed a "Petition for Review" with the Court of Tax Appeals involving
a claim for refund/TCC that is pending at the administrative agency (Bureau of Internal Revenue or
OSS-DOF), the administrative agency and the tax court may act on the case separately. While the
case is pending in the tax court and at the same time is still under process by the administrative
agency, the litigation lawyer of the BIR, upon receipt of the summons from the tax court, shall
request from the head of the investigating/processing office for the docket containing certified true
copies of all the documents pertinent to the claim. The docket shall be presented to the court as
evidence for the BIR in its defense on the tax credit/refund case filed by the taxpayer. In the
meantime, the investigating/processing office of the administrative agency shall continue processing
the refund/TCC case until such time that a final decision has been reached by either the CTA or the
administrative agency.

If the CTA is able to release its decision ahead of the evaluation of the administrative agency, the
latter shall cease from processing the claim. On the other hand, if the administrative agency is able
to process the claim of the taxpayer ahead of the CTA and the taxpayer is amenable to the findings
thereof, the concerned taxpayer must file a motion to withdraw the claim with the CTA. A copy of the
positive resolution or approval of the motion must be furnished the administrative agency as a
prerequisite to the release of the tax credit certificate/tax refund processed administratively.
However, if the taxpayer is not agreeable to the findings of the administrative agency or does not
respond accordingly to the action of the agency, the agency shall not release the refund/TCC unless
the taxpayer shows proof of withdrawal of the case filed with the tax court. If, despite the termination
of the processing of the refund/TCC at the administrative level, the taxpayer decides to continue with
the case filed at the tax court, the litigation lawyer of the BIR, upon the initiative of either the Legal
Office or the Processing Office of the Administrative Agency, shall present as evidence against the
claim of the taxpayer the result of the investigation of the investigating/processing office. (Citation
omitted and emphasis supplied)

In San Roque, the Court had already clarified that nowhere in RMC No. 49-03 was it stated that a
taxpayer-claimant need not wait for the lapse of the 120-day mandatory period before it can file its
judicial claim with the CTA. RMC No. 49-03 only authorized the BIR to continue the processing of a
claim for refund/tax credit notwithstanding that the same had been appealed to the CTA, viz:

There is nothing in RMC 49-03 that states, expressly or impliedly, that the taxpayer need not wait for
the 120-day period to expire before filing a judicial claim with the CTA. RMC 49-03 merely authorizes
the BIR to continue processing the administrative claim even after the taxpayer has filed its judicial
claim, without saying that the taxpayer can file its judicial claim before the expiration of the 120-day
period. RMC 49-03 states: "In cases where the taxpayer has filed a 'Petition for Review' with the
Court of Tax Appeals involving a claim for refund/TCC that is pending at the administrative agency
(either the Bureau of Internal Revenue or the One-Stop Shop Inter-Agency Tax Credit and Duty
Drawback Center of the Department of Finance), the administrative agency and the court may act on
the case separately." Thus, if the taxpayer files its judicial claim before the expiration of the 120-day
period, the BIR will nevertheless continue to act on the administrative claim because such premature
filing cannot divest the Commissioner of his statutory power and jurisdiction to decide the
administrative claim within the 120-day period.

On the other hand, if the taxpayer files its judicial claim after the 120-day period, the Commissioner
can still continue to evaluate the administrative claim. There is nothing new in this because even
after the expiration of the 120-day period, the Commissioner should still evaluate internally the
administrative claim for purposes of opposing the taxpayer's judicial claim, or even for purposes of
determining if the BIR should actually concede to the taxpayer's judicial claim. The internal
administrative evaluation of the taxpayer's claim must necessarily continue to enable the BIR to
oppose intelligently the judicial claim or, if the facts and the law warrant otherwise, for the BIR to
concede to the judicial claim, resulting in the termination of the judicial proceedings.

What is important, as far as the present cases are concerned, is that the mere filing by a taxpayer of
a judicial claim with the CTA before the expiration of the 120-day period cannot operate to divest the
Commissioner of his jurisdiction to decide an administrative claim within the 120-day mandatory
period, unless the Commissioner has clearly given cause for equitable estoppel to apply as
expressly recognized in Section 246 of the Tax Code.  (Citation omitted and emphasis supplied)
22

As regards BIR Ruling No. DA-489-03, the Court, in San Roque, held that:

BIR Ruling No. DA-489-03 does provide a valid claim for equitable estoppel under Section 246 of the
Tax Code. BIR Ruling No. DA-489-03 expressly states that the "taxpayer-claimant need not wait for
the lapse of the 120-day period before it could seek judicial relief with the CT A by way of Petition for
Review." Prior to this ruling, the BIR held, as shown by its position in the Court of Appeals, that the
expiration of the 120-day period is mandatory and jurisdictional before a judicial claim can be filed.

There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA does
not acquire jurisdiction over a judicial claim that is filed before the expiration of the 120-day period.
There are, however, two exceptions to this rule. The first exception is if the Commissioner, through a
specific ruling, misleads a particular taxpayer to prematurely file a judicial claim with the CT A. Such
specific ruling is applicable only to such particular taxpayer. The second exception is where the
Commissioner, through a general interpretative rule issued under Section 4 of the Tax Code,
misleads all taxpayers into filing prematurely judicial claims with the CTA. In these cases, the
Commissioner cannot be allowed to later on question the CT A's assumption of jurisdiction over such
claim since equitable estoppel has set in as expressly authorized under Section 246 of the Tax
Code.

xxxx

BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query
made, not by a particular taxpayer, but by a government agency tasked with processing tax refunds
and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the
Department of Finance. x x x.  (Citation omitted and emphasis supplied)
23

Indeed, BIR Ruling No. DA-489-03 provided that the taxpayer-claimant may already file a judicial
claim for refund/tax credit with the CTA notwithstanding that the 120-day mandatory period under
Section 112(C) of the NIRC had not yet lapsed. Being a general interpretative rule, the CIR is barred
from questioning the CT A's assumption of jurisdiction on the ground that the 120-day mandatory
period under Section 112(C) of the NIRC had not yet lapsed since estoppel under Section 246  of 24

the NIRC had already set in. Nevertheless, the Court clarified that taxpayers can only rely on BIR
Ruling No. DA-489-03 from the time of its issuance on December 10, 2003 up to its reversal by this
Court in Aichi on October 6, 2010, where it was held that the 120-day period under Section 112(C) of
the NIRC is mandatory and jurisdictional.

TSC filed its judicial claim for refund/tax credit of its unutilized input VAT with the CT A on April 1,
2002 - more than a year before the issuance of BIR Ruling No. DA-489-03. Accordingly, TSC cannot
benefit from the declaration laid down in BIR Ruling No. DA-489-03. As stressed by the Court in San
Roque, prior to the issuance of BIR Ruling No. DA-489-03, the BIR held that the 120-day period was
mandatory and jurisdictional, which is the correct interpretation of the law.

TSC nevertheless claims that the Court's ruling in Aichi should only be applied prospectively; that
prior to Aichi, the Court supposedly ruled that a taxpayer-claimant need not await the lapse of the
120-day period under Section 112(C) of the NIRC before filing a petition for review with the CTA as
shown by the Court's ruling in the cases of Intel Technology Philippines, Inc. v. Commissioner of
Internal Revenue,  San Roque Power Corporation v. Commissioner of Internal Revenue,  and AT&T
25 26

Communications Services Philippines, Inc. v. Commissioner of Internal Revenue. 27

The Court does not agree. There is no basis to TSC's claim that this Court, prior to Aichi, had ruled
that a taxpayer may file a judicial claim for refund/tax credit with the CT A sans compliance with the
120-day mandatory period. The cases cited by TSC do not even remotely support its contention.
Indeed, nowhere in the said cases did the Court even discuss the 120-day mandatory period under
Section 112(C) of the NIRC.

In Intel, the administrative claim for refund/tax credit of unutilized input VAT was filed with the BIR on
May 18, 1999.  Due to the CIR's inaction on its claim for refund/tax credit, the petitioner therein filed
1âwphi1

a petition for review with CT A on June 30, 2000 - more than a year after it filed its administrative
claim with the BIR. Further, the issue in the said case is only limited to whether sales invoices, which
do not bear the BIR authority to print and do not indicate the TIN-V, are sufficient evidence to prove
that the taxpayer is engaged in sales which are zero-rated or effectively zero-rated for purposes of
claiming unutilized input VAT refund/tax credit.

Similarly, in San Roque Power Corporation v. Commissioner of Internal Revenue, the Court did not
even remotely touch on the issue of the application of the 120-day mandatory period under Section
112(C) of the NIRC. The petitioner in the said case filed administrative claims for refund/tax credit of
its unutilized input VAT for the first, second, third, and fourth quarters of the taxable year 2002 on
June 19, 2002, October 5, 2002, February 27, 2003, and May 29, 2003, respectively. The CIR failed
to act on the said claims for refund/tax credit within the 120-day period, which prompted the
petitioner therein to file a petition for review with the CTA on April 5, 2004. Moreover, the issue that
was resolved by the Court in the said case is whether the petitioner therein was able to prove the
existence of zero-rated or effectively zero-rated sales, to which creditable input taxes may be
attributed.

Likewise, AT&T Communications only dealt with the substantiation requirements in claiming
refund/tax credit of unutilized input VAT, i.e., whether VAT invoices are sufficient evidence to prove
the existence of zero-rated or effectively zero-rated sales.

Finally, even if TSC was able to substantiate, through the documents it submitted, that it is indeed
entitled to a refund/tax credit of its unutilized input VAT for the taxable year 2000, its claim would still
have to be denied. "Tax refunds are in the nature of tax exemptions, and are to be construed
strictissimi Juris against the entity claiming the same."  "The taxpayer is charged with the heavy
28

burden of proving that he has complied with and satisfied all the statutory and administrative
requirements to be entitled to the tax refund. "  TSC, in prematurely filing a petition for review with
29

the CTA, failed to comply with the 120-day mandatory period under Section 112(C) of the NIRC.
Thus, TSC's claim for refund/tax credit of its unutilized input VAT should be denied.

WHEREFORE, in consideration of the foregoing disquisitions, the instant petition is GRANTED. The
Decision dated June 16, 2010 and the Resolution dated October 14, 2010 of the Court of Tax
Appeals en bane in CTA EB No. 504 are hereby REVERSED and SET ASIDE. Team Sual
Corporation's claim for refund/tax credit of its unutilized input valued-added tax for the taxable year
2000 is DENIED.

SO ORDERED.

G.R. No. 190021               October 22, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR MINDANAO, INC., Respondent.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari  are the Decision  dated August 13, 2009 and the
1 2

Resolution  dated October 22, 2009 of the Court of Tax Appeals (CTA) En Banc in C.T.A. EB No.
3

487 which affirmed the Decision  dated September 17, 2008 and the Resolution  dated April 13,
4 5

2009 of the CTA First Division in C.T.A. Case No. 6220 granting respondent Burmeister and Wain
Scandinavian Contractor Mindanao, Inc. (respondent) a refund of its unutilized input taxes
attributable to zero-rated sales of services for the fourth quarter of taxable year 1998.

The Facts

Respondent is a corporation duly organized and existing under the laws of the Philippines, and
primarily engaged in the business of constructing, erecting, assembling, commissioning, operating,
maintaining, rehabilitating, and managing industrial and power-generating plants and related
facilities for the conversion intoelectricity of coal distillate, and other fuels, provided by and under
contract with the Philippine Government, or any government-owned and controlled corporations, or
other entities engaged in the development, supply, or distribution of electricity.  It is registered as a
6

value-added tax (VAT) taxpayer. 7

Respondent subcontracted from a consortium  of non-resident foreign corporations the actual
8

operation and maintenance of two 100-megawatt power barges owned by the National Power
Corporation, which services are subject to zero percent (0%) VAT, pursuant to Bureau of Internal
Revenue (BIR) Ruling No. 023-95 issued on February 14, 1995, that was reconfirmed on January 7,
1999 in its VAT Review Committee Ruling No. 003-99. 9

On January 21, 1999, respondent filed its Quarterly VAT Return for the fourth quarter of taxable
year1998 indicating zero-rated sales of ₱68,761,361.50 and input VAT of ₱1,834,388.55 paid on its
domestic purchases of goods and services for the same period. 10

On July 21, 1999, respondent filed an Application for Tax Credit/Refund of VAT Paid for the period
July to December 1998 in the amount of 4,154,969.51, which was not acted upon by herein
petitioner, the Commissioner of Internal Revenue (CIR). 11

On January 9, 2001, respondent filed a petition for review before the CTA, praying for the refund or
the issuance of a tax credit certificate in the amount of ₱1,834,388.55 representing its alleged
unutilized input VAT payment for the fourth quarter of 1998. The petition was denied on January 29,
2003 due to insufficiency of evidence. However, on appeal before the Court of Appeals (CA),
docketed as CA-G.R. SP No. 79272, the case was remanded to the CTA on April 19, 2005 for the
reception of respondent’s evidence consisting of VAT invoices and receipts which had not been
submitted earlier, but were already attached to its motion for reconsideration of the denial of the CTA
petition.
12

The CTA First Division Ruling

On September 17, 2008, after due trial, the CTA First Division rendered a Decision  in C.T.A. Case
13

No. 6220 ordering the CIR to refund or issue a tax credit certificate infavor of respondent in the
reduced amount of ₱1,556,913.68 representing the latter’s valid claim. It was determined that the
administrative claim filed on July21, 1999 and the petition for review filed on January 9, 2001 fell
within the two-year prescriptive period reckoned from January 21,1999, the date when respondent
filed its Quarterly VAT Return for the fourth quarter of taxable year 1998. 14

The CIR moved for the reconsideration of the aforesaid CTA First Division Decision, but was denied
in a Resolution  dated April 13, 2009.
15

Undaunted, the CIR elevated the case to the CTA En Banc on petition for review, docketed as
C.T.A. EB No. 487, lamenting the alleged failure on the part of respondent to comply with the
periods mandated under Section 112 of Republic Act No. (RA) 8424,  otherwise known as the Tax
16

Reform Act of 1997. From the time the administrative claim for refund was filed on July 21, 1999, the
CIR had 120 days, or until November 18, 1999, to act on the application, failing in which, respondent
may elevate the case before the CTA within 30 days from November 18, 1999, or until December
18, 1999. However, respondent filed its judicial claim only on January 9, 2001.

The CTA En BancRuling

In a Decision  dated August 13, 2009, the CTA En Banc dismissed the petition holding that the CIR
17

could not raise for the first time on appeal the issue of prescription in the filing of respondent’s
judicial claim for refund, viz.:

It is worthy to note that the present case was remanded from the CA to the CTA ordering the latter to
admit and consider the VAT receipts and invoices attached to respondent’s Motion for
Reconsideration to determine respondent’s claim for refund. During the proceedings before the CA
until this case was remanded to the CTA, [CIR] never questioned the period within which the
respondent’s judicial claim for refund was filed. When the CTA First Division partially granted
respondent’s judicial claim for refund, [the CIR] immediately filed his Motion for Reconsideration to
which he neither mentioned nor raised the issue of prescription. More than eight years have lapsed
before the [CIR] brought the issue of prescription and was questioned only now at the CTAen
banclevel after an unfavorable judgment was issued against him. 18

The CIR filed a motion for reconsideration but was likewise denied in a Resolution  dated October
19

22, 2009 for lack of merit, hence, the present petition.

The Issue Before the Court

The lone issue for the Court’s resolution is whether or not the CTA En Banc correctly dismissed the
petition for review on the ground that the issue of prescription was belatedly raised.

The Court’s Ruling

The petition is meritorious.

Section 112 of RA 8424,  which was in force at the time of the filing of respondent’s claim for credit
20

or refund of its creditable input tax, pertinently reads as follows:

SEC. 112. Refunds or Tax Credits of Input Tax. –

(A) Zero-rated or Effectively Zero-Rated Sales.– Any VAT-registered person, whose sales are zero-
rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when
the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax
due or paid attributable to such sales x x x.

xxxx

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within
one hundred twenty (120) daysfrom the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration
of the one hundred twenty-day period, appeal the decision or the unacted claim with the Court of Tax
Appeals.  (Emphases supplied)
21

It should be recalled that the CTA First Division declared in its September 17, 2008 Decision that the
administrative claim filed on July 21, 1999 and the petition for review filed on January 9, 2001 fell
within the twoyear prescriptive period reckoned from January 21, 1999, the date when respondent
filed its Quarterly VAT Returnfor the fourth quarter of taxable year 1998. 22

The CIR argues, on the other hand, that the two-year period for filing both the administrative and
judicial claims should be reckoned from the close of the fourth taxable quarter when the relevant
sales were made, which fell on December 31, 1998. As such, respondent only had until December
31, 2000 to file both its administrative and judicial claims.  While it filed its administrative claim on
23

July 21, 1999 within the two-year prescriptive period, the same is not true with the petition for review
that was filed with the CTA only on January 9, 2001.  To support its contention, the CIR cited the
24

case of CIR v. Mirant Pagbilao Corp.  (Mirant).

25

To resolve the matter, the Court deems it fit to briefly discuss the doctrinal metamorphosis of the
two-year prescriptive period provided under Section 112 (A) as above-cited.

In the case of Atlas Consolidated Mining and Dev’t. Corp. v. CIR  (Atlas), which was promulgated on
26

June 8, 2007, the two-year prescriptive period stated in Section 112 (A)  was counted from the date
27

of payment of the output VAT.  At that time, the output VAT must be paid at the time of filing of the
28

quarterly tax returns, which meant within 20 days following the end of each quarter.  However, on
29

September 12, 2008, the Atlas doctrine was abandoned in the case of Mirant which adopted the
verba legis rule and counted the two-year prescriptive period from the "close of the taxable quarter
when the sales were made" as expressly stated in the law,  regardless when the input VAT was
30

paid.  In the recent case of CIR v. San Roque Power Corporation  (San Roque), promulgated on
31 32

February 12, 2013, the Court clarified that (a) the Atlasdoctrine was effective only from its
promulgation on June 8, 2007 until its abandonment on September 12, 2008 in Mirant, and (b) prior
to the Atlas doctrine, Section 112 (A) should be applied following the verba legisrule adopted in
Mirant. 33

Thus, applying Section 112 (A) strictly as worded, it may then be concluded that the administrative
claim filed by respondent on July 21, 1999 was filed within the two-year prescriptive period reckoned
from the close of the fourth taxable quarter falling on December 31, 1998, the last day of filing being
December 31, 2000.

In fact, whether the two-year prescriptive period is counted from the date of payment (January 21,
1999) of the output VAT following Atlas, or from the close of the taxable quarter when the sales
weremade (December 31, 1998) pursuant to Mirant, the conclusion that the administrative claim was
timely filed would equally stand.

The CIR insists, however, that both the administrative and judicial claims should fall within the two-
year prescriptive period. This argument is untenable.

It should be pointed out that on October 6, 2010, the Court held in the case of CIR v. Aichi Forging
Company of Asia, Inc.  (Aichi) that the phrase "within two (2) years x x x apply for the issuance of a
34

tax credit certificate or refund" refers to applications for refund/credit filed with the CIR and not to
appeals made to the CTA.  The Court gave three (3) compelling reasons for this ruling in San
35

Roque, namely:

First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer "may, within two
(2) years after the close of the taxable quarter when the sales were made, apply for the issuance of
a tax credit certificate or refund of the creditable input tax due or paid to such sales." In short, the law
states that the taxpayer may apply with the Commissioner for a refund or credit "within two (2)
years," which means at anytime within two years. Thus, the application for refund or credit may be
filed by the taxpayer with the Commissioner on the last day of the two-year prescriptive period and it
will still strictly comply with the law. The twoyear prescriptive period is a grace period in favor of the
taxpayer and he can avail of the full period before his right to apply for a tax refund or credit is barred
by prescription.

Second, Section 112(C) provides that the Commissioner shall decide the application for refund
orcredit "within one hundred twenty (120) days from the date of submission of complete documents
in support of the application filed in accordance with Subsection (A)." The reference in Section
112(C) of the submission of documents "in support of the application filed in accordance with
Subsection A" means that the application in Section 112(A) is the administrative claim that the
Commissioner must decide within the 120-day period. In short, the twoyear prescriptive period in
Section 112(A) refers to the period within which the taxpayer can file an administrative claim for tax
refund or credit. Stated otherwise, the two-year prescriptive period does not refer to the filing of the
judicial claim with the CTA but to the filing of the administrative claim with the Commissioner. x x x.

Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive period
(equivalent to 730 days), then the taxpayer must file his administrative claim for refund or credit
within the first 610 days of the two-year prescriptive period. Otherwise, the filing of the administrative
claim beyond the first 610 days will result in the appeal to the CTA being filed beyond the two-year
prescriptive period. Thus, if the taxpayer files his administrative claim on the 611th day, the
Commissioner, with his 120-day period, will have until the 731st day to decide the claim. If the
Commissioner decides only on the 731st day, or does not decide at all, the taxpayer can no longer
file his judicial claim with the CTA because the two-year prescriptive period (equivalent to 730 days)
has lapsed. The 30-day period granted by law to the taxpayer to file an appeal before the CTA
becomes utterly useless, even if the taxpayer complied with the law by filing his administrative claim
within the two-year prescriptive period.  (Emphases in the original)
36

In fine, the taxpayer can file its administrative claim for refund or credit at any time within the two-
year prescriptive period. If it files its claim on the last day of said period, it is still filed on time.  The
37

CIR will have 120 days from such filing to decide the claim. If the CIR decides the claim on the 120th
day, or does not decide it on that day, the taxpayer still has 30 days to file its judicial claim with the
CTA;  otherwise, the judicial claim would be, properly speaking, dismissed for being filed out of time
38

and not, as the CTA En Bancputs it, prescribed.

It bears emphasis that Section 112 (D)  (now renumbered as Section 112[C]) of RA 8424, which is
39

explicit on the mandatory and jurisdictional natureof the 120+30-day period, was already effective on
January 1, 1998.  Hence, it is of no consequence that the Aichiand San Roque rulings were not yet
40

in existence when respondent’s administrative claim was filed in 1999, so as to rid itself of the said
section’s mandatory and jurisdictional application.

That being said, and notwithstanding the fact that respondent’s administrative claim had been timely
filed, the Court is nonetheless constrained to deny the averred tax refund or credit, as its judicial
claim therefor was filed beyond the 120+30-day period, and, hence – as earlier stated – deemed to
be filed out of time.

As the records would show, the CIR had 120 days from the filing of the administrative claim on July
21, 1999, or until November 18, 1999, to decide on respondent’s application. Since the CIR did not
act at all, respondent had until December 18, 1999, the last day of the 30-day period, to file its
judicial claim. However, respondent filed its petition for review with the CTA only on January 9, 2001
and, thus, was one (1) year and 22 days late. As a consequence of the late filing of said petition, the
CTA did not properly acquire jurisdiction over the claim. 41
In this relation, it is significant to point out that the CTA, being a court of special jurisdiction, can take
cognizance only of matters that are clearly within its jurisdiction. Section 7 of RA 1125,  as amended
42

by RA 9282,  specifically provides:

43

SEC. 7. Jurisdiction. — The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue;

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue, where the National Internal Revenue Code
provides a specific period of action, in which case the inaction shall be deemed a denial;

x x x x (Emphasis supplied)

The inaction of the CIR on the claim during the 120-day period is, by express provision of law,
"deemed a denial" of such claim, and the failure of the taxpayer to file its judicial claim within 30 days
from the expiration of the 120-day period shall render the "deemed a denial" decision of the CIR final
and inappealable. The right to appeal to the CTA from a decision or "deemed a denial" decision of
the Commissioner is merely a statutory privilege, not a constitutional right. The exercise of such
statutory privilege requires strict compliance with the conditions attached by the statute for its
exercise.  Thus, respondent's failure to comply with the statutory conditions is fatal to its claim. This
44

is so, notwithstanding the fact that the CIR, for his part, failed to raise the issue of non-compliance
with the mandatory periods at the earliest opportunity.

In the case of Nippon Express (Philippines) Corporation v. CJR,  the Court ruled that, because the
45

120+ 30-day period is jurisdictional, the issue of whether the taxpayer complied with the said time
frame may be broached at any stage, even on appeal. Well-settled is the rule that the question of
jurisdiction over the subject matter can be raised at any time during the proceedings. Jurisdiction
cannot be waived because it is conferred by law and is not dependent on the consent or objection or
the acts or omissions of the parties or any one of them.  Therefore, respondent's contention on this
46

score is of no moment. 1âwphi1

Indeed, it has been pronounced time and again that taxes are the lifeblood of the government and,
consequently, tax laws must be faithfully and strictly implemented as they are not intended to he
liberally construed.  Hence, with this in mind and in light of the foregoing considerations, the Court
47

so holds that the CTA En Banc committed reversible error when it granted respondent's claim for
refund or tax credit despite its noncompliance with the mandatory periods under Section 112 (D)
(now renumbered as Section 112[C]) of RA 8424. Accordingly, the claim for refund/tax credit must
be denied.

WHEREFORE, the petition is GRANTED. The Decision dated August 13, 2009 and the Resolution
dated October 22, 2009 of the Court of Tax Appeals (CTA) En Banc in C.T.A. EB No. 487 are
hereby REVERSED and SET ASIDE. Respondent Burmeister and Wain Scandinavian Contractor
Mindanao, Inc.'s judicial claim for refund or tax credit through its petition for review before the CTA is
DENIED.
SO ORDERED.

G.R. No. 183880               January 20, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
TOLEDO POWER, INC., Respondent.

DECISION

PERALTA, J.:

This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking the
reversal of the Court of Tax Appeals (CTA) En Banc Decision  dated May 7, 2008, and
1

Resolution  dated July 18, 2008.

2

The pertinent facts, as narrated by the CT A First Division, are as follows:

Petitioner (herein respondent Toledo Power, Inc.) is a general partnership duly organized and
existing under Philippine laws, with principal office at Sangi, Toledo City, Cebu. It is principally
engaged in the business of power generation and subsequent sale thereof to the National Power
Corporation (NPC), Cebu Electric Cooperative III (CEBECO), Atlas Consolidated Mining and
Development Corporation, Atlas Fertilizer Corporation and Cebu Industrial Park Development, Inc.,
and is registered with the Bureau of Internal Revenue (BIR) as a Value

Added Tax taxpayer in accordance with Section 236 of the National Internal Revenue Code (NIRC)
with Tax Identification No. 003-883-626-VAT and BIR Certificate of Registration bearing RDO
Control No. 94-083-000300.

On June 20, 2002, petitioner filed an application with the Energy Regulatory Commission (ERC) for
the issuance of a Certificate of Compliance pursuant to the Implementing Rules and Regulations of
R.A. 9136, otherwise known as the "Electric Power Industry Reform Act of 2007" (EPIRA).

On October 25, 2001, petitioner filed with the BIR Revenue District Office (RDO) No. 83 at Toledo
City, Province of Cebu, its Quarterly VAT Return for the third quarter of 2001, declaring among
others, the following:

Zero-rated Sales/Receipts P 143,000,032.37

Taxable Sales-Sale of Scrap/Others 378,651.74
Output Tax 34,422.89
Less: Input Tax
On Domestic Purchases 4,765,458.58
On Importation of Goods 1,242,792.00
Total Available Input Tax 6,008,250.58
Excess Input Tax & Overpayment P 5,973,827.69
However, an amended Quarterly VAT Return for the same quarter of 2001was filed on November
22, 2001. The amended return shows unutilized input VAT credits of ₱5,909,588.96 arising from
petitioner’s taxable purchases for the third quarter of 2001 and the following other information:

Zero-rated Sales/Receipts P 143,000,032.37

Taxable Sales-Sale of Scrap/Others 378,651.74
Output Tax 34,422.89
Less: Input Tax
On Domestic Purchases 4,718,099.85
On Importation of Goods 1,225,912.00
Total Available Input Tax 5,944,011.85
Excess Input Tax & Overpayment P 5,909,588.96

Thus, for the third quarter of 2001, petitioner allegedly has unutilized input VAT in the total amount of
₱5,909,588.96 on its domestic purchase of taxable goods and services and importation of goods,
which purchases and importations are all attributable to its zero-rated sale of power generation
services to NPC, CEBECO, Atlas Consolidated Mining and Development Corporation, Atlas
Fertilizer Corporation and Cebu Industrial Park Development, Inc. Said input VAT of ₱5,909,588.96
paid by petitioner on its domestic purchase of goods and services for the third quarter of 2001
allegedly remained unutilized against output VAT liability in said period or even in subsequent
matters.

On January 25, 2002, petitioner filed with the BIR RDO No. 83 at Toledo City, Province of Cebu, its
Quarterly VAT Return for the fourth quarter of 2001 declaring, among others, the following:

Zero-rated Sales/Receipts P 127,259,720.44

Taxable Sales-Sale of Scrap/Others 309,697.50
Output Tax 28,154.33
Less: Input Tax
On Domestic Purchases 1,374,608.64
On Importation of Goods 1,873,327.00
Total Available Input Tax 3,247,935.64
Excess Input Tax & Overpayment P 3,219,781.31

Thus, petitioner allegedly had an excess input VAT credits of ₱3,219,781.31 for the fourth quarter of
2001 which remained unutilized against output VAT liability in said period or even in the subsequent
quarters.

For the third and fourth quarters of 2001, petitioner incurred and accumulated input VAT from its
domestic purchase of goods and services, which are all attributable to its zero-rated sales of power
generation services to NPC, CEBECO, Atlas Consolidated Mining and Development
Corporation, Atlas Fertilizer Corporation and Cebu Industrial Park Development Inc., in the total
amount of ₱9,129,370.27. Said excess and unutilized input VAT was allegedly not utilized against
any output VAT liability in the subsequent quarters nor carried over to the succeeding taxable
quarters.

On September 30, 2003, pursuant to the procedure prescribed in Revenue Regulations No. 7-95, as
amended, petitioner filed with the BIR RDO No. 83, an administrative claim for refund or unutilized
input VAT for the third and fourth quarter of 2001 in the amounts of ₱5,909,588.96 and
₱3,219,781.31, respectively, or the aggregate amount of ₱9,129,370.27.

Respondent (herein petitioner Commissioner of Internal Revenue) has not ruled upon petitioner’s
administrative claim and in order to preserve its right to file a judicial claim for the refund or issuance
of a tax credit certificate of its unutilized input VAT, petitioner filed a Petition for

Review to suspend the running of the two-year prescriptive period under Section 112(D) of the 1997
NIRC and Section 4.106-2(c) of Revenue Regulations No. 7-95, as amended. On October 24, 2003,
petitioner filed a Petition for Review for the refund or issuance of a tax credit certificate in the amount
of ₱5,909,588.96 for the third quarter of 2001, docketed as CTA Case No. 6805 and, on January 22,
2004, filed another Petition for Review for the refund or issuance of tax credit certificate in the
amount of ₱3,219,781.31 for the fourth quarter of 2001, docketed as CTA Case No. 6851, both for
its unutilized input VAT paid by petitioner on its domestic purchases of goods and services and
importation of goods attributable to zero-rated sales.

On January 30, 2004, petitioner filed a Motion for Consolidation CTA Case Nos. 6805 and 6851,
since these cases involve the same parties, same facts and issues. The said Motion was granted in
open court on February 27, 2004 and confirmed in a Resolution dated March 8, 2004.

xxxx

After presenting its testimonial and documentary evidence, petitioner formally offered its evidence on
February 16, 2006. On March 24, 2006, this Court promulgated a Resolution admitting all the
exhibits offered by petitioner. Respondent, on the other hand, failed to adduce any evidence.

In a Resolution dated July 6, 2006, this consolidated case was ordered submitted for decision with
only petitioner’s Memorandum, as respondent failed to file one within the period given by the Court. 3

Acting on the petition, the CTA First Division issued a Decision dated May 17, 2007 partially granting
Toledo Power, Inc.’s (TPI) refund claim or issuance of tax credit certificate. Pertinent portions of the
Decision read:

In sum, petitioner was able to show its entitlement to the refund or issuance of tax credit certificate in
the amount of ₱8,553,050.44 computed as follows:

Total Available Input VAT P 9,191,947.49

Less: Disallowed Input VAT
(₱20,696.34+₱52,363.64+₱277,207.50) 350,267.48
Substantiated available input VAT P 8,841,680.01
Less: Output VAT 62,577.22
 Substantiated Unutilized Input VAT P 8,779,102.79
Multiply by the ratio of substantiated
zero-rated sales to the total zero-rated
sales
Substantiated zero-rated sales 263,300,858.02
Total zero-rated sales 270,259,752.81
Refundable Input VAT P 8,553,050.44

IN VIEW OF THE FOREGOING, the Petition for Review is PARTIALLY GRANTED. Respondent is
hereby ORDERED to refund or to issue a tax credit certificate in favor of petitioner in the reduced
amount of ₱8,553,050.44 representing the substantiated unutilized input VAT for the third and fourth
quarters of 2001.

SO ORDERED. 4

The Commissioner of Internal Revenue (CIR), thereafter, filed a Motion for Reconsideration against
said Decision. However, the same was denied in a Resolution dated October 15, 2007.

On appeal to the CTA En Banc, the CIR argued that TPI failed to comply with the invoicing
requirements to prove entitlement to the refund or issuance of tax credit certificate. In addition, he
challenged the jurisdiction of the CTA First Division to entertain respondent’s petition for review for
failure on its part to comply with the provisions of Section 112 (C) of the Tax Code.

In a Decision dated May 7, 2008, the CTA En Banc affirmed with modification the First Division’s
assailed decision. It held –

x x x after re-examination of the records of this case, out of the alleged Zero-rated sales amounting
to ₱270,259,752.81, only the amount of ₱248,989,191.87 is fully substantiated. Therefore,
respondent is entitled to the refund or issuance of tax credit certificate in the amount of
₱8,088,151.07 computed as follows:

Total Available Input VAT P 9,191,947.49

Less: Disallowed Input VAT
(₱20,696.34+₱52,363.64+₱277,207.50) 350,267.48
Substantiated available input VAT P 8,841,680.01
Less: Output VAT 62,577.22
Substantiated Unutilized Input VAT P 8,779,102.79
Multiply by the ratio of substantiated
zero-rated sales to the total zero-rated
sales
Substantiated zero-rated sales 248,989,191.87
Total zero-rated sales 270,259,752.81
Refundable Input VAT P 8,088,151.07
WHEREFORE, premises considered, the Petition for Review En Banc is DENIED for lack of merit.
Accordingly, the Decision dated May 17, 2007 and Resolution dated October 15, 2007 are
AFFIRMED with MODIFICATION. Petitioner is hereby ORDERED TO REFUND to respondent the
sum of EIGHT MILLION EIGHTY-EIGHT THOUSAND ONE HUNDRED FIFTY-ONE PESOS AND
SEVEN CENTAVOS (₱8,088,151.07) only for the third and fourth quarters of taxable year 2001.

SO ORDERED. 5

In a Resolution dated July 18, 2008, the CTA En Banc denied the CIR’s motion for reconsideration.

Undaunted by the adverse ruling of the CTA, the CIR now seeks recourse to this Court on the
following ground:

THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT THE GOVERNMENT IS
LIABLE TO REFUND PETITIONER FOR ALLEGED OVERPAYMENT OF VAT. 6

In essence, two issues must be addressed to determine whether TPI is indeed entitled to its claim
for refund or issuance of tax credit certificate: (1) whether TPI complied with the 120+30 day rule
under Section 112 (C) of the Tax Code, and (2) whether TPI sufficiently complied with the invoicing
requirements under the Tax Code.

Let us discuss the issues in seriatim.

First, it must be emphasized that to validly claim a refund or tax credit of input tax, compliance with
the 120+30 day rule under Section 112 of the Tax Code is mandatory.

Pertinent portions of Section 112 of the Tax Code, as amended by Republic Act No. 9337,  state:
7

SEC. 112. Refunds or Tax Credits of Input Tax. –

(A) Zero-rated or Effectively Zero-Rated Sales. – Any VAT-registered person, whose sales are zero-
rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when
the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax
due or paid attributable to such sales, except transitional input tax, to the extent that such input tax
has not been applied against output tax: Provided, however, That in the case of zero-rated sales
under Section 106(A)(2)(a)(1), (2) and (b) and Section 108(B)(1) and (2), the acceptable foreign
currency exchange proceeds thereof had been duly accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is
engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods of
properties or services, and the amount of creditable input tax due or paid cannot be directly and
entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of
the volume of sales: Provided, finally, That for a person making sales that are zero-rated under
Section 108(B)(6), the input taxes shall be allocated ratably between his zero-rated and non-zero-
rated sales.

xxxx

(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within
one hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsection (A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer may, within
thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one
hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.

Section 112 decrees that a VAT-registered person, whose sales are zero-rated or effectively zero-
rated, may apply for the issuance of a tax credit or refund creditable input tax due or paid attributable
to such sales within two years after the close of the taxable quarter when the sales were made.
From the date of submission of complete documents in support of its application, the CIR has 120
days to decide whether or not to grant the claim for refund or issuance of tax credit certificate. In
case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
CIR to act on the application within the given period, the taxpayer may, within 30 days from receipt
of the decision denying the claim or after the expiration of the 120-day period, appeal with the CTA
the decision or inaction of the CIR.

Recently, in the consolidated cases of Commissioner of Internal Revenue v. San Roque Power
Corporation,  (San Roque), the Court confirmed the mandatory and jurisdictional nature of the
8

120+30 day rule. It ratiocinated as follows:

At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods
were already in the law. Section 112 (C) expressly grants the Commissioner 120 days within which
to decide the taxpayer’s claim. The law is clear, plain and unequivocal: "x x x the Commissioner shall
grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty
(120) days from the date of submission of complete documents." Following the verba legis doctrine,
this law must be applied exactly as worded since it is clear, plain and unequivocal. The taxpayer
cannot simply file a petition with the CTA without waiting for the Commissioner’s decision within the
120-day mandatory and jurisdictional period. The CTA will have no jurisdiction because there will be
no "decision" or "deemed a denial" decision of the Commissioner for the CTA to review. In San
Roque’s case, it filed its petition with the CTA a mere 13 days after it filed its administrative claim
with the Commissioner. Indisputably, San Roque knowingly violated the mandatory 120-day period,
and it cannot blame anyone but itself.

Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision
or inaction of the Commissioner, thus:

x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the
claim or after the expiration of the one-hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals. (Emphasis supplied.)

This law is clear, plain, and unequivocal.  Following the well-settled verba legis doctrine, this law
1avvphi1

should be applied exactly as worded since it is clear, plain and unequivocal. As this law states, the
taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30 days from
receipt of the Commissioner’s decision, or if the Commissioner does not act on the taxpayer’s claim
within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of
the 120-day period.

xxxx

When Section 112 (C) states that "the taxpayer affected may, within thirty (30) days from receipt of
the decision denying the claim or after the expiration of the one hundred twenty-day period, appeal
the decision or the unacted claim with the Court of Tax Appeals," the law does not make the 120+30
day periods optional just because the law uses the word "may." The word "may" simply means that
the taxpayer may or may not appeal the decision of the Commissioner within 30 days from receipt of
the decision, or within 30 days from the expiration of the 120-day period. Certainly by no stretch of
the imagination can the word "may" be construed as making the 120+30 day periods optional,
allowing the taxpayer to file a judicial claim one day after filing the administrative claim with the
Commissioner.

The old rule that the taxpayer may file the judicial claim, without waiting for the Commissioner’s
decision if the two-year prescriptive period is about to expire, cannot apply because that rule was
adopted before the enactment of the 30-day period. The 30-day period was adopted precisely to do
away with the old rule, so that under the VAT System the taxpayer will always have 30 days to file
the judicial claim even if the Commissioner acts only on the 120th day, or does not act at all during
the 120-day period. With the 30-day period always available to the taxpayer, the taxpayer can no
longer file a judicial claim for refund or credit of input VAT without waiting for the Commissioner to
decide until the expiration of the 120-day period.

To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against
the taxpayer. One of the conditions for a judicial claim of refund or credit under the VAT System is
compliance with the 120+30 day mandatory and jurisdictional periods. Thus, strict compliance with
the 120+30 day periods is necessary for such a claim to prosper, whether before, during, or after the
effectivity of the Atlas doctrine, except for the period from the issuance of BIR Ruling No. DA-489-03
on 10 December 2003 to 6 October 2010 when the Aichi doctrine was adopted, which again
reinstated the 120+30 day periods as mandatory and jurisdictional. 9

In a nutshell, the rules on the determination of the prescriptive period for filing a tax refund or credit
of unutilized input VAT, as provided in Section 112 of the Tax Code, are as follows:

(1) An administrative claim must be filed with the CIR within two years after the close of the
taxable quarter when the zero-rated or effectively zero-rated sales were made.

(2) The CIR has 120 days from the date of submission of complete documents in support of
the administrative claim within which to decide whether to grant a refund or issue a tax credit
certificate. The 120-day period may extend beyond the two-year period from the filing of the
administrative claim if the claim is filed in the later part of the two-year period. If the 120-day
period expires without any decision from the CIR, then the administrative claim may be
considered to be denied by inaction.

(3) A judicial claim must be filed with the CTA within 30 days from the receipt of the CIR’s
decision denying the administrative claim or from the expiration of the 120-day period without
any action from the CIR.

(4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its
issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010,
as an exception to the mandatory and jurisdictional 120+30 day periods. 10

Here, TPI filed its third and fourth quarterly VAT returns for 2001 on October 25, 2001 and January
25, 2002, respectively. It then filed an administrative claim for refund of its unutilized input VAT for
the third and fourth quarters of 2001 on September 30, 2003. Thus, the CIR had 120 days or until
January 28, 2004, after the submission of TPI’s administrative claim and complete documents in
support of its application, within which to decide on its claim. Then, it is only after the expiration of
the 120-day period, if there is inaction on the part of the CIR, where TPI may elevate its claim with
the CTA within 30 days.
In the present case, however, it appears that TPI’s judicial claims for refund of its unutilized input
VAT covering the third and fourth quarters of 2001 were prematurely filed on October 24, 2003 and
January 22, 2004, respectively.

However, although TPI’s judicial claim for the fourth quarter of 2001 has been filed prematurely, the
most recent pronouncements of the Court provide for a window wherein the same may be
entertained.

As held in the San Roque ponencia, strict compliance with the 120+30 day mandatory and
jurisdictional periods is not necessary when the judicial claims are filed between December 10, 2003
(issuance of BIR Ruling No. DA-489-03 which states that the taxpayer need not wait for the 120-day
period to expire before it could seek judicial relief) to October 6, 2010 (promulgation of the Aichi
doctrine).

Clearly, therefore, TPI’s refund claim of unutilized input VAT for the third quarter of 2001 was denied
for being prematurely filed with the CTA, while its refund claim of unutilized input VAT for the fourth
quarter of 2001 may be entertained since it falls within the exception provided in the Court’s most
recent rulings.

With that settled, we now resolve the issue of whether TPI sufficiently complied with the invoicing
requirements under the Tax Code with respect to the fourth quarter of 2001.

Section 113 (A), in relation to Section 237 of the Tax Code, provides:

SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. –

(A) Invoicing Requirements. – A VAT-registered person shall, for every sale, issue an invoice or
receipt.  In addition to the information shall be indicated in the invoice or receipt:
1âwphi1

(1) A statement that the seller is a VAT-registered person, followed by his taxpayer’s
identification number (TIN); and

(2) The total amount which the purchaser pays or is obligated to pay to the seller with the
indication that such amount includes value-added tax.

xxxx

SEC. 237. – Issuance of Receipts or Sales of Commercial Invoices. – All persons subject to an
internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at
Twenty-five pesos (₱25.00) or more, issue duly registered receipts or sales or commercial invoices,
prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of
merchandise or nature of service: Provided, however, That in the case of sales, receipts or transfers
in the amount of One hundred pesos (₱100.00) or more, or regardless of the amount, where the sale
or transfer is made by a person liable to value-added tax to another person also liable to value-
added tax; or where the receipt is issued to cover payment made as rentals, commissions,
compensations or fees, receipts or invoices shall be issued which shall show the name, business
style, if any, and address of the purchaser, customer or client: Provided, further, That where the
purchaser is a VAT-registered person, in addition to the information herein required, the invoice or
receipts shall further show the Taxpayer Identification Number (TIN) of the purchaser.

Section 4.108-1 of Revenue Regulations No. 7-95 states:

Section 4.108-1. Invoicing Requirements – All VAT-registered persons shall, for every sale or lease
of goods or properties or services, issue duly registered receipts or sales or commercial invoices
which must show:

1. the name, TIN and address of seller;

2. date of transaction;

3. quantity, unit cost and description of merchandise or nature of service;

4. the name, TIN, business style, if any, and address of the VAT-registered purchaser,
customer or client;

5. the word "zero-rated" imprinted on the invoice covering zero-rated sales; and

6. the invoice value or consideration. 11

In the present case, we agree with the CTA’s findings that the words "zero-rated" appeared on the
VAT invoices/official receipts presented by the TPI in support of its refund claim. Although the same
was merely stamped and not pre-printed, the same is sufficient compliance with the law, since the
imprinting of the word "zero-rated" was required merely to distinguish sales subject to 10% VAT,
those that are subject to 0% VAT (zero-rated) and exempt sales, to enable the Bureau of Internal
Revenue to properly implement and enforce the other VAT provisions of the Tax Code.

Moreover, it is doctrinal that the Court will not lightly set aside the conclusions reached by the CTA
which, by the very nature of its function of being dedicated exclusively to the resolution of tax
problems, has accordingly developed an expertise on the subject, unless there has been an abuse
or improvident exercise of authority.12

In Barcelon, Roxas Securities, Inc. v. Commissioner of Internal Revenue,  the Court held that it
13

accords the findings of fact by the CTA with the highest respect. It ruled that factual findings made
by the CTA can only be disturbed on appeal if they are supported by substantial evidence or there is
a showing of gross error or abuse on the part of the Tax Court. In the absence of any clear and
convincing proof to the contrary, this Court must presume that the CTA rendered a decision which is
valid in every respect.
14

WHEREFORE, premises considered, the instant petition is PARTIALLY GRANTED. The

Commissioner of Internal Revenue is hereby ORDERED to refund or issue tax credit certificate in
favor of Toledo Power, Inc. only for the fourth quarter of 2001. This case is hereby REMANDED to
the Court of Tax Appeals for the proper computation of the refundable amount representing
unutilized input VAT for the fourth quarter of 2001.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR: