taxation ii - cases

TAXATION II (Saturday- Atty. Villarubia) EUNICE 1

TAXATION II - ATTY. VILLARUBIA

G.R. No. 190872 - October 17, 2013

REPUBLIC OF THE PHILIPPINES represented by the Commissioner of Internal

Revenue, Petitioner, vs. GST PHILIPPINES, INC., Respondent.

PERLAS-BERNABE, J.:

It is true that every citizen has a civic responsibility nay an obligation to honestly pay the right taxes as a contribution to the government in order to keep and maintain a civilized society. Corollarily, the government is expected to implement tax laws in good faith; to discharge its duty to collect what is due to it; and consistent with the principles of fair play and equity to justly return what has been erroneously and excessively given to it after careful verification but without infringing upon the fundamental rights of the taxpayer.

In this Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure, petitioner Republic of the Philippines, represented by the Commissioner of Internal Revenue (CIR), assails the October 30, 2009 Decision2 and January 5, 2010 Resolution3 of the Court of Tax Appeals (CTA) En Banc in C.T.A. EB No. 484, granting respondent GST Philippines, Inc. (GST) a refund of its unutilized excess input value added tax (VAT) attributable to zero-rated sales for the four quarters of taxable year 2004 and the

first three quarters of taxable year 2005.

The facts: GST is a corporation duly organized and existing under the laws of the Philippines, and primarily engaged in the business of manufacturing, processing, selling, and dealing in all kinds of iron, steel or other metals.4 It is a duly registered VAT enterprise with taxpayer identification number 000-155-645-000,5 which deals with companies registered with (1) the Board of Investments (BOI) pursuant to Executive Order No. (EO) 226,6 whose manufactured products are 100% exported to foreign countries; and (2) the Philippine Economic Zone Authority (PEZA).7 Sales made by a VAT-registered person to a PEZA-registered entity are

considered exports to a foreign country subject to a zero rate.8

During the taxable years 2004 and 2005, GST filed Quarterly VAT Returns showing its zero-rated sales, as

follows:9

Period Date of Filing Zero-Rated Sales

1st Quarter of year 2004 April 16, 2004 P 77,687,420.54

2nd Quarter of year 2004 July 15, 2004 53,737,063.05

3rd Quarter of year 2004 October 15, 2004 74,280,682.00

4th Quarter of year 2004 January 11, 2005 104,633,604.23

1st Quarter of year 2005 April 25, 2005 37,742,969.02

2nd Quarter of year 2005 July 19, 2005 56,133,761.00

3rd Quarter of year 2005 October 26, 2005 51,147,677.80

Claiming unutilized excess input VAT in the total amount of P32,722,109.68 attributable to the foregoing zero-rated sales,10 GST filed before the Bureau of Internal Revenue (BIR) separate claims for refund on the following dates:11

Period Date of Filing of Administrative Claim

For Refund

1st Quarter of year 2004 June 9, 2004

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2nd Quarter of year 2004 August 12, 2004

3rd Quarter of year 2004 February 18, 2005

4th Quarter of year 2004 February 18, 2005

1st Quarter of year 2005 May 11, 2005

2nd Quarter of year 2005 November 18, 2005

3rd Quarter of year 2005 November 18, 2005

For failure of the CIR to act on its administrative claims, GST filed a petition for review before the CTA on March 17, 2006. After due proceedings, the CTA First Division rendered a Decision12 on January 27, 2009 granting GST’s claims for refund but at the reduced amount of P27,369,114.36. The CIR was also ordered

to issue the corresponding tax credit certificate.13

The CIR moved for reconsideration, which was denied14 by the CTA First Division for lack of merit, thus,

prompting the elevation of the case to the CTA En Banc via a petition for review.15

The CIR raised therein the failure of GST to substantiate its entitlement to a refund,16 and argued that the judicial appeal to the CTA was filed beyond the reglementary periods prescribed in Section 112 of RA 842417 (Tax Code).18

On October 30, 2009, the CTA En Banc affirmed19 the Decision of the CTA First Division finding GST’s administrative and judicial claims for refund to have been filed well within the prescribed periods provided in the Tax Code.20 The CIR’s motion for reconsideration was denied by the CTA En Banc in its

Resolution21 dated January 5, 2010.

Hence, the instant petition.

The Issue

The CIR no longer raises the alleged failure of GST to comply with the substantiation requirements for the questioned claims for refund nor questions the reduced award granted by the CTA En Banc in the amount ofP27,369,114.36. Thus, the lone issue for resolution is whether GST’s action for refund has complied wi th

the prescriptive periods under the Tax Code.

The Ruling of the Court Laws Providing Refunds or Tax

Credit of Unutilized Excess Input VAT

Refund or tax credit of unutilized excess input VAT has been allowed as early as in the Original VAT Law – EO 273.22 This was later amended by RA 771623 and RA 8424, and further amended by RA 933724 which took effect on November 1, 2005.25 Since GST’s claims for refund covered the periods before the effectivity of RA 9337, the old provision on VAT refund, specifically Section 112, as amended by RA 8424, shall

apply.26 It reads:

Section 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. (Emphasis supplied)

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 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)

The CIR, adopting the dissenting opinion27 of CTA Presiding Justice Ernesto D. Acosta to the CTA En Banc Decision dated October 30, 2009, maintains that the two-year prescriptive period under Section 112 (A) of the Tax Code reckoned from the close of the taxable quarter involved is limited only to the filing of an administrative – not judicial – claim.28 In turn, under paragraph (D) of the same Section, the CIR has 120 days to decide on the claim counted from the date of the submission of complete documents and not from the mere filing of the administrative claim. The taxpayer then has 30 days from receipt of the adverse decision, or from the expiration of the 120-day period without the CIR acting upon the claim, to institute his

judicial claim before the CTA.29

Thus, in the present case, the claims filed for the four quarters of taxable year 2004, as well as the first quarter of taxable year 2005, had already prescribed. While those of the second and third quarters of taxable year 2005 were prematurely filed, as summarized in the table presented by Justice Acosta, to wit:

Applying the above discourse in the case at bar, a table is prepared for easy reference:

Filing of Administrative Claim

120th day Section 112 (D), NIRC of 1997

30th day Section 112 (D), 2nd par., NIRC of 1997

Filing of the Petition before the First Division of this Court

Remarks

June 9, 2004 October 7, 2004 November 6, 2004 March 17, 2006 Prescribed

August 12, 2004 December 10, 2004

January 9, 2005 March 17, 2006 Prescribed

February 18, 2005

June 18, 2005 July 18, 2005 March 17, 2006 Prescribed

May 11, 2005 September 8, 2005

October 8, 2005 March 17, 2006 Prescribed

November 18, 2005

March 18, 2006 April 17, 2006 March 17, 2006 Prescribed

Based on the above, the filing of the Petition for Review before the First Division has already prescribed with respect to the administrative claim filed on June 9, 2004; August 12, 2004; February 18, 2005; and May 11, 2005 for being filed beyond the 30th day provided under the second paragraph of Section 112 (D)

of the NIRC of 1997. The petition is therefore dismissible for being out of time.

Anent the administrative claim filed on November 18, 2005, the filing of the petition before the First Division is premature for failure of respondent to wait for the 120-day period to expire. It failed to exhaust the available administrative remedies. Hence, the instant petition is likewise dismissible for lack of cause of

action.30

For its part, GST asserts that under Section 112 (A) of the Tax Code, the prescriptive period is complied with if both the administrative and judicial claims are filed within the two-year prescriptive period;31 and that compliance with the 120-day and 30-day periods under Section 112 (D) of the Tax Code is not mandatory.32 It explained that the 30-day period only refers to a case where a decision is rendered by the CIR and not when the claim for refund is not acted upon, in which case, the taxpayer may appeal to the








CTA anytime even prior to or after the expiration of the 120-day period as long as it is within the two-year prescriptive period. On the other hand, the CIR may still choose to resolve the administrative claim even beyond the 120-day period. In any case, compliance with the 120-day and 30-day periods is merely

directory and permissive, not mandatory nor jurisdictional.33

The 120+30 day periods are

mandatory and jurisdictional.

The Court had already clarified in the case of CIR v. Aichi Forging Company of Asia, Inc. (Aichi),34 promulgated on October 6, 2010, that the two-year prescriptive period applies only to administrative claims and not to judicial claims. Morever, it was ruled that the 120-day and 30-day periods are not merely directory but mandatory. Accordingly, the judicial claim of Aichi, which was simultaneously

filed with its administrative claim, was found to be premature. The Court held:

In fact, applying the two-year period to judicial claims would render nugatory Section 112(D) [now 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(D) [now 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 CTA. As we see it then, the 120-day period is crucial in filing an appeal with the CTA.35 (Emphasis

supplied)

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 tax credit of unutilized excess input VAT without waiting for the Commissioner to decide until the expiration of the 120-day period.36 Failure to comply with the 120-day waiting period 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.37

San Roque case provides exception to the strict compliance with the 120-day period

While the Court En Banc reiterated in the recent consolidated cases of CIR v. San Roque Power Corporation ( San Roque ),38 promulgated on February 12, 2013, that the 120-day period is mandatory and jurisdictional, however, it categorically held that BIR Ruling No. DA-489-03 dated December 10, 2003 provided a valid claim for equitable estoppel under Section 24639 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."40 Speaking through Associate Justice

Antonio T. Carpio, the Court ratiocinated as follows:

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. x x x.41

BIR Ruling No. DA-489-03 was classified in San Roque as a general interpretative rule having been made in response to a query by a government agency tasked with processing tax refunds and credits – the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. As such, all taxpayers can rely on said ruling 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+30 day periods are mandatory and jurisdictional.42

Therefore, GST can benefit from BIR Ruling No. DA-489-03 with respect to its claims for refund of unutilized excess input VAT for the second and third quarters of taxable year 2005 which were filed before the CIR on November 18, 2005 but elevated to the CTA on March 17, 2006 before the expiration of the 120-day period (March 18, 2006 being the 120th day). BIR Ruling No. DA-489-03 effectively shielded the

filing of GST's judicial claim from the vice of prematurity.43

GST's claims, however, for the four quarters of taxable year 2004 and the first quarter of taxable year 2005 should be denied for late filing of the petition for review before the CTA. GST filed its VAT Return for the first quarter of 2004 on April 16, 2004. Reckoned from the close of the first taxable quarter of 2004 on March 31, 2004, the administrative claim filed on June 9, 2004 was well within the required two-year prescriptive period from the close of the taxable quarter, the last day of filing being March 31, 2006. The CIR then had 120 days from June 9, 2004, or until October 7, 2004, to decide the claim. Since the Commissioner did not act on the claim within the said period, GST had 30 days from October 7, 2004, or until November 6, 2004, to file its judicial claim. However, GST filed its petition for review before the CTA only on March 17, 2006, or 496 days after the last day of filing. In short, GST was late by one year and 131 days in filing its judicial claim.

For the second quarter of taxable year 2004, GST filed its administrative claim on August 12, 2004. The 120-day period from the filing of such claim ended on December 10, 2004, and the 30th day within which to file a judicial claim fell on January 9, 2005. However, GST filed its petition for review before the CTA only

on March 17, 2006, or 432 days after the last day of filing.

GST was late by one year and 67 days in filing its judicial claim.

For the third and fourth quarters of taxable year 2004, GST filed its administrative claims on February 18, 2005. The 120th day, or June 18, 2005, lapsed without any action from the CIR. Thus, GST had 30 days therefrom, or until July 18, 2005, to file its judicial claim, but it did so only on March 17, 2006, or 242 days

after the last day of filing. GST was late by 242 days in filing its judicial claim.

Finally, for the first quarter of taxable year 2005, GST filed its administrative claim on May 11, 2005.1âwphi1 The 120-day period ended on September 8, 2005, again with no action from the CIR. Nonetheless, GST failed to elevate its claim to the CTA within 30 days, or until October 8, 2005. The petition for review filed by GST on March 17, 2006, or 160 days after the last day of filing was, therefore,

late.

Following is a tabular summation of the relevant dates of GST's administrative and judicial claims, and the corresponding action on said claims:

1âwphi1





Taxable Period

Filing of Administrative claim

120th day [Section 112(D), NIRC of 1997]

30th day [Section 112(D), NIRC of 1997]

Filing of Judicia lClaim

Remarks Action on Claim

1st Quarter 2004

June 9, 2004

October 7, 2004

November 6, 2004

March 17, 2006

Field late DENY

pursuant to Section 112 (C), NIRC of 1997

2nd Quarter 2004

August 12, 2004

December 10, 2004

January 9, 2005

March 17, 2006

Field late DENY


3rd Quarter 2004

February 18, 2005

June 18, 2005

July 18, 2005

March 17, 2006

Field late DENY


4th Quarter 2004

February 18, 2005

June 18, 2005

July 18, 2005

March 17, 2006

Field late DENY


1st Quarter 2005

May 11, 2005

September 8, 2005

October 8, 2005

March 17, 2006

Field late

DENY


2nd Quarter 2005

November 18, 2005

March 18, 2006

April 17, 2006

March 17, 2006

Prematurely filed

GRANT pursuant to BIR Ruling No. DA-489-03

3rd Quarter 2005

November 18, 2005

March 18, 2006

April 17, 2006

March 17, 2006

Prematurely filed

GRANT pursuant to BIR Ruling No. DA-489-03

As may be observed from the Court's application of the 120+30 day periods to GST's claims, the 120-day period is uniformly reckoned from the date of the filing of the administrative claims. The CIR insists,44 however, that the filing of the administrative claim was not necessarily the same time when the

complete supporting documents were submitted to the Commissioner.

The Court agrees. However, this issue is not determinative of the resolution of this case for failure of the CIR to show that GST further submitted supporting documents subsequent to the filing of its administrative claims. Thus, the reckoning date of the 120-day period commenced simultaneously45 with the filing of the




administrative claims when GST was presumed to have attached the relevant documents to support its

applications for refund or tax credit.

As a final note, it is incumbent on the Court to emphasize that tax refunds partake of the nature of tax exemptions which are a derogation of the power of taxation of the State. Consequently, they are construed strictly against a taxpayer and liberally in favor of the State.46 Thus, as emphasized in Aichi, a taxpayer

must prove not only its entitlement to a refund but also its compliance with prescribed procedures.47

WHEREFORE, the petition is PARTLY GRANTED. The Decision dated October 30, 2009 of the Court of Tax Appeals En Banc in C.T.A. EB No. 484, affirming the Decision dated January 27, 2009 of the CTA First Division in C.T.A. Case No. 7419, is AFFIRMED with MODIFICATION. The claims of respondent GST Philippines, Inc. for refund or tax credit for unutilized excess input VAT for the four quarters of taxable year 2004, as well as the first quarter of taxable year 2005 are hereby DENIED for being filed beyond the prescriptive period, while the claims for refund for the second and third quarters of taxable year 2005 are GRANTED. Accordingly, the Commissioner of Internal Revenue is ordered to refund or, in the alternative, to issue a tax credit certificate to respondent GST Philippines, Inc. corresponding only to the amount representing unutilized excess input VAT for the second and third quarters of taxable year 2005 out of the total amount of P27,369,114.36 awarded by the CTA.

SO ORDERED.

G.R. No. 184145 December 11, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. DASH ENGINEERING PHILIPPINES, INC., Respondent.

D E C I S I O N

MENDOZA, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure, assailing the July 17, 2008 Decision1 and the August 12, 2008 Resolution2 of the Court of Tax Appeals(CTA) En Banc in C.T.A. EB No. 357 (C.T.A. Case No. 7243) entitled "Commissioner of Internal Revenue v. Dash Engineering Philippines, inc."

The Facts

Respondent Dash Engineering Philippines, Inc. (DEPJ) is a corporation duly registered with the Securities

and Exchange Commission, authorized to do business in the Philippines and listed with the Philippine Economic Zone Authority as an ecozone IT export enterprise.3 It is also a VAT-registered entity engaged in the export sales of computer-aided engineering and design.4

Respondent filed its monthly and quarterly value-added tax (VAT) returns for the period from January 1,

2003 to June 30, 2003.5 On August 9, 2004, it filed a claim for tax credit or refund in the amount of P 2,149,684.88 representing unutilized input VAT attributable to its zero-rated sales.6 Because petitioner Commissioner of Internal Revenue (CIR) failed to act upon the said claim, respondent was compelled to file

a petition for review with the CTA on May 5, 2005.7

On October 4, 2007, the Second Division of the CTA rendered its Decision8 partially granting respondent’s claim for refund or issuance of a tax credit certificate in the reduced amount of P 1,147,683.78. On the matter of the timeliness of the filing of the judicial claim, the Tax Court found that respondent’s claims for refund for the first and second quarters of 2003 were filed within the two-year prescriptive period which is counted from the date of filing of the return and payment of the tax due. Because DEPI filed its amended quarterly VAT returns for the first and second quarters of 2003 on July 24, 2004, it had until July 24, 2006 to file its judicial claim. As such, its filing of a petition for review with the CTA on April 26, 20059 was within the prescriptive period.10 Petitioner moved for reconsideration but the same was denied in a Resolution

dated January 3, 2008.11



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Aggrieved, petitioner elevated the case to the CTA En Banc, where it argued that respondent failed to show

that (1) its purchases of goods and services were made in the course of its trade and business, (2) the said purchases were properly supported by VAT invoices and/or official receipts and other documents, and (3) that the claimed input VAT payments were directly attributable to its zero-rated sales. Petitioner also

averred that the petition for review was filed out of time.12

The CTA En Banc in its Decision,13 dated July 17, 2008, upheld the decision of the CTA Second Division,

ruling that the judicial claim was filed on time because the use of the word "may" in Section 112(D) (now subparagraph C) of the National Internal Revenue Code (NIRC) indicates that judicial recourse within thirty

(30) days after the lapse of the 120-day period is only directory and permissive and not mandatory and jurisdictional, as long as the petition was filed within the two-year prescriptive period. The Tax Court further reiterated that the two-year prescriptive period applies to both the administrative and judicial claims.

Petitioner’s motion for reconsideration was denied in the August 12, 2008 Resolution of the CTA.14

Hence, this petition.

The Issues

Petitioner raises the following grounds for the allowance of the petition:

I

The Court of Tax Appeals En Banc erred in holding that respondent’s judicial claim for refund was

filed within the prescriptive period provided under the Tax Code.

II

The Court of Tax Appeals En Banc erred in partially granting respondent’s claim for refund despite

the failure of the latter to substantiate its claim by sufficient documentary proof.15

The Court’s Ruling

As to the first issue, petitioner argues that the judicial claim was filed out of time because respondent failed to comply with the 30-day period referred to in Section 112(D) (now subparagraph C) of the NIRC, citing the case ofCommissioner of Internal Revenue v. Aichi16 where the Court categorically held that compliance

with the prescribed periods in Section 112 is mandatory and jurisdictional. Respondent filed its administrative claim for refund on August 9, 2004. The 120-day period within which the CIR should act on the claim expired on December 7, 2004 without any action on the part of petitioner. Thus, respondent only had 30 days from the lapse of the said period, or until January 6, 2005, to file a petition for review with the CTA. The petition, however, was filed only on May 5, 2005.17 Petitioner further posits that the 30-day period within which to file an appeal with the CTA is jurisdictional and failure to comply therewith would bar the

appeal and deprive the CTA of its jurisdiction to entertain the same.18

Conversely, respondent DEPI asserts that its petition was seasonably filed before the CTA in keeping with the two-year prescriptive period provided for in Sections 204(c) and 229 of the NIRC.19 DEPI interprets Section 112, in relation to Section 229, to mean that the 120-day period is the time given to the CIR to decide the case. The taxpayer, on the other hand, has the option of either appealing to the CTA the denial by the CIR of the claim for refund within thirty (30) days from receipt of such denial and within the two-year prescriptive period, or appealing an unacted claim to the CTA anytime after the expiration of the 120-day period given to the CIR to resolve the administrative claim for as long as the judicial claim is made within the two-year prescriptive period.20 Following respondent’s reasoning, its filing of the judicial claim on April 26, 2005 was filed on time because it was made after the lapse of the 120-day period and within the two-

year period referred to in Section 229.

The petition is meritorious.

Sec. 229 is inapplicable; two-year period in











Sec. 112 refers only to administrative claims

Sections 204 and 229 of the NIRC pertain to the refund of erroneously or illegally collected taxes:

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

Commissioner may –

x x x

(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.

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

xxx. (Emphases supplied)

This Court has previously made a pronouncement as to the inapplicability of Section 229 of the NIRC to claims for excess input VAT. In the recently decided case of Commissioner of Internal Revenue v. San Roque Power Corporation,21 the Court made a lengthy disquisition on the nature of excess input VAT, clarifying that "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."22 Hence, respondent cannot advance its position by referring to Section 229 because Section 112 is the more specific and appropriate provision of law for claims for excess input VAT.

Section 112(A) also provides for a two-year period for filing a claim for refund, to wit:

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

(A) Zero-rated or Effectively Zero-rated Sales. – Any VATregistered person, whose sales are zero-rated or effectively zerorated 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

As explained in San Roque, however, the two-year prescriptive period referred to in Section 112(A) applies

only to the filing of administrative claims with the CIR and not to the filing of judicial claims with the CTA. In other words, for as long as the administrative claim is filed with the CIR within the two-year prescriptive period, the 30-day period given to the taxpayer to file a judicial claim with the CTA need not fall in the same

two-year period.

At any rate, respondent’s compliance with the two-year prescriptive period under Section 112(A) is not an issue. What is being questioned in this case is DEPI’s failure to observe the requisite 120+30-day period as

mandated by Section 112(C) of the NIRC.




120+30 day period under Sec. 112 is mandatory and jurisdictional

Section 112(D) (now subparagraph C) of the NIRC provides that:

Sec. 112. Refunds or Tax Credits of Input Tax

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 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)

Petitioner is entirely correct in its assertion that compliance with the periods provided for in the abovequoted provision is indeed mandatory and jurisdictional, as affirmed in this Court’s ruling in San Roque, where the CourtEn Banc settled the controversy surrounding the application of the 120+30-day period provided for in Section 112 of the NIRC and reiterated the Aichi doctrine that the 120+30-day period

is mandatory and jurisdictional. Nonetheless, the Court took into account the issuance by the Bureau of Internal Revenue (BIR) of BIR Ruling No. DA-489-03 which misled taxpayers by explicity stating that taxpayers may file a petition for review with the CTA even before the expiration of the 120-day period given to the CIR to decide the administrative claim for refund. Even though observance of the periods in Section 112 is compulsory and failure to do so will deprive the CTA of jurisdiction to hear the case, such a strict application will be made from the effectivity of the Tax Reform Act of 1997 on January 1, 1998 until the present, except for the period from December 10, 2003 (the issuance of the erroneous BIR ruling) to October 6, 2010 (the promulgation of Aichi), during which taxpayers need not wait for the lapse of the

120+30- day period before filing their judicial claim for refund.

The case at bench, however, does not involve the issue of premature filing of the petition for review with the CTA. Rather, this petition seeks the denial of DEPI’s claim for refund for having been filed late or after the expiration of the 30-day period from the denial by the CIR or failure of the CIR to make a decision within

120 days from the submission of the documents in support of respondent’s administrative claim.

In San Roque, one of the respondents similarly filed its petition for review with the CTA well after the

120+30-day period. In denying the taxpayer’s claim for refund, this Court explained that:

Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late filing.1âwphi1 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. Philex failed to comply with the statutory conditions and must thus bear the

consequences.23 (Emphases supplied)

Therefore, in accordance with San Roque, respondent's judicial claim for refund must be denied for having been filed late. Although respondent filed its administrative claim with the BIR on August 9, 2004 before the expiration of the two-year period in Section l 12(A), it undoubtedly failed to comply with the 120+ 30-day period in Section l l 2(D) (now subparagraph C) which requires that upon the inaction of the CIR for 120 days after the submission of the documents in support of the claim, the taxpayer has to file its judicial claim within 30 days after the lapse of the said period. The 120 days granted to the CIR to decide the case ended on December 7, 2004. Thus, DEPI had 30 days therefrom, or until January 6, 2005, to file a petition for review with the CTA. Unfortunately, DEPI only sought judicial relief on May 5, 2005 when it belatedly filed its petition to the CT A, despite having had ample time to file the same, almost four months after the period allowed by law. As a consequence of DEPI's late filing, the CTA did not properly acquire jurisdiction over

the claim.

The Court has held 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 be liberally construed.24 Hence, We are left with no other recourse but to deny respondent's judicial claim for refund for non-compliance with

the provisions of Section 112 of the NIRC.

WHEREFORE, the petition is GRANTED. The July 17, 2008 Decision and the August 12, 2008 Resolution of the CTA En Banc in C.T.A. EB No. 357 (C.T.A. Case No. 7243) are hereby REVERSED and SET ASIDE. Respondent DEPI's judicial claim for refund or tax credit through its petition for review before the

CTA is DENIED.

SO ORDERED.

G.R. No. 181276 November 11, 2013

THE COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. VISAYAS GEOTHERMAL POWER

COMPANY, INC., Respondent.

MENDOZA, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 or the 1907 Revised Rules of Civil Procedure assailing the November 20, 2007 Decision1 and the January 9, 2008 Resolution2 of the Court of Tax Appeals (CTA) En Banc in C.T.A. EB No. 282 (C.T.A. Case Nos. 6790 and 6838) entitled "Commissioner of Infernal Revenue vs. Visayas Geothermal Power Company, Inc."

THE FACTS

Respondent Visayas Geothermal Power Company, Inc. (VGPCI), a corporation authorized by the Department of Energy to own and operate a power plant facility in Malibog, Leyte, is engaged in the business of generation and sale of electricity. In the course of its business operations, VGPCI incurred input value added tax ofP20,213,044.50 on its domestic purchase of goods and services and importation of goods used in its business for the third and fourth quarter of 2001 and for the entire year of 2002.3 Due to the enactment of Republic Act (R.A.) No. 9136,4 which became effective on June 26, 2001, VGPCI’s sales

of generated power became zero-rated and were no longer subject to VAT at 10%.5

On June 26, 2003, VGPCI filed before the Bureau of Internal Revenue (BIR) Revenue District No. 89 of Ormoc City a claim for refund of unutilized input VAT payment in the amount of P1,142,666.32 for the third quarter of 2001. On December 18, 2003, another claim was filed in the amount of P19,070,378.18 for the last quarter of 2001 and the four quarters of 2002. For failure of the BIR to act upon said claims, VGPCI filed separate petitions for review before the CTA on September 30, 2003 and December 19, 2003, praying for a refund on the issuance of a tax credit certificate in the amount of P1,142,666.32 covering the period from July to September 2001 andP19,070,378.18 for the period from October 2001 to December 2002,

CTA Case Nos. 6790 and 6838, respectively.6



http://www.lawphil.net/judjuris/juri2013/nov2013/gr_181276_2013.html#fnt1







In its Decision7 dated January 18, 2007, the First Division of the CTA partially granted the consolidated petitions for review and ordered petitioner Commissioner of Internal Revenue (CIR) to refund or to issue a tax credit certificate to VGPCI in the amount of P16,355,749.74 representing unutilized input VAT incurred

from September 1, 2001 to December 31, 2002.8

Aggrieved, the CIR elevated the case to the CTA En Banc alleging that the First Division erred in ruling in favor of VGPCI because: (1) VGPCI did not submit evidence of its compliance with the VAT registration requirements; (2) its purchases of goods and services were not undertaken in the course of its trade or business and were not duly substantiated by VAT invoices or receipts; (3) it failed to file an application for a VAT tax credit or refund before the Revenue District Office of the city or municipality where the principal place of business was located; (4) it did not file its administrative claim for refund prior to the filing of its petition before the CTA; and (5) it was unable to prove that its claimed input VAT payments were directly

attributable to its zero-rated sales.9

On November 20, 2007, the CTA En Banc promulgated its Decision dismissing the petition and affirming

the decision of the CTA First Division, the dispositive portion of which reads:

WHEREFORE, premises considered, the Petition is hereby DISMISSED for lack of merit. The assailed

Decision dated January 18, 2007 and the Resolution dated May 17, 2007 are AFFIRMED.

SO ORDERED.10

The tax court ruled that: (1) the law does not require the submission by a taxpayer of its VAT registration documents in order to be able to claim for a refund of unutilized input VAT; (2) VGCPI was able to show, by submitting its VAT invoices and official receipts, that its purchases of goods and services were incurred in the course of its trade and business; (3) VGCPI sufficiently proved that its claimed input VAT was directly attributable to its zero-rated sales or sales of power generation services to PNOC-EDC; and (4) the petition was timely filed before the CTA because the taxpayer was not bound by the 120-day audit period but by the two-year prescriptive period. As explained by the tax court, when the two-year period is about to lapse, the

taxpayer may, without awaiting the verdict of the CIR, file its claim for refund before the CTA.

The CIR subsequently filed its Motion for Reconsideration but the same was denied by the CTA En Banc in its Resolution dated January 9, 2008.11

Hence, this petition.

THE ISSUES

The CIR raises only one ground for the allowance of the petition:

The Court of Tax Appeals erred in assuming jurisdiction and giving due course to VGPCI’s petition despite the latter’s failure to file an application for refund in due course before the BIR and observe the proper

prescriptive period provided by law before filing an appeal before the CTA.12

The pivotal question in this case then is whether VGPCI failed to observe the proper prescriptive period required by law for the filing of an appeal before the CTA because it filed its petition before the end of the 120-day period granted to the CIR to decide its claim for refund under Section 112(D) of the National

Internal Revenue Code (NIRC).

THE COURT’S RULING

The CIR insists that VGPCI should have waited for the decision of the CIR or the lapse of the 120-day period from the date of submission of complete documents in support of the application for refund as provided in Section 112(D) of the NIRC.13 The filing by VGPCI of its petition for review before the CTA

almost immediately after filing its administrative claim for refund is premature.

On the other hand, VGPCI, in its Memorandum14 defends the decision of the CTA En Banc and puts forth the following arguments: (1) Section 112(D) of the NIRC is not a limitation imposed on the taxpayer; rather,










it is a mandate addressed to the CIR, requiring it to decide claims for refund within 120 days from submission by the taxpayer of complete documents in support thereof;15 (2) Section 229 of the NIRC is the more specific provision with respect to the prescriptive period for the filing of an appeal because it expressly requires that no suit in court can be maintained for the recovery of taxes after two years from the date of payment of the taxes, while Section 112(D) deals only with VAT and the periods within which the CIR shall grant a refund or a tax credit and does not discuss the period within which a taxpayer can go to court;16 (3) pursuant to the cases of Gibbs v. Collector of Internal Revenue17 and College of Oral & Dental Surgery v. Court of Tax Appeals,18 when the two-year prescriptive period is about to expire, the taxpayer need not wait for the decision of the BIR before filing a petition for review with the CTA because the filing of a judicial claim beyond the two-year period bars the recovery of the tax paid, and (4) the CIR has not been denied due process in evaluating VGPCI’s claim for refund because the filing of the judicial claim does not preclude the CIR from continuing the processing of VGPCI administrative claim. The latter insists that it is imperative and jurisdictional that both the administrative and the judicial claims for refund be filed within the two-year prescriptive period, regardless of the length of time during which the administrative claim has been pending with the CIR. It concludes that had it waited for the end of the 120-day period, it would have

lost its right to file a petition for review with the CTA.19

The petition is partly meritorious.

Section 229 is not applicable

VGPCI’s reliance on Gibbs and College of Oral & Dental Surgery is misplaced. Of note is the fact that at the time of the promulgation by this Court of the said cases, there was no provision yet in the NIRC in force (Commonwealth Act No. 466,20 as amended) similar to Section 112. Therefore, the said cases hold no

sway over the case at bench.

VGPCI is also mistaken to argue that Section 229 is the more relevant provision of law. A simple reading of

Section 229 reveals that it only pertains to taxes erroneously or illegally collected:

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 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. [Emphases supplied]

The applicable provision of the NIRC is undoubtedly Section 112, which deals specifically with creditable

input tax:

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.








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 twenty (120) days from the date of submission of complete documents in support of the application



[Emphases supplied]

The Court, in earlier cases, had the opportunity to decide which provision of the NIRC was applicable to

claims for refund or tax credit for creditable input VAT. In the case of

Commissioner of Internal Revenue v. Mirant Pagbilao Corporation (formerly Southern Energy Quezon, Inc.),21 it was held that Section 229 of the NIRC, which provides for a two-year period, reckoned from the date of payment of the tax or penalty, for the filing of a claim of refund or tax credit, is only pertinent to the recovery of taxes erroneously or illegally assessed or collected; and that the relevant provision of the NIRC

for claiming a refund or a tax credit for the unutilized creditable input VAT is Section 112(A):

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:

x x x x

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

x x x x

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.22

This ruling was later reiterated in Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.,23where this Court upheld the ruling in Mirant that the appropriate provision for determining the prescriptive period for claiming a refund or a tax credit for unutilized input VAT is Section 112(A), and not

Section 229, of the NIRC.24

Finally, the recent pronouncement of the Court En Banc should put an end to any question as to whether

Section 229 may apply to claims for refund of unutilized input VAT. In the case of

Commissioner of Internal Revenue v. San Roque Power Corporation,25 this Court categorically stated that 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."26

As such, it is now clear and indisputable that it is Section 112, and not 229, of the Tax Code which is applicable to all cases involving an application for the issuance of a tax credit certificate or refund of unutilized input VAT.

Judicial claim was prematurely filed;

120+30 day period is mandatory and jurisdictional








The Court in Aichi further made a significant pronouncement on the importance of the 120-day period

granted to the CIR to act on applications for tax refunds or tax credits under Section 112(D):

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 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 (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.27 [Emphases

supplied]

Moreover, it is imperative that the Court take a look at the jurisdiction of the CTA as a guide in the

resolution of this case. Section 7 of R.A. No. 1125,28 as amended by R.A. No. 9282,29 states that:

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 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 relations 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; (emphases supplied)

x x x x

It cannot be stressed enough that the jurisdiction of the CTA over the decisions or inaction of the CIR is only appellate in nature. Thus, it necessarily requires the prior filing of an administrative case before the CIR. The CTA can only validly acquire jurisdiction over a case after the CIR has rendered its decision or,





should the CIR fail to act, after the lapse of the period of action provided in the Tax Code, in which case the

inaction of the CIR is considered a denial.

The application of the 30-day period from receipt of the decision of the CIR or from the lapse of the 120-day period (the "120+30 day period") given to the taxpayer within which to file a petition for review with the CTA, as provided for in Section 112(D) of the Tax Code, was further explained in San Roque,30 which affirmed

the Aichi doctrine and explicitly ruled that "the 120-day waiting period is mandatory and jurisdictional."

However, the court also took into account the issuance by the BIR of Ruling No. DA-489-03 dated December 10, 2003 which allowed for the filing of a judicial claim without waiting for the end of the 120-day period granted to the CIR to decide on the application for refund:

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, that the expiration of the 120-day

period is mandatory and jurisdictional before a judicial claim can be filed.

x x x x

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.31

Therefore, although the 120+30 day period in Section 112(D) is mandatory and jurisdictional and must be applied from the effectivity of the 1997 Tax Code on January 1, 1998, an exception shall be made for judicial claims filed from the issuance of BIR Ruling No. DA 489-03 on December 10, 2003 until the promulgation of Aichi on October 6, 2010. During the said period, a judicial claim for refund may be filed with the CTA even before the lapse of the 120-day period given to the BIR to decide on the administrative

case.

In sum, based on the foregoing discussion, the rules for the filing of a claim for refund or tax credit of

unutilized input credit VAT are as follows:

1. The taxpayer has two (2) years after the close of the taxable quarter when the relevant sales were made within which to file an administrative claim before the CIR for a refund of the creditable input tax or the issuance of a tax credit certificate, regardless of when the input VAT was paid,

according to Section 112(A) of the NIRC and Mirant.

2. The CIR is given 120 days, from the date of the submission of the complete documents in support

of the application for tax refund or tax credit, to act on the said application.

3. If the CIR fully or partially denies the application or fails to act on the same within the required 120-day period, the taxpayer is allowed to appeal the decision or inaction of the CIR to the CTA. For this reason, the taxpayer has 30 days from his receipt of the decision of the CIR or from the lapse of the 120-day period, within which to file a petition for review with the CTA. In no case shall a petition for review be filed with the CTA before the expiration of the 120-day period. The judicial claim need not be filed within the two-year prescriptive period referred to in Section 112(A), which only pertains

to administrative claims.

4. The two-year period referred to in Section 229 of the NLRC does not apply to appeals filed before the CTA, in relation to claims for refund or issuance of tax credits made pursuant to Section 112. Consequently, an appeal may be maintained with the CTA for so long as it observes the

abovementioned period for filing the appeal.

5. Following San Roque, the 120+30 day period is mandatory and jurisdictional from January 1, 1998 (the effectivity of the 1997 Tax Code). However, from December 10, 2003 (the date BIR Ruling




No. DA 489-03 was issued) until October 6, 2010 (the promulgation of Aichi), judicial claims need not follow the 120+30 day period. Thereafter, Aichi shall be the controlling rule for all claims filed with the CTA and the 120+30 day period must be observed.

Applying the abovementioned rules to the case at bench, the judicial claim filed on September 30, 2003 (CTA Case No. 6790) was prematurely filed and cannot be taken cognizance of because respondent failed to wait for the requisite 120 days after the filing of its claim for refund with the BIR before elevating the case to the CTA. However, the judicial claim filed on December 19, 2003 (CTA Case No. 6838), which was made after the issuance of BIR Ruling DA-480-03, can be considered by the CTA despite its hasty filing only one

day after the application for refund was first lodged with the BIR.

WHEREFORE, the petition is partly GRANTED. The November 20, 2007 Decision and the January 9, 2008 Resolution of the Court of Tax Appeals En Banc are hereby REVERSED and SET ASIDE and the claim for refund with respect to CTA Case No. 6790 is DENIED. However, the claim pertaining to CTA Case No.

6838 is remanded to the CTA for the proper determination of the refundable amount due respondent.

SO ORDERED.

G.R. No. 184266 November 11, 2013

APPLIED FOOD INGREDIENTS COMPANY, INC., Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent.

SERENO, CJ:

This is a Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure filed by Applied Food Ingredients, Company, Inc. (petitioner). The Petition assails the Decision2 dated 4 June 2008 and Resolution3 dated 26 August 2008 of the Court of Tax Appeals En Bane (CTA En Bane in C.TA. EB No. 359. The assailed Decision and Resolution affirmed the Decision4 dated 13 June 2007 and Resolution5 dated 16 January 2008 rendered by the CTA First Division in C.TA. Case No. 6513 which denied petitioner's claim for the issuance of a tax credit Decision 2 G.R. No. 184266 certificate representing its alleged excess input taxes attributable to zero-rated sales for the period 1 April 2000 to 31 December 2000.

THE FACTS

Considering that there are no factual issues in this case, we adopt the findings of fact of the CTA En Banc,

as follows:

Petitioner is registered with the Regional District Office (RDO) No. 43 of the BIR in Pasig City (BIR-Pasig) as, among others, a Value-Added Tax (VAT) taxpayer engaged in the importation and exportation business, as a pure buy-sell trader.

Petitioner alleged that from September 1998 to December 31, 2000, it paid an aggregate sum of input

taxes ofP9,528,565.85 for its importation of food ingredients, as reported in its Quarterly Vat Return.

Subsequently, these imported food ingredients were exported between the periods of April 1, 2000 to December 31, 2000, from which the petitioner was able to generate export sales amounting to P114,577,937.24. The proceeds thereof were inwardly remitted to petitioner's dollar accounts with Equitable Bank Corporation and with Australia New Zealand Bank-Philippine Branch.

Petitioner further claimed that the aforestated export sales which transpired from April 1, 2000 to December

31, 2000 were "zero-rated" sales, pursuant to Section 106(A (2)(a)(1) of the N1RC of 1997.

Petitioner alleged that the accumulated input taxes of P9,528,565.85 for the period of September 1, 1998 to

December 31, 2000 have not been applied against any output tax.







On March 26, 2002 and June 28, 2002, petitioner filed two separate applications for the issuance of tax

credit certificates in the amounts of P5,385, 208.32 and P4,143,357.53, respectively.

On July 24, 2002, in view of respondent's inaction, petitioner elevated the case before this Court by way of a Petition for Review, docketed as C.T.A. Case No. 6513.

In his Answer filed on August 28, 2002, respondent alleged by way of special and affirmative defenses that the request for tax credit certificate is still under examination by respondent's examiners; that taxes paid and collected are presumed to have been made in accordance with law and regulations, hence not refundable; petitioner's allegation that it erroneously and excessively paid the tax during the year under review does not ipso facto warrant the refund/credit or the issuance of a certificate thereto; petitioner must prove that it has complied with the governing rules with reference to tax recovery or refund, which are found

in Sections 204(C) and 229 of the Tax Code, as amended.6

Trial ensued and the CTA First Division rendered a Decision on 13 June 2007. It denied petitioner’s claim for failure to comply with the invoicing requirements prescribed under Section 113 in relation to Section 237 of the National Internal Revenue Code (NIRC) of 1997 and Section 4.108-1 of Revenue Regulations No. 7-

95.

On appeal, the CTA En Banc likewise denied the claim of petitioner on the same ground and ruled that the latter’s sales for the subject period could not qualify for VAT zero-rating, as the export sales invoices did not bear the following: 1) the imprinted word "zero-rated;" 2) "TIN-VAT;" and 3) BIR’s permit number, all in

violation of the invoicing requirements.

THE ISSUES

Petitioner raises this sole issue for the consideration of this Court:

WHETHER OR NOT THE PETITIONER IS ENTITLED TO THE ISSUANCE OF A TAX CREDIT CERTIFICATE OR REFUND OF THE AMOUNT OF P9,528,565.85 REPRESENTING CREDITABLE INPUT TAXES INCURRED FOR THE PERIOD OF SEPTEMBER 1, 1998 TO DECEMBER 31, 2000 WHICH ARE ATTRIBUTABLE TO ZERO-RATED SALES FOR THE PERIOD OF APRIL 1, 2000 TO

DECEMBER 31, 2000.7

THE COURT’S RULING

The Petition has no merit.

Our VAT Law provides for a mechanism that would allow VAT-registered persons to recover the excess

input taxes over the output taxes they had paid in relation to their sales.

In Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of Internal Revenue,8 this Court explained that "the VAT is a tax on consumption, an indirect tax that the provider of goods or services may pass on to his customers. Under the VAT method of taxation, which is invoice-based, an entity can subtract from the VAT charged on its sales or outputs the VAT it paid on its purchases,

inputs and imports."

For zero-rated or effectively zero-rated sales, although the sellers in these transactions charge no output tax, they can claim a refund of the VAT that their suppliers charged them.9

At the outset, bearing in mind that tax refunds or credits − just like tax exemptions − are strictly construed against taxpayers,10 the latter have the burden to prove strict compliance with the conditions for the grant of

the tax refund or credit.

Section 112 of the NIRC of 1997 laid down the manner in which the refund or credit of input tax may be

made, to wit:

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.

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 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.


This Court finds it appropriate to first determine the timeliness of petitioner’s claim in accordance with the

above provision.

Well-settled is the rule that the issue of jurisdiction over the subject matter may, at any time, be raised by the parties or considered by the Court motu proprio.11 Therefore, the jurisdiction of the CTA over petitioner’s

appeal may still be considered and determined by this Court.

Although the ponente in this case expressed a different view on the mandatory application of the 120+30 day period as prescribed in the above provision, with the advent, however, of this Court’s pronouncement on the consolidated tax cases of Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito Mining Corporation v. Commissioner of Internal Revenue, and Philex Mining Corporation v. Commissioner of Internal Revenue12 (hereby collectively referred as San Roque), we are constrained to

apply the dispositions therein to similar facts as those in the present case.

To begin with, Section 112(A) provides for a two-year prescriptive period after the close of the taxable quarter when the sales were made, within which a VAT-registered person whose sales are zero-rated or

effectively zero-rated may apply for the issuance of a tax credit certificate or refund of creditable input tax.

In this case, petitioner claims that from April 2000 to December 2000 it had zero-rated sales to which it attributed the accumulated input taxes it had incurred from September 1998 to December 2000.

Applying Section 112(A), petitioner had until 30 June 2002, 30 September 2002 and 31 December 2002 − or the close of the taxable quarter when the zero-rated sales were made − within which to file its administrative claim for refund. Thus, we find sufficient compliance with the two-year prescriptive period when petitioner filed its claim on 26 March 200213 and 28 June 200214 covering its zero-rated sales for the

period April to September 2000 and October to December 2000, respectively.

The Commissioner of Internal Revenue (CIR) had one hundred twenty (120) days from the date of submission of complete documents in support of the application within which to decide on the

administrative claim.

In relation thereto, absent any evidence to the contrary and bearing in mind that the burden to prove entitlement to a tax refund is on the taxpayer, it is presumed that in order to discharge its burden, petitioner had attached complete supporting documents necessary to prove its entitlement to a refund in its






application filed on 26 March 2002 and 28 June 2002. Therefore, the CIR’s 120-day period to decide on

petitioner’s administrative claim commenced to run on 26 March 2002 and 28 June 2002, respectively.

Counting 120 days from 26 March 2002, the CIR had until 24 July 2002 within which to decide on the claim of petitioner for an input VAT refund attributable to the its zero-rated sales for the period April to September

2000.

On the other hand, the CIR had until 26 October 2002 within which to decide on petitioner’s claim for refund

filed on 28 June 2002, or for the period covering October to December 2000.

Records, however, show that the judicial claim of petitioner was filed on 24 July 2002.15 Petitioner clearly failed to observe the mandatory 120-day waiting period. Consequently, the premature filing of its claim for refund/credit of input VAT before the CTA warranted a dismissal, inasmuch as no jurisdiction was acquired

by the CTA.16

In San Roque, this Court, held thus: "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."17

Furthermore, the CTA, being a court of special jurisdiction, can take cognizance only of matters that are

clearly within its jurisdiction.18 Section 7 of R.A. 1125,19 as amended by R.A. 9282,20 specifically provides:

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.(Emphases supplied)

"Inaction by the CIR" in cases involving the refund of creditable input tax, arises only after the lapse of 120 days. Thus, prior thereto and without a decision of the CIR, the CTA, as a court of special jurisdiction, has no jurisdiction to entertain claims for the refund or credit of creditable input tax. "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."21

Considering further that the 30-day period to appeal to the CTA is dependent on the 120-day period, both periods are hereby rendered jurisdictional. Failure to observe 120 days prior to the filing of a judicial claim is not a mere non-exhaustion of administrative remedies, but is likewise considered jurisdictional. The period of 120 days is a prerequisite for the commencement of the 30-day period to appeal to the CTA. In both instances, whether the CIR renders a decision (which must be made within 120 days) or there was

inaction, the period of 120 days is material.

This Court further ruled:









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.1âwphi1 One of the conditions for a judicial claim of refund or credit under the VAT System is 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.22 (Emphasis supplied)

In accordance with San Roque and considering that petitioner s judicial claim was filed on 24 July 2002, when the 120+30 day mandatory periods were already in the law and BIR Ruling No. DA-489-03 had not yet been issued, petitioner does not have an excuse for not observing the 120+ 30 day period. Failure of petitioner to observe the mandatory 120-day period is fatal to its claim and rendered the CT A devoid of jurisdiction over the judicial claim.

The Court finds, in view of the absence of jurisdiction of the Court of the Tax Appeals over the judicial claim

of petitioner, that there is no need to discuss the other issues raised.

WHEREFORE, premises considered, the instant Petition is DENIED.

SO ORDERED.

G.R. No. 184823 - October 6, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. AICHI FORGING COMPANY OF ASIA, INC., Respondent.

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 P3,891,123.82 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 P131,791,399.00,8 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 P3,912,088.14 from purchases and importation attributable to its zero-rated sales;10and 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 P3,891,123.82.11

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:


(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.

x x x x

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 P3,239,119.25, computed as follows:

Amount of Claimed Input VAT P 3,891,123.82

Less:

Exceptions as found by the ICPA 41,020.37

Net Creditable Input VAT P 3,850,103.45

Less:

Output VAT Due 610,984.20

Excess Creditable Input VAT P 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 (P3,239,119.25), 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:


(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.

x x x x

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 –

x x x x

(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.

x x x x

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.

x x x x


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 Administrat ive 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:


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 twenty (120) days from the date of submission of complete documents in support of the application


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.



taxation ii - cases

Documents

nd quarter of year

rd quarter of year

th quarter of year

quarters of taxable

respondent gst philippines

tax vat attributable

foregoing zerorated

registered vat enterprise