G.R. No. 171742. June 15, 2011.
* Islands), 615 SCRA 417 (2010), the Court enumerated the
COMMISSIONER OF INTERNAL REVENUE,
petitioner, vs. MIRANT (PHILIPPINES) OPERATIONS,
CORPORATION, respondent.
G.R. No. 176165. June 15, 2011.*
MIRANT (PHILIPPINES) OPERATIONS, CORPORATION
(formerly: Southern Energy Asia-Pacific Operations (Phils.),
Inc.), petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, respondent.
Taxation; Once a corporation exercises the option to carry-over
and apply the excess quarterly income tax against the tax due for the
taxable quarters of the succeeding taxable years, such option is
irrevocable for that taxable period.—The last sentence of Section 76
is clear in its mandate. Once a corporation exercises the option to
_______________
* SECOND DIVISION.
81
VOL. 652, JUNE 15, 2011 8
1
Commissioner of Internal Revenue vs. Mirant
(Philippines) Operations, Corporation
carry-over and apply the excess quarterly income tax against
the tax due for the taxable quarters of the succeeding taxable years,
such option is irrevocable for that taxable period. Having chosen to
carry-over the excess quarterly income tax, the corporation cannot
thereafter choose to apply for a cash refund or for the issuance of a
tax credit certificate for the amount representing such
overpayment.
Court of Tax Appeals; The findings and conclusions of the
Court of Tax Appeals are accorded the highest respect and will not
be lightly set aside.—It is apt to restate here the time-honored
doctrine that the findings and conclusions of the CTA are accorded
the highest respect and will not be lightly set aside. The CTA, by
the very nature of its functions, is dedicated exclusively to the
resolution of tax problems and has accordingly developed an
expertise on the subject unless there has been an abusive or
improvident exercise of authority.
Taxation; Tax Refund;—In Commissioner of Internal Revenue
v. Far East Bank & Trust Company (now Bank of the Philippine
requisites for claiming a tax credit or a refund of creditable
withholding tax: 1) The claim must be filed with the CIR within the
two-year period from the date of payment of the tax; 2) It must be
shown on the return that the income received was declared as part
of the gross income; and 3) The fact of withholding must be
established by a copy of a statement duly issued by the payor to the
payee showing the amount paid and the amount of the tax
withheld.
PETITIONS for review on certiorari of the decisions and
resolutions of the Court of Tax Appeals.
The facts are stated in the opinion of the Court.
Office of the Solicitor General for petitioner.
Jose R. Matibag for Mirant (Phils.) Operations,
Corporation.
MENDOZA, J.:
These are two consolidated petitions for review
on certiorari under Rule 45 of the Rules of Court.82
82 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs. Mirant
(Philippines) Operations, Corporation
In G.R. No. 171742, petitioner Commissioner of Internal
Revenue (CIR)seeks the reversal of the January 17, 2006
Decision1 and March 9, 2006 Resolution2 of the Court of Tax
Appeals (CTA) En Banc in CTA E.B. Case No. 123.
In G.R. No. 176165, petitioner Mirant (Philippines)
Operations, Corporation (Mirant) seeks the reversal of the
October 26, 2006 Decision3 and January 5, 2007 Resolution4 of
the CTA En Banc in CTA E.B. Case No. 125.
The Facts
Petitioner is empowered to perform the lawful duties of his
office including, among others, the duty to act on and approve
claims for refund or tax credit as provided by law.
Respondent Mirant is a corporation duly organized and
existing under and by virtue of the laws of the Republic of the
1
Philippines, with principal office at Bo. Ibabang Pulo, Gross Income P (64,438,434.00)
Pagbilao Grande Island, Pagbilao, Quezon.5 Net Loss P(235,291,064.00)
Mirant also operated under the names Southern Energy
Asia-Pacific Operations (Phils.), Inc., CEPA Operations (Phil- Income Tax Due P---
_______________

83 Less: 4,714,516.00
VOL. 652, JUNE 15, 2011 83 Prior Year’s Excess Credits
Commissioner of Internal Revenue vs. Mirant Creditable Tax Withheld
(Philippines) Operations, Corporation First Three Quarters 21,702,771.00
Fourth Quarter 5,846,101.00
ippines) Corporation; CEPA Tileman Project Management
Tax Overpayment P32,263,388.009
Corporation; and Hopewell Tileman Project Management
Corporation.6 On April 17, 2000, Mirant filed with the BIR an amended
Mirant, duly licensed to do business in the Philippines, is income tax return (ITR)for the fiscal year ending June 30,
primarily engaged in the design, construction, assembly, 1999, reporting an increased net loss amount of
commissioning, operation, maintenance, rehabilitation and P379,324,340.00 but reporting the same unutilized tax credits
management of gas turbine and other power generating of P32,263,388.00, which it opted to carry over as a tax credit
plants and related facilities using coal, distillate, and other to the succeeding taxable year, thus:
fuel provided by and under contract with the Government of Gross Income P(113,113,036.00)
the Republic of the Philippines or any subdivision, Less: Deductions 248,211,204.00
instrumentality or agency thereof, or any government-owned Net Loss P(379,324,240.00)
or controlled corporations or other entities engaged in the
development, supply or distribution of energy.7 Income Tax Due P ---
Mirant entered into Operating and Management Less: 4,714,516.00
Agreements with Mirant Pagbilao Corporation (formerly Prior Year’s Excess Credits
Southern Energy Quezon, Inc.) and Mirant Sual Corporation Creditable Tax Withheld
(formerly Southern Energy Pangasinan, Inc.) to provide these First Three Quarters 21,702,771.00
companies with maintenance and management services in Fourth Quarter 5,846,101.00
connection with the operation, construction and Tax Overpayment P32,263,388.00 10
commissioning of coal-fired power stations situated in To synchronize its accounting period with those of its
Pagbilao, Quezon, and Sual, Pangasinan respectively.8 affiliates, Mirant allegedly secured the approval of the BIR to
On October 15, 1999, Mirant filed with the Bureau of change its accounting period from fiscal year (FY) to calendar
Internal Revenue (BIR) its income tax return for the fiscal year (CY) effective December 31, 1999. Thus, on April 17,
_______________
year ending June 30, 1999, declaring a net loss of
P235,291,064.00 and unutilized tax credits of P32,263,388.00: VOL. 652, JUNE 15, 2011 85
Gross Income P (64,438,434.00)
Commissioner of Internal Revenue vs. Mirant
Less: Deductions 170,852,630.00
(Philippines) Operations, Corporation
2
2000, Mirant filed its income tax return for the interim period First Three Quarters 25,336,971.00
July 1, 1999 to December 31, 1999, declaring a net loss in the Fourth Quarter 13,381,352.00
amount of P381,874,076.00 and unutilized tax credits of Tax Overpayment P87,345,116.0013
P48,626,793.00: On September 20, 2001, Mirant wrote the BIR a letter
Gross Income P(320,895,462.00) claiming a refund of P87,345,116.00 representing overpaid
Less: Deductions 60,978,614.00 income tax for the FY ending June 30, 1999, the interim
Net Loss P(381,874,076.00) period covering July 1, 1999 to December 31, 1999, and CY
ending December 31, 2000.14
Income Tax Due P --- As the two-year prescriptive period for the filing of a
Less: Prior Year’s Excess 32,263,388.00 judicial claim under Section 229 of the National Internal
Credits Revenue Code (NIRC) of 1997 was about to lapse without
Creditable Tax Withheld action on the part of the BIR, Mirant elevated its case to the
First Three Quarters 16,363,405.00 CTA by way of Petition for Review on October 12, 2001. The
Fourth Quarter --- case was docketed as CTA Case No. 6340.15
Tax Overpayment P48,626,793.0011 The CTA First Division rendered judgment partially
Mirant indicated the excess amount of P48,626,793.00 as granting Mirant’s claim for refund in the reduced amount of
“To be carried over as tax credit next year/quarter.”12 P38,620,427.00, representing its duly substantiated unutilized
On April 10, 2001, it filed with the BIR its income tax creditable withholding taxes for taxable year 2000 out of the
return for the calendar year ending December 31, 2000, total claim of P38,718,323.00 therefor.16 It appears that the
reflecting a net loss of P56,901,850.00 and unutilized tax total claim was reduced by P97,896.00 for the following
credits of P87,345,116.00, computed as follows: reasons: the amount of P92,996.00 was deducted because the
Gross Income P(4,080,541.00) CTA First Division found that it was not covered by the
Less: Deductions 52,821,309.00 withholding tax certificate issued by Southern Energy
Net Loss P(56,901,850.00) Quezon, Inc. for the period October 1, 2000 to December 31,
2000. Moreover the additional amount of P4,900.00 was also
Income Tax Due P --- deducted because based on the reconciliation schedule for the
Less: creditable taxes of P745,290.00 withheld by Southern Energy
_______________
86
87
86 SUPREME COURT
VOL. 652, JUNE 15, 2011 87
REPORTS ANNOTATED
Commissioner of Internal Revenue vs. Mirant
Commissioner of Internal Revenue vs. Mirant
(Philippines) Operations, Corporation
(Philippines) Operations, Corporation
Quezon, Inc. for the period October 1, 2000 to December 31,
Prior Year’s Excess 48,626,793.00
2000 on Mirant’s Philippine peso billings under Invoice No.
Credits
0015, the corresponding creditable taxes claimed by Mirant in
Creditable Tax
Withheld
3
its 2000 income tax return amounted to P750,190.00 which
was higher by P4,900.00 than that reflected in the certificate.17
Additionally, Mirant’s claim for the refund of its unutilized
tax credits for the taxable year 1999 in the total amount of
P48,626,793.00, was denied as it exercised the carry-over
option with regard to the said unutilized tax credits, which is
irrevocable pursuant to the provisions of Section 76 of the
1997 NIRC.18
The dispositive portion of the assailed May 18, 2005
Decision19 of the CTA First Division reads:
“IN VIEW OF ALL THE FOREGOING, the instant Petition
for Review is hereby GRANTED but in a reduced amount of
P38,620,427.00. Accordingly, respondent is ORDERED TO
REFUND, or in the alternative, ISSUE A TAX CREDIT
CERTIFICATE in favor of the petitioner in the amount of
P38,620,427.00 representing unutilized creditable withholding
taxes for taxable year 2000.”
Both parties filed their respective motions for partial
reconsideration of the above decision, but these were both
denied for lack of merit in a Resolution20 dated September 22,
2005.
Both parties sought redress before the CTA En Banc in two
separate petitions for review docketed as CTA EB Case No.
123 and CTA EB Case No. 125, respectively.
According to the CTA, although arising from the same
case, CTA Case No. 6340, these two cases were not
consolidated because CTA EB Case No. 125 was initially
dismissed due to procedural infirmities.
In a Resolution dated April 28, 2006, however, acting on
Mirant’s motion for reconsideration, the CTA En
Banc recalled its earlier resolution and reinstated the
case.21 Eventually, the CTA En Banc in separate decisions,
denied due course and dismissed the two cases. The CIR and
Mirant filed their respective motions for reconsideration but
both were denied. Thus, the CIR and Mirant filed their
respective petitions for review with this Court, docketed as
G.R. No. 171742 and G.R. No. 176165, respectively.
Issues
In G.R. No. 171742, the CIR raises the following issue:
WHETHER OR NOT THE COURT OF TAX APPEALS ERRED
ON A QUESTION OF LAW IN HOLDING RESPONDENT
ENTITLED TO A REFUND OR TAX CREDIT IN THE
AMOUNT OF P38,620,427.00.
In G.R. No. 176165, Mirant raises the following issue:
WHETHER OR NOT PETITIONER IS ENTITLED TO A
CLAIM FOR ADDITIONAL REFUND OR ISSUANCE OF A
TAX CREDIT CERTIFICATE IN THE AMOUNT OF
P48,626,793.00 REPRESENTING EXCESS CREDITABLE
WITHHOLDING TAXES FOR THE FISCAL YEAR ENDED
JUNE 30, 1999 AND THE INTERIM PERIOD FROM JULY 1,
1999 TO DECEMBER 31, 1999.
In essence, the issue is whether Mirant is entitled to a tax
refund or to the issuance of a tax credit certificate and, if it is,
then what is the amount to which it is entitled.
89
The Court finds the assailed decisions and resolutions of
the CTA En Banc in CTA E.B. Case Nos. 123 and 125 to be
consistent with law and jurisprudence.
Once exercised, the option to carry
over is irrevocable.
Section 76 of the National Internal Revenue Code
(Presidential Decree No. 1158, as amended) provides:
“SEC. 76.—Final Adjustment Return.—Every
corporation liable to tax under Section 27 shall file a final
adjustment return covering the total taxable income for the
preceding calendar or fiscal year. If the sum of the quarterly
tax payments made during the said taxable year is not equal
to the total tax due on the entire taxable income of that year,
the corporation shall either:
(A) Pay the balance of tax still due; or
(B) Carry-over the excess credit; or
(C) Be credited or refunded with the excess amount paid,
as the case may be.
4
 In case the corporation is entitled to a tax credit or refund
of the excess estimated quarterly income taxes paid, the
excess amount shown on its final adjustment return may be
carried over and credited against the estimated quarterly
income tax liabilities for the taxable quarters of the
succeeding taxable years. Once the option to carry-over
and apply the excess quarterly income tax against
income tax due for the taxable quarters of the
succeeding taxable years has been made, such option
shall be considered irrevocable for that taxable period
and no application for cash refund or issuance of a tax
credit certificate shall be allowed therefor.”
(Underscoring and emphasis supplied.)
The last sentence of Section 76 is clear in its mandate.
Once a corporation exercises the option to carry-over and
apply the excess quarterly income tax against the tax due for
the taxable quarters of the succeeding taxable years, such
option is irrevocable for that taxable period. Having chosen to
90
90 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs. Mirant
(Philippines) Operations, Corporation
carry-over the excess quarterly income tax, the corporation
cannot thereafter choose to apply for a cash refund or for the
issuance of a tax credit certificate for the amount representing
such overpayment.
In the recent case of Commissioner of Internal Revenue v.
PL Management International Philippines, Inc.,22 the Court
discussed the irrevocability rule of Section 76 in this wise:
“The predecessor provision of Section 76 of the NIRC of
1997 is Section 79 of the NIRC of 1985, which provides:
Section 79. Final Adjustment Return.—Every
corporation liable to tax under Section 24 shall file a
final adjustment return covering the total net income for
the preceding calendar or fiscal year. If the sum of the
quarterly tax payments made during the said taxable
year is not equal to the total tax due on the entire
taxable net income of that year the corporation shall
either:
(a) Pay the excess tax still due; or
(b) Be refunded the excess amount paid, as the case
may be.
In case the corporation is entitled to a refund of the
excess estimated quarterly income taxes-paid, the
refundable amount shown on its final adjustment return
may be credited against the estimated quarterly income
tax liabilities for the taxable quarters of the succeeding
taxable year.
As can be seen, Congress added a sentence to Section 76 of
the NIRC of 1997 in order to lay down the irrevocability rule,
to wit:
x x x Once the option to carry-over and apply the
excess quarterly income tax against income tax due for
the taxable quarters of the succeeding taxable years has
been made, such option shall be considered irrevocable
for that taxable period and no application for tax refund
or issuance of a tax credit certificate shall be allowed
therefor.
In Philam Asset Management, Inc. v. Commissioner of
Internal Revenue,23 the Court expounds on the two alternative
options of a corporate taxpayer whose total quarterly income
tax payments exceed its tax liability, and on how the choice of
one option precludes the other, viz.:
The first option is relatively simple. Any tax on
income that is paid in excess of the amount due the
government may be refunded, provided that a taxpayer
properly applies for the refund.
The second option works by applying the refundable
amount, as shown on the FAR of a given taxable year,
against the estimated quarterly income tax liabilities of
the succeeding taxable year.
These two options under Section 76 are
alternative in nature. The choice of one precludes
5
 the other. Indeed, in Philippine Bank of
Communications v. Commissioner of Internal
Revenue,24 the Court ruled that a corporation must
signify its intention—whether to request a tax
refund or claim a tax credit—by marking the
corresponding option box provided in the FAR.
While a taxpayer is required to mark its choice in
the form provided by the BIR, this requirement is
only for the purpose of facilitating tax collection.
One cannot get a tax refund and a tax credit at
the same time for the same excess income taxes
paid. x x x
In Commissioner of Internal Revenue v. Bank of the
Philippine Islands,25 the Court, citing the aforequoted
pronouncement in Philam Asset Management, Inc., points out
that Section 76 of the NIRC of 1997 is clear and unequivocal
in providing that the carry- over option, once actually or
constructively chosen by a corporate taxpayer,
becomes irrevocable. The Court explains:
Hence, the controlling factor for the operation of the
irrevocability rule is that the taxpayer chose an option;
and once it had already done so, it could no longer make
another one. Consequently, after the taxpayer opts to
carry-over its excess tax credit to the following taxable
period, the question of whether or not it actually gets to
apply said tax credit is irrelevant. Section 76 of the
NIRC of 1997 is explicit in stating that once the option to
carry over has been made, “no application for tax refund
or issuance of a tax credit certificate shall be allowed
therefor.”
The last sentence of Section 76 of the NIRC of 1997
reads: “Once the option to carry-over and apply the
excess quarterly income tax against income tax due for
the taxable quarters of the succeeding taxable years has
been made, such option shall be considered irrevocable
for that taxable period and no application for tax refund
or issuance of a tax credit certificate shall be allowed
therefor.” The phrase “for that taxable period” merely
identifies the excess income tax, subject of the option, by
referring to the taxable period when it was acquired by
the taxpayer. In the present case, the excess income tax
credit, which BPI opted to carry over, was acquired by
the said bank during the taxable year 1998. The option
of BPI to carry over its 1998 excess income tax credit is
irrevocable; it cannot later on opt to apply for a refund of
the very same 1998 excess income tax credit.
The Court of Appeals mistakenly understood the
phrase “for that taxable period” as a prescriptive period
for the irrevocability rule. This would mean that since
the tax credit in this case was acquired in 1998, and BPI
opted to carry it over to 1999, then the irrevocability of
the option to carry over expired by the end of 1999,
leaving BPI free to again take another option as regards
its 1998 excess income tax credit. This construal
effectively renders nugatory the irrevocability rule. The
evident intent of the legislature, in adding the last
sentence to Section 76 of the NIRC of 1997, is to keep the
taxpayer from flip-flopping on its options, and avoid
confusion and complication as regards said taxpayer’s
excess tax credit. The interpretation of the Court of
Appeals only delays the flip-flopping to the end of each
succeeding taxable period.
The Court similarly disagrees in the declaration of the
Court of Appeals that to deny the claim for refund of
BPI, because of the irrevocability rule, would be
tantamount to unjust enrichment on the part of the
government. The Court addressed the very same
argument in Philam, where it elucidated that there
would be no unjust enrichment in the event of denial of
the claim for refund under such circumstances, because
there would be no forfeiture of any amount in favor of
the government. The amount being claimed as a
refund would remain in the account of the
taxpayer until utilized in succeeding taxable
6
 years, as provided in Section 76 of the NIRC of
1997. It is worthy to note that unlike the option for
refund of excess income tax, which prescribes
after two years from the filing of the FAR, there is
no prescriptive period for the carrying over of the
same.Therefore, the excess income tax credit of
BPI, which it acquired in 1998 and opted to carry
over, may be repeatedly carried over to
succeeding taxable years, i.e., to 1999, 2000, 2001,
and so on and so forth, until actually applied or
credited to a tax liability of BPI.
Inasmuch as the respondent already opted to carry over its
unutilized creditable withholding tax of P1,200,000.00 to
taxable year 1998, the carry-over could no longer be converted
into a claim for tax refund because of the irrevocability rule
provided in Section 76 of the NIRC of 1997. Thereby, the
respondent became barred from claiming the refund.”
[Underscoring supplied]26
In this case, in its amended ITR for the year ended July 30,
199927 and for the interim period ended December 31,
1999,28Mirant clearly ticked the box signifying that the
overpayment was “To be carried over as tax credit next
year/quarter.” Item 31 of the Annual Income Tax Return Form
(BIR Form No. 1702) also clearly indicated “If overpayment,
mark one box only. (once the choice is made, the same is
irrevocable).”
Applying the irrevocability rule in Section 76, Mirant
having opted to carry over its tax overpayment for the fiscal
year ending July 30, 1999 and for the interim period ending
December 31, 1999, it is now barred from applying for the
refund of the said amount or for the issuance of a tax credit
certificate therefor, and for the unutilized tax credits carried
over from the fiscal year ended June 30, 1998.
Mirant is entitled to the refund of its
unutilized creditable withholding
taxes for the taxable year 2000.
It is apt to restate here the time-honored doctrine that the
findings and conclusions of the CTA are accorded the highest
respect and will not be lightly set aside. The CTA, by the very
nature of its functions, is dedicated exclusively to the
resolution of tax problems and has accordingly developed an
expertise on the subject unless there has been an abusive or
improvident exercise of authority.29 Citing Barcelon, Roxas
Securities, Inc. (now known as UBP Securities, Inc.) v.
Commissioner of Internal Revenue,30 this Court
in Toshiba Information Equipment (Phils.), Inc. v.
Commissioner of Internal Revenue, explicitly pronounced—“
31
Jurisprudence has consistently shown that this Court accords
the findings of fact by the CTA with the highest respect. In Sea-
Land Service Inc. v. Court of Appeals [G.R. No. 122605, 30 April
2001, 357 SCRA 441, 445-446], this Court recognizes that the Court
of Tax Appeals, which by the very nature of its function is dedicated
exclusively to the consideration of tax problems, has necessarily
developed an expertise on the subject, and its conclusions will not
be overturned unless there has been an abuse or improvident
exercise of authority. Such findings can only be disturbed on appeal
if they are not supported by substantial evidence or there is a
showing of gross error or abuse on the part of the Tax Court. In the
absence of any clear and convincing proof to the contrary, this Court
must presume that the CTA rendered a decision which is valid in
every respect.”32
In this case, having studied the applicable law and
jurisprudence, the Court agrees with the conclusion of the
CTA that Mirant complied with all the requirements for the
refund of its unutilized creditable withholding taxes for
taxable year 2000.
In Commissioner of Internal Revenue v. Far East Bank &
Trust Company (now Bank of the Philippine Islands),33 the
Court enumerated the requisites for claiming a tax credit or a
refund of creditable withholding tax:
1) The claim must be filed with the CIR within the two-year
period from the date of payment of the tax;
2) It must be shown on the return that the income received was
declared as part of the gross income; and
7
 3) The fact of withholding must be established by a copy of a
statement duly issued by the payor to the payee showing the
amount paid and the amount of the tax withheld.34
First, Mirant clearly complied with the two-year period.
This requirement is based on Section 229 of the NIRC of 1997
which provides:
“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.”
[Underscoring supplied]
Mirant filed its income tax return for the taxable year
ending December 31, 2000 on April 10, 2001. Thus, from such
date of filing, petitioner had until April 10, 2003within which
to file its claim for refund or for the issuance of a tax credit
certificate in its favor.35
Mirant filed its administrative claim with the BIR
on September 20, 2001. It thereafter filed its Petition for
Review
_______________
35 See ACCRA Investments Corporation v. Court of Appeals, G.R. No.
96322, December 20, 1991, 204 SCRA 957, where the Court ruled that the two-
year prescriptive period commences to run on the date when the final
adjustment return is filed, as that is the date when ACCRAIN could ascertain
whether it made a profit or incurred losses in its business operation. The Court
therein stated that, “there is the need to file a return first before a claim for
refund can prosper inasmuch as the respondent Commissioner by his own
rules and regulations mandates that the corporate taxpayer opting to ask for a
refund must show in its final adjustment return the income it received from all
sources and the amount of withholding taxes remitted by its withholding
agents to the Bureau of Internal Revenue.”
97
with the CTA on October 12, 2001,36 or clearly within the
prescribed two-year period.
Second, Mirant was also able to establish that the income,
upon which the creditable withholding taxes were paid, was
declared as part of its gross income in its ITR. As the CTA En
Banc concluded:
“As regards petitioner CIR’s contention that respondent Mirant
was not able to establish that the income upon which the creditable
withholding taxes were paid was included in respondent’s Income
Tax Returns, a perusal of the records reveals otherwise. The
reported creditable taxes withheld of P38,718,323.00 were withheld
from the services fees of P871,127,253.00 received by respondent
from its affiliates, the Southern Energy Quezon, Inc. and the
Southern Energy Pangasinan, Inc., pursuant to the Operating and
Maintenance Service Agreements entered into by respondent
Mirant with said entities (Exhibits “HH”, “K”, and “K-1”). The gross
income figure of P871,127,253.00 is the very same amount declared
by respondent in its income tax return for taxable year 2000
(Exhibits “O-11” & “O-12”).”37
The CIR disagrees but merely alleges without any clear
argument or basis that Mirant failed to prove that the income
from which its creditable taxes were withheld were duly
declared as part of its income in its annual ITR.
Thus, there being no cogent reason presented to reverse the
findings and conclusions of the CTA, the Court affirms its
finding that the income received was declared as part of the
gross income, as shown in Mirant’s tax return.
Finally, Mirant was also able to establish the fact of
withholding of the creditable withholding tax.
The CIR is of the opinion that Mirant’s non-presentation of
the various payors or withholding agents to verify the
Certificates of Creditable Tax Withheld at Source (CWT’s), the
registered books of accounts and the audited financial
statements for the various periods covered to corroborate its
8
other allegations, and its failure to offer other evidence to
prove and corroborate the propriety of its claim for refund and
failure to establish the fact of remittance of the alleged
withheld taxes by various payors to the BIR, are all fatal to its
claim.38
Citing the CTA First Division, Mirant argues that since the
CWT’s were duly signed and prepared under pain of perjury,
the figures appearing therein are presumed to be true and
correct.39 The CWT’s were presented and duly identified by its
witness, Magdalena Marquez, and further verified by the duly
commissioned independent CPA, Ruben R. Rubio, on separate
hearing dates, before the CTA First Division.40 Moreover,
these certificates were found by the duly commissioned
independent CPA to be faithful reproductions of the originals,
as stated in his supplementary report dated March 24, 2003.41
The Court agrees with the conclusion of the CTA En Banc:
“Contrary to petitioner CIR’s contention, the fact of withholding
was likewise established through respondent’s presentation of the
Certificates of Creditable Tax Withheld At Source, duly issued to it
by Southern Energy Pangasinan, Inc. and Southern Energy
Quezon, Inc., for the year 2000 (Exhibits “Y”, “Z”, “AA” to “FF”).
These certificates were found by the duly commissioned
independent CPA to be faithful reproductions of the original copies,
as per his Supplementary Report dated March 24, 2003 (Exhibit
“RR”).
As to petitioner CIR’s contention that the Report of the
independent CPA dated February 21, 2003 shows several
discrepancies, We sustain the findings of the First Division. On
direct examination, Mr. Ruben Rubio, the duly commissioned
independent CPA, testified and explained that the discrepancy was
merely brought about by: (1) the difference in foreign exchange
(forex) rates at the time the certificates were recorded by
respondent Mirant and the forex rates used at the time the
certificates were issued by its customers; and (2) the timing
difference between the point when respondent Mirant recognized or
100
accrued its income and the time when the corresponding creditable
tax was withheld by its customers. x x x
xxx
As extensively discussed by the First Division:
“The creditable withholding taxes of P40,600,971.79
reflected in the certificates were higher by P1,882,648.79
when compared with the creditable withholding taxes of
P38,718,323.00 reported by petitioner in its income tax return
for taxable year 2000 (Exhibit O-7). As stated by SGV & Co.
in its report dated February 21, 2003 (Exhibit NN), tax
credits were claimed by petitioner in its income tax return for
taxable year 2000 prior to its receipt of the certificates from
the withholding agents. At the time it recognized and accrued
its income, petitioner also reported the related creditable
withholding taxes, which was prior to the receipt of the
certificates from the withholding agents. Hence, the
discrepancy of P1,882,648.79 in creditable withholding taxes
was mainly brought about by the difference between the
foreign exchange (forex) rates used at the time when
petitioner recorded its income and the related tax credits and
the forex rates used by the withholding agents at the time
when income payments were made to petitioner in reporting
its tax credits, the same do not have a bearing on petitioner’s
total claim because the resulting increase in the amounts of
creditable withholding taxes reflected in the certificates were
not declared by the petitioner in its income tax return for the
said year. However, for the creditable taxes withheld by
Southern Energy Quezon, Inc. for the period October 1, 2000
to December 31, 2000 totalling P7,670,746.00 (which formed
part of the creditable withholding taxes of P8,834,280.11
shown in the certificate marked as Exhibit EE), the same
were based on forex rates which were lower than those used
by petitioner in recognizing the tax credits of P7,763,742.00
for the same transactions. In other words, petitioner’s claimed
unutilized tax credits of P92,996.00 (P7,763,742.00 less
P7,670,746.00) were not covered by the withholding tax
certificate issued by Southern Energy, Quezon Inc. for the
period October 1, 2000 to December 31, 2000 and should
therefore be deducted from the total claim of
100
SUPREME COURT REPORTS
ANNOTATED
Commissioner of Internal Revenue vs. Mirant
(Philippines) Operations, Corporation
9
 P38,718,323.00 Below is the breakdown of the amount of Commissioner of Internal Revenue vs. Mirant
P92,996.00: (Philippines) Operations, Corporation
Creditable Withholding Taxes Overclaimed WHEREFORE, the petitions in G.R. No. 171742 and G.R.
Tax Credits No. 176165 are DENIED.
Exhibits Period Withholding Per Per ITR (b) – (a) SO ORDERED.
Covered Agent Certificate (b) Carpio (Chairperson), Leonardo-De
(a) Castro, Peralta and Abad, JJ., concur.
**

EE, QQ 10/01/00 Southern P4,298,892.00 P4,350,327.00 P51,435.00 Petitions denied.

– Energy Note.—Tax refunds are in the nature of tax exemptions
12/31/00 Quezon, which represent a loss of revenue to the government. These
Inc. exemptions, therefore, must not rest on vague, uncertain or
3,371,854.00 3,413,415.00 41,561.00 indefinite inference, but should be granted only by a clear and
P7,670,746.00 P7,763,742.00 P92,996.00 unequivocal provision of law on the basis of language too plain
The reconciliation schedule also shows that for the creditable to be mistaken. (Kepco Philippines Corporation vs.
taxes of P745,290.00 withheld by Southern Energy Quezon Commissioner of Internal Revenue, 636 SCRA 166 [2010])
Inc. for the period October 1, 2000 to December 31, 2000 on ——o0o——
petitioner’s Philippine peso billings under Invoice No. 0015,
© Copyright 2018 Central Book Supply, Inc. All rights reserved.
the corresponding creditable taxes claimed by petitioner in its
2000 income tax return amounted to P750,190.00 which were
higher by P4,900.00 than those reflected in the certificate.
Accordingly, the amount of P4,900.00 shall be deducted from
petitioner’s total claim.
In fine, this Court finds that of the total unutilized credits
of P38,718,323.00 declared by petitioner in its 2000 income
tax return, only the amount of P38,620,427.00
(P38,718,323.00 less P92,996.00) was duly substantiated by
withholding tax certificates.”

Therefore, as the CTA ruled, Mirant complied with all the

legal requirements and it is entitled, as it opted, to a refund of
its excess creditable withholding tax for the taxable year 2000
in the amount of P38,620,427.00.
The Court finds no abusive or improvident exercise of
authority on the part of the CTA. Since there is no showing of
gross error or abuse on the part of the CTA, and its findings
are supported by substantial evidence, there is no cogent
reason to disturb its findings and conclusions.101
VOL. 652, JUNE 15, 2011 101
10

G.R. No. 206526. January 28, 2015.*
WINEBRENNER & IÑIGO INSURANCE BROKERS, INC.,
petitioner, vs. COMMISSIONER OF INTERNAL REVENUE,
respondent.
Taxation; Tax Refunds; Being in the nature of a claim for
exemption, refund is construed in strictissimi juris against the entity
claiming the refund and in favor of the taxing power.—The Court
recognizes, as it always has, that the burden of proof to establish
entitlement to refund is on the claimant taxpayer. Being in the
nature of a claim for exemption, refund is construed in strictissimi
juris against the entity claiming the refund and in favor of the
taxing power. This is the reason why a claimant must positively
show compliance with the statutory requirements provided for
under the NIRC in order to successfully pursue one’s claim. As
implemented by the applicable rules and regulations and as
interpreted in a vast array of decisions, a taxpayer who seeks a
refund of excess and unutilized CWT must: 1) File the claim with
the CIR within the two-year period from the date of payment of the
tax; 2) Show on the return that the income received was declared as
part of the gross income; and 3) Establish the fact of withholding by
a copy of a statement duly issued by the payor to the payee showing
the amount paid and the amount of tax withheld.
_______________
* SECOND DIVISION.
592
592 SUPREME COURT REPORTS
ANNOTATED
Winebrenner ###amp### Iñigo Insurance Brokers,
Inc. vs. Commissioner of Internal Revenue
Same; Carry-Over Rule; Proving that no carry-over has been
made does not absolutely require the presentation of the quarterly
Income Tax Returns (ITRs).—Proving that no carry-over has been
made does not absolutely require the presentation of the quarterly
ITRs. In Philam Asset Management, Inc. v. Commissioner of
Internal Revenue, 477 SCRA 761 (2005), the petitioner therein
sought for recognition of its right to the claimed refund of unutilized
CWT. The CIR opposed the claim, on the grounds similar to the
case at hand, that no proof was provided showing the non-carry
over of excess CWT to the subsequent quarters of the subject year.
In a categorical manner, the Court ruled that the presentation of
the quarterly ITRs was not necessary.
Same; What Section 76 of the National Internal Revenue Code
(NIRC) requires, just like in all civil cases, is to prove the prima
facie entitlement to a claim, including the fact of not having carried
over the excess credits to the subsequent quarters or taxable year.—It
appears however that there is misunderstanding in the ruling of the
Court in Philam. That factual distinction does not negate the
proposition that subsequent quarterly ITRs are not indispensable.
The logic in not requiring quarterly ITRs of the succeeding taxable
years to be presented remains true to this day. What Section 76
requires, just like in all civil cases, is to prove the prima
facie entitlement to a claim, including the fact of not having carried
over the excess credits to the subsequent quarters or taxable year.
It does not say that to prove such a fact, succeeding quarterly ITRs
are absolutely needed. This simply underscores the rule that any
document, other than quarterly ITRs may be used to establish that
indeed the non-carry over clause has been complied with, provided
that such is competent, relevant and part of the records. The Court
is thus not prepared to make a pronouncement as to the
indispensability of the quarterly ITRs in a claim for refund for no
court can limit a party to the means of proving a fact for as long as
they are consistent with the rules of evidence and fair play. The
means of ascertainment of a fact is best left to the party that alleges
the same. The Court’s power is limited only to the appreciation of
that means pursuant to the prevailing rules of evidence. To stress,
what the NIRC merely requires is to sufficiently prove the existence
of the non-carry over of excess CWT in a claim for refund.
593
VOL. 748, JANUARY 28, 2015 593
Winebrenner ###amp### Iñigo Insurance Brokers,
Inc. vs. Commissioner of Internal Revenue
Same; Section 76 of the National Internal Revenue Code (NIRC)
requires a corporation to file a Final Adjustment Return (FAR) (or
Annual Income Tax Return [ITR]) covering the total taxable income
for the preceding calendar or fiscal year.—Section 76 of the NIRC
requires a corporation to file a Final Adjustment Return (or Annual
ITR) covering the total taxable income for the preceding calendar or
11
fiscal year. The total taxable income contains the combined income
for the four quarters of the taxable year, as well as the deductions
and excess tax credits carried over in the quarterly income tax
returns for the same period. If the excess tax credits of the
preceding year were deducted, whether in whole or in part, from the
estimated income tax liabilities of any of the taxable quarters of the
succeeding taxable year, the total amount of the tax credits
deducted for the entire taxable year should appear in the Annual
ITR under the item “Prior Year’s Excess Credits.” Otherwise, or if
the tax credits were carried over to the succeeding quarters and the
corporation did not report it in the annual ITR, there would be a
discrepancy in the amounts of combined income and tax credits
carried over for all quarters and the corporation would end up
shouldering a bigger tax payable. It must be remembered that taxes
computed in the quarterly returns are mere estimates. It is the
annual ITR which shows the aggregate amounts of income,
deductions, and credits for all quarters of the taxable year. It is the
final adjustment return which shows whether a corporation incurred
a loss or gained a profit during the taxable quarter. Thus, the
presentation of the annual ITR would suffice in proving that prior
year’s excess credits were not utilized for the taxable year in order
to make a final determination of the total tax due.
Same; Tax Refunds; Claims for refund are civil in nature and
as such, petitioner, as claimant, though having a heavy burden of
showing entitlement, need only prove preponderance of evidence in
order to recover excess credit in cold cash.—This mindset ignores the
rule that the CIR has the equally important responsibility of
contradicting petitioner’s claim by presenting proof readily on hand
once the burden of evidence shifts to its side. Claims for refund are
civil in nature and as such, petitioner, as claimant, though having a
heavy burden of showing entitlement, need only prove
preponderance of evidence in order to recover excess credit in cold
cash. To review, “[P]reponderance of evidence is [defined as] the
weight, credit, and value of the aggregate evidence on either
side and is usually con-
594
594 SUPREME COURT REPORTS
ANNOTATED
Winebrenner ###amp### Iñigo Insurance Brokers,
Inc. vs. Commissioner of Internal Revenue
sidered to be synonymous with the term ‘greater weight of the
evidence’ or ‘greater weight of the credible evidence.’ It is evidence
which is more convincing to the court as worthy of belief than that
which is offered in opposition thereto.
Same; Same; Unjust Enrichment; The government must keep in
mind that it has no right to keep the money not belonging to it,
thereby enriching itself at the expense of the law-abiding citizen or
entities who have complied with the requirements of the law in order
to forward the claim for refund.—The Court reminds the CIR that
substantial justice, equity and fair play take precedence over
technicalities and legalisms. The government must keep in mind
that it has no right to keep the money not belonging to it, thereby
enriching itself at the expense of the law-abiding citizen or entities
who have complied with the requirements of the law in order to
forward the claim for refund. Under the principle of solution
indebiti provided in Article 2154 of the Civil Code, the CIR must
return anything it has received.
LEONEN, J., Dissenting Opinion:
Taxation; Carry-Over Rule; View that Section 76 of the 1997
National Internal Revenue Code (NIRC) is clear and categorical that
once the taxpayer chooses to carry over and apply its income tax
overpayments against the income tax due for the quarters of the
succeeding taxable year, such option shall be considered
irrevocable.—Section 76 of the 1997 National Internal Revenue
Code is clear and categorical that once the taxpayer chooses to carry
over and apply its income tax overpayments against the income tax
due for the quarters of the succeeding taxable year, such option
shall be considered irrevocable. The taxpayer can no longer make a
turnaround and claim instead a refund of the overpayments. I
submit that both the quarterly income tax returns (for the first to
third quarters) and the income tax return/final adjustment return
(ITR/FAR) of the succeeding year are indispensable proofs to show
whether the taxpayer availed of the carry-over option or not.
Same; Tax Refunds; View that the presentation of both the
quarterly income tax returns (ITRs) and the ITR of the succeeding
year is indispensable in a refund claim.—I submit that the
presentation of both the quarterly income tax
595
VOL. 748, JANUARY 28, 2015 595
Winebrenner ###amp### Iñigo Insurance Brokers,
12
 Inc. vs. Commissioner of Internal Revenue
returns and the income tax return of the succeeding year is
indispensable in a refund claim. This is implicit in Section 76: SEC.
76. Final Adjustment Return.—Every corporation liable to tax
under Section 27 shall file a final adjustment return covering the
total taxable income for the preceding calendar or fiscal year. If the
sum of the quarterly tax payments made during the said taxable
year is not equal to the total tax due on the entire taxable income of
that year, the corporation shall either: (A) Pay the balance of tax
still due; or (B) Carry-over the excess credit; or (C) Be credited or
refunded with the excess amount paid, as the case may be. In case
the corporation is entitled to a tax credit or refund of the excess
estimated quarterly income taxes paid, the excess amount shown on
its final adjustment return may be carried over and credited against
the estimated quarterly income tax liabilities for the taxable quarters
of the succeeding taxable years. Once the option to carry over
and apply the excess quarterly income tax against income tax
due for the taxable quarters of the succeeding taxable years
has been made, such option shall be considered irrevocable
for that taxable period and no application for cash refund or
issuance of a tax credit certificate shall be allowed therefore.
Same; Carry-Over Rule; View that Section 76 introduced two (2)
significant changes in the National Internal Revenue Code (NIRC):
first, once the taxpayer has chosen the carry-over option, such option
is irrevocable; and second, the excess tax payments may be carried
over and applied against the income tax liabilities for the succeeding
quarters of the succeeding taxable years until fully utilized.—
Section 76 introduced two significant changes in the
National Internal Revenue Code: first,once the taxpayer has
chosen the carry-over option, such option is irrevocable;
and second, the excess tax payments may be carried over
and applied against the income tax liabilities for the
succeeding quarters of the succeeding taxable years until
fully utilized.
Same; Same; View that when a taxpayer has marked the carry-
over option box in its Income Tax Return/Final Adjustment Return
(ITR/FAR), it is not entitled to a refund even though the excess tax
credit was not utilized.—Accordingly, when a taxpayer has marked
the carry-over option box in its ITR/FAR, it is not entitled to a
refund even though the excess tax credit was not utilized. The
question of whether the taxpayer was able to actually apply the tax
credit is
596
596 SUPREME COURT REPORTS
ANNOTATED
Winebrenner ###amp### Iñigo Insurance Brokers,
Inc. vs. Commissioner of Internal Revenue
irrelevant. In such case, since the taxpayer is automatically
barred from claiming a refund of the overpayment, there is no need
to look at the ITR/FAR or the quarterly returns for the succeeding
year.
Same; Same; View that the earliest opportunity when taxpayers
may carry over and apply their previous year’s excess tax payments
would be the first quarter of the succeeding year.—Indeed, Section
75 of the National Internal Revenue Code requires corporate
taxpayers to file quarterly income tax returns showing “a quarterly
summary declaration of its gross income and deductions on a
cumulative basis for the preceding quarter or quarters upon which
the income tax shall be paid.” Section 76 allows excess tax
payments to be applied against estimated quarterly tax liabilities.
Therefore, the earliest opportunity when taxpayers may carry over
and apply their previous year’s excess tax payments would be the
first quarter of the succeeding year.
Same; Tax Refunds; View that entitlement to a tax refund is for
the taxpayer to prove and not for the government to disprove.—Even
if the claim for refund was filed within the two-year prescriptive
period, the fact of withholding of creditable taxes by the
withholding agents was proven and the income upon which the
withholding taxes were withheld was included as part of the gross
income and was reflected in the preceding income tax return,
nonetheless, the taxpayer should prove that the excess creditable
withholding tax was not carried over to the taxable quarters of the
succeeding taxable years. Hence, the taxpayer-claimant must
necessarily present the quarterly income tax returns and final
adjustment return of the succeeding taxable year. “Entitlement to a
tax refund is for the taxpayer to prove and not for the government
to disprove.”
PETITION for review on certiorari of a decision of the Court of
Tax Appeals En Banc.
The facts are stated in the opinion of the Court.
13
 Rabiev Tobias M. Racho and Ray-an Francis V.
Baybay for petitioner.
Office of the Solicitor General for respondent.
597
VOL. 748, JANUARY 28, 2015 597
Winebrenner ###amp### Iñigo Insurance Brokers,
Inc. vs. Commissioner of Internal Revenue
MENDOZA, J.:
In this petition for review under Rule 45 of the Rules of
Court and Rule 16 of the Revised Rules of the Court of Tax
Appeals, Winebrenner & Iñigo Insurance Brokers, Inc.
(petitioner) seeks the review of the March 22, 2013 Decision1 of
the Court of Tax Appeals En Banc (CTA En Banc). In the said
decision, the CTA En Banc affirmed the denial of petitioner’s
judicial claim for refund or issuance of tax credit certificate for
excess and unutilized creditable withholding tax (CWT) for
the 1stto 4th quarter of calendar year (CY) 2003 amounting to
P4,073,954.00. In denying the refund, the CTA En Banc held
that petitioner failed to prove that the excess CWT for CY
2003 was not carried over to the succeeding quarters of the
subject taxable year. Under the 1997 National Internal
Revenue Code (NIRC), a taxpayer must not have exercised the
option to carry over the excess CWT for a particular taxable
year in order to qualify for refund.
The Factual Antecedents
On April 15, 2004, petitioner filed its Annual Income Tax
Return for CY 2003.
About two years thereafter or on April 7, 2006, petitioner
applied for the administrative tax credit/refund claiming
entitlement to the refund of its excess or unutilized CWT for
CY 2003, by filing BIR Form No. 1914 with the Revenue
District Office No. 50 of the Bureau of Internal Revenue
(BIR).
There being no action taken on the said claim, a petition for
review was filed by petitioner before the CTA on April 11,
_______________
1 Rollo, pp. 36-49. Penned by Associate Justice Erlinda P. Uy, with
Associate Justices Lovell R. Bautista, Caesar A. Casanova, Cielito N. Mindaro-
Grulla and Amelita R. Cotangco-Manalastas, concurring and with Associate
Justices Juanito C. Castañeda and Esperanza R. Fabon-Victorino, dissenting.
598
598 SUPREME COURT REPORTS
ANNOTATED
Winebrenner ###amp### Iñigo Insurance Brokers,
Inc. vs. Commissioner of Internal Revenue
2006. The case was docketed as CTA Case No. 7440 and
was raffled to the Special First Division (CTA Division).
On April 13, 2010, CTA Division partially granted
petitioner’s claim for refund of excess and unutilized CWT for
CY 2003 in the reduced amount of P2,737,903.34 in its April
13, 2010 Decision2 (original decision). The dispositive portion
of the decision reads:
In view of the foregoing, the Petition for Review is
hereby PARTIALLY GRANTED. Accordingly, respondent is
hereby ORDERED to REFUND or ISSUE A TAX CREDIT
CERTIFICATE in favor of the petitioner in the reduced amount of
P2,737,903.34 representing its excess/unutilized creditable
withholding taxes for the year 2003.
SO ORDERED.3
Petitioner filed a Motion for Partial Reconsideration with
Leave to Submit Supplemental Evidence. It prayed that an
amended decision be issued granting the entirety of its claim
for refund, or in the alternative, that it be allowed to submit
and offer relevant documents as supplemental evidence.
Respondent Commissioner of Internal Revenue (CIR) also
moved for reconsideration, praying for the denial of the entire
amount of refund because petitioner failed to present the
quarterly Income Tax Returns (ITRs) for CY 2004. To the CIR,
the presentation of the 2004 quarterly ITRs was indispensable
in proving petitioner’s entitlement to the claimed amount
14
because it would prove that no carry-over of unutilized and
excess CWT for the four (4) quarters of CY 2003 to the
succeeding four (4) quarters of CY 2004 was made. In the
absence of said ITRs, no refund could be granted. In the CIR’s
_______________
2 Id., at pp. 56-69. Penned by Associate Justice Caesar A. Casanova, with
then Presiding Justice Ernesto D. Acosta and Associate Justice Lovell R.
Bautista, concurring.
3 Id., at p. 68.
599
VOL. 748, JANUARY 28, 2015 599
Winebrenner ###amp### Iñigo Insurance Brokers,
Inc. vs. Commissioner of Internal Revenue
view, this was in accordance with the irrevocability rule
under Section 76 of the NIRC which reads:
SEC. 76. Final Adjustment Return.—Every corporation liable
to tax under Section 27 shall file an adjustment return covering the
total taxable income for the preceding calendar or fiscal year. If the
sum of the quarterly tax payments made during the said taxable
year is not equal to the total tax due on the entire taxable income of
that year, the corporation shall either:
(A) Pay the balance of tax still due; or
(B) Carry-over the excess credits; or
(C) Be credited or refunded with the excess amount paid, as the
case may be.
In case the corporation is entitled to a tax credit or refund of the
excess estimated quarterly income taxes paid, the excess amount
shown on its final adjustment return may be carried over and
credited against the estimated quarterly income tax liabilities for
the taxable quarters of the succeeding taxable years. Once the
option to carry over and apply the excess quarterly income tax
against income tax due for the taxable quarters of the succeeding
taxable years has been made, such option shall be considered
irrevocable for that taxable period and no application for cash
refund or issuance of a tax credit certificate shall be allowed
therefor.
On July 27, 2011, the CTA Division reversed itself. In an
Amended Decision,4 it denied the entire claim of petitioner. It
reasoned out that petitioner should have presented as
evidence its first, second and third quarterly ITRs for the year
2004 to prove that the unutilized CWT being claimed had not
been carried over to the succeeding quarters. Thus:
_______________
4 Id., at pp. 71-85. Penned by Associate Justice Caesar A. Casanova, with
Presiding Justice Ernesto D. Acosta, concurring.
600
600 SUPREME COURT REPORTS
ANNOTATED
Winebrenner ###amp### Iñigo Insurance Brokers,
Inc. vs. Commissioner of Internal Revenue
WHEREFORE, in view of the foregoing, petitioner’s Motion for
Partial Reconsideration is hereby DENIED while respondent’s
Motion for Reconsideration is hereby GRANTED. Accordingly, the
Decision dated April 13, 2010 granting petitioner’s claim in the
reduced amount of P2,737,903.34 is hereby REVERSED AND SET
ASIDE. Consequently, the instant Petition for Review is
hereby DENIED due to insufficiency of evidence.
SO ORDERED.5
Aggrieved, petitioner elevated the case to the CTA En
Banc praying for the reversal of the Amended Decision of the
CTA Division.
In its March 22, 2013 Decision,6 the CTA En Banc affirmed
the Amended Decision of the CTA Division. It stated that
before a cash refund or an issuance of tax credit certificate for
unutilized excess tax credits could be granted, it was essential
for petitioner to establish and prove, by presenting the
quarterly ITRs of the succeeding years, that the excess CWT
was not carried over to the succeeding taxable quarters
considering that the option to carry over in the succeeding
taxable quarters could not be modified in the final adjustment
returns (FAR). Because petitioner did not present the first,
second and third quarterly ITRs for CY 2004, despite having
offered and submitted the Annual ITR/FAR for the same year,
15
the CTA En Banc stated that the petitioner failed to discharge They are required, because they facilitate the tax administration
its burden, hence, no refund could be granted. In justifying its process, and guide this Court to the veracity of a petitioner’s claim
conclusions, the CTA En Banc cited its own case for refund without which petitioner could not prove with certainty
of Millennium Business Services, Inc. v. Commissioner of that the claimed amount was not utilized or carried over to the
succeeding quarters or the option to carry over and apply the excess
Internal Revenue (Millennium)7 wherein it held as follows:
was effectively chosen despite the intent to claim a refund.
Since the burden of proof is upon the claimant to show that the
In the same vein, if the government wants to disprove that the
amount claimed was not utilized or carried over to the succeeding
excess creditable withholding tax was not utilized or carried over to
taxable quarters, the presentation of the succeeding quarterly
the succeeding taxable quarters, the presentation of the succeeding
income tax return and final adjustment return is indispensable to
quarterly income tax return and the annual income tax return of
prove that it did not carry over or utilized the claimed excess
the subsequent taxable year indicating utilization or carrying over
creditable withholding taxes. Absent thereof, there will be no basis
are [sic] indispensible. However, the claimant must first establish
for a taxpayer’s claim for refund since there will be no evidence that
its claim for refund, such that it did not utilize or carry over or that
the taxpayer did not carry over or utilize the claimed excess
it opted to utilize and carry over to the 1st, 2nd, 3rd quarters and final
creditable withholding taxes to the succeeding taxable quarters.
adjustment return of the succeeding taxable year.
Significantly, a taxpayer may amend its quarterly income tax
Concomitantly, the presentation of the quarterly income tax
return or annual income tax return or Final Adjustment Return,
return and the annual income tax return to prove the fact that
which in any case may modify the previous intention to carry over,
excess creditable withholding tax was not utilized or carried over or
apply as tax credit certificate or refund, as the case may be. But the
opted to be utilized and carried over to the 1st, 2nd, 3rd quarters and
option to carry over in the succeeding taxable quarters under the
final adjustment return of the succeeding taxable quarter is not
irrevocability rule cannot be modified in its final adjustment return.
only for convenience to facilitate the tax administration process but
The presentation of the final adjustment return does not shift
it is part of the requisites to establish the claim for refund. Section
the burden of proof that the excess creditable withholding tax was
76 of the NIRC of 1997 provides that if the taxpayer claimant
not utilized or carried over to the first three (3) taxable quarters. It
carries over and applies the excess quarterly income tax against the
remains with the taxpayer claimant. It goes without saying that
income tax due for the taxable quarters of the succeeding taxable
final adjustment returns of the preceding and the succeeding
years, the same is irrevocable and no application for cash refund or
taxable years are not sufficient to prove that the amount claimed
issuance of a tax credit certificate shall be allowed.8
was utilized or carried over to the first three (3) taxable quarters.
The importance of the presentation of the succeeding quarterly
income tax return and the annual income tax return of the Hence, this petition.
subsequent taxable year need not be overly emphasized. All Noteworthy is the fact that the CTA En Banc ruling was
corporations subject to income tax, are required to file quarterly met with two dissents from Associate Justices Juanito C.
income tax returns, on a cumulative basis for the preceding Castañeda (Justice Castañeda) and Esperanza R. Fabon-
quarters, upon which payment of their income tax has been made. Victorino (Justice Fabon-Victorino).
In addition to the quarterly income tax returns, corporations are In his Dissenting Opinion9 which was concurred in by
required to file a final or adjustment return on or before the Justice Fabon-Victorino, Justice Castañeda expressed the
fifteenth day of April. The quarterly income tax return, like the view that the CTA En Banc should have reinstated the CTA
final adjustment return, is the most reliable firsthand evidence of
Division’s original decision because in the cases of Philam
corporate acts pertaining to income taxes, as it includes the
Asset Management Inc. v. Commissioner of Internal
itemization and summary of additions to and deductions from the
income tax due. These entries are not without rhyme or reason. Revenue (Philam);10 State Land Investment Corporation v.
16
Commissioner of Internal Revenue (State
Land);11Commissioner of Internal Revenue v. PERF Realty
Corporation (PERF Realty);12 andCommissioner of Internal
Revenue v. Mirant (Philippines) Operations,
Corporation (Mirant),13 this Court already ruled that requiring
the ITR or the FAR for the succeeding year in a claim for
refund had no basis in law and jurisprudence. According to
him, the submission of the FAR of the succeeding taxable year
was not required under the law to prove the claimant’s
entitlement to excess or unutilized CWT, and by following
logic, the submission of quarterly income tax returns for the
subsequent taxable period was likewise unnecessary. He
found no justifiable reason not to follow the existing rulings of
this Court.
Petitioner’s reasoning in this petition echoes the dissenting
opinion of Justice Castañeda. It further submits that despite
the nonpresentation of the quarterly ITRs, it has sufficiently
shown that the excess CWT for CY 2003 was not carried over
or applied to its income tax liabilities for CY 2004, as shown
in the Annual ITR for 2004 it submitted. Thus, petitioner
insists that its refund should have been granted. Petitioner
further avers, in its Reply,14 that even if Millennium
Business case was applicable, such must be given prospective
effect considering that this case was litigated on the basis of
the doctrines laid down in Philam, State Land and PERF
Realty cases wherein the submission of quarterly ITRs in a
case for tax refund was held by this Court as not mandatory.
In its Comment,15 the CIR counters that even if the
taxpayer signifies the option for either tax refund or carry-
over as tax credit, this does not ipso facto confer the right to
avail of the option immediately. There is a need, according to
the CIR, for an investigation to ascertain the correctness of
the corporate returns and the amount sought to be credited;
and part of which is to look into the quarterly returns so that
it may be determined whether or not excess and unutilized
CWT was carried over into the succeeding quarters of the next
taxable year. Because the pertinent quarterly ITRs were not
presented, the CIR submits that the petitioner failed to prove
its right to a tax refund.
Issue
The sole issue here is whether the submission and
presentation of the quarterly ITRs of the succeeding quarters
of a taxable year is indispensable in a claim for refund.
The Court’s Ruling
The Court recognizes, as it always has, that the burden of
proof to establish entitlement to refund is on the claimant
taxpayer.16 Being in the nature of a claim for
exemption,17 refund is construed instrictissimi juris against
the entity claiming the refund and in favor of the taxing
power.18 This is the reason why a claimant must positively
show compliance with the statutory requirements provided for
under the NIRC in order to successfully pursue one’s claim. As
implemented by the applicable rules and regulations and as
interpreted in a vast array of decisions, a taxpayer who seeks
a refund of excess and unutilized CWT must:
1) File the claim with the CIR within the two-year period
from the date of payment of the tax;
2) Show on the return that the income received was
declared as part of the gross income; and
3) Establish the fact of withholding by a copy of a
statement duly issued by the payor to the payee showing the
amount paid and the amount of tax withheld.19
The original decision of the CTA Division made plain that
the petitioner complied with the above requisites insofar as
the reduced amount of P2,737,903.34 was concerned. In the
amended decision, however, it was pointed out that because
petitioner failed to present the quarterly ITRs of the
subsequent year, there was an impossibility of determining
17
compliance with the irrevocability rule under Section 76 of the
NIRC as in those documents could be found evidence of
whether the excess CWT was applied to its income tax
liabilities in the quarters of 2004. The irrevocability rule
under Section 76 of the NIRC means that once an option,
either for refund or issuance of tax credit certificate or carry-
over of CWT has been exercised, the same can no longer be
modified for the succeeding taxable years.20 For said reason,
the CTA En Banc affirmed the conclusion in the amended
decision that because of the said impossibility, the claim for
refund was not substantiated.
The CIR agrees with the disposition of the CTA En Banc,
stressing that the petitioner failed to carry out the burden of
showing that no carry-over was made when it did not present
the quarterly ITRs for CY 2004.
Petitioner disagrees, as the dissents did, that the
nonsubmission of quarterly ITRs is fatal to its claim.
Hence, the issue on the indispensability of quarterly ITRs
of the succeeding taxable year in a claim for refund.
The Court finds for the petitioner.
There is no question that those who claim must not only
prove its entitlement to the excess credits, but likewise must
prove that no carry-over has been made in cases where refund
is sought.
In this case, the fact of having carried over petitioner’s
2003 excess credits to succeeding taxable year is in issue.
According to the CTA En Banc and the CIR, the only evidence
that can sufficiently show that carrying over has been made is
to present the quarterly ITRs. Some members of this Court
adhere to the same view.
The Court however cannot.
Proving that no carry-over has been made does not
absolutely require the presentation of the quarterly ITRs.
In Philam, the petitioner therein sought for recognition of
its right to the claimed refund of unutilized CWT. The CIR
opposed the claim, on the grounds similar to the case at hand,
that no proof was provided showing the non-carry over of
excess CWT to the subsequent quarters of the subject year. In
a categorical manner, the Court ruled that the presentation of
the quarterly ITRs was not necessary. Therein, it was written:
Requiring that the ITR or the FAR of the succeeding year be
presented to the BIR in requesting a tax refund has no basis in law
and jurisprudence.
First, Section 76 of the Tax Code does not mandate it. The law
merely requires the filing of the FAR for the preceding — not the
succeeding — taxable year. Indeed, any refundable amount
indicated in the FAR of the preceding taxable year may be credited
against the estimated income tax liabilities for the taxable quarters
of the succeeding taxable year. However, nowhere is there even a
tinge of a hint in any provisions of the [NIRC] that the FAR of the
taxable year following the period to which the tax credits are
originally being applied should also be presented to the BIR.
Second, Section 5 of RR 12-94, amending Section 10(a) of RR 6-
85, merely provides that claims for refund of income taxes deducted
and withheld from income payments shall be given due course only
(1) when it is shown on the ITR that the income payment received is
being declared part of the taxpayer’s gross income; and (2) when the
fact of withholding is established by a copy of the withholding tax
statement, duly issued by the payor to the payee, showing the
amount paid and the income tax withheld from that amount.
It has been submitted that Philam cannot be cited as a
precedent to hold that the presentation of the quarterly
income tax return is not indispensable as it appears that the
quarterly returns for the succeeding year were presented when
the petitioner therein filed an administrative claim for the
refund of its excess taxes withheld in 1997.
It appears however that there is misunderstanding in the
ruling of the Court in Philam. That factual distinction does
not negate the proposition that subsequent quarterly ITRs are
not indispensable. The logic in not requiring quarterly ITRs of
the succeeding taxable years to be presented remains true to
this day. What Section 76 requires, just like in all civil cases,
18
is to prove the prima facieentitlement to a claim, including the
fact of not having carried over the excess credits to the
subsequent quarters or taxable year. It does not say that to
prove such a fact, succeeding quarterly ITRs are absolutely
needed.
This simply underscores the rule that any document, other
than quarterly ITRs may be used to establish that indeed the
non-carry over clause has been complied with, provided that
such is competent, relevant and part of the records. The Court
is thus not prepared to make a pronouncement as to the
indispensability of the quarterly ITRs in a claim for refund for
no court can limit a party to the means of proving a fact for as
long as they are consistent with the rules of evidence and fair
play. The means of ascertainment of a fact is best left to the
609
VOL. 748, JANUARY 28, 2015 609
Winebrenner ###amp### Iñigo Insurance Brokers,
Inc. vs. Commissioner of Internal Revenue
party that alleges the same. The Court’s power is limited
only to the appreciation of that means pursuant to the
prevailing rules of evidence. To stress, what the NIRC merely
requires is to sufficiently prove the existence of the non-carry
over of excess CWT in a claim for refund.
The implementing rules similarly support this conclusion,
particularly Section 2.58.3 of Revenue Regulation No. 2-98
thereof. There, it provides as follows:
SECTION 2.58.3. Claim for Tax Credit or Refund.—
(A) The amount of creditable tax withheld shall be allowed as a
tax credit against the income tax liability of the payee in the
quarter of the taxable year in which income was earned or received.
(B) Claims for tax credit or refund of any creditable income tax
which was deducted and withheld on income payments shall be
given due course only when it is shown that the income payment
has been declared as part of the gross income and the fact of
withholding is established by a copy of the withholding tax
statement duly issued by the payer to the payee showing the
amount paid and the amount of tax withheld therefrom.
xxx xxx xxx
Evident from the above is the absence of any categorical
pronouncement of requiring the presentation of the
succeeding quarterly ITRs in order to prove the fact of non-
carrying over. To say the least, the Court rules that as to the
means of proving it, it has no power to unduly restrict it.
In this case, it confounds the Court why the CTA did not
recognize and discuss in detail the sufficiency of the annual
ITR for 2004,21 which was submitted by the petitioner. The
CTA in fact said:
_______________
21 CA Records, Vol. I, pp. 809-810.
610
610 SUPREME COURT REPORTS
ANNOTATED
Winebrenner ###amp### Iñigo Insurance Brokers,
Inc. vs. Commissioner of Internal Revenue
In the present case, while petitioner did offer its Annual
ITR/Final Adjustment Return for taxable year 2004, it appears that
petitioner miserably failed to submit and offer as part of its
evidence the first, second, and third Quarterly ITRs for the year
2004. Consequently, petitioner was not able to prove that it did not
exercise its option to carry-over its excess CWT.22
Petitioner claims that the requirement of proof showing the
non-carry over has been established in said document.
Indeed, an annual ITR contains the total taxable income
earned for the four (4) quarters of a taxable year, as well as
deductions and tax credits previously reported or carried over
in the quarterly income tax returns for the subject period. A
quick look at the Annual ITR reveals this fact:
Aggregate Income Tax Due
Less Tax Credits/Payments
Prior Year’s excess Credits – Taxes withheld
Tax Payment(s) for the Previous Quarter(s) of the same taxable
year other than MCIT
xxx xxx xxx
Creditable Tax Withheld for the Previous Quarter(s)
19
 Creditable Tax Withheld Per BIR Form No. 2307 for this
Quarter
xxx xxx x x x23
It goes without saying that the annual ITR (including any
other proof that may be sufficient to the Court) can
sufficiently reveal whether carry over has been made in
subsequent quarters even if the petitioner has chosen the
option of tax credit or refund in the immediately 2003 annual
ITR.
Section 76 of the NIRC requires a corporation to file a Final
Adjustment Return (or Annual ITR) covering the total taxable
income for the preceding calendar or fiscal year. The total
_______________
22 Rollo, p. 45.
23 See BIR Form No. 1702 Annual Income Tax Return.
611
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Winebrenner ###amp### Iñigo Insurance Brokers,
Inc. vs. Commissioner of Internal Revenue
taxable income contains the combined income for the four
quarters of the taxable year, as well as the deductions and
excess tax credits carried over in the quarterly income tax
returns for the same period.
If the excess tax credits of the preceding year were
deducted, whether in whole or in part, from the estimated
income tax liabilities of any of the taxable quarters of the
succeeding taxable year, the total amount of the tax credits
deducted for the entire taxable year should appear in the
Annual ITR under the item “Prior Year’s Excess Credits.”
Otherwise, or if the tax credits were carried over to the
succeeding quarters and the corporation did not report it in
the annual ITR, there would be a discrepancy in the amounts
of combined income and tax credits carried over for all
quarters and the corporation would end up shouldering a
bigger tax payable. It must be remembered that taxes
computed in the quarterly returns are mere estimates. It is the
annual ITR which shows the aggregate amounts of income,
deductions, and credits for all quarters of the taxable year. It is
the final adjustment return which shows whether a
corporation incurred a loss or gained a profit during the
taxable quarter.24 Thus, the presentation of the annual ITR
would suffice in proving that prior year’s excess credits were
not utilized for the taxable year in order to make a final
determination of the total tax due.
In this case, petitioner reported an overpayment in the
amount of P7,194,213.00 in its annual ITR for the year ended
December 2003:
_______________
24 BPI-Family Savings Bank, Inc. v. Court of Appeals, 386 Phil. 719; 330
SCRA 507 (2000).
612
612 SUPREME COURT REPORTS
ANNOTATED
Winebrenner ###amp### Iñigo Insurance Brokers,
Inc. vs. Commissioner of Internal Revenue
For the overpayment, petitioner chose the option “To be
issued a Tax Credit Certificate.” In its Annual ITR for the
year ended December 2004, petitioner did not report the
Creditable Tax Withheld for the 4th quarter of 2003 in the
amount of P4,073,954.00 as prior year’s excess credits. As
shown in the 2004 ITR:
Annual ITR 2004
Income Tax Due 1,321,409.00
Less: Prior Year’s Excess Credits –
Creditable Tax Withheld for the 4th Quarter (3,689,419.00)
Tax Payable/(Overpayment) (2,368,010.00)
Verily, the absence of any amount written in the Prior Year
excess Credit — Tax Withheld portion of petitioner’s 2004
annual ITR clearly shows that no prior excess credits were
carried over in the first four quarters of 2004. And since
petitioner was able to sufficiently prove that excess tax credits
in 2003 were not carried over to taxable year 2004 by leaving
the item “Prior Year’s Excess Credits” as blank in its 2004
20
annual ITR, then petitioner is entitled to a refund.
Unfortunately, the CTA, in denying entirely the claim, merely
relied on the absence of the quarterly ITRs despite being able
to verify the truthfulness of the declaration that no carry over
was indeed effected by simply looking at the 2004 annual ITR.
At this point, worth mentioning is the fact that subsequent
cases affirm the proposition as correctly pointed out by
petitioner. State Land, PERF and Mirantreiterated the rule
that the presentation of the quarterly ITRs of the subsequent
year is not mandatory on the part of the claimant to prove its
claims.
There are some who challenges the applicability
of PERF in the case at bar. It is said that PERF is not in point
because the Annual ITR for the succeeding year had actually
been attached to PERF’s motion for reconsideration with the
CTA and had formed part of the records of the case.
613
VOL. 748, JANUARY 28, 2015 613
Winebrenner ###amp### Iñigo Insurance Brokers,
Inc. vs. Commissioner of Internal Revenue
Clearly, if the Annual ITR has been recognized by this
Court in PERF, why then would the submitted 2004 Annual
ITR in this case be insufficient despite the absence of the
quarterly ITRs? Why then would this Court require more than
what is enough and deny a claim even if the minimum burden
has been overcome? At best, the existence of quarterly ITRs
would have the effect of strengthening a proven fact. And as
such, may only be considered corroborative evidence,
obviously not indispensable in character. PERF simply
affirms that quarterly ITRs are not indispensable, provided
that there is sufficient proof that carrying over excess CWT
was not effected.
Stateland and Mirant are equally challenged. In all these
cases however, the factual distinctions only serve to bolster
the proposition that succeeding quarterly ITRs are not
indispensable. Implicit from all these cases is the Court’s
recognition that proving carry-over is an evidentiary matter
and that the submission of quarterly ITRs is but a means to
prove the fact of one’s entitlement to a refund and not a
condition sine qua non for the success of refund. True, it
would have been better, easier and more efficient for the CTA
and the CIR to have as basis the quarterly ITRs, but it is not
the only way considering further that in this case, the Annual
ITR for 2004 is sufficient. Courts are here to painstakingly
weigh evidence so that justice and equity in the end will
prevail.
It must be emphasized that once the requirements laid
down by the NIRC have been met, a claimant should be
considered successful in discharging its burden of proving its
right to refund. Thereafter, the burden of going forward with
the evidence, as distinct from the general burden of proof,
shifts to the opposing party,25 that is, the CIR. It is then the
turn of the CIR to disprove the claim by presenting contrary
_______________
25 Jimenez v. National Labor Relations Commission, 326 Phil. 89, 95; 256
SCRA 84, 89-90 (1996).
614
614 SUPREME COURT REPORTS
ANNOTATED
Winebrenner ###amp### Iñigo Insurance Brokers,
Inc. vs. Commissioner of Internal Revenue
evidence which could include the pertinent ITRs easily
obtainable from its own files.
All along, the CIR espouses the view that it must be given
ample opportunity to investigate the veracity of the claims.
Thus, the Court asks: In the process of investigation at the
administrative level to determine the right of the petitioner to
the claimed amount, did the CIR, with all its resources even
attempt to verify the quarterly ITRs it had in its files?
Certainly, it did not as the application was met by the
inaction of the CIR. And if desirous in its effort to clearly
verify petitioner’s claim, it should have had the time,
resources and the liberty to do so. Yet, nothing was produced
during trial to destroy the prima facie right of the petitioner
21
by counterchecking the claims with the quarterly ITRs the
CIR has on its file. To the Court, it seems that the CIR
languished on its duties to ascertain the veracity of the claims
and just hoped that the burden would fall on the petitioner’s
head once the issue reaches the courts.
This mindset ignores the rule that the CIR has the equally
important responsibility of contradicting petitioner’s claim by
presenting proof readily on hand once the burden of evidence
shifts to its side. Claims for refund are civil in nature and as
such, petitioner, as claimant, though having a heavy burden
of showing entitlement, need only prove preponderance of
evidence in order to recover excess credit in cold cash. To
review, “[P]reponderance of evidence is [defined as] the
weight, credit, and value of the aggregate evidence on either
side and is usually considered to be synonymous with the
term ‘greater weight of the evidence’ or ‘greater weight of the
credible evidence.’ It is evidence which is more convincing to
the court as worthy of belief than that which is offered in
opposition thereto.”26
_______________
26 Peñalber v. Ramos, G.R. No. 178645, January 30, 2009, 577 SCRA 509,
526-527, citing Ong v. Yap, 492 Phil. 188, 196-197; 452 SCRA 41, 49-50 (2005).
Emphasis supplied.
615
VOL. 748, JANUARY 28, 2015 615
Winebrenner ###amp### Iñigo Insurance Brokers,
Inc. vs. Commissioner of Internal Revenue
The CIR must then be reminded that in Philam, the CIR’s
“failure to present [the quarterly ITRs and AFR] to support its
contention against the grant of a tax refund to [a claimant] is
certainly fatal.” PERFreinforces this with a sweeping
statement holding that the verification process is not
incumbent on PERF [or any claimant for that matter]; [but] is
the duty of the CIR to verify whether x x x excess income
taxes [have been carried over].
And should there be a possibility that a claimant may have
violated the irrevocability rule and thereafter claim twice
from its credits, no one is to be blamed but the CIR for not
discharging its burden of evidence to destroy a claimant’s
right to a refund. At any rate, a claimant who defrauds the
government cannot escape liability be it criminal or civil in
nature.
Verily, with the petitioner having complied with the
requirements for refund, and without the CIR showing
contrary evidence other than its bare assertion of the absence
of the quarterly ITRs, copies of which are easily verifiable by
its very own records, the burden of proof of establishing the
propriety of the claim for refund has been sufficiently
discharged. Hence, the grant of refund is proper.
The Court does not, and cannot, however, grant the entire
claimed amount as it finds no error in the original decision of
the CTA Division granting refund to the reduced amount of
P2,737,903.34. This finding of fact is given respect, if not
finality, as the CTA,27 which by the very nature of its functions
of dedicating itself exclusively to the consideration of the tax
problems has necessarily developed an expertise on the
subject.28 It being the case, the Court partly grants this peti-
_______________
27 Commissioner of Internal Revenue v. Toledo Power, Inc., G.R. No.
183880, January 20, 2014, 714 SCRA 276.
28 Commissioner of Internal Revenue v. Mirant (Philippines) Operations
Corporation, supra note 13 at p. 94, citing Toshiba Information Equipment
(Phils.), Inc. v. Commissioner of Internal Reve-
616
616 SUPREME COURT REPORTS
ANNOTATED
Winebrenner ###amp### Iñigo Insurance Brokers,
Inc. vs. Commissioner of Internal Revenue
tion to the extent of reinstating the April 23, 2010 original
decision of the CTA Division.
The Court reminds the CIR that substantial justice, equity
and fair play take precedence over technicalities and
legalisms. The government must keep in mind that it has no
right to keep the money not belonging to it, thereby enriching
itself at the expense of the law-abiding citizen29or entities who
22
have complied with the requirements of the law in order to © Copyright 2018 Central Book Supply, Inc. All rights reserved.
forward the claim for refund. Under the principle of solution
indebiti provided in Article 2154 of the Civil Code, the CIR
must return anything it has received.30
Finally, even assuming that the Court reverses itself and
pronounces the indispensability of presenting the quarterly
ITRs to prove entitlement to the claimed refund, petitioner
should not be prejudiced for relying on Philam. The CTA En
Banc merely based its pronouncement on a case that does not
enjoy the benefit of stare decis et non quieta movere which
means “to adhere to precedents, and not to unsettle things
which are established.”31 As between a CTA En Banc Decision
(Millennium) and this Court’s Decision (Philam), it is
elementary that the latter should prevail.
WHEREFORE, the Court partly grants the petition. The
March 22, 2013 Decision of the Court of Tax Appeals En
Banc is REVERSED. The April 13, 2010 Decision of the
Court of Tax Appeals Special First Division
is REINSTATED. Respondent Commissioner of Internal
Revenue is ordered to REFUND to petitioner the amount of
P2,737,903.34 as excess creditable withholding tax paid for
taxable year 2003.
SO ORDERED.
Carpio (Chairperson), Velasco, Jr.**and Del Castillo, JJ.,
concur.
Leonen, J., I dissent. See Separate Opinion.

Notes.—Entrenched in our jurisprudence is the principle

that tax refunds are in the nature of tax exemptions which are
construed strictissimi jurisagainst the taxpayer and liberally
in favor of the government. (Commissioner of Internal
Revenue vs. Acosta, 529 SCRA 177 [2007])
Only preponderance of evidence as applied in ordinary civil
cases is needed to substantiate a claim for tax refund.
(Commissioner of Internal Revenue vs. Team Sual Corporation
[formerly Mirant Sual Corporation], 730 SCRA 242 [2014])
——o0o——
23
 G.R. No. 185728. October 16, 2013.*
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.
TeaM (PHILIPPINES) OPERATIONS CORPORATION
[Formerly MIRANT (PHILIPPINES) OPERATIONS
CORPORATION], respondent.
Taxation; Tax Credits; Tax Refunds; Requisites that a Taxpayer
Must Comply for a Tax Credit or Tax Refund of Creditable
Withholding Tax.—A taxpayer claiming for a tax credit or refund of
creditable withholding tax must comply with the following
requisites: 1) The claim must be filed with the CIR within the two-
year period from the date of payment of the tax; 2) It must be shown
on the return of the recipient that the income received was declared
as part of the gross income; and 3) The fact of withholding is
established by a copy of a statement duly issued by the payor to the
payee showing the amount paid and the amount of tax withheld.
Same; Appeals; Oft-repeated is the rule that the Supreme Court
will not lightly set aside the conclusions reached by the Court of Tax
Appeals which, by the very nature of its function of being dedicated
exclusively to the resolution of tax problems, has accordingly
developed an expertise on the subject, unless there has been an abuse
or improvident exercise of authority.—Both the CTA First Division
and the CTA En Banc ruled that respondent has sufficiently
established the fact of withholding by presenting the Certificates of
Creditable Tax Withheld at Source issued by MPagC and MSC for
the year 2002. We find no cogent reason to deviate from these
findings. Oft-repeated is the rule that the Court will not lightly set
aside the conclusions reached by the CTA which, by the very nature
of its function of being dedicated exclusively to the resolution of tax
problems, has accordingly developed an expertise on the subject,
unless there has been an abuse or improvident exercise of
authority. After a thorough review of the case, we find no abuse or
improvident exercise of authority on the part of the CTA in granting
respondent’s claim for tax refund.
_______________
* FIRST DIVISION.
468
Same; Withholding Tax; The copies of the Certificates of
Creditable Tax Withheld at Source when found by the duly
commissioned ICPA to be faithful reproductions of the original
copies would suffice to establish the fact of withholding.—Contrary
to petitioner’s assertion, it is not necessary for the person who
executed and prepared the Certificates of Creditable Tax Withheld
at Source to be presented and to testify personally as to the
authenticity of the certificates. The copies of the Certificates of
Creditable Tax Withheld at Source when found by the duly
commissioned ICPA to be faithful reproductions of the original
copies would suffice to establish the fact of withholding. This was
our ruling in the case of Commissioner of Internal Revenue v.
Mirant (Philippines) Operations, Corporation, 652 SCRA 80 (2011),
where this Court had agreed with the conclusion of the CTA En
Banc stating that Contrary to petitioner CIR’s contention, the fact
of withholding was likewise established through
respondent’s presentation of the Certificates of Creditable
Tax Withheld At Source, duly issued to it by Southern
Energy Pangasinan, Inc. and Southern Energy Quezon, Inc.,
for the year 2000 x x x. These certificates were found by the
duly commissioned independent CPA to be faithful
reproductions of the original copies, as per his
Supplementary Report dated March 24, 2003.
PETITION for review on certiorari of the decision and
resolution of the Court of Tax Appeals.
The facts are stated in the opinion of the Court.
The Solicitor General for petitioner.
Jose R. Matibag for respondent.
VILLARAMA, JR., J.:
On appeal under Rule 45 is the August 27, 2008
Decision1 of the Court of Tax Appeals (CTA) En Banc in C.T.A.
E.B. No. 369 which affirmed the August 29, 2007 Decision2 of
the CTA First Division in CTA Case No. 6970 ordering
petitioner Commissioner of Internal Revenue (CIR) to refund,
or in the alternative, issue a tax credit certificate, in favor of
respondent TeaM (Philippines) Operations Corporation3 the
amount of P23,053,919.22 representing excess/unutilized
creditable withholding taxes for the taxable year 2002.
Petitioner likewise assails the November 28, 2008
Resolution4 of the CTA En Banc denying its motion for
reconsideration from the assailed decision.
The facts as summarized in the assailed CTA En
Banc decision are as follows:
24
 Petitioner is the duly appointed Commissioner of Internal
Revenue vested with the authority to act as such,
including inter alia, the power to decide, approve, and grant
refunds or tax credits of overpaid internal revenue taxes as
provided by law with office address at the BIR National Office
Building, Agham Road, Diliman, Quezon City.
Respondent, on the other hand, is duly licensed to do
business in the Philippines and is primarily engaged in the
business of designing, construction, erecting, assembling,
commissioning, operating, maintaining, rehabilitating and
managing gas turbine and other power generating plants and
related facilities for the conversion into electricity of coal,
distillate and other fuel provided by and under contract with
the Government of the Republic of the Philippines, or any
subdivision, instrumentality or agency thereof, or any
government owned or controlled corporations or other entity
engaged in the development, supply or distribution of energy.
Respondent entered into Operating and Management
Agreements with Mirant Pagbilao Corporation [formerly
Southern Energy Quezon, Inc.] or (MPagC) and Mirant Sual
Corporation [formerly Southern Energy Pangasinan, Inc.] or
(MSC) to provide these corporations with maintenance and
management services in connection with the operation,
construction and commissioning of the coal-fired power
stations situated in Pagbilao, Province of Quezon and Sual,
Province of Pangasinan, respectively. Payments received by
respondent for the operating and management services
rendered to MPagC and MSC were allegedly subjected to
creditable withholding tax.
On April 15, 2003, respondent filed with the Bureau of
Internal Revenue (BIR) its original Annual Income Tax
Return (ITR) for the calendar year ended December 31, 2002
declaring zero taxable income and unutilized tax credits of
P23,108,689.00, detailed as follows:
Gross Income P 82,732,818.00
Add: Non-operating & Other 172,834.00
Income
Total Gross Income P 82,905,652.00
Less: Deductions 82,905,652.00
Taxable Income P NIL
Tax Rate 32%
Minimum Corporate Income Tax P 1,658,113.00
(MCIT)
Income Tax Due P1,658,113.00_
Less: Prior Years’ Excess Credits NIL
Tax Payments for 1st 3 Quarters NIL
Creditable Tax Withheld for 1st 3
Quarters P 24,766,802.00
Total Tax Credits/Payments P 24,766,802.00
Tax Overpayment (P23,108,689.00)
In its ITR for the year 2002, respondent indicated its
option to refund its alleged excess creditable withholding tax
when it marked “X” the box corresponding to the option “To be
refunded” under line 30 of said ITR.
On March 17, 2004, respondent filed an administrative
claim for refund or issuance of tax credit certificate with the
BIR in the total amount of P23,108,689.00, allegedly
representing overpaid income tax or excess creditable
withholding tax for calendar year ended December 31, 2002.
As the two-year prescriptive period for the filing of a
judicial claim under Section 229 of the National Internal
Revenue Code (NIRC) of 1997 was about to lapse without
action on the part of petitioner, respondent elevated its case
before the Court in Division by way of Petition for Review on
April 27, 2004, docketed as C.T.A. Case No. 6970.5
On August 29, 2007, the CTA First Division rendered a
Decision6 partially granting respondent’s petition and ordered
petitioner to refund or issue a tax credit certificate in the
reduced amount of P23,053,919.22 representing
excess/unutilized creditable withholding taxes for the taxable
year 2002. The CTA First Division found that respondent
complied with the substantiation requirements for it to be
entitled to a claim of excess/unutilized tax credits for the said
taxable year. It observed that respondent presented
Certificates of Creditable Tax Withheld at Source issued to it
by Mirant Pagbilao Corporation (MPagC) and Mirant Sual
25
Corporation (MSC) for the year 2002 and which were found by
the court-commissioned auditing firm, SGV & Co., to be
faithful reproductions of the original copies of the certificates,
duly signed and prepared under the penalties of perjury and
are presumed to be true and correct.
The CTA in Division, however, disallowed the amount of
P54,769.78 from the amount claimed since respondent’s
Annual Income Tax Return only reflected an income of
P247,120,318.00 although the income upon which taxes were
withheld amounted to P247,668,015.80. Thus, the tax that
corresponds to the difference of P547,697.80 was deducted
from the tax claim because the income upon which it was
withheld did not form part of the income as declared in
respondent’s 2002 ITR.
Petitioner filed a motion for partial reconsideration from
the aforementioned decision but the motion was denied by the
CTA First Division in a Resolution7 dated February 4, 2008.
Petitioner appealed the decision of the CTA First Division
to the CTA En Banc raising the sole issue of whether
respondent is entitled to the refund of excess or unutilized
creditable withholding taxes for the taxable year 2002 in the
amount of P23,053,919.22.
On August 27, 2008, the CTA En Bancdenied the petition
for lack of merit and affirmed the ruling of the CTA First
Division granting respondent’s claim for refund or issuance of
tax credit certificate in the amount of P23,053,919.22.
Petitioner’s motion for reconsideration from the foregoing
ruling was denied in a Resolution8 dated November 28, 2008.
Hence, petitioner filed the present petition insisting that—
RESPONDENT FAILED TO COMPLY WITH THE
REQUIREMENTS FOR REFUND OF CREDITABLE
WITHHOLDING TAX.9
Petitioner CIR argues that the withholding of the subject
taxes had not been duly proven by respondent. Petitioner
posits that in order that the claim for refund of creditable
withholding tax will be granted, the claimant must present an
authentic certificate of creditable withholding tax. Petitioner
points out that the original copies of the subject withholding
tax certificates were not presented by respondent before the
CTA. It only presented the testimony of the court-commis-
sioned independent accountant (ICPA), Mr. Henry Tan, who
merely identified the certificates and opined that said
certificates were faithful reproductions of the original. Thus,
petitioner claims that she was deprived of the opportunity to
scrutinize the certificates to determine their authenticity.
Petitioner also assails the CTA En Banc’s ruling brushing
aside the fact that mere photocopies were presented and
holding that the documents were executed under the penalties
of perjury pursuant to Section 267 of the National Internal
Revenue Code of 1997. According to petitioner, even if the
documents presented were executed under the penalties of
perjury, it does not guarantee that the same were not perjured
and does not dispense with the best evidence rule. She claims
that the competent witness who can prove the truth of the
contents of the certificates is the person who prepared the
same.
In its Comment/Opposition,10respondent maintains that it
had presented the original copies of the withholding tax
certificates to the court-commissioned ICPA for examination
under the procedures laid down in CTA Circular No. 1-95, as
amended by CTA Circular No. 10-97. Respondent avers that
the original copies of those certificates were among the
voluminous documents submitted by respondent for
examination by the court-commissioned ICPA. Respondent
asserts that under the aforementioned circulars, the duly
commissioned ICPA was authorized to examine the original
copies of the certificates, make photocopies thereof, and certify
that the photocopies are faithful reproductions of the original.
It contends that the original copies of the certificates need not
be presented in court after the court-commissioned ICPA has
submitted his report together with all the supporting
documents and testified on his findings and conclusions.
Respondent submits that it is enough that those certificates
were properly pre-marked, introduced as evidence and made
26
available to petitioner in case she wants to verify their
authenticity.
In reply,11 petitioner stresses that the presentation of Mr.
Henry Tan, the court-commissioned ICPA, who identified the
withholding tax certificates and testified that said certificates
were faithful reproductions of the original, does not satisfy the
requirements and conditions for tax refund. Petitioner adds
that tax refunds, like tax exemptions are construed strictly
against the taxpayer and a refund claimant is required to
prove the inclusion of the income payments which were the
basis of the withholding taxes and the fact of withholding.
The main issue to be resolved in this petition is whether
respondent has complied with the requirements for refund or
issuance of tax credit certificate of creditable withholding
taxes for calendar year ended December 31, 2002.
We affirm the ruling of the CTA En Banc that respondent
has complied with the requirements for refund of creditable
withholding taxes and is therefore entitled to the
P23,053,919.22 claim for refund or issuance of tax credit
certificate.
A taxpayer claiming for a tax credit or refund of creditable
withholding tax must comply with the following requisites:
1) The claim must be filed with the CIR within the two-
year period from the date of payment of the tax;
2) It must be shown on the return of the recipient that the
income received was declared as part of the gross income; and
3) The fact of withholding is established by a copy of a
statement duly issued by the payor to the payee showing the
amount paid and the amount of tax withheld.12
_______________
The first requirement is based on Section 229 of the National
Internal Revenue Code of 1997 which provides that:
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. (Underscoring supplied.)
The second and third conditions are specifically imposed
under Section 10 of Revenue Regulation No. 6-85 (as
amended), which provides:
Section 10. Claims for tax credit or refund.—(a) Claims
for Tax Credit or Refund of income tax deducted and withheld
on income payments shall be given due course only when it
is shown on the return that the income payment
received has been declared as part of the gross income
and the fact of withholding is established by a copy of
the Withholding Tax Statement duly issued by the
payor to the payee showing the amount paid and the
amount of tax withheld therefrom x x x.13 (Emphasis
supplied.)
There is no dispute that respondent has complied with the
first requirement when it filed its administrative claim for tax
refund on March 17, 2004 and thereafter filed a petition for
review with the CTA on April 27, 2004 or within two years
from April 15, 2003, the date of filing of its Annual Income
Tax Return.14 Respondent was also able to prove the second
requirement by showing in its ITR that the income upon
which the creditable withholding taxes were paid was
declared as part of its gross income for the taxable year 2002.
As to the third condition, both the CTA First Division and
the CTA En Banc ruled that respondent has sufficiently
established the fact of withholding by presenting the
Certificates of Creditable Tax Withheld at Source issued by
27
MPagC and MSC for the year 2002. We find no cogent reason
to deviate from these findings. Oft-repeated is the rule that
the Court will not lightly set aside the conclusions reached by
the CTA which, by the very nature of its function of being
dedicated exclusively to the resolution of tax problems, has
accordingly developed an expertise on the subject, unless
there has been an abuse or improvident exercise of
authority.15 After a thorough review of the case, we find no
abuse or improvident exercise of authority on the part of the
CTA in granting respondent’s claim for tax refund.
_______________
In the present case, petitioner insists that the fact of
withholding had not been established since the original copies
of the Certificates of Creditable Tax Withheld at Source were
not submitted to the CTA and that the payors or withholding
agents or the persons who prepared and executed the
Certificates of Creditable Tax Withheld at Source were not
presented to prove the authenticity of the certificates.
Petitioner’s contention fails to persuade us. It should be
stressed that respondent presented the original copies of the
Certificates of Creditable Tax Withheld at Source to the court-
commissioned ICPA who examined the original copies and
certified that the copies submitted to the CTA as evidence
were faithful reproductions of the original certificates. Said
procedure was in accordance with Rule 13 of the Revised
Rules of the Court of Tax Appeals which provides, to wit:
SEC. 2. Duties of independent CPA.—The independent
CPA shall perform audit functions in accordance with the
generally accepted accounting principles, rules and
regulations, which shall include:
(a) Examination and verification of receipts, invoices,
vouchers and other long accounts;
(b) Reproduction of, and comparison of such reproduction
with, and certification that the same are faithful copies of
original documents, and pre-marking of documentary exhibits
consisting of voluminous documents;
(c) Preparation of schedules or summaries containing a
chronological listing of the numbers, dates and amounts
covered by receipts or invoices or other relevant documents
and the amount(s) of taxes paid;
(d) Making findings as to compliance with substantiation
requirements under pertinent tax laws, regulations and
jurisprudence;
(e) Submission of a formal report with certification of
authenticity and veracity of findings and conclusions in the
performance of the audit;
(f) Testifying on such formal report; and478
478 SUPREME COURT REPORTS
ANNOTATED
Commissioner of Internal Revenue vs. TeaM
(Philippines)Operations Corporation
(g) Performing such other functions as the Court may direct.
(Underscoring supplied.)
Pursuant to the foregoing provision, respondent presented
the pre-marked copies of the Certificates of Creditable Tax
Withheld at Source (Exhibits “G”, “H”, “I” and “J”) issued by
MPagC and MSC for the year 2002 together with other
pertinent documents and which was identified and verified by
the court-commissioned ICPA to be faithful reproductions of
the original documents which it had examined and
scrutinized. In the succeeding section, Section 3 of the same
rule, it was provided that the submission by the independent
CPA of pre-marked documentary evidence shall be subject to
verification and comparison with the original documents, the
availability of which shall be the primary responsibility of the
party possessing such documents and, secondarily, by the
independent CPA.
After the pre-marked certificates and other documentary
evidence are submitted by respondent to the CTA,
respondent’s counsel manifested that the original copies of the
documents are available at the respondent’s office in case
petitioner wants to verify the existence of the original
documents.16 However, petitioner never signified any intention
to verify the authenticity of the withholding tax certificates. It
did not interpose any objection when the certificates were
formally offered in court as part of respondent’s evidence.
28
Petitioner made no effort to examine the original certificates original copies, as per his Supplementary Report dated
to determine its authenticity and to ascertain that the March 24, 2003 x x x. (Emphasis supplied.)
photocopies are faithful reproductions by comparing it with As shown in the certificates, respondent’s creditable
the original copies. Hence, it cannot now claim that it was withholding tax amounted P24,766,801.58, broken down as
deprived of the opportunity to examine and scrutinize the follows:
certificates and other documents submitted by respondent. Exh. Period Withholding Income Tax Tax
There was nothing in the records which would cast doubt on Covered Agent Amount Rate Withheld
the authenticity of the certificates. H Jan. Mirant Sual 81,694,812.20 10% 8,169,481.22
2002 to Corporation
Thus, we are in accord with the findings of the CTA First Mar.
Division and the CTA En Banc that respondent complied with 2002
the substantiation requirements for refund of creditable J April Mirant Sual 32,835,093.20 10% 3,283,509.32
withholding tax. Here, respondent was able to establish the 2002 to Corporation
fact of withholding by submitting a copy of the withholding June
tax certificates duly issued by MPagC and MSC, as the 2002
withholding agent, indicating the name of the payor and G Jan. Mirant 132,590,415.80 10% 13,259,041.58
showing the income payment basis of the tax withheld and the 2002 to Pagbilao
amount of the tax withheld. Contrary to petitioner’s assertion, March Corporation
it is not necessary for the person who executed and prepared 2002
the Certificates of Creditable Tax Withheld at Source to be I April Mirant 547,694.60 10% 54,769.46
presented and to testify personally as to the authenticity of 2002 to Pagbilao
the certificates. The copies of the Certificates of Creditable June Corporation
Tax Withheld at Source when found by the duly commissioned 2002
ICPA to be faithful reproductions of the original copies would 247,668,015.80 24,766,801.58
suffice to establish the fact of withholding. This was our However, its 2002 ITR reflected only the amount of
ruling in the case of Commissioner of Internal Revenue v. P247,120,318 out of the total income of P247,668,015.80 or a
Mirant (Philippines) Operations, Corporation,17 where this difference of P547,697.80. Thus, the tax that corresponds to
Court had agreed with the conclusion of the CTA En the said amount (P54,769) was properly disallowed by the
Bancstating that CTA First Division and CTA En Banc in the determination of
Contrary to petitioner CIR’s contention, the fact of respondent’s tax claim since the income upon which it was
withholding was likewise established through withheld did not form part of the income declared in the 2002
respondent’s presentation of the Certificates of ITR.
Creditable Tax Withheld At Source, duly issued to it by In fine, we find no reason to reverse or modify the findings
Southern Energy Pangasinan, Inc. and Southern of the CTA En Bancwhich granted respondent’s claim for tax
Energy Quezon, Inc., for the year 2000 x x x. These refund in the amount of P23,053,919.22.
certificates were found by the duly commissioned
WHEREFORE, the present petition for review
independent CPA to be faithful reproductions of the
on certiorari is DENIED. The Decision dated August 27, 2008
29
and Resolution dated November 28, 2008 of the Court of Tax
Appeals En Banc in C.T.A. E.B. No. 369 are
hereby AFFIRMED and UPHELD.
No pronouncement as to costs.481
VOL. 707, OCTOBER 16, 2013 481
Commissioner of Internal Revenue vs. TeaM
(Philippines)Operations Corporation
SO ORDERED.
Sereno (CJ., Chairperson), Leonardo-De Castro,
Bersamin and Reyes, JJ., concur.
Petition denied, judgment and resolution affirmed and
upheld.
Notes.—It is settled that tax refunds are in the nature of
tax exemptions — laws granting exemptions are
construed strictissimi juris against the taxpayer and liberally
in favor of the taxing authority. (KEPCO Philippines
Corporation vs. Commissioner of Internal Revenue, 608 SCRA
207 [2009])
The method of withholding tax at source is a procedure of
collecting income tax which is sanctioned by our tax laws;
Three primary lessons why the withholding tax system was
devised. (Chamber of Real Estate and Builders’ Associations,
Inc. vs. Romulo, 614 SCRA 605 [2010])

——o0o——
© Copyright 2018 Central Book Supply, Inc. All rights reserved.

30
 Where an employee would have been entitled to
reinstatement with full backwages, but circumstances, i.e.,
strained relationships, makes reinstatement impossible, the
more equitable disposition would be an award of separation
pay equivalent to at least one month pay, or one month pay
for every year of service, whichever is higher, in addition to
full backwages, inclusive of allowances, and other benefits or
their monetary equivalent, computed from the time the
employee’s compensation was withheld from him up to the
time of his supposed actual reinstatement. (Star Paper
Corporation vs. Espiritu, 506 SCRA 556 [2006])
——o0o——
G.R. Nos. 179045-46. August 25, 2010.*
COMMISSIONER OF INTERNAL
REVENUE, petitioner, vs. SMART COMMUNICATION,
INC.,** respondent.
Taxation; Tax Refunds; Withholding Tax; Parties; The person
entitled to claim a tax refund is the taxpayer, but in case the
taxpayer does not file a claim for refund, the withholding agent may
file the claim.—The person entitled to claim a tax refund is the
taxpayer. However, in case the taxpayer does not file a claim for
refund, the withholding agent may file the claim. In Commissioner
of Internal Revenue v. Procter & Gamble Philippine Manufacturing
Corporation, 204 SCRA 377 (1991), a withholding agent was
considered a proper party to file a claim for refund of the withheld
taxes of its foreign parent company.
Same; Same; Same; Same; Although the fact that the taxpayer
and the withholding agent are related parties is a factor that
increases the latter’s legal interest to file a claim for refund, there is
nothing in Commissioner of Internal Revenue v. Procter & Gamble
_______________
* FIRST DIVISION.
** Sometimes referred to as Smart Communications, Inc. in other parts of
the records.
343
VOL. 629, AUGUST 25, 2010 3 for refund.
43
Commissioner of Internal Revenue vs. Smart
Communication, Inc.
Philippines Manufacturing Corporation, 204 SCRA 377 (1991),
to suggest that such relationship is required or that the lack of such
relation deprives the withholding agent of the right to file a claim for
refund—what is clear in the decision is that a withholding agent has
a legal right to file a claim for refund.—Petitioner, however,
submits that this ruling applies only when the withholding agent
and the taxpayer are related parties, i.e., where the withholding
agent is a wholly owned subsidiary of the taxpayer. We do not
agree. Although such relation between the taxpayer and the
withholding agent is a factor that increases the latter’s legal
interest to file a claim for refund, there is nothing in the decision to
suggest that such relationship is required or that the lack of such
relation deprives the withholding agent of the right to file a claim
for refund. Rather, what is clear in the decision is that a
withholding agent has a legal right to file a claim for refund for two
reasons. First, he is considered a “taxpayer” under the NIRC as he
is personally liable for the withholding tax as well as for deficiency
assessments, surcharges, and penalties, should the amount of the
tax withheld be finally found to be less than the amount that should
have been withheld under law. Second, as an agent of the taxpayer,
his authority to file the necessary income tax return and to remit
the tax withheld to the government impliedly includes the authority
to file a claim for refund and to bring an action for recovery of such
claim.
Same; Same; Same; Same; Unjust Enrichment; While the
withholding agent has the right to recover the taxes erroneously or
illegally collected, he nevertheless has the obligation to remit the
same to the principal taxpayer.—In this connection, it is however
significant to add that while the withholding agent has the right to
recover the taxes erroneously or illegally collected, he nevertheless
has the obligation to remit the same to the principal taxpayer. As
an agent of the taxpayer, it is his duty to return what he has
recovered; otherwise, he would be unjustly enriching himself at the
expense of the principal taxpayer from whom the taxes were
withheld, and from whom he derives his legal right to file a claim
Same; Same; RP-Malaysia Tax Treaty; Words and Phrases;
“Royalties,” and “Permanent Establishment,” Defined.—Under the
RP-Malaysia Tax Treaty, the term royalties is defined as payments
31
of any kind received as consideration for: “(i) the use of, or the right
to use, any patent, trade mark, design or model, plan, secret
formula or process, any copyright of literary, artistic or scientific
work, or for
344
3 SUPREME COURT REPORTS
44 ANNOTATED
Commissioner of Internal Revenue vs. Smart
Communication, Inc.
the use of, or the right to use, industrial, commercial, or
scientific equipment, or for information concerning industrial,
commercial or scientific experience; (ii) the use of, or the right to
use, cinematograph films, or tapes for radio or television
broadcasting.” These are taxed at the rate of 25% of the gross
amount. Under the same Treaty, the “business profits” of an
enterprise of a Contracting State is taxable only in that State,
unless the enterprise carries on business in the other Contracting
State through a permanent establishment. The term “permanent
establishment” is defined as a fixed place of business where the
enterprise is wholly or partly carried on. However, even if there is
no fixed place of business, an enterprise of a Contracting State is
deemed to have a permanent establishment in the other
Contracting State if it carries on supervisory activities in that other
State for more than six months in connection with a construction,
installation or assembly project which is being undertaken in that
other State. In the instant case, it was established during the trial
that Prism does not have a permanent establishment in the
Philippines. Hence, “business profits” derived from Prism’s dealings
with respondent are not taxable. The question is whether the
payments made to Prism under the SDM, CM, and SIM Application
agreements are “business profits” and not royalties.
Same; Same; The government has no right to retain what does
not belong to it.—The government has no right to retain what does
not belong to it. “No one, not even the State, should enrich oneself
at the expense of another.”
PETITION for review on certiorari of the decision and
resolution of the Court of Tax Appeals.
The facts are stated in the opinion of the Court.
The Solicitor General for petitioner.
Kathryn Ang-Zarate and Imelda Maxima R. Tolentino for
respondent.
DEL CASTILLO, J.:
The right of a withholding agent to claim a refund of
erroneously or illegally withheld taxes comes with the
responsibility to return the same to the principal taxpayer.345
VOL. 629, AUGUST 25, 2010 345
Commissioner of Internal Revenue vs. Smart
Communication, Inc.
This Petition for Review on Certiorariunder Rule 45 of the
Rules of Court seeks to set aside the Decision1 dated June 28,
2007 and the Resolution2 dated July 31, 2007 of the Court of
Tax Appeals (CTA) En Banc.
Factual Antecedents
Respondent Smart Communications, Inc. is a corporation
organized and existing under Philippine law. It is an
enterprise duly registered with the Board of Investments.
On May 25, 2001, respondent entered into three
Agreements for Programming and Consultancy Services3 with
Prism Transactive (M) Sdn. Bhd. (Prism), a non-resident
corporation duly organized and existing under the laws of
Malaysia. Under the agreements, Prism was to provide
programming and consultancy services for the installation of
the Service Download Manager (SDM) and the Channel
Manager (CM), and for the installation and implementation of
Smart Money and Mobile Banking Service SIM Applications
(SIM Applications) and Private Text Platform (SIM
Application).
On June 25, 2001, Prism billed respondent in the amount
of US$547,822.45, broken down as follows:
SDM Agreement US$236,000.00
CM Agreement 296,000.00
SIM Application Agreement 15,822.45
Total US$547,822.454
_______________
32
 Thinking that these payments constitute royalties, showing that the payments made to Prism constitute
respondent withheld the amount of US$136,955.61 or “business profits.”18
P7,008,840.43,5 representing the 25% royalty tax under the Ruling of the CTA Second Division
RP-Malaysia Tax Treaty.6 In a Decision19 dated February 23, 2006, the Second
On September 25, 2001, respondent filed its Monthly Division of the CTA upheld respondent’s right, as a
Remittance Return of Final Income Taxes Withheld (BIR withholding agent, to file the claim for refund citing the cases
Form No. 1601-F)7 for the month of August 2001. of Commissioner of Internal Revenue v. Wander Philippines,
On September 24, 2003, or within the two-year period to Inc.,20 Commissioner of Internal Revenue v. Procter & Gamble
claim a refund, respondent filed with the Bureau of Internal Philippine Manufacturing Corporation21 and Commissioner of
Revenue (BIR), through the International Tax Affairs Division Internal Revenue v. The Court of Tax Appeals.22
(ITAD), an administrative claim for refund8 of the amount of However, as to the claim for refund, the Second Division
P7,008,840.43. found respondent entitled only to a partial refund. Although it
Proceedings before the CTA Second Division agreed with respondent that the payments for the CM and
Due to the failure of the petitioner Commissioner of SIM Application Agreements are “business profits,”23 and
Internal Revenue (CIR) to act on the claim for refund, therefore, not subject to tax24 under the RP-Malaysia Tax
respondent filed a Petition for Review9 with the CTA, docketed Treaty, the Second Division found the payment for the SDM
as CTA Case No. 6782 which was raffled to its Second Agreement a royalty subject to withholding tax.25 Accordingly,
Division. respondent was granted refund in the amount of
In its Petition for Review, respondent claimed that it is P3,989,456.43, computed as follows:26
entitled to a refund because the payments made to Prism are Particulars Amount (in
not royalties10 but “business profits,”11pursuant to the US$)
definition of royalties under the RP-Malaysia Tax 1. CM 296,000.00
Treaty,12 and in view of the pertinent Commentaries of the 2. SIM Application 15,822.45
Organization for Economic Cooperation and Development Total US$311,822.45
(OECD) Committee on Fiscal Affairs through the Technical
Advisory Group on Treaty Characterization of Electronic Particulars Amount
Commerce Payments.13 Respondent further averred that since Tax Base US$311,822.45
under Article 7 of the RP-Malaysia Tax Treaty, “business Multiply by: Withholding Tax Rate 25%
profits” are taxable in the Philippines “only if attributable to a Final Withholding Tax US$ 77,955.61
permanent establishment in the Philippines, the payments Multiply by: Prevailing Exchange 51.176
made to Prism, a Malaysian company with no permanent Rate
establishment in the Philippines,”14 should not be taxed.15 Tax Refund Due P3,989,456.43
On December 1, 2003, petitioner filed his Answer16 arguing The dispositive portion of the Decision of the CTA Second
that respondent, as withholding agent, is not a party-in- Division reads:
interest to file the claim for refund,17 and that assuming for _______________
the sake of argument that it is the proper party, there is no
21 G.R. No. 66838, December 2, 1991, 204 SCRA 377.
22 G.R. No. 93901, February 11, 1992 (Minute Resolution).
33
 23 CTA Second Division Rollo, p. 362.
24 Id., at p. 364.
25 Id., at p. 358.
26 Id., at p. 365.
350
350 SUPREME COURT REPORTS
ANNOTATED
Commissioner of Internal Revenue vs. Smart
Communication, Inc.
“WHEREFORE, premises considered, the instant petition is
partially GRANTED. Accordingly, respondent Commissioner of
Internal Revenue is hereby ORDERED to REFUND or ISSUE a
TAX CREDIT CERTIFICATE to petitioner Smart Communications,
Inc. in the amount of P3,989,456.43, representing overpaid final
withholding taxes for the month of August 2001.
SO ORDERED.”27
Both parties moved for partial reconsideration28 but the
CTA Second Division denied the motions in a
Resolution29 dated July 18, 2006.
Ruling of the CTA En Banc
Unsatisfied, both parties appealed to the CTA En Banc by
filing their respective Petitions for Review,30 which were
consolidated per Resolution31 dated February 8, 2007.
On June 28, 2007, the CTA En Bancrendered a Decision
affirming the partial refund granted to respondent. In
sustaining respondent’s right to file the claim for refund, the
CTA En Banc said that although respondent “and Prism are
unrelated entities, such circumstance does not affect the
status of [respondent] as a party-in-interest [as its legal
interest] is based on its direct and independent liability under
the withholding tax system.”32 The CTA En Banc also
concurred with the Second Division’s characterization of the
payments made to Prism, specifically that the payments for
the CM and SIM Application Agreements constitute “business
profits,”33 while the payment for the SDM Agreement is a
royalty.34
The dispositive portion of the CTA En Banc Decision reads:
“WHEREFORE, the instant petition is hereby DISMISSED.
Accordingly, the assailed Decision and Resolution are hereby
AFFIRMED.
SO ORDERED.”35
Only petitioner sought reconsideration36of the Decision. The
CTA En Banc, however, found no cogent reason to reverse its
Decision, and thus, denied petitioner’s motion for
reconsideration in a Resolution dated July 31, 2007.
37
Unfazed, petitioner availed of the present recourse.
Issues
The two issues to be resolved are: (1) whether respondent
has the right to file the claim for refund; and (2) if respondent
has the right, whether the payments made to Prism constitute
“business profits” or royalties.
Petitioner’s Arguments
Petitioner contends that the cases relied upon by the CTA
in upholding respondent’s right to claim the refund are
inapplicable since the withholding agents therein are wholly
owned subsidiaries of the principal taxpayers, unlike in the
instant case where the withholding agent and the taxpayer
are unrelated entities. Petitioner further claims that since
respondent did not file the claim on behalf of Prism, it has no
legal standing to claim the refund. To rule otherwise would
result to the unjust enrichment of respondent, who never
shelled-out any amount to pay the royalty taxes. Petitioner,
thus, posits that the real party-in-interest to file a claim for
refund of the erroneously withheld taxes is Prism. He cites as
basis the case of Silkair (Singapore) Pte, Ltd. v. Commissioner
of Internal Revenue,38 where it was ruled that the proper party
to file a refund is the statutory taxpayer.39 Finally, assuming
that respondent is the proper party, petitioner counters that it
is still not entitled to any refund because the payments made
to Prism are taxable as royalties, having been made in
consideration for the use of the programs owned by Prism.
Respondent’s Arguments
34
 Respondent, on the other hand, maintains that it is the
proper party to file a claim for refund as it has the statutory
and primary responsibility and liability to withhold and remit
the taxes to the BIR. It points out that under the withholding
tax system, the agent-payor becomes a payee by fiction of law
because the law makes the agent personally liable for the tax
arising from the breach of its duty to withhold. Thus, the fact
that respondent is not in any way related to Prism is
immaterial.
Moreover, respondent asserts that the payments made to
Prism do not fall under the definition of royalties since the
agreements are for programming and consultancy services
only, wherein Prism undertakes to perform services for the
creation, development or the bringing into existence of
software applications solely for the satisfaction of the peculiar
needs and requirements of respondent.
Our Ruling
The petition is bereft of merit.
Withholding agent may file a claim for
refund
Sections 204(c) and 229 of the National Internal Revenue
Code (NIRC) provide:
“Sec. 204. Authority of the Commissioner to Compromise,
Abate, and Refund or Credit Taxes.—The Commissioner may—
xxxx
(C) Credit or refund taxes erroneously or illegally received or
penalties imposed without authority, refund the value of internal
revenue stamps when they are returned in good condition by the
purchaser, and, in his discretion, redeem or change unused stamps
that have been rendered unfit for use and refund their value upon
proof of destruction. No credit or refund of taxes or penalties shall
be allowed unless the taxpayer files in writing with the
Commissioner a claim for credit or refund within two (2)
years after the payment of the tax or penalty: Provided,
however, That a return filed showing an overpayment shall be
considered as a written claim for credit or refund.
xxxx
Sec. 229. Recovery of Tax Erroneously or Illegally Collected.
—No suit or proceeding shall be maintained in any court for the
recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any
penalty claimed to have been collected without authority, 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.” (Emphasis
supplied)
Pursuant to the foregoing, the person entitled to claim a
tax refund is the taxpayer. However, in case the taxpayer does
not file a claim for refund, the withholding agent may file the
claim.
In Commissioner of Internal Revenue v. Procter & Gamble
Philippine Manufacturing Corporation,40 a withholding agent
was considered a proper party to file a claim for refund of the
withheld taxes of its foreign parent company. Pertinent
portions of the Decision read:
The term “taxpayer” is defined in our NIRC as referring to “any
person subject to tax imposed by the Title [on Tax on Income].” It
thus becomes important to note that under Section 53(c)41 of the
NIRC, the withholding agent who is “required to deduct and
withhold any tax” is made “personally liable for such tax” and
indeed is indemnified against any claims and demands which the
stockholder might wish to make in questioning the amount of
payments effected by the withholding agent in accordance with the
provisions of the NIRC. The withholding agent, P&G-Phil., is
directly and independently liable for the correct amount of the tax
that should be withheld from the dividend remittances. The
35
withholding agent is, moreover, subject to and liable for deficiency
assessments, surcharges and penalties should the amount of the tax
withheld be finally found to be less than the amount that should
have been withheld under law.
A “person liable for tax” has been held to be a “person subject to
tax” and properly considered a “taxpayer.” The terms “liable for tax”
and “subject to tax” both connote legal obligation or duty to pay a
tax. It is very difficult, indeed conceptually impossible, to
consider a person who is statutorily made “liable for tax” as
not “subject to tax.” By any reasonable standard, such a
person should be regarded as a party in interest, or as a
person having sufficient legal interest, to bring a suit for
refund of taxes he believes were illegally collected from him.
In Philippine Guaranty Company, Inc. v. Commissioner of
Internal Revenue, this Court pointed out that a withholding agent is
in fact the agent both of the government and of the taxpayer, and
that the withholding agent is not an ordinary government agent:
“The law sets no condition for the personal liability of the
withholding agent to attach. The reason is to compel the
withholding agent to withhold the tax under all
circumstances. In effect, the responsibility for the collection of
the tax as well as the payment thereof is concentrated upon
the person over whom the Government has jurisdiction. Thus,
the withholding agent is constituted the agent of both the
Government and the taxpayer. With respect to the collection
and/or withholding of the tax, he is the Government’s agent.
In regard to the filing of the necessary income tax return and
the payment of the tax to the Government, he is the agent of
the taxpayer. The withholding agent, therefore, is no ordinary
government agent especially because under Section 53 (c) he
is held personally liable for the tax he is duty bound to
withhold; whereas the Commissioner and his deputies are not
made liable by law.”
If, as pointed out in Philippine Guaranty, the withholding
agent is also an agent of the beneficial owner of the
dividends with respect to the filing of the necessary income
tax return and with respect to actual payment of the tax to
the government, such authority may reasonably be held to
include the authority to file a claim for refund and to bring
an action for recovery of such claim. This implied authority is
especially warranted where, as in the instant case, the withholding
agent is the wholly owned subsidiary of the parent-stockholder and
therefore, at all times, under the effective control of such parent-
stockholder. In the circumstances of this case, it seems particularly
unreal to deny the implied authority of P&G-Phil. to claim a refund
and to commence an action for such refund.
xxxx
We believe and so hold that, under the circumstances of this
case, P&G-Phil. is properly regarded as a “taxpayer” within the
meaning of Section 309,42 NIRC, and as impliedly authorized to file
the claim for refund and the suit to recover such claim.” (Emphasis
supplied.)
Petitioner, however, submits that this ruling applies only
when the withholding agent and the taxpayer are related
parties, i.e., where the withholding agent is a wholly owned
subsidiary of the taxpayer.
We do not agree.
Although such relation between the taxpayer and the
withholding agent is a factor that increases the latter’s legal
interest to file a claim for refund, there is nothing in the
decision to suggest that such relationship is required or that
the lack of such relation deprives the withholding agent of the
right to file a claim for refund. Rather, what is clear in the
decision is that a withholding agent has a legal right to file a
claim for refund for two reasons. First, he is considered a
“taxpayer” under the NIRC as he is personally liable for the
withholding tax as well as for deficiency assessments,
surcharges, and penalties, should the amount of the tax
withheld be finally found to be less than the amount that
should have been withheld under law. Second, as an agent of
the taxpayer, his authority to file the necessary income tax
return and to remit the tax withheld to the government
impliedly includes the authority to file a claim for refund and
to bring an action for recovery of such claim.
In this connection, it is however significant to add that
while the withholding agent has the right to recover the taxes
erroneously or illegally collected, he nevertheless has the
36
obligation to remit the same to the principal taxpayer. As an
agent of the taxpayer, it is his duty to return what he has
recovered; otherwise, he would be unjustly enriching himself
at the expense of the principal taxpayer from whom the taxes
were withheld, and from whom he derives his legal right to
file a claim for refund.
As to Silkair (Singapore) Pte, Ltd. v. Commissioner of
Internal Revenue43 cited by the petitioner, we find the same
inapplicable as it involves excise taxes, not withholding taxes.
In that case, it was ruled that the proper party to question, or
seek a refund of, an indirect tax “is the statutory taxpayer, the
person on whom the tax is imposed by law and who paid the
same even if he shifts the burden thereof to another.”
In view of the foregoing, we find no error on the part of the
CTA in upholding respondent’s right as a withholding agent to
file a claim for refund.
The payments for the CM and the SIM
Application Agreements constitute
“business profits”
Under the RP-Malaysia Tax Treaty, the term royalties is
defined as payments of any kind received as consideration for:
“(i) the use of, or the right to use, any patent, trade mark,
design or model, plan, secret formula or process, any copyright
of literary, artistic or scientific work, or for the use of, or the
right to use, industrial, commercial, or scientific equipment,
or for information concerning industrial, commercial or
scientific experience; (ii) the use of, or the right to use,
cinematograph films, or tapes for radio or television
broadcasting.”44 These are taxed at the rate of 25% of the gross
amount.45
Under the same Treaty, the “business profits” of an
enterprise of a Contracting State is taxable only in that State,
unless the enterprise carries on business in the other
Contracting State through a permanent
establishment.46 Theterm “permanent establishment” is
defined as a fixed place of business where the enterprise is
wholly or partly carried on.47However, even if there is no fixed
place of business, an enterprise of a Contracting State is
deemed to have a permanent establishment in the other
Contracting State if it carries on supervisory activities in that
other State for more than six months in connection with a
construction, installation or assembly project which is being
undertaken in that other State.48
47 Article 5
PERMANENT ESTABLISHMENT
1. For the purposes of this Agreement, the term 'permanent
establishment' means a fixed place of business in which the business of the
enterprise is wholly or partly carried on.
2. The term 'permanent establishment' shall include especially:
(a) a place of management;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop;
(f) a mine, an oil or gas well, a quarry or other place of extraction of
natural resources including timber or other forest produce;
(g) a farm or plantation;
(h) building site or construction, installation or assembly project which
exists for more than 6 months.
xxxx
48 Article 5
4. An enterprise of a Contracting State shall be deemed to have a
permanent establishment in the other Contracting State if:
(a) it carries on supervisory activities in that other State for more
than 6 months in connection with a con-
the trial that Prism does not have a permanent establishment
in the Philippines. Hence, “business profits” derived from
Prism’s dealings with respondent are not taxable. The
question is whether the payments made to Prism under the
SDM, CM, and SIM Application agreements are “business
profits” and not royalties.
Paragraph 1.3 of the Programming Services (Schedule A) of
the SDM Agreement,49 reads:
1.3 Intellectual Property Rights (IPR)
The SDM shall be installed by PRISM, including the SDM Libraries, the
IPR of which shall be retained by PRISM. PRISM, however, shall
provide the Client the APIs for the SDM at no cost to the Client. The
Client shall be permitted to develop programs to interface with the
37
 SDM or the SDM Libraries, using the related APIs as 51 Id., at p. 32.
360
appropriate.50 (Emphasis supplied.)
Whereas, paragraph 1.4 of the Programming Services 360 SUPREME COURT REPORTS
(Schedule A) of the CM Agreement and paragraph 1.3 of the ANNOTATED
Programming Services (Schedule A) of the SIM Agreement Commissioner of Internal Revenue vs. Smart
provide: Communication, Inc.
1.4 Intellectual Property Rights (IPR) Client anticipates licensing the use of the SIM Applications, but it is agreed
The IPR of all components of the CM belong to the Client with the that no license fee will be charged to PRISM or to a licensee of the
exception of the following components, which are provided, without aSIMetrix card from PRISM when SIMs are supplied to the
technical or commercial restraints or obligations: Client.”52 (Emphases supplied.)
• ConfigurationException.java The provisions in the agreements are clear. Prism has
intellectual property right over the SDM program, but not
• DataStructures (DblLinkedListjava, DbIListNodejava,
List over the CM and SIM Application programs as the proprietary
EmptyException.java, ListFullException.java, rights of these programs belong to respondent. In other words,
List- out of the payments made to Prism, only the payment for the
NodeNotFoundException.java,
QueueEmptyException.java, QueueFullException.java, SDM program is a royalty subject to a 25% withholding tax. A
QueueList.java, QueuListEx.java, and QueueNodeNot refund of the erroneously withheld royalty taxes for the
FoundException.java) payments pertaining to the CM and SIM Application
• FieldMappedObjeet.java
• LogFileEx.java Agreements is therefore in order.
• Logging (BaseLogger.java and Logger.java) Indeed, the government has no right to retain what does
• PrismGeneric Exception.java not belong to it. “No one, not even the State, should enrich
• PrismGenericObject.java
• ProtocolBuilders/CIMD2 (Alive.java, BaseMessageData. oneself at the expense of another.”53
java, DeliverMessage.java, Login.java, Logout.java, WHEREFORE, the petition is DENIED. The assailed
Nack.java, SubmitMessage.java, Decision dated June 28, 2007 and the Resolution dated July
• TemplateManagement (FileTemplateDataBag.java,
Template DataBag.java, TemplateManagerExBag.java, and 31, 2007 of the Court of Tax Appeals En Banc are hereby
TemplateParserExBag.java) AFFIRMED. The Bureau of Internal Revenue is hereby
• TemplateManager.class ordered to issue a Tax Credit Certificate to Prism Transactive
• TemplateServer.class
• TemplateServer$RequestThread.class (M) Sdn. Bhd. in the amount of P3,989,456.43 representing
• Template Server_skel.class the overpaid final withholding taxes for the month of August
• TemplateServer_stub.class 2001.
• TemplateService.class
• Prism Crypto Server module for PHP451 SO ORDERED.
xxxx Corona (C.J., Chairperson), Velasco, Jr., Leonardo-De
1.3 Intellectual Property Rights (IPR) Castro and Perez, JJ., concur.
The Client shall own the IPR for the Specifications and the
Source Code for the SIM Applications. PRISM shall develop an Petition denied, judgment and resolution affirmed.
executable compiled code (the “Executable Version”) of the SIM
Applications for use on the aSIMetric card which, however, shall only
be for the Client’s use. The Executable Version may not be provided by
PRISM to any third [party] without the prior written consent of the
Client. It is further recognized that the
_______________

38

G.R. No. 216130. August 3, 2016.*
COMMISSIONER OF INTERNAL REVENUE,
petitioner, vs. GOODYEAR PHILIPPINES, INC., respondent.
Taxation; Tax Refund; Section 229 of the Tax Code states that
judicial claims for refund must be filed within two (2) years from the
date of payment of the tax or penalty.—Section 229 of the Tax Code
states that judicial claims for refund must be filed within two (2)
years from the date of payment of the tax or penalty, providing
_______________
* FIRST DIVISION.
further that the same may not be maintained until a claim for
refund or credit has been duly filed with the Commissioner of
Internal Revenue (CIR).
Same; Same; The primary purpose of filing an administrative
claim was to serve as a notice of warning to the Commissioner of
Internal Revenue (CIR) that court action would follow unless the tax
or penalty alleged to have been collected erroneously or illegally is
refunded.—The primary purpose of filing an administrative claim
was to serve as a notice of warning to the CIR that court action
would follow unless the tax or penalty alleged to have been collected
erroneously or illegally is refunded. To clarify, Section 229 of the
Tax Code — [then Section 306 of the old Tax Code] — however does
not mean that the taxpayer must await the final resolution of its
administrative claim for refund, since doing so would be
tantamount to the taxpayer’s forfeiture of its right to seek judicial
recourse should the two (2)-year prescriptive period expire without
the appropriate judicial claim being filed.
RP-US Tax Treaty; Under Article 11(5) of the Republic of the
Philippines-United States of America (RP-US) Tax Treaty, the term
“dividends” should be understood according to the taxation law of
the State in which the corporation making the distribution is a
resident.—Under Article 11(5) of the RP-US Tax Treaty, the term
“dividends” should be understood according to the taxation law of
the State in which the corporation making the distribution is a
resident, which, in this case, pertains to respondent, a resident of
the Philippines. Accordingly, attention should be drawn to the
statutory definition of what constitutes “dividends,” pursuant to
Section 73(A) of the Tax Code which provides that “[t]he term
‘dividends’ x x x means any distribution made by a
corporation to its shareholders out of its earnings or
profitsand payable to its shareholders, whether in money or in
other property.”
PETITION for review on certiorari of the decision and
resolution of the Court of Tax Appeals En Banc.
The facts are stated in the opinion of the Court.
The Solicitor General for petitioner.
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the
Decision2 dated August 14, 2014 and the Resolution3 dated
January 5, 2015 of the Court of Tax Appeals (CTA) En
Banc in C.T.A. E.B. No. 1041, which affirmed the
Decision4 dated March 25, 2013 and the Resolution5 dated
June 26, 2013 of the CTA Second Division (CTA Division) in
CTA Case No. 8188, ordering petitioner Commissioner of
Internal Revenue (petitioner) to refund or issue a tax credit
certificate (TCC) in the sum of P14,659,847.10 to respondent
Goodyear Philippines, Inc. (respondent), representing
erroneously withheld and remitted final withholding tax
(FWT).
The Facts
Respondent is a domestic corporation duly organized and
existing under the laws of the Philippines, and registered with
the Bureau of Internal Revenue (BIR) as a large taxpayer
with Taxpayer Identification Number 000-409-561-000.6On
August 19, 2003, the authorized capital stock of respondent
was increased from P400,000,000.00 divided into 4,000,000
shares with a par value of P100.00 each, to P1,731,863,000.00
divided into 4,000,000 common shares and 13,318,630
preferred shares with a par value of P100.00 each.
Consequently, all the preferred shares were solely and
39
exclusively subscribed by Goodyear Tire and Rubber Company
(GTRC), which was a foreign company organized and existing
under the laws of the State of Ohio, United States of America
(US) and is unregistered in the Philippines.7
On May 30, 2008, the Board of Directors of respondent
authorized the redemption of GTRC’s 3,729,216 preferred
shares on October 15, 2008 at the redemption price of
P470,653,914.00, broken down as follows: P372,921,600.00
representing the aggregate par value and P97,732,314.00,
representing accrued and unpaid dividends.8
On October 15, 2008, respondent filed an application for
relief from double taxation before the International Tax
Affairs Division of the BIR to confirm that the redemption was
not subject to Philippine income tax, pursuant to the Republic
of the Philippines (RP)-US Tax Treaty.9 This notwithstanding,
respondent still took the conservative approach, and thus,
withheld and remitted the sum of P14,659,847.10 to the
BIR on November 3, 2008, representing fifteen percent
(15%) FWT, computed based on the difference of the
redemption price and aggregate par value of the shares.10
On October 21, 2010, respondent filed an administrative
claim for refund or issuance of TCC, representing 15% FWT in
the sum of P14,659,847.10 before the BIR. Thereafter, or on
November 3, 2010, it filed a judicial claim, by way of petition
for review, before the CTA, docketed as CTA Case No. 8188.11
For her part, petitioner maintained that respondent’s claim
must be denied, considering that: (a) it failed to exhaust
administrative remedies by prematurely filing its petition
before the CTA; and (b) it failed to submit complete
supporting documents before the BIR.12
The CTA Division’s Ruling
In a Decision13 dated March 25, 2013, the CTA Division
granted the petition and thereby ordered petitioner to refund
or issue a TCC in the sum of P14,659,847.10 to respondent for
being erroneously withheld and remitted as FWT.14Concerning
the procedural issue, the CTA Division ruled that it was
appropriate for respondent to dispense with the
administrative remedy before the BIR, considering that court
action should be instituted within two (2) years after the
payment of the tax regardless of the pendency of the
administrative claim; otherwise, the taxpayer would be barred
from recovering the same.15
On the merits, the CTA Division found that the redemption
of the 3,729,216 shares issued to GTRC — which were then
converted to treasury shares — was notsubject to Philippine
income tax. The CTA Division elucidated that while the
general rule is that the net capital gain obtained by a
nonresident foreign corporation, such as GTRC, in the
redemption of shares would be subjected to tax rates of five
percent (5%) and ten percent (10%) under Section
28(B)(5)(c)16 of the National Internal Revenue Code, as
amended (Tax Code), the provisions, however, of the RP-US
Tax Treaty would also apply in determining the tax
implications of the redemption of GTRC’s preferred shares
because it is a resident of the US.17 It pointed out that under
Article 1418 of the RP-US Tax Treaty, any gain
_______________
16 SEC. 28. Rates of Income Tax on Foreign Corporations.—
xxxx
(B) Tax on Nonresident Foreign Corporation.—
xxxx
(5) Tax on Certain Incomes Received by a Nonresident Foreign Corporation.—
xxxx
(c) Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange.—A
final tax at the rates prescribed below is hereby imposed upon the net capital gains
realized during the taxable year from the sale, barter, exchange or other disposition
of shares of stock in a domestic corporation, except shares sold, or disposed of through
the stock exchange:
Not over P100,000 .......................................5%
On any amount in excess of P100,000 .....10%
(Id., at pp. 93-94)
17 Id., at p. 94.
18 Article 14 of the RP-US Tax Treaty states:
Article 14
CAPITAL GAINS
1. Gains from the alienation of tangible personal (movable) property forming part of
the business property of a permanent establishment which a resident of a
Contracting State has in the other Contracting State or of tangible personal
(movable) property pertaining to a fixed base available to a resident of a Contracting
40
 State in the other Contracting State for the purpose of performing independent
personal services, including such gains from the alienation of such a permanent
establishment (alone or together with the whole enterprise) or of such a fixed base,
may be taxed in the other State. However, gains derived by a resident of a
Contracting State from the alienation of ships, aircraft or containers operated by
such resident in international traffic shall be taxable only in that State, and gains
described in Article 13 (Royalties) shall be taxable only in accordance with the
provisions of Article 13 (Royalties).
2. Gains from the alienation of any property other than those mentioned in
paragraph 1 or in Article 7 (Income from Real Property) shall be taxable only in the
Contracting State of which the alienator is a resident.
(Id., at p. 94)
19 Id., at p. 95.
20 “Principally” means more than 50% of the entire assets in terms of value. Id., at p. 96.
21 Id., at pp. 91-97.
22 (b) Intercorporate Dividends.—A final withholding tax at the rate of fifteen percent
(15%) is hereby imposed on the amount of cash and/or property dividends received from a
domestic corporation,
derived by a US resident (i.e., GTRC) from the alienation of
its properties (i.e., the preferred shares), other than those
described in paragraph 1 thereof, shall only be taxable in the
US. Nonetheless, the CTA Division remained mindful of the
Reservation Clause19 in the same treaty which provided that
the gains derived by a US resident from the disposition of
shares in a domestic corporation may be taxed in the
Philippines, provided that the latter’s
assets principally20 consist of real property. After evaluating
the Audited Financial Statements (AFS) of respondent for the
years 2007 and 2008, and noting that the value of its real
properties — i.e., property, plant, and equipment — comprise
less than 50% of its total assets, the CTA Division held that
respondent’s assets did not principally consist of real property
and, hence, exempt from capital gains tax under Section
28(B)(5)(c) of the Tax Code.21
The CTA Division then determined whether the net capital
gain derived by GTRC would be subjected to 15% FWT
imposed on intercorporate dividends under Section 28(B)(5)(b)
of the Tax Code. Citing the RP-US Tax Treaty, the CTA
Division noted that dividend income shall be determined by
the law of the state in which the distributing corporation is a
resident,23 which in the Philippines’ case, would be Section
73(A)24of the Tax Code, defining dividends for income tax
purposes as distributions to shareholders arising out of its
earnings or profits. Accordingly, the CTA Division held that
the net capital gain of GTRC could not be regarded as
“dividends,” considering that it did not come from
respondent’s unrestricted earnings or profits, as the records
would show that it did not have any unrestricted earnings
from the years 2003-2009 to cover any dividend
payouts.25Finally, the CTA Division explained that there is
only one instance in the Tax
_______________
which shall be collected and paid as provided in Section 57(A) of this Code,
subject to the condition that the country in which the nonresident foreign
corporation is domiciled, shall allow a credit against the tax due from the
nonresident foreign corporation taxes deemed to have been paid in the
Philippines equivalent to twenty percent (20%), which represents the
difference between the regular income tax of thirty-five percent (35%) and the
fifteen percent (15%) tax on dividends as provided in this
subparagraph: Provided, that effective January 1, 2009, the credit against the
tax due shall be equivalent to fifteen percent (15%), which represents the
difference between the regular income tax of thirty percent (30%) and the
fifteen percent (15%) tax on dividends. (Id., at pp. 97-98)
23 Id., at p. 98.
24 SEC. 73. Distribution of Dividends or Assets by Corporations.—
(A) Definition of Dividends.—The term ‘‘dividends” when used in this
Title means any distribution made by a corporation to its shareholders out of
its earnings or profits and payable to its shareholders, whether in money or in
other property.
Where a corporation distributes all of its assets in complete liquidation or
dissolution, the gain realized or loss sustained by the stockholder, whether
individual or corporate, is a taxable income or a deductible loss, as the case
may be.
(Id., at p. 99)
Code which treated the gains derived from redemptions or buy
back of shares as dividends, and this is found in Section
73(B),26 which contemplated the issuance of stock dividends.
The CTA Division, however, dispelled the application of this
provision, considering that the shares which respondent
redeemed were neither stock dividends nor were they
redeemed using unrestricted retained earnings. In sum, the
CTA Division ruled that absent any law which specifically
41
treats the gain derived by GTRC as dividends, the same could
not be subjected to 15% FWT under Section 28(B)(5)(b).27
Dissatisfied, petitioner moved for reconsideration,28 which
was, however, denied in a Resolution29 dated June 26, 2013.
Thereafter, she appealed30 to the CTA En Banc.
The CTA En Banc’s Ruling
In a Decision31 dated August 14, 2014, the CTA En
Banc affirmed the findings of the CTA Division. Echoing the
ruling of the CTA Division, the CTA En Banc found that
respondent was compelled to seek judicial recourse after
thirteen (13)
_______________
26 SEC. 73. Distribution of Dividends or Assets by Corporations.—
xxxx
(B) Stock Dividend.—A stock dividend representing the transfer of surplus to
capital account shall not be subject to tax. However, if a corporation cancels or
redeems stock issued as a dividend at such time and in such manner as to
make the distribution and cancellation or redemption, in whole or in part,
essentially equivalent to the distribution of a taxable dividend, the amount so
distributed in redemption or cancellation of the stock shall be considered as
taxable income to the extent that it represents a distribution of earnings or
profits. (Id., at p. 101)
27 Id., at pp. 101-102.
28 Not attached to the Rollo.
29 Rollo, pp. 105-107.
30 Not attached to the Rollo.
31 Rollo, pp. 25-52.
days from filing its administrative claim so as not to forfeit
its right to appeal to the CTA. Anent the tax treatment of the
redemption price paid by respondent to GTRC, the CTA En
Banc fully agreed with the disposition of the CTA Division,
ruling that the net capital gain received by GTRC was not
subject to Philippine income tax.32
Undaunted, petitioner filed a motion for
reconsideration,33 which was, however, denied in a
Resolution34 dated January 5, 2015; hence, this petition.
The Issues Before the Court
The issues raised by petitioner in this case are: (a) whether
or not the judicial claim of respondent should be dismissed for
non-exhaustion of administrative remedies; and (b) whether
or not the CTA En Banccorrectly ruled that the gain derived
by GTRC was not subject to 15% FWT on dividends.
The Court’s Ruling
The petition is devoid of merit.
I.
At the onset, petitioner contends that by filing the
administrative and judicial claims only 13 days apart,
respondent, in effect, pursued an empty remedy before the
BIR, and thereby deprived the latter of the opportunity to
ascertain the validity of the claim. In this regard, petitioner
maintained that the mere filing of the administrative claim
before the BIR did not outrightly satisfy the requirement of
exhaustion of administrative remedy.35
The contentions are untenable.
Section 229 of the Tax Code states that judicial claims for
refund must be filed within two (2) years from the date of
payment of the tax or penalty, providing further that the
same may not be maintained until a claim for refund or credit
has been duly filed with the Commissioner of Internal
Revenue (CIR), viz.:
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
42
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 x x x. (Emphases and underscoring
supplied)
Verily, the primary purpose of filing an administrative
claim was to serve as a notice of warning to the CIR that court
action would follow unless the tax or penalty alleged to have
been collected erroneously or illegally is refunded. To clarify,
Section 229 of the Tax Code — [then Section 306 of the old
Tax Code] — however does not mean that the taxpayer must
await the final resolution of its administrative claim for
refund, since doing so would be tantamount to the taxpayer’s
forfeiture of its right to seek judicial recourse should the two
(2)-year prescriptive period expire without the
appropriate judicial claim being filed. In CBK Power
Company Limited v. CIR,36 the Court enunciated:
In the foregoing instances, attention must be drawn to the
Court’s ruling in P.J. Kiener Co., Ltd. v. David (Kiener), wherein it
was held that in no wise does the law, i.e., Section 306 of the old
Tax Code (now, Section 229 of the NIRC), imply that the
Collector of Internal Revenue first act upon the taxpayer’s
claim, and that the taxpayer shall not go to court before he
is notified of the Collector’s action. In Kiener, the Court went
on to say that the claim with the Collector of Internal
Revenue was intended primarily as a notice of warning that
unless the tax or penalty alleged to have been collected
erroneously or illegally is refunded, court action will
follow x x x.37 (Emphases and underscoring supplied)
In the case at bar, records show that both the
administrative and judicial claims for refund of respondent for
its erroneous withholding and remittance of FWT were
indubitably filed within the two-year prescriptive
period.38 Notably, Section 229 of the Tax Code, as worded, only
required that an administrative claim should first be filed. It
bears stressing that respondent could not be faulted for
resorting to court action, considering that the prescriptive
period stated therein was about to expire. Had respondent
awaited the action of petitioner knowing fully well that the
prescriptive period was about to lapse, it would have
resultantly forfeited its right to seek a judicial review of its
claim, thereby suffering irreparable damage.
Thus, in view of the aforesaid circumstances, respondent
correctly and timely sought judicial redress, notwithstanding
that its administrative and judicial claims were filed only 13
days apart.
II.
For another, petitioner asserts that the net capital gain
derived by GTRC from the redemption of its 3,729,216
preferred shares should be subject to 15% FWT on dividends.
She claims that while the payment of the original subscription
price could not be taxed as it represented a return of capital,
the additional amount, however, or the component of the
redemption price representing the amount of P97,732,314.00
should not be treated as a mere premium and part of the
subscription price, but as accumulated dividend in arrears,
and, hence, subject to 15% FWT.39
Again, the assertions are wrong.
The imposition of 15% FWT on intercorporate dividends
received by a nonresident foreign corporation is found in
Section 28(B)(5)(b) of the Tax Code which reads:
SEC. 28. Rates of Income Tax on Foreign Corporations.—
xxxx
(B) Tax on Nonresident Foreign Corporation.—
xxxx
(5) Tax on Certain Incomes Received by a Nonresident Foreign
Corporation.—
(b) Intercorporate Dividends.—A final withholding tax
at the rate of fifteen percent (15%) is hereby imposed
43
 on the amount of cash and/or property dividends
received from a domestic corporation, which shall be
collected and paid as provided in Section 57(A) of this
Code, subject to the condition that the country in which the
nonresident foreign corporation is domiciled, shall allow a
credit against the tax due from the nonresident foreign
corporation taxes deemed to have been paid in the Philippines
equivalent to twenty percent (20%), which represents the
difference between the regular income tax of thirty-five
percent (35%) and the fifteen percent (15%) tax on dividends
as provided in this subparagraph: Provided, That effective
January 1, 2009, the credit against the tax due shall be
equivalent to fifteen percent (15%), which represents the
difference between the regular income tax of thirty percent
(30%) and the fifteen percent (15%) tax on dividends.
x x x x (Emphasis and underscoring supplied)
It must be noted, however, that GTRC is a nonresident
foreign corporation, specifically a resident of the US. Thus,
pursuant to the cardinal principle that treaties have the force
and effect of law in this jurisdiction,40 the RP-US Tax Treaty
complementarily governs the tax implications of respondent’s
transactions with GTRC.
Under Article 11(5)41 of the RP-US Tax Treaty, the term
“dividends” should be understood according to the taxation
_______________
40 Deutsche Bank AG Manila Branch v. CIR, 716 Phil. 676, 686; 704
SCRA 216, 227 (2013).
41 Article 11(5) of the RP-US Tax Treaty reads:
Article 11
Dividends
xxxx
5. The term “dividends” as used in this Convention means income
from shares, mining shares, founders’ shares or other rights, not being
debt-claims, participating in profits, as well as income from other
corporate rights assimilated to income from shares by the taxation law
of the State of which the corporation making the distribution is a
resident. (Id., at p. 98)
42 Section 73(A) of the Tax Code states:
SEC. 73. Distribution of Dividends or Assets by Corporations.—
(A) Definition of Dividends.—The term “dividends” when used
in this Title means any distribution made by a corporation to its
shareholders out of its earnings or profits and payable to its
shareholders, whether in money or in other property.
Where a corporation distributes all of its assets in complete
liquidation or dissolution, the gain realized or loss sustained by the
stockholder, whether individual or corporate, is a taxable income or a
deductible loss, as the case may be. (Emphases and underscoring
supplied)
43 Rollo, p. 118.
law of the State in which the corporation making the
distribution is a resident, which, in this case, pertains to
respondent, a resident of the Philippines. Accordingly,
attention should be drawn to the statutory definition of what
constitutes “dividends,” pursuant to Section 73(A)42 of the Tax
Code which provides that “[t]he term
‘dividends’ x x x means any distribution made by a
corporation to its shareholders out of its earnings or
profits and payable to its shareholders, whether in money or
in other property.”
In light of the foregoing, the Court therefore holds that the
redemption price representing the amount of P97,732,314.00
received by GTRC could not be treated as accumulated
dividends in arrears that could be subjected to 15% FWT.
Verily, respondent’s AFS covering the years 2003 to 2009
show that it did not have unrestricted retained earnings, and
in fact, operated from a position of deficit.43 Thus, absent the
availability of unrestricted retained earnings, the
board of directors of respondent had no power to issue
dividends.44 Consistent with Section 73(A) of the Tax Code,
this rule on dividend declaration — i.e., that it is dependent
upon the availability of unrestricted retained earnings — was
further edified in Section 43 of The Corporation Code of the
Philippines45 which reads:
Section 43. Power to Declare Dividends.—The board of
directors of a stock corporation may declare dividends out
of the unrestricted retained earnings which shall be payable
in cash, in property, or in stock to all stockholders on the
44
basis of outstanding stock held by them: Provided, That any the stockholders’ interest in the company * * *.” (Montgomery,
cash dividends due on delinquent stock shall first be applied to the Federal Income Tax Handbook [1938-1939], 258
unpaid balance on the subscription plus costs and expenses, while x x x)49(Emphases and underscoring supplied)
stock dividends shall be withheld from the delinquent stockholder _______________
until his unpaid subscription is fully paid: Provided, further,That no
stock dividend shall be issued without the approval of stockholders 47 “Redemption is repurchase, a reacquisition of stock by a corporation
which issued the stock in exchange for property, whether or not the acquired
representing not less than two-thirds (2/3) of the outstanding stock is cancelled, retired or held in the treasury.” (CIR v. Court of Appeals,
capital stock at a regular or special meeting duly called for the 361 Phil. 103, 124; 301 SCRA 152, 177 [1999]; citations omitted)
purpose. All told, the amount of P97,732,314.00 received by GTRC
from respondent for the redemption of its 3,729,216 preferred
x x x x (Emphasis and underscoring supplied)
shares were not accumulated dividends in arrears. Contrary
to petitioner’s claims, it is therefore not subject to 15% FWT
It is also worth mentioning that one of the primary features
on dividends in accordance with Section 28(B)(5)(b) of the Tax
of an ordinary dividend is that the distribution should be in
Code.
the nature of a recurring return on stock46 which, however,
WHEREFORE, the petition is DENIED. The Decision
does not obtain in this case. As aptly pointed out by the
dated August 14, 2014 and the Resolution dated January 5,
CTA En Banc, the amount of P97,732,314.00 received by
2015 of the Court of Tax Appeals En Bancin C.T.A. E.B. No.
GTRC did not represent a periodic distribution of dividend,
1041 are hereby AFFIRMED.
but rather a payment by respondent for the redemption47 of
SO ORDERED.
GTRC’s 3,729,216 preferred shares. In Wise & Co., Inc. v.
Leonardo-De Castro (Acting Chairperson), Bersamin,
Meer:48
Jardeleza** and Caguioa, JJ., concur.
The amounts thus distributed among the plaintiffs were
not in the nature of a recurring return on stock — in fact,
Petition denied, judgment and resolution affirmed.
they surrendered and relinquished their stock in return for Note.—It is not the duty of the government to disprove a
said distributions, thus ceasing to be stockholders of the taxpayer’s claim for refund; the burden of establishing the
Hongkong Company, which in turn ceased to exist in its own right factual basis of a claim for a refund rests on the taxpayer.
as a going concern during its more or less brief administration of (Commissioner of Internal Revenue vs. Far East Bank & Trust
the business as trustee for the Manila Company, and finally Company [now Bank of the Philippine Islands], 615 SCRA 417
disappeared even as such trustee. [2010])
“The distinction between a distribution in liquidation and
an ordinary dividend is factual; the result in each case ——o0o——
depending on the particular circumstances of the case and the
intent of the parties. If the distribution is in the nature of
a recurring return on stock it is an ordinary dividend.
However, if the corporation is really winding up its
business or recapitalizing and narrowing its activities,
the distribution may properly be treated as in
complete or partial liquidation and as payment by the
corporation to the stockholder for his stock. The
corporation is, in the latter instances, wiping out all parts of
45

PHILIPPINE NATIONAL OIL COMPANY, petitioner,
vs. THE HON. COURT OF APPEALS, THE
COMMISSIONER OF INTERNAL REVENUE and
TIRSO SAVELLANO, respondents.
[G.R. No. 112800. April 26, 2005]
PHILIPPINE NATIONAL BANK, petitioner, vs. THE
HON. COURT OF APPEALS, COURT OF TAX
APPEALS, TIRSO B. SAVELLANO and
COMMISSIONER OF INTERNAL
REVENUE, respondents.
DECISION
CHICO-NAZARIO, J.:
This is a consolidation of two Petitions for Review on
Certiorari filed by the Philippine National Oil Company
(PNOC) and [1]
the Philippine National Bank
(PNB), assailing the decisions of the Court of Appeals in
[2]
CA-G.R. SP No. 29583 and CA-G.R. SP No.
[3]
29526, respectively, which both affirmed the decision of
[4]
the Court of Tax Appeals (CTA) in CTA Case No. 4249. [5]
The Petitions before this Court originated from a
sworn statement submitted by private respondent Tirso B.
Savellano (Savellano) to the Bureau of Internal Revenue
(BIR) on 24 June 1986. Through his sworn statement,
private respondent Savellano informed the BIR that PNB
had failed to withhold the 15% final tax on interest
earnings and/or yields from the money placements of
PNOC with the said bank, in violation of Presidential
Decree (P.D.) No. 1931. P.D. No. 1931, which took effect
on 11 June 1984, withdrew all tax exemptions of
government-owned and controlled corporations.
In a letter, dated 08 August 1986, the BIR requested
PNOC to settle its liability for taxes on the interests
earned by its money placements with PNB and which
PNB did not withhold. PNOC wrote the BIR on 25
[6]
September 1986, and made an offer to compromise its
tax liability, which it estimated to be in the sum
of P304,419,396.83, excluding interest and surcharges,
as of 31 July 1986. PNOC proposed to set-off its tax
liability against a claim for tax refund/credit of the National
Power Corporation (NAPOCOR), then pending with the
BIR, in the amount of P335,259,450.21. The amount of
the claim for tax refund/credit was supposedly a
receivable account of PNOC from NAPOCOR. [7]
On 08 October 1986, the BIR sent a demand letter to
PNB, as withholding agent, for the payment of the final
tax on the interest earnings and/or yields from PNOCs
money placements with the bank, from 15 October 1984
to 15 October 1986, in the total amount
of P376,301,133.33. On the same date, the BIR also
[8]
mailed a letter to PNOC informing it of the demand letter
sent to PNB. [9]
PNOC, in another letter, dated 14 October 1986,
reiterated its proposal to settle its tax liability through the
set-off of the said tax liability against NAPOCORS
pending claim for tax refund/credit. The BIR replied on
[10]
11 November 1986 that the proposal for set-off was
premature since NAPOCORs claim was still under
process. Once more, BIR requested PNOC to settle its
tax liability in the total amount of P385,961,580.82,
46
consisting of P303,343,765.32 final tax, Informers reward due P 57,894,237.12
plus P82,617,815.50 interest computed until 15 (BIR deficiency tax assessment
November 1986. [11]
x Final tax rate)
Less: Payment received by P 14,093,321.89
On 09 June 1987, PNOC made another offer to the private respondent Savellano
BIR to settle its tax liability. This time, however, PNOC Outstanding balance P 43,800,915.25[15]
proposed a compromise by paying P91,003,129.89,
BIR Commissioner Tan replied through a letter, dated
representing 30% of the P303,343,766.29 basic tax, in
08 March 1988, that private respondent Savellano was
accordance with the provisions of Executive Order (E.O.)
already fully paid the informers reward equivalent to 15%
No. 44.[12]

of the amount of tax actually collected by the BIR

Then BIR Commissioner Bienvenido A. Tan, in a
letter, dated 22 June 1987, accepted the compromise.
The BIR received a total tax payment on the interest
earnings and/or yields from PNOCs money placements
with PNB in the amount of P93,955,479.12, broken down
pursuant to its compromise agreement with PNOC. BIR
Commissioner Tan further explained that the compromise
was in accordance with the provisions of E.O. No. 44,
Revenue Memorandum Order (RMO) No. 39-86, and
RMO No. 4-87. [16]

as follows:
Private respondent Savellano submitted another letter,
Previous payment made by PNB P 2,952,349.23 dated 24 March 1988, to BIR Commissioner Tan, seeking
Add: Payment made by PNOC pursuant to P 91,003,129.89
the compromise agreement of June 22, reconsideration of his decision to compromise the tax
1987 liability of PNOC. In the same letter, private respondent
Total tax payment P 93,955,479.12[13] Savellano questioned the legality of the compromise
Private respondent Savellano, through four agreement entered into by the BIR and PNOC and
installments, was paid the informers reward in the total claimed that the tax liability should have been collected in
amount of P14,093,321.89, representing 15% of full.
[17]

the P93,955,479.12 tax collected by the BIR from PNOC
and PNB. He received the last installment on 01
December 1987. [14]
On 07 January 1988, private respondent Savellano,
through his legal counsel, wrote the BIR to demand
payment of the balance of his informers reward,
computed as follows:
BIR tax assessment P 385,961,580.82
Final tax rate
On 08 April 1988, while the aforesaid Motion for
Reconsideration was still pending with the BIR, private
respondent Savellano filed a Petition for Review ad
cautelam with the CTA, docketed as CTA Case No. 4249.
He claimed therein that BIR Commissioner Tan acted with
grave abuse of discretion and/or whimsical exercise of
jurisdiction in entering into a compromise agreement that
resulted in a gross and unconscionable diminution of his
reward. Private respondent Savellano prayed for the
0.15
enforcement and collection of the total tax assessment
47
against taxpayer PNOC and/or withholding agent PNB;
and the payment to him by the BIR Commissioner of the
15% informers reward on the total tax collected. He
would later amend his Petition to implead PNOC and PNB
as necessary and indispensable parties since they were
parties to the compromise agreement. [19]
In his Answer filed with the CTA, BIR Commissioner
Tan asserted that the Petition stated no cause of action
against him, and that private respondent Savellano was
already paid the informers reward due him. Alleging that
the Petition was baseless and malicious, BIR
Commissioner Tan filed a counterclaim for exemplary
damages against private respondent Savellano. [20]
PNOC and PNB filed separate Motions to Dismiss,
both arguing that the CTA lacked jurisdiction to decide the
case. In its Resolution, dated 28 November 1988, the
[21]
CTA denied the Motions to Dismiss since the question of
lack of jurisdiction and/or cause of action do not appear to
be indubitable.[22]
After their Motions to Dismiss were denied by the
CTA, PNOC and PNB filed their respective Answers to
the amended Petition. PNOC averred, among other
things, that (1) it had no privity with private respondent
Savellano; (2) the BIR Commissioners discretionary act in
entering into the compromise agreement had legal basis
under E.O. No. 44 and RMO No. 39-86 and RMO No. 4-
87; and (3) the CTA had no jurisdiction to resolve the
case against it. On the other hand, PNB asserted that
[23]
(1) the CTA lacked jurisdiction over the case; and (2) the
BIR Commissioners decision to accept the compromise
was discretionary on his part and, therefore, cannot be
reviewed or interfered with by the courts. PNOC and
[24]
PNB later filed their amended Answer invoking an opinion
of the Commission on Audit (COA) disallowing the
payment by the BIR of informers reward to private
[18]
respondent Savellano. [25]
The CTA, thereafter, ordered the parties to submit
their evidence, to be followed by their respective
[26]
Memoranda. [27]
On 23 November 1990, private respondent Savellano,
filed a Manifestation with Motion for Suspension of
Proceedings, claiming that his pending Motion for
Reconsideration with the BIR Commissioner may soon be
resolved. Both PNOC and PNB opposed the said
[28]
Motion. [29]
Subsequently, the new BIR Commissioner, Jose U.
Ong, in a letter to PNB, dated 16 January 1991,
demanded that PNB pay deficiency withholding tax on the
interest earnings and/or yields from PNOCs money
placements, in the amount of P294,958,450.73, computed
as follows:
Withholding tax, plus interest under the P 385,961,580.82
letter of demand dated November 11, 1986
Less: Amount paid under E.O. No. 44 P 91,003,129.89
Amount still due and collectible P 294,958,450.73[30]
This BIR letter was received by PNB on 06 February
1991, and was protested by it through a letter, dated 11
[31]
April 1991. The BIR denied PNBs protest on the ground
[32]
that it was filed out of time and, thus, the assessment had
already become final. [33]
Private respondent Savellano, on 22 February 1991,
filed an Omnibus Motion moving to withdraw his previous
Motion for Suspension of Proceeding since BIR
Commissioner Ong had finally resolved his Motion for
Reconsideration, and submitting by way of supplemental
48
offer of evidence (1) the letter of BIR Commissioner Ong,
dated 13 February 1991, informing private respondent
Savellano of the action on his Motion for Reconsideration;
and (2) the demand-letter of BIR Commissioner Ong to
PNB, dated 16 January 1991. [34]
Despite the oppositions of PNOC and PNB, the CTA,
in a Resolution, dated 02 May 1991, resolved to allow
private respondent Savellano to withdraw his previous
Motion for Suspension of Proceeding and to admit the
supplementary evidence being offered by the same
party.
[35]
In its Order, dated 03 June 1991, the CTA considered
the case submitted for decision as of the following day, 04
June 1991. [36]
On 11 June 1991, PNB appealed to the Department of
Justice (DOJ) the BIR assessment, dated 16 January
1991, for deficiency withholding tax in the sum
of P294,958,450.73. PNB alleged that its appeal to the
DOJ was sanctioned under P.D. No. 242, which provided
for the administrative settlement of disputes between
government offices, agencies, and instrumentalities,
including government-owned and controlled
corporations. [37]
Three days later, on 14 June 1991, PNB filed a Motion
to Suspend Proceedings before the CTA since it had a
pending appeal before the DOJ. On 04 July 1991, PNB
[38]
filed with the CTA a Motion for Reconsideration of its
Order, dated 03 June 1991, submitting the case for
decision as of 04 June 1991, and prayed that the CTA
hold its resolution of the case in view of PNBs appeal
pending before the DOJ. [39]
On 17 July 1991, PNB filed a Motion to Suspend the
Collection of Tax by the BIR. It alleged that despite its
request for reconsideration of the deficiency withholding
tax assessment, dated 16 January 1991, BIR
Commissioner Ong sent another letter, dated 23 April
1991, demanding payment of the P294,958,450.73
deficiency withholding tax on the interest earnings and/or
yields from PNOCs money placements. The same letter
informed PNB that this was the BIR Commissioners final
decision on the matter and that the BIR Commissioner
was set to issue a warrant of distraint and/or levy against
PNBs deposits with the Central Bank of the Philippines.
PNB further alleged that the levy and distraint of PNBs
deposits, unless restrained by the CTA, would cause
great and irreparable prejudice not only to PNB, a
government-owned and controlled corporation, but also to
the Government itself. [40]
Pursuant to the Order of the CTA, during the hearing
on 19 July 1991, the parties submitted their respective
[41]
Memoranda on PNBs Motion to Suspend Proceedings. [42]
On 20 September 1991, private respondent Savellano
filed another Omnibus Motion calling the attention of the
CTA to the fact that the BIR already issued, on 12 August
1991, a warrant of garnishment addressed to the Central
Bank Governor and against PNB. In compliance with the
said warrant, the Central Bank issued, on 23 August
1991, a debit advice against the demand deposit account
of PNB with the Central Bank for the amount
of P294,958,450.73, with a corresponding transfer of the
same amount to the demand deposit-in-trust of BIR with
the Central Bank. Since the assessment had already
been enforced, PNBs Motion to Suspend Proceedings
became moot and academic. Private respondent
49
Savellano, thus, moved for the denial of PNBs Motion to
Suspend Proceedings and for an order requiring BIR to
deposit with the CTA the amount of P44,243,767.00 as
his informers reward, representing 15% of the deficiency
withholding tax collected.[43]
Both PNOC and PNB opposed private respondent
Savellanos Omnibus Motion, dated 20 September 1991,
arguing that the DOJ already ordered the suspension of
the collection of the tax deficiency. There was therefore
no basis for private respondent Savellanos Motion as the
same was premised on the erroneous assumption that
the tax deficiency had been collected. When the DOJ
denied the BIR Commissioners Motion to Dismiss and
required him to file his answer, the DOJ assumed
jurisdiction over PNBs appeal, and the CTA should first
suspend its proceedings to give the DOJ the opportunity
to decide the validity and propriety of the tax assessment
against PNB. [44]
The CTA, on 28 May 1992, rendered its decision,
wherein it upheld its jurisdiction and disposed of the case
as follows:
WHEREFORE, judgment is rendered declaring the
COMPROMISE AGREEMENT between the Bureau of Internal
Revenue, on the one hand, and the Philippine National Oil
Company and Philippine National Bank, on the other, as
WITHOUT FORCE AND EFFECT;
The Commissioner of Internal Revenue is hereby ordered to
ENFORCE the ASSESSMENT of January 16, 1991 against
Philippine National Bank which has become final and
unappealable by collecting from Philippine National Bank the
deficiency withholding tax, plus interest totalling
(sic) P294,958,450.73;
Petitioner may be paid, upon collection of the deficiency
withholding tax, the balance of his entitlement to informers
reward based on fifteen percent (15%) of the deficiency
withholding total tax collected in this case or P44,243.767.00
subject to existing rules and regulations governing payment of
reward to informers. [45]
In a Resolution, dated 16 November 1992, the CTA
denied the Motions for Reconsideration filed by PNOC
and PNB since they substantially raised the same issues
in their previous pleadings and which had already been
passed upon and resolved adversely against them. [46]
PNOC and PNB filed separate appeals with the Court
of Appeals seeking the reversal of the CTA decision in
CTA Case No. 4249, dated 28 May 1992, and the CTA
Resolution in the same case, dated 16 November 1992.
PNOCs appeal was docketed as CA-G.R. SP No. 29583,
while PNBs appeal was CA-G.R. SP No. 29526. In both
cases, the Court of Appeals affirmed the decision of the
CTA.
In the meantime, the Central Bank again issued on 02
September 1992 a debit advice against the demand
deposit account of PNB with the Central Bank for the
amount of P294,958,450.73, and on 15 September 1992,
[47]
credited the same amount to the demand deposit account
of the Treasurer of the Republic of the Philippines. On [48]
04 November 1992, the Treasurer of the Republic issued
a journal voucher transferring P294,958,450.73 to the
account of the BIR. PNB, [49]
in turn,
debited P294,958,450.73 from the deposit account of
PNOC with PNB. [50]
PNOC and PNB then filed separate Petitions for
Review on Certiorari with this Court, praying that the
50
decisions of the Court of Appeals in CA-G.R. SP No.
29583 and CA-G.R. SP No. 29526, respectively, both
affirming the decision of the CTA in CTA Case No. 4249,
be reversed and set aside. These two Petitions were
consolidated since they involved identical parties and
factual background, and the resolution of related, if not
exactly, the same issues.
In its Petition for Review, PNOC alleged the following
errors committed by the Court of Appeals in CA-G.R. SP
No. 29583:
1. The Court of Appeals erred in holding that the deficiency
taxes of PNOC could not be the subject of a compromise
under Executive Order No. 44; and
2. The Court of Appeals erred in holding that Savellano is
entitled to additional informers reward.[51]
PNB, in its own Petition for Review, assailed the
decision of the Court of Appeals in CA-G.R. SP No.
29526, assigning the following errors:
1. Respondent Court erred in not finding that the Court of Tax
Appeals lacks jurisdiction on the controversy involving BIR
and PNB (both government instrumentalities) regarding the
new assessment of BIR against PNB;
2. The respondent Court erred in not finding that the Court of
Tax Appeals has no jurisdiction to question the
compromise agreement entered into by the Commissioner
of Internal Revenue; and
3. The respondent Court erred in not ruling that the
Commissioner of Internal Revenue cannot unilaterally
annul tax compromises validly entered into by his
predecessor.[52]
The decisions of the Court of Appeals in CA-GR SP
No. 29583 and CA-G.R. SP No. 29526, affirmed the
decision of the CTA in CTA Case No. 4249. The
resolution, therefore, of the assigned errors in the Court of
Appeals decisions essentially requires a review of the
CTA decision itself.
In consolidating the present Petitions, this Court finds
that PNOC and PNB are basically questioning the (1)
Jurisdiction of the CTA in CTA Case No. 4249; (2)
Declaration by the CTA that the compromise agreement
was without force and effect; (3) Finding of the CTA that
the deficiency withholding tax assessment against PNB
had already become final and unappealable and, thus,
enforceable; and (4) Order of the CTA directing payment
of additional informers reward to private respondent
Savellano.
I
Jurisdiction of the CTA
A. The demand letter, dated 16 January 1991 did not
constitute a new assessment against PNB.
The main argument of PNB in assailing the jurisdiction
of the CTA in CTA Case No. 4249 is that the BIR demand
letter, dated 16 January 1991, should be considered as
[53]
a new assessment against PNB. As a new assessment, it
gave rise to a new dispute and controversy solely
between the BIR and PNB that should be administratively
settled or adjudicated, as provided in P.D. No. 242.
This argument is without merit. The issuance by the
BIR of the demand letter, dated 16 January 1991, was
merely a development in the continuing effort of the BIR
to collect the tax assessed against PNOC and PNB way
back in 1986.
BIRs first letter, dated 08 August 1986, was
addressed to PNOC, requesting it to settle its tax liability.
The BIR subsequently sent another letter, dated 08
51
October 1986, to PNB, as withholding agent, demanding
payment of the tax it had failed to withhold on the interest
earnings and/or yields from PNOCs money placements.
PNOC wrote the BIR three succeeding letters offering to
compromise its tax liability; PNB, on the other hand, did
not act on the demand letter it received, dated 08 October
1986. The BIR and PNOC eventually reached a
compromise agreement on 22 June 1987. Private
respondent Savellano questioned the validity of the
compromise agreement because the reduced amount of
tax collected from PNOC, by virtue of the compromise
agreement, also proportionately reduced his informers
reward. Private respondent Savellano then requested the
BIR Commissioner to review and reconsider the
compromise agreement. Acting on the request of private
respondent Savellano, the new BIR Commissioner
declared the compromise agreement to be without basis
and issued the demand letter, dated 16 January 1991,
against PNB, as the withholding agent for PNOC.
It is clear from the foregoing that the BIR demand
letter, dated 16 January 1991, could not stand alone as a
new assessment. It should always be considered in the
factual context summarized above.
In fact, the demand letter, dated 16 January 1991,
actually referred to the withholding tax assessment first
issued in 1986 and its eventual settlement through a
compromise agreement. In addition, the computation of
the deficiency withholding tax was based on the figures
from the 1986 assessments against PNOC and PNB, and
BIR no longer conducted a new audit or investigation of
either PNOC and PNB before it issued the demand letter
on 16 January 1991.
These constant references to past events and
circumstances demonstrate that the demand letter, dated
16 January 1991, was not a new assessment, but rather,
the latest action taken by the BIR to collect on the tax
assessments issued against PNOC and PNB in 1986.
PNB argues that the demand letter, dated 16 January
1991, introduced a new controversy. We see it differently
as the said demand letter presented the resolution by BIR
Commissioner Ong of the previous controversy involving
the compromise of the 1986 tax assessments. BIR
Commissioner Ong explicitly declared therein that the
compromise agreement was without legal basis, and
requested PNB, as the withholding agent, to pay the
amount of withholding tax still due.
B. The CTA correctly retained jurisdiction over CTA Case
No. 4249 by virtue of Republic Act No. 1125.
Having established that the BIR demand letter, dated
16 January 1991, did not constitute a new assessment,
then, there could be no basis for PNBs claim that any
dispute arising from the new assessment should only be
between BIR and PNB.
Still proceeding from the argument that there was a
new dispute between PNB and BIR, PNB sought the
suspension of the proceedings in CTA Case No. 4249,
after it contested the deficiency withholding tax
assessment against it and the demand for payment
thereof before the DOJ, pursuant to P.D. No. 242. The
CTA, however, correctly sustained its jurisdiction and
continued the proceedings in CTA Case No. 4249; and, in
effect, rejected DOJs claim of jurisdiction to
administratively settle or adjudicate BIRs assessment
against PNB.
52
 The CTA assumed jurisdiction over the Petition for
Review filed by private respondent Savellano based on
the following provision of Rep. Act No. 1125, the Act
creating the Court of Tax Appeals:
SECTION 7. Jurisdiction. The Court of Tax Appeals shall
exercise exclusive appellate jurisdiction to review by appeal, as
herein provided -
(1) Decisions of the Collector of Internal Revenue in cases
involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed
in relation thereto, or other matters arising under the
National Internal Revenue Code or other law or part of
law administered by the Bureau of Internal Revenue; . .
. (Underscoring ours.)
In his Petition before the CTA, private respondent
Savellano requested a review of the decisions of then BIR
Commissioner Tan to enter into a compromise agreement
with PNOC and to reject his claim for additional informers
reward. He submitted before the CTA questions of law
involving the interpretation and application of (1) E.O. No.
44, and its implementing rules and regulations, which
authorized the BIR Commissioner to compromise
delinquent accounts and disputed assessments pending
as of 31 December 1985; and (2) Section 316(1) of the
National Internal Revenue Code of 1977 (NIRC of 1977),
as amended, which granted to the informer a reward
equivalent to 15% of the actual amount recovered or
collected by the BIR. These should undoubtedly be
[54]
considered as matters arising from the NIRC and other
laws being administered by the BIR, thus, appealable to
the CTA under Section 7(1) of Rep. Act No. 1125.
PNB, however, insists on the jurisdiction of the DOJ
over its appeal of the deficiency withholding tax
assessment by virtue of P.D. No. 242. Provisions on
jurisdiction of P.D. No. 242 read:
SECTION 1. Provisions of law to the contrary notwithstanding,
all disputes, claims and controversies solely between or among
the departments, bureaus, offices, agencies, and
instrumentalities of the National Government, including
government-owned or controlled corporations, but excluding
constitutional offices or agencies, arising from the interpretation
and application of statutes, contracts or agreements, shall
henceforth be administratively settled or adjudicated as
provided hereinafter; Provided, That this shall not apply to
cases already pending in court at the time of the effectivity of
this decree.
SECTION 2. In all cases involving only questions of law, the
same shall be submitted to and settled or adjudicated by the
Secretary of Justice, as Attorney General and ex officio legal
adviser of all government-owned or controlled corporations and
entities, in consonance with Section 83 of the Revised
Administrative Code. His ruling or determination of the
question in each case shall be conclusive and binding upon all
the parties concerned.
SECTION 3. Cases involving mixed questions of law and of
fact or only factual issues shall be submitted to and settled or
adjudicated by:
(a) The Solicitor General, with respect to disputes or claims
controversies between or among the departments,
bureaus, offices and other agencies of the National
Government;
(b) The Government Corporate Counsel, with respect to
disputes or claims or controversies between or among
government-owned or controlled corporations or entities
53
 being served by the Office of the Government Corporate
Counsel; and
(c) The Secretary of Justice, with respect to all other disputes
or claims or controversies which do not fall under the
categories mentioned in paragraphs (a) and (b).
The PNB and DOJ are of the same position that P.D.
No. 242, the more recent law, repealed Section 7(1) of
Rep. Act No. 1125, based on the pronouncement of this
[55]
Court in Development Bank of the Philippines v. Court of
Appeals, et al., [56] quoted below:
The Court expresses its entire agreement with the conclusion of
the Court of Appeals and the basic premises thereof that there is
an "irreconcilable repugnancybetween Section 7(2) of R.A. No.
1125 and P.D. No. 242," and hence, that the later enactment
(P.D. No. 242), being the latest expression of the legislative
will, should prevail over the earlier.
The cases relating to the subject of repeal by implication all
proceed on the assumption that if the act of later date clearly
reveals an intention on the part of the law making power to
abrogate the prior law, this intention must be given effect; but
there must always be a sufficient revelation of this intention,
and it has become an unbending rule of statutory construction
that the intention to repeal a former law will not be imputed to
the Legislature when it appears that the two statutes, or
provisions, with reference to which the question arises bear to
each other the relation of general to special. (Underscoring
ours.)
When there appears to be an inconsistency or conflict
between two statutes and one of the statutes is a general
law, while the other is a special law, then repeal by
implication is not the primary rule applicable. The
following rule should principally govern instead:

In the said case, it was expressly declared that P.D. No.
242 repealed Section 7(2) of Rep. Act No. 1125, which
provides for the exclusive appellate jurisdiction of the CTA
over decisions of the Commissioner of Customs. PNB
contends that P.D. No. 242 should be deemed to have
likewise repealed Section 7(1) of Rep. Act No. 1125,
which provide for the exclusive appellate jurisdiction of
the CTA over decisions of the BIR Commissioner.
After re-examining the provisions on jurisdiction of
Rep. Act No. 1125 and P.D. No. 242, this Court finds itself
in disagreement with the pronouncement made
in Development Bank of the Philippines v. Court of
Appeals, et al., and refers to the earlier case of Lichauco
[58]
& Company, Inc. v. Apostol, et al., for the guidelines in
[59]
determining the relation between the two statutes in
question, to wit:
Specific legislation upon a particular subject is not affected by a
general law upon the same subject unless it clearly appears that
the provisions of the two laws are so repugnant that the
legislators must have intended by the later to modify or repeal
the earlier legislation. The special act and the general law must
stand together, the one as the law of the particular subject and
the other as the general law of the land. (Ex Parte United States,
[57]
226 U. S., 420; 57 L. ed., 281; Ex Parte Crow Dog, 109 U. S.,
556; 27 L. ed., 1030; Partee vs. St. Louis & S. F. R. Co., 204
Fed. Rep., 970.)
Where there are two acts or provisions, one of which is special
and particular, and certainly includes the matter in question, and
the other general, which, if standing alone, would include the
same matter and thus conflict with the special act or provision,
the special must be taken as intended to constitute an exception
to the general act or provision, especially when such general
54
and special acts or provisions are contemporaneous, as the
Legislature is not to be presumed to have intended a conflict.
(Crane v. Reeder and Reeder, 22 Mich., 322, 334; University of
Utah vs. Richards, 77 Am. St. Rep., 928.)
[60]
It has, thus, become an established rule of statutory
construction that between a general law and a special
law, the special law prevails Generalia specialibus non
derogant. [61]
Sustained herein is the contention of private
respondent Savellano that P.D. No. 242 is a general law
that deals with administrative settlement or adjudication of
disputes, claims and controversies between or among
government offices, agencies and instrumentalities,
including government-owned or controlled corporations.
Its coverage is broad and sweeping, encompassing all
disputes, claims and controversies. It has been
incorporated as Chapter 14, Book IV of E.O. No. 292,
otherwise known as the Revised Administrative Code of
the Philippines. On the other hand, Rep. Act No. 1125 is
[62]
a special law dealing with a specific subject matter the
[63]
creation of the CTA, which shall exercise exclusive
appellate jurisdiction over the tax disputes and
controversies enumerated therein.
Following the rule on statutory construction involving a
general and a special law previously discussed, then P.D.
No. 242 should not affect Rep. Act No. 1125. Rep. Act
No. 1125, specifically Section 7 thereof on the jurisdiction
of the CTA, constitutes an exception to P.D. No. 242.
Disputes, claims and controversies, falling under Section
7 of Rep. Act No. 1125, even though solely among
government offices, agencies, and instrumentalities,
including government-owned and controlled corporations,
remain in the exclusive appellate jurisdiction of the CTA.
Such a construction resolves the alleged inconsistency or
conflict between the two statutes, and the fact that P.D.
No. 242 is the more recent law is no longer significant.
Even if, for the sake of argument, that P.D. No. 242
should prevail over Rep. Act No. 1125, the present
dispute would still not be covered by P.D. No. 242.
Section 1 of P.D. No. 242 explicitly provides that only
disputes, claims and controversies solely between or
among departments, bureaus, offices, agencies, and
instrumentalities of the National Government, including
constitutional offices or agencies, as well as government-
owned and controlled corporations, shall be
administratively settled or adjudicated. While the BIR is
obviously a government bureau, and both PNOC and
PNB are government-owned and controlled corporations,
respondent Savellano is a private citizen. His standing in
the controversy could not be lightly brushed aside. It was
private respondent Savellano who gave the BIR the
information that resulted in the investigation of PNOC and
PNB; who requested the BIR Commissioner to reconsider
the compromise agreement in question; and who initiated
CTA Case No. 4249 by filing a Petition for Review.
In Bay View Hotel, Inc. v. Manila Hotel Workers
Union-PTGWO, et al.,[64] this Court upheld the jurisdiction
of the Court of Industrial Relations over the ordinary
courts and justified its decision in the following manner:
We are unprepared to break away from the teaching in the cases
just adverted to. To draw a tenuous jurisdictional line is to
undermine stability in labor litigations. A piecemeal resort to
one court and another gives rise to multiplicity of suits. To
force the employees to shuttle from one court to another to
secure full redress is a situation gravely prejudicial. The time to
be lost, effort wasted, anxiety augmented, additional expense
55
incurred these are considerations which weigh heavily against
split jurisdiction. Indeed, it is more in keeping with orderly
administration of justice that all the causes of action here be
cognizable and heard by only one court: the Court of Industrial
Relations.
The same justification is used in the present case to
reject DOJs jurisdiction over the BIR and PNB, to the
exclusion of the other parties. The rights of all four parties
in CTA Case No. 4249, namely the BIR, as the tax
collector; PNOC, the taxpayer; PNB, the withholding
agent; and private respondent Savellano, the informer
claiming his reward; arose from the same factual
background and were so closely interrelated, that a
pronouncement as to one would definitely have
repercussions on the others. The ends of justice were
best served when the CTA continued to exercise its
jurisdiction over CTA Case No. 4249. The CTA, which
had assumed jurisdiction over all the parties to the
controversy, could render a comprehensive resolution of
the issues raised and grant complete relief to the parties.
II
Validity of the Compromise Agreement
A. PNOC could not apply for a compromise under E.O.
No. 44 because its tax liability was not a delinquent
account or a disputed assessment as of 31
December 1985.
PNOC and PNB, on different grounds, dispute the
decision of the CTA in CTA Case No. 4249 declaring the
compromise agreement between BIR and PNOC without
force and effect.
PNOC asserts that the compromise agreement was in
accordance with E.O. No. 44, and its implementing rules
and regulations, and should be binding upon the parties
thereto.
E.O. No. 44 granted the BIR Commissioner or his duly
authorized representatives the power to compromise any
disputed assessment or delinquent account pending as of
31 December 1985, upon the payment of an amount
equal to 30% of the basic tax assessed; in which case,
the corresponding interests and penalties shall be
condoned. E.O. No. 44 took effect on 04 September 1986
and remained effective until 31 March 1987.
The disputed assessments or delinquent accounts
that the BIR Commissioner could compromise under E.O.
No. 44 are defined under Revenue Regulation (RR) No.
17-86, as follows:
a) Delinquent account Refers to the amount of tax due on or
before December 31, 1985 from a taxpayer who failed
to pay the same within the time prescribed for its
payment arising from (1) a self assessed tax, whether or
not a tax return was filed, or (2) a deficiency assessment
issued by the BIR which has become final and
executory.
Where no return was filed, the taxpayer shall be
considered delinquent as of the time the tax on such
return was due, and in availing of the compromise, a tax
return shall be filed as a basis for computing the amount
of compromise to be paid.
b) Disputed assessment refers to a tax assessment disputed
or protested on or before December 31, 1985 under any
of the following categories:
56
1) if the same is administratively protested within thirty (30)
days from the date the taxpayer received the assessment, or
2.) if the decision of the BIR on the taxpayers administrative
protest is appealed by the taxpayer before an appropriate court.
PNOCs tax liability could not be considered a
delinquent account since (1) it was not self-assessed,
because the BIR conducted an investigation and
assessment of PNOC and PNB after obtaining
information regarding the non-withholding of tax from
private respondent Savellano; and (2) the demand letter,
issued against it on 08 August 1986, could not have been
a deficiency assessment that became final and executory
by 31 December 1985.
The dissenting opinion contends, however, that the
tax liability of PNOC constitutes a self-assessed tax, and
is, therefore, a delinquent account as of 31 December
1985, qualifying for a compromise under E.O. No. 44. It
anchors its argument on the declaration made by this
Court in Tupaz v. Ulep, that internal revenue taxes are
[65]
self-assessing.
It is not denied herein that the self-assessing system
governs Philippine internal revenue taxes. The dissenting
opinion itself defines self-assessed tax as, a tax that the
taxpayer himself assesses or computes and pays to the
taxing authority. Clearly, such a system imposes upon the
taxpayer the obligation to conduct an assessment of
himself so he could determine and declare the amount to
be used as tax basis, any deductions therefrom, and
finally, the tax due.
E.O. No. 44 covers self-assessed tax, whether or not
a tax return was filed. The phrase whether or not a tax
return was filed only refers to the compliance by the
taxpayer with the obligation to file a return on the dates
specified by law, but it does not do away with the requisite
that the tax must be self-assessed in order for the
taxpayer to avail of the compromise. The second
paragraph of Section 2(a) of RR No. 17-86 expressly
commands, and still imposes upon the taxpayer, who is
availing of the compromise under E.O. No. 44, and who
has not previously filed any return, the duty to conduct
self-assessment by filing a tax return that would be used
as the basis for computing the amount of compromise to
be paid.
Section 2(a)(1) of RR No. 17-86 thus involves a
situation wherein a taxpayer, after conducting a self-
assessment, discovers or becomes aware that he had
failed to pay a tax due on or before 31 December 1985,
regardless of whether he had previously filed a return to
reflect such tax; voluntarily comes forward and admits to
the BIR his tax liability; and applies for a compromise
thereof. In case the taxpayer has not previously filed any
return, he must fill out such a return reflecting therein his
own declaration of the taxable amount and computation of
the tax due. The compromise payment shall be computed
based on the amount reflected in the tax return submitted
by the taxpayer himself.
Neither PNOC nor PNB, the taxpayer and the
withholding agent, respectively, conducted self-
assessment in this case. There is no showing that in the
absence of the tax assessment issued by the BIR against
them, that PNOC and/or PNB would have voluntarily
admitted their tax liabilities, already amounting
to P385,961,580.82, as of 15 November 1986, and would
have offered to compromise the same. In fact, both
57
PNOC and PNB were conspicuously silent about their tax
liabilities until they were assessed thereon.
Any attempt by PNOC and PNB to assess and declare
by themselves their tax liabilities had already been
overtaken by the BIRs conduct of its audit and
investigation and subsequent issuance of the
assessments, dated 08 August 1986 and 08 October
1986, against PNOC and PNB, respectively. The said tax
assessments, uncontested and undisputed, presented the
results of the BIR audit and investigation and the
computation of the total amount of tax liabilities of PNOC
and PNB. They should be controlling in this case, and
should not be so easily and conveniently ignored and set
aside. It would be a contradiction to claim that the tax
liabilities of PNOC and PNB are self-assessed and, at the
same time, BIR-assessed; when it is clear and simple that
it had been the BIR that conducted the assessment and
determined the tax liabilities of PNOC and PNB.
That the BIR-assessed tax liability should be
differentiated from a self-assessed one, is supported by
the provisions of RR No. 17-86 on the basis for computing
the amount of compromise payment. Note that where tax
liabilities are self-assessed, the compromise payment
shall be computed based on the tax return filed by the
taxpayer. On the other hand, where the BIR already
[66]
issued an assessment, the compromise payment shall be
computed based on the tax due on the assessment
notice.
[67]
For instances where the BIR had already issued an
assessment against the taxpayer, the tax liability could
still be compromised under E.O. No. 44 only if: (1) the
assessment had been final and executory on or before 31
December 1985 and, therefore, considered a delinquent
account as of said date; or (2) the assessment had been
[68]
disputed or protested on or before 31 December 1985. [69]
RMO No. 39-86, which provides the guidelines for the
implementation of E.O. No. 44, does mention different
types of assessments that may be compromised under
said statute (i.e., jeopardy assessments, arbitrary
assessments, and tax assessments of doubtful validity).
RMO No. 39-86 may not have expressly stated any
qualification for these particular types of assessments;
nonetheless, E.O. No. 44 specifically refers only to
assessments that were delinquent or disputed as of 31
December 1985.
E.O. No. 44 and all BIR issuances to implement said
statute should be interpreted so that they are harmonized
and consistent with each other. Accordingly, this Court
finds that the different types of assessments mentioned in
RMO No. 39-86 would still have to qualify as delinquent
accounts or disputed assessments as of 31 Dcember
1985, so that they could be compromised under E.O. No.
44.
The BIR had first written to PNOC on 08 August 1986,
demanding payment of the income tax on the interest
earnings and/or yields from PNOCs money placements
with PNB from 15 October 1984 to 15 October 1986. This
demand letter could be regarded as the first assessment
notice against PNOC.
Such an assessment, issued only on 08 August 1986,
could not have been final and executory as of 31
December 1985 so as to constitute a delinquent account.
Neither was the assessment against PNOC an
assessment that could have been disputed or protested
on or before 31 December 1985, having been issued on a
later date.
58
 Given that PNOCs tax liability did not constitute a
delinquent account or a disputed assessment as of 31
December 1985, then it could not be compromised under
E.O. No. 44.
The assessment against PNOC, instead, was more
appropriately covered by Revenue Memorandum Circular
(RMC) No. 31-86. RMC No. 31-86 clarifies the scope of
availment of the tax amnesty under E.O. No. 41 and
There are substantial differences in circumstances
under which compromises may be granted under Section
246 of the NIRC of 1977, as amended, and E.O. No. 44.
Although PNOC and PNB have extensively argued their
entitlement to compromise under E.O. No. 44, neither of
them has alleged, much less, has presented any
evidence to prove that it may compromise its tax liability
under Section 246 of the NIRC of 1977, as amended.
[70]

compromise payments on delinquent accounts and
disputed assessments under E.O. No. 44. The third
paragraph of RMC No. 31-86 reads:
[T]axpayers against whom assessments had been issued from
January 1 to August 21, 1986 may settle their tax liabilities by
way of compromise under Section 246 of the Tax Code as
amended by paying 30% of the basic assessment excluding
surcharge, interest, penalties and other increments thereto.
The above-quoted paragraph supports the position
that only assessments that were disputed or that were
final and executory by 31 December 1985 could be the
subject of a compromise under E.O. No. 44. Assessments
B. The tax liability of PNB as withholding agent also did
not qualify for compromise under E.O. No. 44.
Before proceeding any further, this Court reconsiders
the conclusion made by BIR Commissioner Ong in his
demand letter, dated 16 January 1991, that the
compromise settlement executed between the BIR and
PNOC was without legal basis because withholding taxes
were not actually taxes that could be compromised, but a
penalty for PNBs failure to withhold and for which it was
made personally liable.
E.O. No. 44 covers disputed or delinquency cases
where the person assessed was himself the taxpayer
rather than a mere agent. RMO No. 39-86 expressly
[72]

issued between 01 January to 21 August 1986 could still
be compromised by payment of 30% of the basic tax
assessed, not anymore pursuant to E.O. No. 44, but
pursuant to Section 246 of the NIRC of 1977, as
amended.
Section 246 of the NIRC of 1977, as amended,
granted the BIR Commissioner the authority to
compromise the payment of any internal revenue tax
allows a withholding agent, who failed to withhold the
required tax because of neglect, ignorance of the law, or
his belief that he was not required by law to withhold tax,
to apply for a compromise settlement of his withholding
tax liability under E.O. No. 44. A withholding agent, in
such a situation, may compromise the withholding tax
assessment against him precisely because he is being
held directly accountable for the tax.
[73]

under the following circumstances: (1) there exists a
reasonable doubt as to the validity of the claim against
the taxpayer; or (2) the financial position of the taxpayer
demonstrates a clear inability to pay the assessed tax.
RMO No. 39-86 distinguishes between the withholding
agent in the foregoing situation from the withholding agent
who withheld the tax but failed to remit the amount to the
[71]
Government. A withholding agent in the latter situation is
59
the one disqualified from applying for a compromise
settlement because he is being made accountable as an
agent, who held funds in trust for the Government.[74]
Both situations, however, involve withholding agents.
The right to compromise under these provisions should
have been claimed by PNB, the withholding agent for
PNOC. The BIR held PNB personally accountable for its
failure to withhold the tax on the interest earnings and/or
yields from PNOCs money placements with PNB. The
BIR sent a demand letter, dated 08 October 1986,
addressed directly to PNB, for payment of the withholding
tax assessed against it, but PNB failed to take any action
on the said demand letter. Yet, all the offers to
compromise the withholding tax assessment came from
PNOC and PNOC did not claim that it made the offers to
compromise on behalf of PNB.
Moreover, the general requirement of E.O. No. 44 still
applies to withholding agents that the withholding tax
liability must either be a delinquent account or a disputed
assessment as of 31 December 1985 to qualify for
compromise settlement. The demand letter against PNB,
which also served as its assessment notice, had been
issued on 08 October 1986 or two months later than
PNOCs. PNBs withholding tax liability could not be
considered a delinquent account or a disputed
assessment, as defined under RR No. 17-86, for the
same reasons that PNOCs tax liability did not constitute
as such. The tax liability of PNB, therefore, was also not
eligible for compromise settlement under E.O. No. 44.
C. Even assuming arguendo that PNOC and/or PNB
qualified under E.O. No. 44, their application for
compromise was filed beyond the deadline.
Despite already ruling that the tax liabilities of PNOC
and PNB could not be compromised under E.O. No. 44,
this Court still deems it necessary to discuss the finding of
the CTA that the compromise agreement had been filed
beyond the effectivity of E.O. No. 44, since the CTA made
a declaration in relation thereto that paragraph 2 of RMO
No. 39-86 was null and void for unduly extending the
effectivity of E.O. No. 44.
Paragraph 2 of RMO No. 39-86 provides that:
2. Period for availment. Filing of application for compromise
settlement under the said law shall be effective only until March
31, 1987. Applications filed on or before this date shall be valid
even if the payment or payments of the compromise amount
shall be made after the said date, subject, however, to the
provisions of Executive Order No. 44 and its implementing
Revenue Regulations No. 17-86.
It is well-settled in this jurisdiction that administrative
authorities are vested with the power to make rules and
regulations because it is impracticable for the lawmakers
to provide general regulations for various and varying
details of management. The interpretation given to a rule
or regulation by those charged with its execution is
entitled to the greatest weight by the court construing
such rule or regulation, and such interpretation will be
followed unless it appears to be clearly unreasonable or
arbitrary.[75]
RMO No. 39-86, particularly paragraph 2 thereof,
does not appear to be unreasonable or arbitrary. It does
not unduly expand the coverage of E.O. No. 44 by merely
providing that applications for compromise filed until 31
March 1987 are still valid, even if payment of the
compromised amount is made on a later date.
60
 It cannot be expected that the compromise allowed
under E.O. No. 44 can be automatically granted upon
mere filing of the application by the taxpayer. Irrefutably,
the applications would still have to be processed by the
BIR to determine compliance with the requirements of
E.O. No. 44. As it is uncontested that a taxpayer could
still file an application for compromise on 31 March 1987,
the very last day of effectivity of E.O. No. 44, it would be
unreasonable to expect the BIR to process and approve
the taxpayers application within the same date
considering the volume of applications filed and pending
approval, plus the other matters the BIR personnel would
also have to attend to. Thus, RMO No. 39-86 merely
assures the taxpayers that their applications would still be
processed and could be approved on a later date.
Payment, of course, shall be made by the taxpayer only
after his application had been approved and the
compromised amount had been determined.
Given that paragraph 2 of RMO No. 39-86 is valid, the
next question that needs to be addressed is whether
PNOC had been able to submit an application for
compromise on or before 31 March 1987 in compliance
thereof. Although the compromise agreement was
executed only on 22 June 1987, PNOC is claiming that it
had already written a letter to the BIR, as early as 25
September 1986, offering to compromise its tax liability,
and that the said letter should be considered as PNOCs
application for compromise settlement.
A perusal of PNOCs letter, dated 25 September 1986,
would reveal, however, that the terms of its proposed
compromise did not conform to those authorized by E.O.
No. 44. PNOC did not offer to pay outright 30% of the
basic tax assessed against it as required by E.O. No. 44;
and instead, made the following offer:
(2) That PNOC be permitted to set-off its foregoing mentioned
tax liability of P304,419,396.83 against the tax refund/credit
claims of the National Power Corporation (NPC) for specific
taxes on fuel oil sold to NPC totaling P335,259,450.21, which
tax refunds/credits are actually receivable accounts of our
Company from NPC. [76]
PNOC reiterated the offer in its letter to the BIR, dated
14 October 1986. The BIR, in its letters to PNOC, dated
[77]
8 October 1986 and 11 November 1986, consistently
[78] [79]
denied PNOCs offer because the claim for tax
refund/credit of NAPOCOR was still under process, so
that the offer to set-off such claim against PNOCs tax
liability was premature.
Furthermore, E.O. No. 44 does not contemplate
compromise payment by set-off of a tax liability against a
claim for tax refund/credit. Compromise under E.O. No.
44 may be availed of only in the following circumstances:
SEC. 3. Who may avail. Any person, natural or juridical, may
settle thru a compromise any delinquent account or disputed
assessment which has been due as of December 31, 1985, by
paying an amount equal to thirty percent (30%) of the basic
tax assessed.
SEC. 6. Mode of Payment. Upon acceptance of the proposed
compromise, the amount offered as compromise in complete
settlement of the delinquent account shall be paid immediately
in cash or managers certified check.
61
Deferred or staggered payments of compromise amounts
over P50,000 may be considered on a case to case basis in
accordance with the extant regulations of the Bureau upon
approval of the Commissioner of Internal Revenue, his Deputy
or Assistant as delineated in their respective jurisdictions.
If the Compromise amount is not paid as required herein, the
compromise agreement is automatically nullified and the
delinquent account reverted to the original amount plus the
statutory increments, which shall be collected thru the summary
and/or judicial processes provided by law.
E.O. No. 44 is not for the benefit of the taxpayer
alone, who can extinguish his tax liability by paying the
compromise amount equivalent to 30% of the basic tax. It
also benefits the Government by making collection of
delinquent accounts and disputed assessments simpler,
easier, and faster. Payment of the compromise amount
must be made immediately, in cash or in managers
check. Although deferred or staggered payments may be
allowed on a case-to-case basis, the mode of payment
remains unchanged, and must still be made either in cash
or in managers check.
PNOCs offer to set-off was obviously made to avoid
actual cash-out by the company. The offer defeated the
purpose of E.O. No. 44 because it would not only delay
collection, but more importantly, it would not guarantee
collection. First of all, BIRs collection was contingent on
whether the claim for tax refund/credit of NAPOCOR
would be subsequently granted. Second, collection could
not be made immediately and would have to wait until the
resolution of the claim for tax refund/credit of
NAPOCOR. Third, there is no proof, other than the bare
allegation of PNOC, that NAPOCORs claim for tax
refund/credit is an account receivable of PNOC. A
possible dispute between NAPOCOR and PNOC as to
the proceeds of the tax refund/credit would only delay
collection by the BIR even further.
It was only in its letter, dated 09 June 1987, that
PNOC actually offered to compromise its tax liability in
accordance with the terms and circumstances prescribed
by E.O. No. 44 and its implementing rules and
regulations, by stating that:
Consequently, we reiterate our previous request for compromise
under E.O. No. 44, and convey our preparedness to settle the
subject tax assessment liability by payment of the compromise
amount of P91,003,129.89, representing thirty percent (30%) of
the basic tax assessment of P303,343,766.29, in accordance
with E.O. No. 44 and its implementing BIR Revenue
Memorandum Order No. 39-86. [80]
PNOC claimed in the same letter that it had previously
requested for a compromise under the terms of E.O. No.
44, but this Court could not find evidence of such previous
request. There are stark and substantial differences in the
terms of PNOCs offer to compromise in its earlier letters,
dated 25 September 1986 and 14 October 1986 (set-off
of the entire amount of its tax liability against the claim for
tax refund/credit of NAPOCOR), to those in its letter,
dated 09 June 1987 (payment of the compromise amount
representing 30% of the basic tax assessed against it),
making it difficult for this Court to accept that the letter of
09 June 1987 merely reiterated PNOCs offer to
compromise in its earlier letters.
This Court likewise cannot give credence to PNOCs
allegation that beginning 25 September 1986, the date of
its first letter to the BIR, there were continuing
62
negotiations between PNOC and BIR that culminated in
the compromise agreement on 22 June 1987. Aside from
the exchange of letters recounted in the preceding
paragraphs, both PNOC and PNB failed to present any
other proof of the supposed negotiations.
After the BIR denied the second offer of PNOC to set-
off its tax liability against the claim for tax refund/credit of
NAPOCOR in a letter, dated 11 November 1986, there is
no other evidence of subsequent communication between
PNOC and the BIR. It was only after almost seven
months, or on 09 June 1987, that PNOC again wrote a
letter to the BIR, this time offering to pay the compromise
amount of 30% of the basic tax assessed against. This
letter was already filed beyond 31 March 1987, after the
lapse of the effectivity of E.O. No. 44 and the deadline for
filing applications for compromise under the said statute.
Evidence of meetings between PNOC and the BIR, or
any other form of communication, wherein the parties
presented their offer and counter-offer to the other, would
have been very valuable in explaining and supporting BIR
Commissioner Tans decision to accept PNOCs third offer
to compromise after denying the previous two. The
absence of such evidence herein negates PNOCs claim
of actual negotiations with the BIR.
Therefore, even assuming arguendo that the tax
liabilities of PNOC and PNB qualify as delinquent
accounts or disputed assessments as of 31 December
1985, the application for compromise filed by PNOC on
09 June 1987, and accepted by then BIR Commissioner
Tan on 22 June 1987, was still filed way beyond 31 March
1987, the expiration date of the effectivity of E.O. No. 44
and the deadline for filing of applications for compromise
under RMO No. 39-86.
D. The BIR Commissioners discretionary authority to
enter into a compromise agreement is not absolute
and the CTA may inquire into allegations of abuse
thereof.
The foregoing discussion supports the CTAs
conclusion that the compromise agreement between
PNOC and the BIR was indeed without legal basis.
Despite this lack of legal support for the execution of the
said compromise agreement, PNB argues that the CTA
still had no jurisdiction to review and set aside the
compromise agreement. It contends that the authority to
compromise is purely discretionary on the BIR
Commissioner and the courts cannot interfere with his
exercise thereof.
It is generally true that purely administrative and
discretionary functions may not be interfered with by the
courts; but when the exercise of such functions by the
administrative officer is tainted by a failure to abide by the
command of the law, then it is incumbent on the courts to
set matters right, with this Court having the last say on the
matter.[81]
The manner by which BIR Commissioner Tan
exercised his discretionary power to enter into a
compromise was brought under the scrutiny of the CTA
amidst allegations of grave abuse of discretion and/or
whimsical exercise of jurisdiction. The discretionary
[82]
power of the BIR Commissioner to enter into
compromises cannot be superior over the power of
judicial review by the courts.
The discretionary authority to compromise granted to
the BIR Commissioner is never meant to be absolute,
uncontrolled and unrestrained. No such unlimited power
may be validly granted to any officer of the government,
63
except perhaps in cases of national emergency. In this
[83]
case, the BIR Commissioners authority to compromise,
whether under E.O. No. 44 or Section 246 of the NIRC of
1977, as amended, can only be exercised under certain
circumstances specifically identified in said statutes. The
BIR Commissioner would have to exercise his discretion
within the parameters set by the law, and in case he
abuses his discretion, the CTA may correct such abuse if
the matter is appealed to them. [84]
Petitioners PNOC and PNB both contend that BIR
Commissioner Tan merely exercised his authority to enter
into a compromise specially granted by E.O. No. 44.
Since this Court has already made a determination that
the compromise agreement did not qualify under E.O. No.
44, BIR Commissioner Tans decision to agree to the
compromise should have been reviewed in the light of the
general authority granted to the BIR Commissioner to
compromise taxes under Section 246 of the NIRC of
1977, as amended. Then again, petitioners PNOC and
PNB failed to allege, much less present evidence, that
BIR Commissioner Tan acted in accordance with Section
246 of the NIRC of 1977, as amended, when he entered
into the compromise agreement with PNOC.
E. The CTA may set aside a compromise agreement that
is contrary to law and public policy.
PNB also asserts that the CTA had no jurisdiction to
set aside a compromise agreement entered into in good
faith. It relies on the decision of this Court in Republic v.
Sandiganbayan that a compromise agreement cannot
[85]
be set aside merely because it is too one-sided. A
compromise agreement should be respected by the
courts as the res judicata between the parties thereto.
This Court, though, finds that there are substantial
differences in the factual background of Republic v.
Sandiganbayan and the present case.
The compromise agreement executed between the
Presidential Commission on Good Government (PCGG)
and Roberto S. Benedicto in Republic v.
Sandiganbayan was judicially approved by the
Sandiganbayan. The Sandiganbayan had ample
opportunity to examine the validity of the compromise
agreement since two years elapsed from the time the
agreement was executed up to the time it was judicially
approved. This Court even stated in the said case that,
We are not dealing with the usual compromise agreement
perfunctorily submitted to a court and approved as a
matter of course. The PCGG-Benedicto agreement was
thoroughly and, at times, disputatiously discussed before
the respondent court. There could be no deception or
misrepresentation foisted on either the PCGG or the
Sandiganbayan. [86]
In addition, the new PCGG Chairman originally prayed
for the re-negotiation of the compromise agreement so
that it could be more just, fair, and equitable, an action
considered by this Court as an implied admission that the
agreement was not contrary to law, public policy or
morals nor was there any circumstance which had vitiated
consent.[87]
The above-mentioned circumstances strongly
supported the validity of the compromise agreement in
Republic v. Sandiganbayan, which was why this Court
refused to set it aside. Unfortunately for the petitioners in
the present case, the same cannot be said herein.
64
 The Court of Appeals, in upholding the jurisdiction of
the CTA to set aside the compromise agreement, ruled
that:
We are unable to accept petitioners submissions. Its formulation
of the issues on CIR and CTAs lack of jurisdiction to disturb a
compromise agreement presupposes a compromise
agreement validly entered into by the CIR and not, when as in
this case, it was indubitably shown that the supposed
compromise agreement is without legal support. In case of
arbitrary or capricious exercise by the Commissioner or if the
proceedings were fatally defective, the compromise can be
attacked and reversed through the judicial process (Meralco
Securities Corporation v. Savellano, 117 SCRA 805, 812
[1982]; Sarah E. Ramsay, et. al. v. U.S. 21 Ct. C1 443, affd 120
U.S. 214, 30 L. Ed. 582; Tyson v. U.S., 39 F. Supp. 135 cited in
page 18 of decision) .
[88]
Although the general rule is that compromises are to
be favored, and that compromises entered into in good
faith cannot be set aside, this rule is not without
[89]
qualification. A court may still reject a compromise or
settlement when it is repugnant to law, morals, good
customs, public order, or public policy. [90]
The compromise agreement between the BIR and
PNOC was contrary to law having been entered into by
BIR Commissioner Tan in excess or in abuse of the
authority granted to him by legislation. E.O. No. 44 and
the NIRC of 1977, as amended, had identified the
situations wherein the BIR Commissioner may
compromise tax liabilities, and none of these situations
existed in this case.
The compromise, moreover, was contrary to public
policy. The primary duty of the BIR is to collect taxes,
since taxes are the lifeblood of the Government and their
prompt and certain availability are imperious needs. In[91]
the present case, however, BIR Commissioner Tan, by
entering into the compromise agreement that was bereft
of any legal basis, would have caused the Government to
lose almost P300 million in tax revenues and would have
deprived the Government of much needed monetary
resources.
Allegations of good faith and previous execution of the
terms of the compromise agreement on the part of PNOC
would not be enough for this Court to disregard the
demands of law and public policy. Compromise may be
the favored method to settle disputes, but when it involves
taxes, it may be subject to closer scrutiny by the courts. A
compromise agreement involving taxes would affect not
just the taxpayer and the BIR, but also the whole nation,
the ultimate beneficiary of the tax revenues collected.
F. The Government cannot be estopped from collecting
taxes by the mistake, negligence, or omission of its
agents.
The new BIR Commissioner, Commissioner Ong, had
acted well within his powers when he set aside the
compromise agreement, dated 22 June 1987, after finding
that the said compromise agreement was without legal
basis. When he took over from his predecessor, there
was still a pending motion for reconsideration of the said
compromise agreement, filed by private respondent
Savellano on 24 March 1988. To resolve the said motion,
he reviewed the compromise agreement and, thereafter,
came upon the conclusion that it did not comply with E.O.
No. 44 and its implementing rules and regulations.
It had been declared by this Court in Hilado v.
Collector of Internal Revenue, et al., that an [92]
65
administrative officer, such as the BIR Commissioner,
may revoke, repeal or abrogate the acts or previous
rulings of his predecessor in office. The construction of a
statute by those administering it is not binding on their
successors if, thereafter, the latter becomes satisfied that
a different construction should be given.
It is evident in this case that the new BIR
Commissioner, Commissioner Ong, construed E.O. No.
44 and its implementing rules and regulations differently
from that of his predecessor, former Commissioner Tan,
which led to Commissioner Ongs revocation of the BIR
approval of the compromise agreement, dated 22 June
1987. Such a revocation was only proper considering that
the former BIR Commissioners decision to approve the
said compromise agreement was based on the erroneous
construction of the law (i.e., E.O. No. 44 and its
implementing rules and regulations) and should not give
rise to any vested right on PNOC. [93]
Furthermore, approval of the compromise agreement
and acceptance of the compromise payment by his
predecessor cannot estop BIR Commissioner Ong from
setting aside the compromise agreement, dated 22 June
1987, for lack of legal basis; and from demanding
payment of the deficiency withholding tax from PNB. As a
general rule, the Government cannot be estopped from
collecting taxes by the mistake, negligence, or omission
of its agents because:
[94]
. . . Upon taxation depends the Government ability to serve the
people for whose benefit taxes are collected. To safeguard such
interest, neglect or omission of government officials entrusted
with the collection of taxes should not be allowed to bring harm
or detriment to the people, in the same manner as private
persons may be made to suffer individually on account of his
own negligence, the presumption being that they take good care
of their personal affairs. This should not hold true to
government officials with respect to matters not of their own
personal concern. This is the philosophy behind the
government's exception, as a general rule, from the operation of
the principle of estoppel. (Republic vs. Caballero, L-27437,
September 30, 1977, 79 SCRA 177; Manila Lodge No. 761,
Benevolent and Protective Order of the Elks, Inc. vs. Court of
Appeals, L-41001, September 30, 1976, 73 SCRA 162; Sy vs.
Central Bank of the Philippines, L-41480, April 30, 1976, 70
SCRA 571; Balmaceda vs. Corominas & Co., Inc., 66 SCRA
553; Auyong Hian vs. Court of Tax Appeals, 59 SCRA
110; Republic vs. Philippine Rabbit Bus Lines, Inc., 66 SCRA
553; Republic vs. Philippine Long Distance Telephone
Company, L-18841, January 27, 1969, 26 SCRA 620; Zamora
vs. Court of Tax Appeals, L-23272, November 26, 1970, 36
SCRA 77; E. Rodriguez, Inc. vs. Collector of Internal Revenue,
L-23041, July 31, 1969, 28 SCRA 119). [95]
III
Finality of the Tax Assessment
A. The issue on whether the BIR complied with the notice
requirements under RR No. 12-85 is raised for the first
time on appeal and should not be given due course.
PNB, in another effort to block the collection of the
deficiency withholding tax, this time raises doubts as to
the validity of the deficiency withholding tax assessment
issued against it on 16 January 1991. It submits that the
BIR failed to comply with the notice requirements set forth
in RR No. 12-85. [96]
Whether or not the BIR complied with the notice
requirements of RR No. 12-85 is a new issue raised by
PNB only before this Court. Such a question has not been
66
ventilated before the lower courts. For an appellate
tribunal to consider a legal question, it should have been
raised in the court below. If raised earlier, the matter
[97]
would have been seriously delved into by the CTA and
the Court of Appeals. [98]
B. The assessment against PNB had become final and
unappealable, and therefore, enforceable.
The CTA and the Court of Appeals declared as final
and unappealable, and thus, enforceable, the assessment
against PNB, dated 16 January 1991, since PNB failed to
protest said assessment within the 30-day prescribed
period. This Court, though, finds that the significant BIR
assessment, as far as this case is concerned, should be
the one issued by the BIR against PNB on 08 October
1986.
The BIR issued on 08 October 1986 an assessment
against PNB for its withholding tax liability on the interest
earnings and/or yields from PNOCs money placements
with the bank. It had 30 days from receipt to protest the
BIRs assessment. PNB, however, did not take any
[99]
action as to the said assessment so that upon the lapse
of the period to protest, the withholding tax assessment
against it, dated 8 October 1986, became final and
unappealable, and could no longer be disputed. The [100]
courts may therefore order the enforcement of this
assessment.
It is the enforcement of this BIR assessment against
PNB, dated 08 October 1986, that is in issue in the instant
case. If the compromise agreement is valid, it would
effectively bar the BIR from enforcing the assessment and
collecting the assessed tax; on the other hand, if the
compromise agreement is void, then the courts can order
the BIR to enforce the assessment and collect the
assessed tax.
As has been previously discussed by this Court, the
BIR demand letter, dated 16 January 1991, is not a new
assessment against PNB. It only demanded from PNB the
payment of the balance of the withholding tax assessed
against it on 08 October 1986. The same demand letter
also has no substantial effect or impact on the resolution
of the present case. It is already unnecessary and
superfluous, having been issued by the BIR when CTA
Case No. 4249 was already pending before the CTA. At
best, the demand letter, dated 16 January 1991,
constitute a useful reference for the courts in computing
the balance of PNBs tax liability, after applying as partial
payment thereon the amount previously received by the
BIR from PNOC pursuant to the compromise agreement.
IV
Prescription
A. The defense of prescription was never raised by
petitioners PNOC and PNB, and should be considered
waived.
The dissenting opinion takes the position that the right
of the BIR to assess and collect income tax on the
interest earnings and/or yields from PNOCs money
placements with PNB, particularly for taxable year 1985,
had already prescribed, based on Section 268 of the
NIRC of 1977, as amended.
Section 268 of the NIRC of 1977, as amended,
provides a three-year period of limitation for the
assessment and collection of internal revenue taxes,
which begins to run after the last day prescribed for filing
of the return.
[101]
67
 The dissenting opinion points out that more than four
years have elapsed from 25 January 1986 (the last day
prescribed by law for PNB to file its withholding tax return
for the fourth quarter of 1985) to 16 January 1991 (the
date when the alleged final assessment of PNBs tax
liability was issued).
The issue of prescription, however, was brought up
only in the dissenting opinion and was never raised by
PNOC and PNB in the proceedings before the BIR nor in
any of their pleadings submitted to the CTA and the Court
of Appeals.
Section 1, Rule 9 of the Rules of Civil Procedure lays
down the rule on defenses and objections not pleaded,
and reads:
SECTION 1. Defenses and objections not pleaded. Defenses
and objections not pleaded either in a motion to dismiss or in
the answer are deemed waived. However, when it appears from
the pleadings or the evidence on record that the court has no
jurisdiction over the subject matter, that there is another action
pending between the parties for the same cause, or that the
action is barred by prior judgment or by the statute of
limitations, the court shall dismiss the claim.
The general rule enunciated in the above-quoted
provision governs the present case, that is, the defense of
prescription, not pleaded in a motion to dismiss or in the
answer, is deemed waived. The exception in same
provision cannot be applied herein because the pleadings
and the evidence on record do not sufficiently show that
the action is barred by prescription.
It has been consistently held in earlier tax cases that
the defense of prescription of the period for the
assessment and collection of tax liabilities shall be
deemed waived when such defense was not properly
pleaded and the facts alleged and evidences submitted
by the parties were not sufficient to support a finding by
this Court on the matter. In Querol v. Collector of
[102]
Internal Revenue, this
[103]
Court pronounced that
prescription, being a matter of defense, imposes the
burden on the taxpayer to prove that the full period of the
limitation has expired; and this requires him to positively
establish the date when the period started running and
when the same was fully accomplished.
In making its conclusion that the assessment and
collection in this case had prescribed, the dissenting
opinion took liberties to assume the following facts even
in the absence of allegations and evidences to the effect
that: (1) PNB filed returns for its withholding tax
obligations for taxable year 1985; (2) PNB reported in the
said returns the interest earnings of PNOCs money
placements with the bank; and (3) that the returns were
filed on or before the prescribed date, which was 25
January 1986.
It is not safe to adopt the first and second
assumptions in this case considering that Section 269 of
the NIRC of 1977, as amended, provides for a different
period of limitation for assessment and collection of taxes
in case of false or fraudulent return or for failure to file a
return. In such cases, the BIR is given 10 years after
discovery of the falsity, fraud, or omission within which to
make an assessment. [104]
It is also not safe to accept the third assumption since
there can be a possibility that PNB filed the withholding
tax return later than the prescribed date, in which case,
following the dictates of Section 268 of the NIRC of 1977,
68
as amended, the three-year prescriptive period shall be
counted from the date the return was actually filed. [105]
PNBs withholding tax returns for taxable year 1985,
duly received by the BIR, would have been the best
evidence to prove actual filing, the date of filing and the
contents thereof. These facts are relevant in determining
which prescriptive period should apply, and when such
prescriptive period should begin to run and when it had
lapsed. Yet, the pleadings did not refer to any return, and
no return was made part of the records of the present
case.
This Court could not make a proper ruling on the
matter of prescription on the mere basis of assumptions;
such an issue should have been properly raised, argued,
and supported by evidences submitted by the parties
themselves before the BIR and the courts below.
B. Granting that this Court can take cognizance of the
defense of prescription, this Court finds that the
assessment of the withholding tax liability against
PNOC and collection of the tax assessed were done
within the prescriptive period.
Assuming, for the sake of argument, that this Court
can give due course to the defense of prescription, it finds
that the assessment against PNB for its withholding tax
liability for taxable year 1985 and the collection of the tax
assessed therein were accomplished within the
prescribed periods for assessment and collection under
the NIRC of 1977, as amended.
If this Court adopts the assumption made by the
dissenting opinion that PNB filed its withholding tax return
for the last quarter of 1985 on 25 January 1986, then the
BIR had until 24 January 1989 to assess PNB. The
original assessment against PNB was issued as early as
08 October 1986, well-within the three-year prescriptive
period for making the assessment as prescribed by the
following provisions of the NIRC of 1977, as amended:
SEC. 268. Period of limitation upon assessment and collection.
Except as provided in the succeeding section, internal revenue
taxes shall be assessed within three years after the last day
prescribed by law for the filing of the return, and no proceeding
in court without assessment for the collection of such taxes
shall be begun after the expiration of such period
SEC. 269. Exceptions as to period of limitation of assessment
and collection of taxes.
(c) Any internal revenue tax which has been assessed within the
period of limitation above-prescribed may be collected by
distraint or levy or by a proceeding in court within three years
following the assessment of the tax.
Sections 268 and 269(c) of the NIRC of 1977, as
amended, should be read in conjunction with one another.
Section 268 requires that assessment be made within
three years from the last day prescribed by law for the
filing of the return. Section 269(c), on the other hand,
provides that when an assessment is issued within the
prescribed period provided in Section 268, the BIR has
three years, counted from the date of the assessment, to
collect the tax assessed either by distraint, levy or court
action. Therefore, when an assessment is timely issued in
accordance with Section 268, the BIR is given another
three-year period, under Section 269(c), within which to
collect the tax assessed, reckoned from the date of the
assessment.
69
 In the case of PNB, an assessment was issued
against it by the BIR on 08 October 1986, so that the BIR
had until 07 October 1989 to enforce it and to collect the
tax assessed. The filing, however, by private respondent
Savellano of his Amended Petition for Review before the
CTA on 02 July 1988 already constituted a judicial action
for collection of the tax assessed which stops the running
of the three-year prescriptive period for collection thereof.
A judicial action for the collection of a tax may be
initiated by the filing of a complaint with the proper regular
trial court; or where the assessment is appealed to the
CTA, by filing an answer to the taxpayers petition for
review wherein payment of the tax is prayed for. [106]
The present case is unique, however, because the
Petition for Review was filed by private respondent
Savellano, the informer, against the BIR, PNOC, and
PNB. The BIR, the collecting government agency; PNOC,
the taxpayer; and PNB, the withholding agent, initially
found themselves on the same side. The prayer in the
Amended Petition for Review of private respondent
Savellano reads:
WHEREFORE, in view of the foregoing, petitioner respectfully
prays that the compromise agreement of June 22, 1987 be
reviewed and declared null and void, and that this Court directs:
a) respondent Commissioner to enforce and collect and
respondents PNB and/or PNOC to pay in a joint and several
capacity, the total tax liability of P387,987,785.73, plus
interests from 31 October 1986; and
b) respondent Commissioner to pay unto petitioner, as
informers reward, 15% of the tax liability collected under
clause (a) hereof.
Other equitable reliefs under the premises are likewise prayed
for. (Underscoring ours.)
[107]
Private respondent Savellano, in his Amended
Petition for Review in CTA Case No. 4249, prayed for (1)
the CTA to direct the BIR Commissioner to enforce and
collect the tax, and (2) PNB and/or PNOC to pay the tax
making CTA Case No. 4249 a collection case. That the
Amended Petition for Review was filed by the informer
and not the taxpayer; and that the prayer for the
enforcement of the tax assessment and payment of the
tax was also made by the informer, not the BIR, should
not affect the nature of the case as a judicial action for
collection. In case the CTA grants the Petition and the
prayer therein, as what has happened in the present
case, the ultimate result would be the collection of the tax
assessed. Consequently, upon the filing of the Amended
Petition for Review by private respondent Savellano,
judicial action for collection of the tax had been initiated
and the running of the prescriptive period for collection of
the said tax was terminated.
Supposing that CTA Case No. 4249 is not a collection
case which stops the running of the prescriptive period for
the collection of the tax, CTA Case No. 4249, at the very
least, suspends the running of the said prescriptive
period. Under Section 271 of the NIRC of 1977, as
amended, the running of the prescriptive period to collect
deficiency taxes shall be suspended for the period during
which the BIR Commissioner is prohibited from beginning
a distraint or levy or instituting a proceeding in court, and
for 60 days thereafter. Just as in the cases of Republic
[108]
v. Ker & Co., Ltd. and Protectors Services, Inc. v. Court
[109]
of Appeals, this Court declares herein that the
[110]
pendency of the present case before the CTA, the Court
70
of Appeals and this Court, legally prevents the BIR
Commissioner from instituting an action for collection of
the same tax liabilities assessed against PNOC and PNB
in the CTA or the regular trial courts. To rule otherwise
would be to violate the judicial policy of avoiding
multiplicity of suits and the rule on lis pendens.
Once again, that CTA Case No. 4249 was initiated by
private respondent Savellano, the informer, instead of
PNOC, the taxpayer, or PNB, the withholding agent,
would not prevent the suspension of the running of the
prescriptive period for collection of the tax. What is
controlling herein is the fact that the BIR Commissioner
cannot file a judicial action in any other court for the
collection of the tax because such a case would
necessarily involve the same parties and involve the
same issues already being litigated before the CTA in
CTA Case No. 4249. The three-year prescriptive period
for collection of the tax shall commence to run only after
the promulgation of the decision of this Court in which the
issues of the present case are resolved with finality.
Whether the filing of the Amended Petition for Review
by private respondent Savellano entirely stops or merely
suspends the running of the prescriptive period for
collection of the tax, it had been premature for the BIR
Commissioner to issue a writ of garnishment against PNB
on 12 August 1991 and for the Central Bank of the
Philippines to debit the account of PNB on 02 September
1992 pursuant to the said writ, because the case was by
then, pending review by the Court of Appeals. However,
since this Court already finds that the compromise
agreement is without force and effect and hereby orders
the enforcement of the assessment against PNB, then,
any issue or controversy arising from the premature
garnishment of PNBs account and collection of the tax by
the BIR has become moot and academic at this point.
V
Additional Informers Reward
Private respondent Savellano is entitled to additional
informers reward since the BIR had already collected the
full amount of the tax assessment against PNB.
PNOC insists that private respondent Savellano is not
entitled to additional informers reward because there was
no voluntary payment of the withholding tax liability.
PNOC, however, fails to state any legal basis for its
argument.
Section 316(1) of the NIRC of 1977, as amended,
granted a reward to an informer equivalent to 15% of the
revenues, surcharges, or fees recovered, plus, any fine or
penalty imposed and collected. The provision was clear
[111]
and uncomplicated an informer was entitled to a reward of
15% of the total amount actually recovered or collected by
the BIR based on his information. The provision did not
make any distinction as to the manner the tax liability was
collected whether it was through voluntary payment by
the taxpayer or through garnishment of the taxpayers
property. Applicable herein is another well-known maxim
in statutory construction Ubi lex non distinguit nec nos
distinguere debemos when the law does not distinguish,
we should not distinguish.[112]
Pursuant to the writ of garnishment issued by the BIR,
the Central Bank issued a debit advice against the
demand deposit account of PNB with the Central Bank for
the amount of P294,958,450.73, and credited the same
amount to the demand deposit account of the Treasurer
of the Republic of the Philippines. The Treasurer of the
71
Republic, in turn, already issued a journal voucher of the deficiency withholding tax ordered collected
transferring P294,958,450.73 to the account of the BIR. herein, or P 44,243,767.61.
Since the BIR had already collected P294,958,450.73 SO ORDERED.
from PNB through the execution of the writ of
garnishment over PNBs deposit with the Central Bank,
then private respondent Savellano should be awarded
15% thereof as reward since the said collection could still
be traced to the information he had given.
WHEREFORE, in view of the foregoing, the Petitions
of PNOC and PNB in G.R. No. 109976 and G.R. No.
112800, respectively, are hereby DENIED. This Court
AFFIRMS the assailed Decisions of the Court of Appeals
in CA-G.R. SP No. 29583 and CA-G.R. SP No. 29526,
which affirmed the decision of the CTA in CTA Case No.
4249, with modifications, to wit:
(1) The compromise agreement between PNOC and the
BIR, dated 22 June 1987, is declared void for being
contrary to law and public policy, and is without force
and effect;
(2)Paragraph 2 of RMO No. 39-86 remains a valid
provision of the regulation;
(3)The withholding tax assessment against PNB, dated
08 October 1986, had become final and
unappealable. The BIR Commissioner is ordered to
enforce the said assessment and collect the amount
of P294,958,450.73, the balance of tax assessed
after crediting the previous payment made by PNOC
pursuant to the compromise agreement, dated 22
June 1987; and
(4) Private respondent Savellano shall be paid the
remainder of his informers reward, equivalent to 15%

72
 G.R. No. 180345. November 25, 2009.*
SAN ROQUE POWER CORPORATION, petitioner, vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
Evidence; Appeals; Taxation; Exceptions to the rule that Supreme
Court does not evaluate and weigh the evidence presented in a lower
court.—To resolve the issue, this Court must re-examine the facts
and the evidence offered by the parties. It is an accepted doctrine
that this Court is not a trier of facts. It is not its function to review,
examine and evaluate or weigh the probative value of the evidence
presented. However, this rule does not apply where the judgment is
premised on a misapprehension of facts, or when the appellate court
failed to notice certain relevant facts which if considered would
justify a different conclusion.
Taxation; Value Added Tax; Tax Refund; Criteria to claim a
refund or tax credit under Sec. 112(A), National Internal Revenue
Code (NIRC) of Value Added Tax (VAT) paid.—To claim refund or
tax credit under Section 112(A), petitioner must comply with the
following criteria: (1) the taxpayer is VAT registered; (2) the
taxpayer is engaged in zero-rated or effectively zero-rated sales; (3)
the input taxes are due or paid; (4) the input taxes are not
transitional input taxes; (5) the input taxes have not been applied
against output taxes during and in the succeeding quarters; (6) the
input taxes claimed are attributable to zero-rated or effectively
zero-rated sales; (7) for zero-rated sales under Section 106(A)(2)(1)
and (2); 106(B); and 108(B)(1) and (2), the acceptable foreign
currency exchange proceeds have been duly accounted for in
accordance with BSP rules and regulations; (8) where there are
both zero-rated or effectively zero-rated sales and taxable or exempt
sales, and the input taxes cannot be directly and entirely
attributable to any of these sales, the input taxes shall be
proportionately allocated on the basis of sales volume; and (9) the
claim is filed within two years after the close of the taxable quarter
when such sales were made.
Same; Evidence; Evidence presented shows petitioner complied
with requirements for refund or tax credit of Value Added Tax (VAT)
it paid.—Based on the evidence presented, petitioner complied with
_______________
* THIRD DIVISION.
537the abovementioned requirements. Firstly, petitioner had
adequately proved that it is a VAT registered taxpayer when it
presented Certificate of Registration No. OCN-98-006-007394,
which it attached to its Petition for Review dated 29 March 2004
filed before the CTA in Division. Secondly, it is unquestioned that
petitioner is engaged in providing electricity for NPC, an activity
which is subject to zero rate, under Section 108(B)(3) of the
NIRC. Thirdly, petitioner offered as evidence suppliers’ VAT
invoices or official receipts, as well as Import Entries and Internal
Revenue Declarations (Exhibits “J-4-A1” to “J-4-L265”), which were
examined in the audit conducted by Aguilar, the Court-
commissioned Independent CPA. Significantly, Aguilar noted in his
audit report (Exhibit “J-2”) that of the P249,397,620.18 claimed by
petitioner, he identified items with incomplete documentation and
errors in computation with a total amount of P3,266,009.78. Based
on these findings, the remaining input VAT of P246,131,610.40 was
properly documented and recorded in the books.
Same; Same; Value Added Tax (VAT) paid by petitioner on local
purchases and importation are not transitional input taxes which
are defined as taxes allowed on the beginning inventory of funds,
materials and supplies.—The input taxes claimed, which consisted
of local purchases and importations made in 2002, are not
transitional input taxes, which Section 111 of the NIRC defines as
input taxes allowed on the beginning inventory of goods, materials
and supplies. Fifthly, the audit report of Aguilar affirms that the
input VAT being claimed for tax refund or credit is net of the input
VAT that was already offset against output VAT amounting to
P26,247.27 for the first quarter of 2002 and P34,996.36 for the
fourth quarter of 2002, as reflected in the Quarterly VAT Returns.
Same; Same; Words and Phrases; Under Sec. 106(B) of National
Internal Revenue Code (NIRC) which deals with imposition of Value
Added Tax (VAT), the term “SALE” is not limited to commercial
sales but to transactions “deemed sale.”—The Court is not
unmindful of the fact that the transaction described hereinabove
was not a commercial sale. In granting the tax benefit to VAT-
registered zero-rated or effectively zero-rated taxpayers, Section
112(A) of the NIRC does not limit the definition of “sale” to
commercial transactions in the normal course of business.
Conspicuously, Section 106(B) of the NIRC, which deals with the
imposition of the VAT, does not
538limit the term “sale” to commercial sales, rather it extends the
term to transactions that are “deemed” sale.
73
 Same; Same; Same.—After carefully examining this provision,
this Court finds it an equitable construction of the law that when
the term “sale” is made to include certain transactions for the
purpose of imposing a tax, these same transactions should be
included in the term “sale” when considering the availability of an
exemption or tax benefit from the same revenue measures. It is
undisputed that during the fourth quarter of 2002, petitioner
transferred to NPC all the electricity that was produced during the
trial period. The fact that it was not transferred through a
commercial sale or in the normal course of business does not deflect
from the fact that such transaction is deemed as a sale under the
law.
Same; Same; The requirement that to be entitled to tax refund for
zero-rated sales the foreign exchange proceeds must have duly
accounted for per Bangko Sentral ng Pilipinas (BSP) rules does not
apply where sale of electricity did not involve any foreign currency.—
The seventh requirement regarding foreign currency exchange
proceeds is inapplicable where petitioner’s zero-rated sale of
electricity to NPC did not involve foreign exchange and consisted
only of a single transaction wherein NPC paid petitioner
P42,500,000.00 in exchange for the electricity transferred to it by
petitioner. Similarly, the eighth requirement is inapplicable to this
case, where the only sale transaction consisted of an effectively
zero-rated sale and there are no exempt or taxable sales that
transpired, which will require the proportionate allocation of the
creditable input tax paid.
Same; Same; Claim for Value Added Tax (VAT)-refund must be
filed within 2 years after the close of the taxable quarter when sales
were made.—The last requirement determines that the claim
should be filed within two years after the close of the taxable
quarter when such sales were made. The sale of electricity to NPC
was reported at the fourth quarter of 2002, which closed on 31
December 2002. Petitioner had until 30 December 2004 to file its
claim for refund or credit. For the period January to March 2002,
petitioner filed an amended request for refund or tax credit on 30
May 2003; for the period July 2002 to September 2002, on 27
February 2003; and for the period October 2002 to December 2002,
on 31 July 2003. In these three quarters, petitioners seasonably
filed its requests for refund and tax credit. However, for the period
April 2002 to May 2002, the
539claim was filed prematurely on 25 October 2002, before the last
quarter had closed on 31 December 2002.
Same; Same; Equity; Filing of Value Added Tax (VAT)-refund
claim during the quarter when sale made does not make taxpayer
any less entitled, on equitable grounds, to its claim.—The fact that it
had filed its claim for refund or credit during the quarter when the
transfer of electricity had taken place, instead of at the close of the
said quarter does not make petitioner any less entitled to its claim.
Given the special circumstances of this case, wherein petitioner was
incorporated for the sole purpose of constructing or operating a
power plant that will transfer all the electricity it generates to NPC,
there is no danger that petitioner would try to fraudulently claim
input tax paid on purchases that will be attributed to sale
transactions that are not zero-rated. Substantial justice, equity and
fair play are on the side of the petitioner. Technicalities and
legalisms, however, exalted, should not be misused by the
government to keep money not belonging to it, thereby enriching
itself at the expense of its law abiding citizens.
Same; Same; Value Added Tax (VAT) zero-rating intended to
relieve a tax-exempt entity, like National Power Corporation (NPC),
from the burden of indirect tax.—It bears emphasis that effective
zero-rating is not intended as a benefit to the person legally liable
to pay the tax, such as petitioner, but to relieve certain exempt
entities, such as the NPC, from the burden of indirect tax so as to
encourage the development of particular industries. Before, as well
as after, the adoption of the VAT, certain special laws were enacted
for the benefit of various entities and international agreements
were entered into by the Philippines with foreign governments and
institutions exempting sale of goods or supply of services from
indirect taxes at the level of their suppliers. Effective zero-rating
was intended to relieve the exempt entity from being burdened with
the indirect tax which is or which will be shifted to it had there
been no exemption. In this case, petitioner is being exempted from
paying VAT on its purchases to relieve NPC of the burden of
additional costs that petitioner may shift to NPC by adding to the
cost of the electricity sold to the latter.
Same; Same; Electricity; Foreign Investment; Grant of tax relief
is a commitment of government (whether in EPIRA, Law on Tax
Code), particularly to foreign investors who have been entitled to
74
540invest heavily in the country’s infrastucture.—The legislative
grant of tax relief (whether in the EPIRA Law or the Tax Code)
constitutes a sovereign commitment of Government to taxpayers
that the latter can avail themselves of certain tax reliefs and
incentives in the course o their business activities here. Such a
commitment is particularly vital to foreign investors who have been
enticed to invest heavily in our country’s infrastructure, and who
have done so on the firm assurance that certain tax reliefs and
incentives can be availed of in order to enable them to achieve their
projected returns on these very long-term and heavily funded
investments. While the government’s ability to keep its
commitment is put in doubt, credit rating turns to worse; the costs
of borrowing becomes higher and the harder it will be to attract
foreign investors. The country’s earnest efforts to move forward will
all be put to naught.
PETITION for review on certiorari of a decision of the Court of
Tax Appeals.
The facts are stated in the opinion of the Court.
Ilao & Ilao Law Offices for petitioner.
The Solicitor General for respondent.
CHICO-NAZARIO, J.:
In this Petition for Review on Certiorari, under Rule 45 of
the Revised Rules of Court, petitioner San Roque Power
Corporation assails the Decision1 of the Court of Tax Appeals
(CTA) En Banc dated 20 September 2007 in CTA EB No. 248,
affirming the Decision2 dated 23 March 2006 of the CTA
Second Division in CTA Case No. 6916, which dismissed the
claim of petitioner for the refund and/or issuance of a tax
_______________
1 Penned by Associate Justice Lovell R. Baustista with Presiding Justice
Ernesto D. Acosta and Associate Justices Juanito Castañeda, Jr., Erlinda P.
Uy, Caesar A. Casanova and Olga Palanca-Enriquez, concurring; Rollo, pp. 39-
60.
2 Penned by Associate Justice Juanito Castañeda, Jr. with Associate
Justices Erlinda P. Uy and Olga Palanca-Enriquez; Id., at 85-100.
541credit certificate in the amount of Two Hundred Forty-
Nine Million Three Hundred Ninety-Seven Thousand Six
Hundred Twenty Pesos and 18/100 (P249,397,620.18)
allegedly representing unutilized input Value Added Tax
(VAT) for the period covering January to December 2002.
Respondent, as the Commissioner of the Bureau of Internal
Revenue (BIR), is responsible for the assessment and
collection of all national internal revenue taxes, fees, and
charges, including the Value Added Tax (VAT), imposed by
Section 1083 of the National Internal Revenue Code (NIRC) of
1997. Moreover, it is empowered to grant refunds or issue tax
credit certificates in accordance with Section 112 of the NIRC
of 1997 for unutilized input VAT paid on zero-rated or
effectively zero-rated sales and purchases of capital goods, 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 or properties or
services, and the amount of creditable input tax due or paid cannot
be directly and entirely attributed to
_______________
3 Section 108. Value-Added Tax on Sale of Services and Use or Lease
of Properties.
(A) Rate and Base of Tax.—There shall be levied, assessed and collected, a
value-added tax equivalent to ten percent (10%) of gross receipts derived from the
sale or exchange of services, including the use or lease of properties.
542any one of the transactions, it shall be allocated proportionately
on the basis of the volume of sales.
(B) Capital Goods—A VAT-registered person may apply for the
issuance of a tax credit certificate or refund of input taxes paid on
capital goods imported or locally purchased, to the extent the such
75
input taxes have not been applied against output taxes. The commenced on 27 September 1998 and continued throughout
application may be made only within two (2) years after the close of the year 2002.8
the taxable quarter when the importation or purchase was made.” For the period January to December 2002, petitioner filed
On the other hand, petitioner is a domestic corporation with the respondent its Monthly VAT Declarations and
organized under the corporate laws of the Republic of the Quarterly VAT Returns. Its Quarterly VAT Returns showed
Philippines. On 14 October 1997, it was incorporated for the excess input VAT payments on account of its importation and
sole purpose of building and operating the San Roque domestic purchases of goods and services, as follows:9
Multipurpose Project in San Manuel, Pangasinan, which is an Period Date Particulars Amount
indivisible project consisting of the power station, the dam, Covered Filed
spillway, and other related facilities.4 It is registered with the 1st April Tax Due for the P 26,247.27
Board of Investments (BOI) on a preferred pioneer status to Quarter 20, Quarter (Box
engage in the design, construction, erection, assembly, as well (January 2002 13C)
as own, commission, and operate electric power-generating 1, 2002 Input Tax carried 296,124,429.21
plants and related activities, for which it was issued the to over from
Certificate of Registration No. 97-356 dated 11 February March 31, previous qtr
1998.5 As a seller of services, petitioner is registered with the 2002) (22B)
BIR as a VAT taxpayer under Certificate of Registration No. Input VAT on
OCN-98-006-007394.6 Domestic
On 11 October 1997, petitioner entered into a Power Purchases for the
Purchase Agreement (PPA) with the National Power Qtr
Corporation (NPC) to develop the hydro potential of the Lower (22D) 95,003,348.91
Agno River, and to be able to generate additional power and Input VAT on
energy for the Luzon Power Grid, by developing and operating Importation of
the San Roque Multipurpose Project. The PPA provides that Goods for the
petitioner shall be responsible for the design, construction, Qtr
installation, completion and testing and commissioning of the (22F) 20,758,668.00
Power Station and it shall operate and maintain the same, Total Available 411,886,446.12
subject to the instructions of the NPC. During the cooperation Input tax (23)
period of 25 years commencing from the completion date of the
Power Station, the NPC shall purchase all the electricity 544
generated by the Power Plant.7 VAT Refund/TCC Claimed 173,909,435.66
Because of the exclusive nature of the PPA between (24A)
petitioner and the NPC, petitioner applied for and was Net Creditable Input Tax (25) 237,977,010.46
granted five Certificates of Zero Rate by the BIR, through the VAT payable (Excess Input (237,950,763.19)
Chief Regulatory Operations Monitoring Division, now the Tax) (26)
Audit Information, Tax Exemption & Incentive Division. Tax Payable (overpayment) (237,950,763.19)
Based on these certificates, the zero-rated status of petitioner (28)
76
 September
2nd July Tax Due for the P blank 30, 2002) Input VAT on
Quarter 24, Quarter (Box 13C) Domestic Purchases
(April 1, 2002 Input Tax carried 237,950,763.19 for the Qtr
2002 to over from previous (22D) 28,924,020.79
June 30, qtr (22B) Input VAT on
2002) Input VAT on Importation of
Domestic Purchases Goods for the Qtr
for the Qtr (22F) 1,465,875.00
(22D) 65,206,499.83 Total Available 229,817,923.26
Input VAT on Input tax (23)
Importation of VAT Refund/TCC Blank
Goods for the Qtr Claimed (24A)
(22F) 18,485,758.00 Net Creditable Input 229,817,923.26
Total Available 321,643,021.02 Tax (25)
Input tax (23) VAT payable (229,817,923.26)
VAT Refund/TCC 237,950,763.19 (Excess Input Tax)
Claimed (24A) (26)
Net Creditable 83,692,257.83 Tax Payable (229,817,923.26)
Input Tax (25) (overpayment) (28)
VAT payable (83,692,257.83)
(Excess Input Tax) 4th Quarter January Tax Due for the P 34,996.36
(26) (October 1, 23, 2003 Quarter (Box
Tax Payable (83,692,257.83) 2002 to 13C)
(overpayment) (28) December Input Tax carried 114,082,153.62
31, 2002) over from
3rd October Tax Due for P blank previous qtr (22B)
Quarter 25, 2002 the Quarter Input VAT on
(July 1, (Box 13C) Domestic
2002 to Input Tax 199,428,027.47 Purchases for the
carried over Qtr
from previous (22D) 18,166,330.54
qtr (22B) Input VAT on
Importation of
545 Goods for the Qtr
September (22F) 2,308,837.00
30, 2002) Total Available 134,557,321.16
77
4th Quarter January Tax Due for the P 34,996.36 Section 108. Value-added Tax on Sale of Services and Use or
Lease of Properties.—
(October 1, 23, 2003 Quarter (Box
xxxx
2002 to 13C) (B) Transactions Subject to Zero Percent (0%) Rate.—The following
December Input tax (23) services performed in the Philippines by VAT-registered persons shall be
31, 2002) VAT Refund/TCC 83,692,257.83 subject to zero percent (0%) rate:
xxxx
Claimed (24A) (3) Services rendered to persons or entities whose exemption under
Net Creditable 50,865,063.33 special laws or international agreements to which the Philippines is a
Input Tax (25) signatory effectively subjects the supply of such services to zero percent (0%)
VAT payable (50,830,066.97) rate.
11 Id., at p. 42.
(Excess Input 547
Tax) (26) (A) (B) (C) (D) = (B) + (C) –(A)
1st P 26,247.27 P95,003,348.91 P20,758,668.00 P115,735,769.84
546
2nd - 65,206,499.83 18,485,758.00 83,692,257.83
Tax Payable (overpayment) (28) (50,830,066.97)
3rd - 28,924,020.79 1,465,875.00 30,389,895.79
4th 34,996.36 18,166,330.54 2,308,837.00 20,440,171.18
On 19 June 2002, 25 October 2002, 27 February 2003, and P61,243.63 P207,300,200.07 P43,019,138.00 P250,258,094.44
29 May 2003, petitioner filed with the BIR four separate
administrative claims for refund of Unutilized Input VAT paid Petitioner amended its Quarterly VAT Returns,
for the period January to March 2002, April to June 2002, particularly the items on (1) Input VAT on Domestic
July to September 2002, and October to December 2002, Purchases during the first quarter of 2002; (2) Input VAT on
respectively. In these letters addressed to the BIR, Carlos Domestic Purchases for the fourth quarter of 2002; and (3)
Echevarria (Echevarria), the Vice President and Director of Input VAT on Importation of Goods for the fourth quarter of
Finance of petitioner, explained that petitioner’s sale of power 2002. The amendments read as follows:12
to NPC are subject to VAT at zero percent rate, in accordance
Period Date Particulars Amount
with Section 108(B)(3) of the NIRC.10 Petitioner sought to
Covered Filed
recover the total amount of P250,258,094.25, representing its
1st Quarter April Tax Due for the P 26,247.27
unutilized excess VAT on its importation of capital and other
(January 24, Quarter (Box 13C)
taxable goods and services for the year 2002, broken down as
1, 2002 to 2003 Input Tax carried 297,719,296.25
follows:11
March 31, over from previous
Qtr Output Input Tax
2002) qtr (22B)
In- Tax
Input VAT on
volved
Domestic Purchases
Domestic Importations Excess
for the Qtr
Pur-chases Input Tax
(22D) 95,126,981.69

_______________
(22F) 20,758,668.00
10 Section 108 (B) of the NIRC reads: Total Available 413,604,945.94
78
 Period Date Particulars Amount 2nd April Tax Due for the P blank
Covered Filed Quarter 24, Quarter (Box 13C)
Input tax (23) (April 1, 2003 (26)
VAT Refund/TCC 175,544,002.27 2002 to Tax Payable (83,692,257.83)
Claimed (24A) June 30, (overpayment) (28)
Net Creditable 175,544,002.27 2002)
Input Tax (25) 3rd Quarter October Tax Due for the P blank
VAT payable (238,060,943.67) (July 1, 25, 2002 Quarter (Box 13C)
(Excess Input Tax) 2002 to Input Tax carried 83,692,257.83
(26) September over from previous
Tax Payable (238,034,696.40) 30, 2002) qtr (22B)
(overpayment) (28) Input VAT on
Domestic Purchases
_______________ for the Qtr
(22D) 28,924,020.79
12 Id., at p. 43.
548 Input VAT on
2nd April Tax Due for the P blank Importation of
Quarter 24, Quarter (Box 13C) Goods for the Qtr
(April 1, 2003 Input Tax carried 238,034,696.40 (22F) 1,465,875.00
2002 to over from previous Total Available 114,082,153.62
June 30, qtr (22B) Input tax (23)
2002) Input VAT on VAT Refund/TCC Blank
Domestic Purchases Claimed (24A)
for the Qtr Net Creditable Input 114,082,153.62
(22D) 65,206,499.83 Tax (25)
Input VAT on VAT payable (114,082,153.62)
Importation of (Excess Input Tax)
Goods for the Qtr (26)
(22F) 18,485,758.00 Tax Payable (114,082,153.62)
Total Available 321,643,021.02 (overpayment) (28)
Input tax (23)
549
VAT Refund/TCC 237,950,763.19
Claimed (24A) 4th Quarter January Tax Due for the P 34,996.36
Net Creditable 83,692,257.83 (October 1, 23, 2003 Quarter (Box 13C)
Input Tax (25) 2002 to Input Tax carried 114,082,153.62
VAT payable (83,692,257.83) December over from previous
(Excess Input Tax) 31, 2002) qtr (22B)
79
4th Quarter January Tax Due for the P 34,996.36 Qtr Date Output Input Tax
(October 1, 23, 2003 Quarter (Box 13C) Involved Filed Tax
2002 to Input VAT on 03
December Domestic Purchases 2nd 25- - 65,206,499.83 18,185,758.00 83,692,257.83
31, 2002) for the Qtr Oct-
(22D) 17,918,056.50 02
Input VAT on
Importation of _______________
Goods for the Qtr
1313 Id., at pp. 43-44.
(22F) 1,573,004.00 550
Total Available 133,573,214.12
3rd 27- - 28,924,920.79 1,465,875,00 30,389,895.79
Input tax (23)
Feb-
VAT Refund/TCC 83,692,257.83
03
Claimed (24A)
4th 31- 34,996.36 17,918,056.50 1,573,004.00 19,456,064.14
Net Creditable Input 49,880,956.29
Jul-
Tax (25)
03
VAT payable (49,845,959.93)
P61,243.63 P207,175,558.81 P42,283,305.00 P249,397,620.18
(Excess Input Tax)
Respondent failed to act on the request for tax refund or
(26)
credit of petitioner, which prompted the latter to file on 5
Tax Payable (49,845,959.93)
April 2004, with the CTA in Division, a Petition for Review,
(overpayment) (28)
docketed as CTA Case No. 6916 before it could be barred by
the two-year prescriptive period within which to file its claim.
On 30 May 2003 and 31 July 2003, petitioner filed two Petitioner sought the refund of the amount of P249,397,620.18
letters with the BIR to amend its claims for tax refund or representing its unutilized excess VAT on its importation and
credit for the first and fourth quarter of 2002, respectively. local purchases of various goods and services for the year
Petitioner sought to recover a total amount of P249,397,620.18 2002.14
representing its unutilized excess VAT on its importation and During the proceedings before the CTA Second Division,
domestic purchases of goods and services for the year 2002, petitioner presented the following documents, among other
broken down as follows:13 pieces of evidence: (1) Petitioner’s Amended Quarterly VAT
Qtr Date Output Input Tax return for the 4th Quarter of 2002 marked as Exhibit “A,”
Involved Filed Tax showing the amount of P42,500,000.00 paid by NTC to
Domestic Importations Excess Input petitioner for all the electricity produced during test runs; (2)
Purchases Tax the special audit report, prepared by the CPA firm of Punong-
(A) (B) (C) (D) = (B) + (C) bayan and Araullo through a partner, Angel A. Aguilar
– (A) (Aguilar), and the attached schedules, marked as Exhibits “J-
1st 30- P P95,126,981.69 P20,758,668.00 P115,859,402.42 2” to “J-21”; (3) Sales Invoices and Official Receipts and
May- 26,247.27 related documents issued to petitioner for the year 2002,
80
marked as Exhibits “J-4-A1” to “J-4-L265”; (4) Audited
Financial Statements of Petitioner for the year 2002, with
comparative figures for 2001, marked as Exhibit “K”; and (5)
the Affidavit of Echevarria dated 9 February 2005, marked as
Exhibit “L.”15
During the hearings, the parties jointly stipulated on the
issues involved:
“1. Whether or not petitioner’s sales are subject to value-added
taxes at effectively zero percent (0%) rate;
_______________
1414 Id., at p. 44.
1515 Records, pp. 274-285.
551
2. Whether or not petitioner incurred input taxes which are
attributable to its effectively zero-rated transactions;
3. Whether or not petitioner’s importation and purchases of
capital goods and related services are within the scope and meaning
of “capital goods” under Revenue Regulations No. 7-95;
4. Whether or not petitioner’s input taxes are sufficiently
substantiated with VAT invoices or official receipts;
5. Whether or not the VAT input taxes being claimed for
refund/tax credit by petitioner (had) been credited or utilized
against any output taxes or (had) been carried forward to the
succeeding quarter or quarters; and
6. Whether or not petitioner is entitled to a refund of VAT
input taxes it paid from January 1, 2002 to December 31, 2002 in
the total amount of Two Hundred Forty Nine Million Three
Hundred Ninety Seven Thousand Six Hundred Twenty and 18/100
Pesos (P249,397,620.18).”
Simply put, the issue is: whether or not petitioner is
entitled to refund or tax credit in the amount of
P249,397,620.18 representing its unutilized input VAT paid
on importation and purchases of capital and other taxable
goods and services from January 1 to December 31, 2002.
After a hearing on the merits, the CTA Second Division
rendered a Decision16dated 23 March 2006 denying petitioner’s
claim for tax refund or credit. The CTA noted that petitioner
based its claim on creditable input VAT paid, which is
attributable to (1) zero-rated or effectively zero-rated sale, as
provided under Section 112(A) of the NIRC, and (2) purchases
of capital goods, in accordance with Section 112(B) of the
NIRC. The court ruled that in order for petitioner to be
entitled to the refund or issuance of a tax credit certificate on
the basis of Section 112(A) of the NIRC, it must establish that
it had incurred zero-rated sales or effectively zero-rated sales
for the taxable year 2002. Since records show that petitioner
did not make any zero-rated or effectively-zero rated sales for
the taxable year 2002, the CTA reasoned that petitioner’s
_______________
16 Rollo, pp. 85-101.
552claim must be denied. Parenthetically, the court declared
that the claim for tax refund or credit based on Section 112(B)
of the NIRC requires petitioner to prove that it paid input
VAT on capital goods purchased, based on the definition of
capital goods provided under Section 4.112-1(b) of Revenue
Regulations No. 7-95—i.e., goods or properties which have an
estimated useful life of greater than one year, are treated as
depreciable assets under Section 34(F) of the NIRC, and are
used directly or indirectly in the production or sale of taxable
goods and services. The CTA found that the evidence offered
by petitioner—the suppliers’ invoices and official receipts and
Import Entries and Internal Revenue Declarations and the
audit report of the Court-commissioned Independent Certified
Public Accountant (CPA) are insufficient to prove that the
importations and domestic purchases were classified as
capital goods and properties entered as part of the “Property,
Plant and Equipment” account of the petitioner. The
dispositive part of the said Decision reads:
“WHEREFORE, the instant Petition for Review is DENIED for
lack of merit.”17
Not satisfied with the foregoing Decision dated 23 March
2006, petitioner filed a Motion for Reconsideration which was
denied by the CTA Second Division in a Resolution dated 4
January 2007.18
Petitioner filed an appeal with the CTA En Banc, docketed
as CTA EB No. 248. The CTA En Banc promulgated its
81
Decision19on 20 September 2007 denying petitioner’s appeal.
The CTA En Banc reiterated the ruling of the Division that
petitioner’s claim based on Section 112(A) of the NIRC should
be denied since it did not present any records of any zero-
rated or effectively zero-rated transactions. It clarified that
since petitioner failed to prove that any sale of its electricity
had transpired, petitioner may base its claim only on Section
112(B) of the NIRC, the provision governing the purchase of
capital goods. The court noted that the report of the Court-
commissioned auditing firm, Punongbayan & Araullo, dealt
specifically with the unutilized input taxes paid or incurred by
petitioner on its local and foreign purchases of goods and
services attributable to its zero-rated sales, and not to
purchases of capital goods. It decided that petitioner failed to
prove that the purchases evidenced by the invoices and
receipts, which petitioner presented, were classified as capital
goods which formed part of its “Property, Plant and
Equipment,” especially since petitioner failed to present its
books of account. The dispositive part of the said Decision
reads:
“WHEREFORE, premises considered, the instant petition is
hereby DISMISSED. Accordingly, the assailed Decision and
Resolution are hereby AFFIRMED.”20
The CTA En Banc denied petitioner’s Motion for
Reconsideration in a Resolution dated 22 October 2007.21
Hence, the present Petition for Review where the petitioner
raises the following errors allegedly committed by the CTA En
banc:
I
THE COURT OF TAX APPEALS EN BANCCOMMITTED
SERIOUS ERROR AND ACTED WITH GRAVE ABUSE OF
DISCRETION TANTAMOUNT TO LACK OR EXCESS OF
JURISDICTION IN FAILING OR REFUSING TO APPRECIATE
THE OVERWHELMING AND UNCONTROVERTED EVIDENCE
SUBMITTED BY THE PETITIONER, THUS DEPRIVING
PETITIONER OF ITS PROPERTY WITHOUT DUE PROCESS;
AND
II
THE COURT OF TAX APPEALS COMMITTED SERIOUS ERROR
AND ACTED WITH GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN
RULING THAT THE ABSENCE OF ZERO-RATED SALES BY
PETITIONER DURING THE YEAR COVERED BY THE CLAIM
FOR REFUND DOES NOT ENTITLE PETITIONER TO A
REFUND OF ITS EXCESS VAT INPUT TAXES ATTRIBUTABLE
TO ZERO-RATED SALES, CONTRARY TO PROVISIONS OF
LAW.22
The present Petition is meritorious.
The main issue in this case is whether or not petitioner
may claim a tax refund or credit in the amount of
P249,397,620.18 for creditable input tax attributable to zero-
rated or effectively zero-rated sales pursuant to Section
112(A) of the NIRC or for input taxes paid on capital goods as
provided under Section 112(B) of the NIRC.
To resolve the issue, this Court must re-examine the facts
and the evidence offered by the parties. It is an accepted
doctrine that this Court is not a trier of facts. It is not its
function to review, examine and evaluate or weigh the
probative value of the evidence presented. However, this rule
does not apply where the judgment is premised on a
misapprehension of facts, or when the appellate court failed to
notice certain relevant facts which if considered would justify
a different conclusion.23
After reviewing the records, this Court finds that
petitioner’s claim for refund or credit is justified under Section
112(A) of the NIRC which states that:
“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
_______________
22 Id., at pp. 17-18.
23 State Land Investment Corporation v. Commissioner of Internal Revenue,
G.R. No. 171956, 18 January 2008, 542 SCRA 114, 120-121; Tio v. Abayata, G.R.
No. 160898, 27 June 2008, 556 SCRA 175, 184-185; Tin v. People, 415 Phil. 1, 7;
362 SCRA 594 (2001).
82
555the 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.”
To claim refund or tax credit under Section 112(A),
petitioner must comply with the following criteria: (1) the
taxpayer is VAT registered; (2) the taxpayer is engaged in
zero-rated or effectively zero-rated sales; (3) the input taxes
are due or paid; (4) the input taxes are not transitional input
taxes; (5) the input taxes have not been applied against
output taxes during and in the succeeding quarters; (6) the
input taxes claimed are attributable to zero-rated or
effectively zero-rated sales; (7) for zero-rated sales under
Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the
acceptable foreign currency exchange proceeds have been duly
accounted for in accordance with BSP rules and regulations;
(8) where there are both zero-rated or effectively zero-rated
sales and taxable or exempt sales, and the input taxes cannot
be directly and entirely attributable to any of these sales, the
input taxes shall be proportionately allocated on the basis of
sales volume; and (9) the claim is filed within two years after
the close of the taxable quarter when such sales were made.24
_______________
24 Intel Technology of the Philippines, Inc. v. Commissioner of Internal
Revenue, G.R. No. 166732, 27 April 2007, 522 SCRA 657, 685.
556 Based on the evidence presented, petitioner complied
with the abovementioned requirements. Firstly, petitioner had
adequately proved that it is a VAT registered taxpayer when
it presented Certificate of Registration No. OCN-98-006-
007394, which it attached to its Petition for Review dated 29
March 2004 filed before the CTA in Division. Secondly, it is
unquestioned that petitioner is engaged in providing
electricity for NPC, an activity which is subject to zero rate,
under Section 108(B)(3) of the NIRC. Thirdly, petitioner
offered as evidence suppliers’ VAT invoices or official receipts,
as well as Import Entries and Internal Revenue Declarations
(Exhibits “J-4-A1” to “J-4-L265”), which were examined in the
audit conducted by Aguilar, the Court-commissioned
Independent CPA. Significantly, Aguilar noted in his audit
report (Exhibit “J-2”) that of the P249,397,620.18 claimed by
petitioner, he identified items with incomplete documentation
and errors in computation with a total amount of
P3,266,009.78. Based on these findings, the remaining input
VAT of P246,131,610.40 was properly documented and
recorded in the books. The said report reads:
“In performing the procedures referred under the Procedures
Performed section of this report, no matters came to our attention
that cause us to believe that the amount of input VAT applied for as
tax credit certificate/refund of P249,397,620.18 for the period
January 1, 2002 to December 31, 2002 should be adjusted except for
input VAT claimed with incomplete documentation, those with
various and other exceptions on the supporting documents and
those with errors in computation totaling P3,266,009.78, as
discussed in the Findings and Results of the Agreed-Upon Audit
Procedures Performed sections of this report. We have also
ascertained that the input VAT claimed are properly recorded in
the books and, except as specifically identified in the Findings and
Results of the Agreed-Upon Audit Procedures Performed sections of
this report, are properly supported by original and appropriate
suppliers’ VAT invoices and/or official receipts.”25
_______________
25 Rollo, p. 214.
557 Fourthly, the input taxes claimed, which consisted of
local purchases and importations made in 2002, are not
transitional input taxes, which Section 111 of the NIRC
83
defines as input taxes allowed on the beginning inventory of
goods, materials and supplies.26 Fifthly, the audit report of
Aguilar affirms that the input VAT being claimed for tax
refund or credit is net of the input VAT that was already
offset against output VAT amounting to P26,247.27 for the
first quarter of 2002 and P34,996.36 for the fourth quarter of
2002,27as reflected in the Quarterly VAT Returns.28
The main dispute in this case is whether or not petitioner’s
claim complied with the sixth requirement—the existence of
zero-rated or effectively zero-rated sales, to which creditable
input taxes may be attributed. The CTA in Division and en
banc denied petitioner’s claim solely on this ground. The tax
courts based this conclusion on the audited report, marked as
Exhibit “J-2,” stating that petitioner made no sale of
electricity to NPC in 2002.29 Moreover, the affidavit of
Echevarria (Exhibit “L”), petitioner’s Vice President and
Director for Finance, contained an admission that no
commercial sale of electricity had been made in favor of NPC
in 2002 since the project was still under construction at that
time.30
_______________
26 Section 111. Transitional/PresumptiveInput Tax Credits.—
(A) A person who becomes liable to value-added tax or any person who
elects to be a VAT-registered person shall, subject to the filing of an inventory
according to rules and regulations prescribed by the Secretary of Finance,
upon recommendation of the Commissioner, be allowed input tax on his
beginning inventory of goods, materials and supplies equivalent to eight
percent (8%) of the value of such inventory or the actual value-added tax paid
on such goods, materials and supplies, whichever is higher, which shall be
creditable against the output tax.
However, upon closer examination of the records, it
appears that on 2002, petitioner carried out a “sale” of
electricity to NPC. The fourth quarter return for the year
2002, which petitioner filed, reported a zero-rated sale in the
amount of P42,500,000.00.31 In the Affidavit of Echevarria
dated 9 February 2005 (Exhibit “L”), which was
uncontroverted by respondent, the affiant stated that
although no commercial sale was made in 2002, petitioner
produced and transferred electricity to NPC during the testing
period in exchange for the amount of P42,500,000.00, to wit:32
A: San Roque Power Corporation has had no sale yet during
2002. The P42,500,000.00 which was paid to us by Napocor
was something similar to a more cost recovery scheme. The
pre-agreed amount would be about equal to our costs for
producing the electricity during the testing period and we just
reflected this in our 4th quarter return as a zero-rated sale. x
x x.”
The Court is not unmindful of the fact that the transaction
described hereinabove was not a commercial sale. In granting
the tax benefit to VAT-registered zero-rated or effectively
zero-rated taxpayers, Section 112(A) of the NIRC does not
limit the definition of “sale” to commercial transactions in the
normal course of business. Conspicuously, Section 106(B) of
the NIRC, which deals with the imposition of the VAT, does
not limit the term “sale” to commercial sales, rather it extends
the term to transactions that are “deemed” sale, which are
thus enumerated:
“SEC. 106. Value-Added Tax on Sale of Goods or
Properties.
xxxx
(B) Transactions Deemed Sale.—The following transactions
shall be deemed sale:
_______________
31 Records, p. 30.
32 Rollo, p. 326.
559
(1) Transfer, use or consumption not in the course
of business of goods or properties originally intended
for sale or for use in the course of business;
(2) Distribution or transfer to:
(a) Shareholders or investors as share in the profits
of the VAT-registered persons; or
(b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made
within sixty (60) days following the date such goods were
consigned; and
84
 (4) Retirement from or cessation of business, with respect
to inventories of taxable goods existing as of such retirement
or cessation.” (Our emphasis.)
After carefully examining this provision, this Court finds it
an equitable construction of the law that when the term “sale”
is made to include certain transactions for the purpose of
imposing a tax, these same transactions should be included in
the term “sale” when considering the availability of an
exemption or tax benefit from the same revenue measures. It
is undisputed that during the fourth quarter of 2002,
petitioner transferred to NPC all the electricity that was
produced during the trial period. The fact that it was not
transferred through a commercial sale or in the normal course
of business does not deflect from the fact that such transaction
is deemed as a sale under the law.
The seventh requirement regarding foreign currency
exchange proceeds is inapplicable where petitioner’s zero-
rated sale of electricity to NPC did not involve foreign
exchange and consisted only of a single transaction wherein
NPC paid petitioner P42,500,000.00 in exchange for the
electricity transferred to it by petitioner. Similarly, the eighth
requirement is inapplicable to this case, where the only sale
transaction consisted of an effectively zero-rated sale and
there are no exempt or taxable sales that transpired, which
will require the proportionate allocation of the creditable
input tax paid.560
The last requirement determines that the claim should be
filed within two years after the close of the taxable quarter
when such sales were made. The sale of electricity to NPC was
reported at the fourth quarter of 2002, which closed on 31
December 2002. Petitioner had until 30 December 2004 to file
its claim for refund or credit. For the period January to March
2002, petitioner filed an amended request for refund or tax
credit on 30 May 2003; for the period July 2002 to September
2002, on 27 February 2003; and for the period October 2002 to
December 2002, on 31 July 2003.33 In these three quarters,
petitioners seasonably filed its requests for refund and tax
credit. However, for the period April 2002 to May 2002, the
claim was filed prematurely on 25 October 2002, before the
last quarter had closed on 31 December 2002.34
Despite this lapse in procedure, this Court notes that
petitioner was able to positively show that it was able to
accumulate excess input taxes on various importations and
local purchases in the amount of P246,131,610.40, which were
attributable to a transfer of electricity in favor of NPC. The
fact that it had filed its claim for refund or credit during the
quarter when the transfer of electricity had taken place,
instead of at the close of the said quarter does not make
petitioner any less entitled to its claim. Given the special
circumstances of this case, wherein petitioner was
incorporated for the sole purpose of constructing or operating
a power plant that will transfer all the electricity it generates
to NPC, there is no danger that petitioner would try to
fraudulently claim input tax paid on purchases that will be
attributed to sale transactions that are not zero-rated.
Substantial justice, equity and fair play are on the side of the
petitioner. Technicalities and legalisms, however, exalted,
should not be misused by the government to keep money not
belonging to it, thereby enriching itself at the expense of its
law abiding citizens.
“Substantial justice, equity and fair play are on the side of
petitioner. Technicalities and legalisms, however exalted, should
not be misused by the government to keep money not belonging to
it, thereby enriching itself at the expense of its law-abiding citizens.
Under the principle of solutio indebiti provided in Art. 2154, Civil
Code, the BIR received something “when there [was] no right to
demand it,” and thus, it has the obligation to return it. Heavily
militating against respondent Commissioner is the ancient
principle that no one, not even the State, shall enrich oneself at the
expense of another. Indeed, simple justice requires the speedy
refund of the wrongly held taxes.”35
It bears emphasis that effective zero-rating is not intended
as a benefit to the person legally liable to pay the tax, such as
petitioner, but to relieve certain exempt entities, such as the
85
NPC, from the burden of indirect tax so as to encourage the
development of particular industries. Before, as well as after,
the adoption of the VAT, certain special laws were enacted for
the benefit of various entities and international agreements
were entered into by the Philippines with foreign
governments and institutions exempting sale of goods or
supply of services from indirect taxes at the level of their
suppliers. Effective zero-rating was intended to relieve the
exempt entity from being burdened with the indirect tax
which is or which will be shifted to it had there been no
exemption. In this case, petitioner is being exempted from
paying VAT on its purchases to relieve NPC of the burden of
additional costs that petitioner may shift to NPC by adding to
the cost of the electricity sold to the latter.36
Section 13 of Republic Act No. 6395, otherwise known as
the NPC Charter, further clarifies that it is the lawmakers’
intention that NPC be made completely exempt from all taxes,
both direct and indirect:
“Sec. 13. Non-profit Character of the Corporation; Exemption
from all Taxes, Duties, Fees, Imposts and Other Charges by
Government and Governmental Instrumentalities.—The corporation
shall be non-profit and shall devote all its returns from its capital
investment, as well as excess revenues from its operation, for
expansion. To enable the corporation to pay its indebtedness and
obligations and in furtherance and effective implementation of the
policy enunciated in Section 1 of this Act, the corporation is hereby
declared exempt:
(a) From the payment of all taxes, duties, fees, imposts,
charges, costs and service fees in any court or administrative
proceedings in which it may be a party, restrictions and duties to
the Republic of the Philippines, its provinces, cities, municipalities,
and other government agencies and instrumentalities;
(b) From all income taxes, franchise taxes, and realty taxes to
be paid to the National Government, its provinces, cities,
municipalities and other government agencies and
instrumentalities;
(c) From all import duties, compensating taxes and advanced
sales tax and wharfage fees on import of foreign goods, required for
its operations and projects; and
(d) From all taxes, duties, fees, imposts, and all other charges
imposed by the Republic of the Philippines, its provinces, cities,
municipalities and other government agencies and
instrumentalities, on all petroleum products used by the
corporation in the generation, transmission, utilization, and sale of
electric power.”
To limit the exemption granted to the NPC to direct taxes,
notwithstanding the general and broad language of the
statute will be to thwart the legislative intention in giving
exemption from all forms of taxes and impositions, without
distinguishing between those that are direct and those that
are not.37
Congress granted NPC a comprehensive tax exemption
because of the significant public interest involved. This is
enunciated in Section 1 of Republic Act No. 6395:
“Section 1. Declaration of Policy.—Congress hereby declares
that (1) the comprehensive development, utilization and
conservation of Philippine water resources for all beneficial uses,
including power generation, and (2) the total electrification of the
Philippines through the development of power from all sources to
meet the needs of industrial development and dispersal and the
needs of rural electrification are primary objectives of the nation
which shall be pursued coordinately and supported by all
instrumentalities and agencies of government, including its
financial institutions.”
The ability of the NPC to provide sufficient and affordable
electricity throughout the country greatly affects our
industrial and rural development. Erroneously and unjustly
depriving industries that generate electrical power of tax
benefits that the law clearly grants will have an immediate
effect on consumers of electricity and long term effects on our
economy.
In the same breath, we cannot lose sight of the fact that it
is the declared policy of the State, expressed in Section 2 of
Republic Act No. 9136, otherwise known as the EPIRA Law,
“to ensure and acceleratethe total electrification of the country”;
“to enhance the inflow of private capital and broaden the
ownership base of the power generation, transmission and
86
distribution sectors”; and “to promote the utilization of
indigenous and new and renewable energy resources in power
generation in order to reduce dependence on imported energy.”
Further, Section 6 provides that “pursuant to the objective of
lowering electricity rates to end-users, sales of generated power
by generation companies shall be value-added tax zero-rated.”
Section 75 of said law succinctly declares that “this Act
shall, unless the context indicates otherwise, be construed in
favor of the establishment, promotion, preservation of
competition and power empowerment so that the widest
participation of the people, whether directly or indirectly is
ensured.”564
The objectives as set forth in the EPIRA Law can only be
achieved if government were to allow petitioner and others
similarly situated to obtain the input tax credits available
under the law. Denying petitioner such credits would go
against the declared policies of the EPIRA Law.
The legislative grant of tax relief (whether in the EPIRA
Law or the Tax Code) constitutes a sovereign commitment of
Government to taxpayers that the latter can avail themselves
of certain tax reliefs and incentives in the course of their
business activities here. Such a commitment is particularly
vital to foreign investors who have been enticed to invest
heavily in our country’s infrastructure, and who have done so
on the firm assurance that certain tax reliefs and incentives
can be availed of in order to enable them to achieve their
projected returns on these very long-term and heavily funded
investments. While the government’s ability to keep its
commitment is put in doubt, credit rating turns to worse; the
costs of borrowing becomes higher and the harder it will be to
attract foreign investors. The country’s earnest efforts to move
forward will all be put to naught.
Having decided that petitioner is entitled to claim refund
or tax credit under Section 112(A) of the NIRC or on the basis
of effectively zero-rated sales in the amount of
P246,131,610.40, there is no more need to establish its right to
make the same claim under Section 112(B) of the NIRC or on
the basis of purchase of capital goods.
Finally, respondent contends that according to well-
established doctrine, a tax refund, which is in the nature of a
tax exemption, should be construed strictissimi juris against
the taxpayer.38 However, when the claim for refund has clear
legal basis and is sufficiently supported by evidence, as in the
present case, then the Court shall not hesitate to grant the
same.39
WHEREFORE, the instant Petition for Review is
GRANTED. The Decision of the Court of Tax Appeals En
Banc dated 20 September 2007 in CTA EB Case No. 248,
affirming the Decision dated 23 March 2006 of the CTA
Second Division in CTA Case No. 6916, is REVERSED.
Respondent Commissioner of Internal Revenue is ordered to
refund, or in the alternative, to issue a tax credit certificate to
petitioner San Roque Power Corporation in the amount of Two
Hundred Forty-Six Million One Hundred Thirty-One
Thousand Six Hundred Ten Pesos and 40/100
(P246,131,610.40), representing unutilized input VAT for the
period 1 January 2002 to 31 December 2002. No costs.
SO ORDERED.
Corona (Chairperson), Velasco, Jr., Nachura and Peralta,
JJ., concur.
Petition granted, judgment reversed.
Note.—Under Rep. Act No. 720, petitioner bank could
claim to be exempt from payment of all taxes, charges and
fees. With the passage of Executive Order No. 93, petitioner
could no longer claim any exemption from payment of
business taxes and permit fees. (Rural Bank of Makati, Inc.
vs. Municipality of Makati, 433 SCRA 362 [2004])
Under P.D. 1823, the Lung Center of the Philippines does
not enjoy any property tax exemption privileges for its real
properties as well as the building constructed thereon.—
(Lung Center of the Philippines vs. Quezon City, 433 SCRA
119 [2004])
——o0o——
87
 G.R. No. 171307. August 28, 2013.*
J.R.A. PHILIPPINES, INC., petitioner, vs. COMMISSIONER
OF INTERNAL REVENUE, respondent.
Taxation; Tax Refunds; Tax Credit; Case law dictates that in a
claim for tax refund or tax credit, the applicant must prove not only
entitlement to the claim but also compliance with all the
documentary and evidentiary requirements therefor.—Case law
dictates that in a claim for tax refund or tax credit, the applicant
must prove not only entitlement to the claim but also compliance
with all the documentary and evidentiary requirements therefor.
Section 110(A)(1) of the NIRC provides that creditable input taxes
must be evidenced by a VAT invoice or official receipt, which must,
in turn, comply with Sections 237 and 238 of the same law, as well
as Section 4.108.1 of RR 7-95. The foregoing provisions
require, inter alia, that an invoice must reflect, as required by law:
(a) the BIR Permit to Print; (b) the TIN-V of the purchaser; and (c)
the word “zero-rated” imprinted thereon. In this relation, failure to
comply with the said invoicing requirements provides sufficient
ground to deny a claim for tax refund or tax credit.
PETITION for review on certiorari of the decision and
resolution of the Court of Appeals.
The facts are stated in the resolution of the Court.
Salvador Guevarra & Associates for petitioner.
RESOLUTION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the
_______________
* SECOND DIVISION.
Decision2 dated September 20, 2005 and Resolution3 dated
January 27, 2006 of the Court of Tax Appeals (CTA) En
Banc in C.T.A. E.B. No. 35 which denied petitioner J.R.A.
Philippines, Inc.’s (petitioner) claim for refund or its
unutilized input value-added tax (VAT) for the calendar year
1999 in the amount of P7,786,61.04.
The Facts
Petitioner is a VAT and Philippine Economic Zone
Authority (PEZA) registered corporation engaged in the
manufacture and export of ready-to-wear items.4 It claimed to
have paid the aggregate sum of P7,786,614.04 as excess input
VAT for the calendar year 1999, which amount it purportedly
used to purchase domestic goods and services directly
attributable to its zero-rated export sales.5 Alleging that its
input VAT remained unutilized as it has not engaged in any
business activity or transaction for which it may be liable for
output VAT, petitioner filed four separate applications for tax
refund with the One-Stop Shop Inter-Agency Tax Credit and
Duty Drawback Center of the Department of Finance.6 When
the same was not acted upon by respondent Commissioner of
Internal Revenue (CIR) — and in order to toll the two-year
prescriptive period under Section 2297 of Republic Act No.
(RA) 8424,8 as amended, otherwise known as the National
Internal Revenue Code (NIRC) — petitioner filed a petition
for review9 before the CTA, docketed as CTA Case No. 6249.
In its Answer,10 the CIR contended that since petitioner is
registered with the PEZA, its business was not subject to VAT
as provided under Section 2411 of RA 7916,12 otherwise known
as “The Special Economic Zone Act of 1995,” in relation to
Section 109(q)13 of the NIRC. Hence, it is not entitled to credit
its input VAT under Section 4.103-1 of Revenue Regulations
No. (RR) 7-95.14 Besides, petitioner’s alleged unutilized input
VAT for 1999 was not properly documented.15
The Proceedings Before the CTA
On March 16, 2004, the CTA Division16rendered a
Decision17 denying petitioner’s claim for input VAT refund on
the ground that all of its export sales invoices: (a) have no
Bureau of Internal Revenue (BIR) Permit to Print; (b) did not
contain its Taxpayer’s Identification Number-VAT (TIN-V);
and (c) the word “zero-rated” was not imprinted thereon in
violation of Section 113(A)18 in relation to Section 238 of the
NIRC and
_______________
13 SEC. 109. Exempt Transactions.—The following shall be exempt from
the value-added tax:
xxxx
(q) Transactions which are exempt under international agreements to
which the Philippines is a signatory or under special laws, except those under
Presidential Decree Nos. 66, 529 and 1590;
xxxx
88
 14 Rollo, p. 123. as Section 4.108-1 of RR 7-95.27 Further, it affirmed the earlier
15 Id.
finding that petitioner’s export sales invoices had no BIR
16 The specific division is not indicated in the records.
17 Rollo, pp. 163-175. Penned by Associate Judge Juanito C. Castañeda, Permit to Print and did not contain its TIN-V and the words
Jr., with Associate Judge Lovell R. Bautista, concurring. “zero-rated.” As such, the documents it submitted were
18 SEC. 113. Invoicing and Accounting Requirements for VAT-Registered insufficient to prove the zero-rated export sales of the goods
Persons.—
(A) Invoicing Requirements.—A VAT-registered person shall, for every
for input VAT refund purposes.28was, similarly, denied in a
sale, issue an invoice or receipt. In addition to the information required under Resolution dated January 27, 2006.29Hence, the instant
Section 237, the following information shall be indicated in the invoice or petition.
receipt: The Issue Before the Court
(1) A statement that the seller is a VAT-registered person, followed by his
taxpayer’s identification number (TIN); and
The sole issue in this case is whether or not the CTA erred
(2) The total amount which the purchaser pays or is obligated to pay to in denying petitioner’s claim for tax refund.
the seller with the indication that such amount includes the value-added tax. The Court’s Ruling
xxxx The petition lacks merit.
98
Case law dictates that in a claim for tax refund or tax
98 SUPREME COURT REPORTS ANNOTATED
credit, the applicant must prove not only entitlement to the
J.R.A. Philippines, Inc. vs. Commissioner of Internal
claim but also compliance with all the documentary and
Revenue
evidentiary requirements therefor.30Section 110(A)(1)31 of the
Section 4.108-1 of RR 7-95.19 Having thus failed to comply with
NIRC provides that creditable input taxes must be evidenced
the invoicing requirements, petitioner’s evidence was deemed
by a VAT invoice or official receipt, which must, in turn,
insufficient to establish its zero-rated export sales for input
comply with Sections 23732 and 23833 of the same law, as well
VAT refund purposes.20
as Section 4.108.134 of RR 7-95. The foregoing provisions
Dissatisfied, petitioner filed a motion for
require, inter alia, that an invoice must reflect, as required by
reconsideration which was, however, denied in a
21
law: (a) the BIR Permit to Print; (b) the TIN-V of the
Resolution22 dated September 20, 2004.
purchaser; and (c) the word “zero-rated” imprinted thereon. In
Unperturbed, petitioner elevated the matter before the
this relation, failure to comply with the said invoicing
CTA En Banc, arguing that the export sales invoices are not
requirements provides sufficient ground to deny a claim for
the sole basis to prove export sales.23 In this accord, it posited
tax refund or tax credit.35
that its export sales should be deemed properly documented
In this case, records show that all of the export sales
and substantiated by the bills of lading, airway bills, and
invoices presented by petitioner not only lack the word “zero-
export documents24 as these documents are the best evidence
rated” but also failed to reflect its BIR Permit to Print as well
to prove the actual exportation of the goods.25
as its TIN-V. Thus, it cannot be gainsaid that it failed to
On September 20, 2005, the CTA En Banc issued the
comply with the above-stated invoicing requirements, thereby
assailed Decision,26denying petitioner’s claim for input VAT
rendering improper its claim for tax refund. Clearly,
refund. It ruled that petitioner failed to establish the fact that
compliance with all the VAT invoicing requirements is
its 1999 export sales were “zero-rated” for VAT purposes as it
required to be able to file a claim for input taxes attributable
failed to comply with the substantiation requirements under
to zero-rated sales. As held in Microsoft Philippines, Inc. v.
Section 113(A) in relation to Section 238 of the NIRC, as well
CIR:36
89
 The invoicing requirements for a VAT-registered taxpayer plain to be mistaken and too categorical to be misinterpreted.
as provided in the NIRC and revenue regulations are clear. A (Gulf Air Company, Philippine Branch [GF] vs. Commissioner
VAT-registered taxpayer is required to comply with all of Internal Revenue, 681 SCRA 377 [2012])
the VAT invoicing requirements to be able to file for a The Court has categorically declared that “[t]he proper
claim for input taxes on domestic purchases for goods
party to question, or seek a refund of, an indirect tax is the
or services attributable to zero-rated sales. A “VAT
statutory taxpayer, the person on whom the tax is imposed by
invoice” is an invoice that meets the requirements of Section
4.108-1 of RR 7-95. Contrary to Microsoft’s claim, RR-7-95 law and who paid the same even if he shifts the burden
expressly states that “[A]ll purchases covered by invoice other thereof to another.” (Diageo Philippines, Inc. vs.
than a VAT invoice shall not give rise to any input tax. Commissioner of Internal Revenue, 685 SCRA 168 [2012])
Microsoft’s invoice, lacking the word “zero-rated,” is ——o0o——
_______________ _______________
Only VAT-registered persons are required to print their TIN followed by the 37 Id., at p. 405.
word “VAT” in their invoices or receipts and this shall be considered as a ** Designated Acting Member per Special Order No. 1525 dated August 22,
“VAT-invoice.” All purchases covered by invoices other than “VAT Invoice” 2013.
shall not give rise to any input tax. © Copyright 2018 Central Book Supply, Inc. All rights reserved.
35 Eastern Telecommunications Philippines, Inc. v. CIR, G.R. No. 168856,
August 29, 2012, 679 SCRA 305, 313.
36 G.R. No. 180173, April 6, 2011, 647 SCRA 398. See also J.R.A. Philippines,
Inc. v. CIR, October 11, 2010, 632 SCRA 517, 525-527.
102
102 SUPREME COURT REPORTS
ANNOTATED
J.R.A. Philippines, Inc. vs. Commissioner of Internal
Revenue
not a “VAT invoice,” and thus cannot give rise to any input
tax.37 (Emphasis supplied).
All told, the CTA committed no reversible error in denying
petitioner’s refund claim.
WHEREFORE, the petition is DENIED. Accordingly, the
Decision dated September 20, 2005 and Resolution dated
January 27, 2006 of the Court of Tax Appeals En Banc in
C.T.A. E.B. No. 35 are hereby AFFIRMED.
SO ORDERED.
Carpio (Chairperson), Peralta,** Del Castillo and Perez,
JJ., concur.
Petition denied, judgment and resolution affirmed.
Notes.—Tax refunds are construed strictly against a
taxpayer and liberally in favor of the State such that he who
claims a refund or exemption must justify it by words too

90
 submitted and, thus, dictate the running of the 120-day period,
G.R. No. 207112. December 8, 2015.* would undermine these objectives, as it would provide the CIR the
unbridled power to indefinitely delay the administrative claim,
PILIPINAS TOTAL GAS, INC., which would ultimately prevent the filing of a judicial claim with
the CTA.
petitioner, vs. COMMISSIONER OF INTERNAL REVENUE,
Same; Same; Same; For purposes of determining when the
respondent.
supporting documents have been completed — it is the taxpayer who
Taxation; Tax Credit; Tax Refund; The Commissioner of
ultimately determines when complete documents have been
Internal Revenue (CIR) has one hundred twenty (120) days from the
submitted for the purpose of commencing and continuing the
date of submission of complete documents to decide a claim for tax
running of the one hundred twenty (120)-day period.—With the
credit or refund of creditable input taxes. The taxpayer may, within
amendments only with respect to its place under Section 112, the
thirty (30) days from receipt of the denial of the claim or after the
Court finds that RMC No. 49-2003 should still be observed. Thus,
expiration of the 120-day period, which is considered a “denial due
taking the foregoing changes to the law altogether, it becomes
to inaction,” appeal the decision or unacted claim to the Court of Tax
apparent that, for purposes of determining when the supporting
Appeals (CTA).—It is apparent that the CIR has 120 days from the
documents have been completed — it is the taxpayer who ultimately
date of submission of complete documents to decide a claim for
determines when complete documents have been submitted for the
tax credit or refund of creditable input taxes. The taxpayer may,
purpose of commencing and continuing the running of the 120-day
within 30 days from receipt of the denial of the claim or after the
period. After all, he may have already completed the necessary
expiration of the 120-day period, which is considered a “denial due
documents the moment he filed his administrative claim, in which
to inaction,” appeal the decision or unacted claim to the CTA. To be
case, the 120-day period is reckoned from the date of filing. The
clear, Section 112(C) categorically provides that the 120-day period
taxpayer may have also filed the complete documents on the
is counted “from the date of submission of complete
30th day from filing of his application, pursuant to RMC No. 49-
documents in support of the application.” Contrary to this
2003. He may very well have filed his supporting documents on the
mandate, the CTA En Banc counted the running of the period from
first day he was notified by the BIR of the lack of the necessary
the date the application for refund was filed or May 15, 2008, and,
documents. In such cases, the 120-day period is computed from the
thus, ruled that the judicial claim was belatedly filed.
date the taxpayer is able to submit the complete documents in
Same; Same; Same; The one hundred twenty (120)-day period
support of his application.
granted to the Commissioner of Internal Revenue (CIR) to decide the
Same; Same; Same; In a claim for tax credit or refund, it is the
administrative claim under the Section 112 is primarily intended to
taxpayer who has the burden to prove his cause of action. As such, he
benefit the taxpayer, to ensure that his claim is decided judiciously
enjoys relative freedom to submit such evidence to prove his claim.—
and expeditiously.—Indeed, the 120-day period granted to the CIR
Except in those instances where the BIR would require additional
to decide the administrative claim under the Section 112 is
documents in order to fully appreciate a claim for tax credit or
primarily intended to benefit the taxpayer, to ensure that his claim
refund, in terms what additional document must be presented in
is decided judiciously and expeditiously. After all, the sooner the
support of a claim for tax credit or refund — it is the taxpayer who
taxpayer successfully processes his refund, the sooner can such
has that right and the burden of providing any and all documents
resources be further reinvested to the business translating to
that would support his claim for tax credit or refund. After all, in a
greater efficiencies and productivities that would ultimately uplift
claim for tax credit or refund, it is the taxpayer who has the burden
the general welfare. To allow the CIR to determine the
to prove his cause of action. As such, he enjoys relative freedom to
completeness of the documents
submit such evidence to prove his claim.
_______________

91
 Same; Same; Same; Under Section 112(A) of the National
Internal Revenue Code (NIRC), as amended by Republic Act (RA)
No. 9337, a taxpayer has two (2) years, after the close of the taxable
quarter when the sales were made, to apply for the issuance of a tax
credit certificate or refund of creditable input tax due or paid
attributable to such sales.—Under Section 112(A) of the NIRC, as
amended by R.A. No. 9337, a taxpayer has two (2) years, after the
close of the taxable quarter when the sales were made, to apply for
the issuance of a tax credit certificate or refund of creditable input
tax due or paid attributable to such sales. Thus, before the
administrative claim is barred by prescription, the taxpayer must
be able to submit his complete documents in support of the
application filed. This is because, it is upon the complete submission
of his documents in support of his application that it can be said
that the application was, “officially received” as provided under
RMC No. 49-2003.
Same; Same; Same; From the date an administrative claim for
excess unutilized value-added tax (VAT) is filed, a taxpayer has
thirty (30) days within which to submit the documentary
requirements sufficient to support his claim, unless given further
extension by the Commissioner of Internal Revenue (CIR).—To
summarize, for the just disposition of the subject controversy, the
rule is that from the date an administrative claim for excess
unutilized VAT is filed, a taxpayer has thirty (30) days within
which to submit the documentary requirements sufficient to
support his claim, unless given further extension by the CIR. Then,
upon filing by the taxpayer of his complete documents to support
his application, or expiration of the period given, the CIR has 120
days within which to decide the claim for tax credit or refund.
Should the taxpayer, on the date of his filing, manifest that he no
longer wishes to submit any other addition documents to complete
his administrative claim, the 120-day period allowed to the CIR
begins to run from the date of filing.
Same; Same; Same; In all cases, whatever documents a
taxpayer intends to file to support his claim must be completed
within the two (2)-year period under Section 112(A) of the National
Internal Revenue Code (NIRC).—In all cases, whatever documents a
taxpayer intends to file to support his claim must be completed
within the two-year period under Section 112(A) of the NIRC. The
30-day period from denial of the claim or from the expiration of the
120-day period within which to appeal the denial or inaction of the
CIR to the CTA must also be respected.
Same; Same; Same; Under the current rule, the reckoning of the
one hundred twenty (120)-day period has been withdrawn from the
taxpayer by Revenue Memorandum Circular (RMC) No. 54-2014,
since it requires him at the time he files his claim to complete his
supporting documents and attest that he will no longer submit any
other document to prove his claim.—Under the current rule, the
reckoning of the 120-day period has been withdrawn from the
taxpayer by RMC No. 54-2014, since it requires him at the time he
files his claim to complete his supporting documents and attest that
he will no longer submit any other document to prove his claim.
Further, the taxpayer is barred from submitting additional
documents after he has filed his administrative claim. On this
score, the Court finds that the foregoing issuance cannot be
applied retroactively to the case at barsince it imposes new
obligations upon taxpayers in order to perfect their administrative
claim, that is, [1] compliance with the mandate to submit the
“supporting documents” enumerated under RMC No. 54-2014 under
its “Annex A”; and [2] the filing of “a statement under oath attesting
to the completeness of the submitted documents,” referred to in
RMC No. 54-2014 as “Annex B.” This should not prejudice
taxpayers who have every right to pursue their claims in the
manner provided by existing regulations at the time it was filed.
Same; Same; Same; Revenue Memorandum Order (RMO) No.
53-98 is addressed to internal revenue officers and employees, for
purposes of equity and uniformity, to guide them as to what
documents they may require taxpayers to present upon audit of their
tax liabilities.—As can be gleaned from the above, RMO No. 53-98 is
addressed to internal revenue officers and employees, for purposes
of equity and uniformity, to guide them as to what documents they
may require taxpayers to present upon audit of their tax
liabilities. Nothing stated in the issuance would show that it was
intended to be a benchmark in determining whether the documents
submitted by a taxpayer are actually complete to support a claim
for tax credit or refund of excess unutilized excess VAT.
Same; Same; Same; A taxpayer’s failure with the requirements
listed under Revenue Memorandum Order (RMO) No. 53-98 is not
fatal to its claim for tax credit or refund of excess unutilized excess
value-added tax (VAT).—Indeed, a taxpayer’s failure with the
92
requirements listed under RMO No. 53-98 is not fatal to its claim
for tax credit or refund of excess unutilized excess VAT. This holds
especially true when the application for tax credit or refund of
excess unutilized excess VAT has arrived at the judicial level. After
all, in the judicial level or when the case is elevated to the Court,
the Rules of Court governs. Simply put, the question of whether the
evidence submitted by a party is sufficient to warrant the granting
of its prayer lies within the sound discretion and judgment of the
Court.
Same; Same; Same; While it is still true a taxpayer must prove
not only his entitlement to a refund but also his compliance with the
procedural due process — it is also true that when the law or rule
mandates that a party or authority must comply with a specific
obligation to perform an act for the benefit of another, the
noncompliance thereof by the former should not operate to prejudice
the latter, lest it render the nugatory the objective of the rule.—While
it is still true a taxpayer must prove not only his entitlement to a
refund but also his compliance with the procedural due process — it
is also true that when the law or rule mandates that a party or
authority must comply with a specific obligation to perform an act
for the benefit of another, the noncompliance thereof by the former
should not operate to prejudice the latter, lest it render the
nugatory the objective of the rule. Such is the situation in case at
bar.
Same; Same; Same; It is the taxpayer who determines when
complete documents have been submitted for the purpose of the
running of the one hundred twenty (120)-day period.—The alleged
failure of Total Gas to submit the complete documents at the
administrative level did not render its petition for review with the
CTA dismissible for lack of jurisdiction. First, the 120-day period
had commenced to run and the 120+30 day period was, in fact,
complied with. As already discussed, it is the taxpayer who
determines when complete documents have been submitted for the
purpose of the running of the 120-day period. It must again be
pointed out that this in no way precludes the CIR from requiring
additional documents necessary to decide the claim, or even denying
the claim if the taxpayer fails to submit the additional documents
requested.
Same; Same; Same; A distinction must be made between
administrative cases appealed due to inaction and those dismissed
at the administrative level due to the failure of the taxpayer to
submit supporting documents.—A distinction must be made
between administrative cases appealed due to inaction and those
dismissed at the administrative level due to the failure of the
taxpayer to submit supporting documents. If an administrative
claim was dismissed by the CIR due to the taxpayer’s failure to
submit complete documents despite notice/request, then the judicial
claim before the CTA would be dismissible, not for lack of
jurisdiction, but for the taxpayer’s failure to substantiate the claim
at the administrative level. When a judicial claim for refund or tax
credit in the CTA is an appeal of an unsuccessful administrative
claim, the taxpayer has to convince the CTA that the CIR had no
reason to deny its claim. It, thus, becomes imperative for the
taxpayer to show the CTA that not only is he entitled under
substantive law to his claim for refund or tax credit, but also that
he satisfied all the documentary and evidentiary requirements for
an administrative claim. It is, thus, crucial for a taxpayer in a
judicial claim for refund or tax credit to show that its
administrative claim should have been granted in the first place.
Consequently, a taxpayer cannot cure its failure to submit a
document requested by the BIR at the administrative level by filing
the said document before the CTA.
LEONEN, J., Concurring Opinion:
Taxation; Tax Credit; Tax Refund; View that it is the taxpayer’s
burden to determine whether complete documents have been
submitted for purposes of computing the one hundred twenty (120)-
day period for the Commissioner to decide administrative claims.—I
concur with the ponencia in the result. I agree that it is the
taxpayer’s burden to determine whether complete documents have
been submitted for purposes of computing the 120-day period for
the Commissioner to decide administrative claims. Between the
taxpayer and the Commissioner, it is the former that has the
greater incentive to (a) have its case decided expeditiously by the
Bureau of Internal Revenue, and (b) in cases where it prefers to
have the Court of Tax Appeals rule on its case, have the
administrative period lapse. Besides, the sooner the taxpayer is
93
able to get a refund, the sooner its resources can be further
reinvested into our economy, thus translating to greater efficiencies,
productivities, and an increase in overall welfare.
Same; Same; Same; View that it is not to the government’s
interest to allow the Bureau of Internal Revenue (BIR) to
determine whether the documents are complete.—It is not to the
government’s interest to allow the Bureau of Internal Revenue to
determine whether the documents are complete. Otherwise, we
would sanction bias on its part with the corresponding
opportunities for illicit rent-seeking that deters honest investors
and prudent entrepreneurship. Should the documents, in the
opinion of the Commissioner, be incomplete, then the Commissioner
should simply proceed to decide on the administrative claim. The
sooner it is resolved, the better its effect on our economy. After all,
it is truly the taxpayer that has the burden of proving its basis for a
claim for tax exemptions and VAT refunds.
Same; Same; Same; View that any attempt on the part of the
taxpayer to amend or add to the documents it initially submitted
after an administrative finding by the Commissioner would,
therefore, be unacceptable.—Any attempt on the part of the
taxpayer to amend or add to the documents it initially submitted
after an administrative finding by the Commissioner would,
therefore, be unacceptable. This way, the prerogative of the
taxpayer and the interest of the state, in not making the regulatory
period of 120 days in Section 112(D) flexible, could be met.
Therefore, I do not agree that the effect of Revenue Memorandum
Circular No. 54-2014 and its validity should be decided in this case
to arrive at the required result.
PETITION for review on certiorari of the decision and
resolution of the Court of Tax Appeals En Banc.
The facts are stated in the opinion of the Court.
Jesus Clint O. Aranas for petitioner.
The Solicitor General for respondent.
MENDOZA, J.:
Before the Court is a petition for review
on certiorari under Rule 45 of the Rules of Court assailing the
1
October 11, 2012 Decision2 and the May 8, 2013 Resolution3of
the Court of Tax Appeals (CTA) En Banc, in C.T.A. E.B. Case
No. 776, which affirmed the January 13, 2011 Decision4 of the
CTA Third Division (CTA Division) in CTA Case No. 7863.
The Facts
Petitioner Pilipinas Total Gas, Inc. (Total Gas) is engaged
in the business of selling, transporting and distributing
industrial gas. It is also engaged in the sale of gas equipment
and other related businesses. For this purpose, Total Gas
registered itself with the Bureau of Internal Revenue (BIR) as
a Value-Added Tax (VAT) taxpayer.
On April 20, 2007 and July 20, 2007, Total Gas filed its
Original Quarterly VAT Returns for the First and Second
quarters of 2007, respectively with the BIR.
On May 20, 2008, it filed its Amended Quarterly VAT
Returns for the first two quarters of 2007 reflecting its sales
subject to VAT, zero-rated sales, and domestic purchases of
noncapital goods and services.
For the First and Second quarters of 2007, Total Gas
claimed it incurred unutilized input VAT credits from its
domestic purchases of noncapital goods and services in the
total amount of P8,124,400.35. Of this total accumulated
input VAT, Total Gas claimed that it had P7,898,433.98
excess unutilized input VAT.
On May 15, 2008, Total Gas filed an administrative claim
for refund of unutilized input VAT for the first two quarters of
taxable year 2007, inclusive of supporting documents.
On August 28, 2008, Total Gas submitted additional
supporting documents to the BIR.
On January 23, 2009, Total Gas elevated the matter to the
CTA in view of the inaction of the Commissioner of Internal
Revenue (CIR).
During the hearing, Total Gas presented, as witnesses,
Rosalia T. Yu and Richard Go, who identified documentary
evidence marked as Exhibits “A” to “ZZ-1,” all of which were
94
admitted. Respondent CIR, on the other hand, did not adduce
any evidence and had the case submitted for decision.
Ruling of the CTA Division
In its January 13, 2011 Decision,5 the CTA Division
dismissed the petition for being prematurely filed. It
explained that Total Gas failed to complete the necessary
documents to substantiate a claim for refund of unutilized
input VAT on purchases of goods and services enumerated
under Revenue Memorandum Order (RMO) No. 53-98. Of note
were the lack of Summary List of Local Purchases and the
certifications from the Office of the Board of Investment
(BOD), the Bureau of Customs (BOC), and the Philippine
Economic Zone Authority (PEZA) that the taxpayer had not
filed any similar claim for refund covering the same period.6
Believing that Total Gas failed to complete the necessary
documents to substantiate its claim for refund, the CTA
Division was of the view that the 120-day period allowed to
the CIR to decide its claim under Section 112(C) of the
National Internal Revenue Code of 1997 (NIRC), had not even
started to run. With this, the CTA Division opined that the
petition for review was prematurely filed because Total Gas
failed to exhaust the appropriate administrative remedies.
The CTA Division stressed that tax refunds partake of the
nature of an exemption, putting into operation the rule of
strict interpretation, with the taxpayer being charged with
the burden of proving that he had satisfied all the statutory
and administrative requirements.7
Total Gas sought for reconsideration8from the CTA
Division, but its motion was denied for lack of merit in a
Resolution, dated April 19, 2011.9 In the same resolution, it
reiterated that “that the complete supporting documents
should be submitted to the BIR before the 120-day period for
the Commissioner to decide the claim for refund shall
commence to run. It is only upon the lapse of the 120-day
period that the taxpayer can appeal the inaction [to the
CTA.]”10 It noted that RMO No. 53-98, which provides a
checklist of documents for the BIR to consider in granting
claims for refund, also serves as a guideline for the courts to
determine if the taxpayer had submitted complete supporting
documents.11 It also stated that Total Gas could not invoke
Revenue Memorandum Circular (RMC) No. 29-09 because it
was issued after the administrative claim was filed and could
not be applied retroactively.12 Thus, the CTA Division
disposed:
WHEREFORE, premises considered, the present
Petition for Review is hereby DENIED DUE COURSE,
and accordingly DISMISSED for having been
prematurely filed.
SO ORDERED.13
Ruling of the CTA En Banc
In its assailed decision, the CTA En Banc likewise denied
the petition for review of Total Gas for lack of merit. It
condensed its arguments into two core issues, to wit: (1)
whether Total Gas seasonably filed its judicial claim for
refund; and (2) whether it was unable to substantiate its
administrative claim for refund by failing to submit the
required documents that would allow respondent to act on it.14
As to the first issue, the CTA En Banc ruled that the CTA
Division had no jurisdiction over the case because Total Gas
failed to seasonably file its petition. Counting from the date it
filed its administrative claim on May 15, 2008, the CTA En
Banc explained that the CIR had 120 days to act on the claim
(until September 12, 2008), and Total Gas had 30 days from
then, or until October 12, 2008, to question the inaction before
the CTA. Considering that Total Gas only filed its petition on
January 23, 2009, the CTA En Banc concluded that the
petition for review was belatedly filed. For the tax court, the
120-day period could not commence on the day Total Gas filed
its last supporting document on August 28, 2008, because to
95
allow such would give the taxpayer unlimited discretion to
indefinitely extend the 120-day period by simply filing the
required documents piecemeal.15
As to the second issue, the CTA En Bancaffirmed the CTA
Division that Total Gas failed to submit the complete
supporting documents to warrant the grant of its application
for refund. Quoting the pertinent portion of the decision of its
division, the CTA En Banc likewise concurred in its finding
that the judicial claim of Total Gas was prematurely filed
because the 120-day period for the CIR to decide the claim
had yet to commence to run due to the lack of essential
documents.16
Total Gas filed a motion for reconsideration,17 but it was
denied in the assailed resolution of the CTA En Banc.18
Hence, the present petition.
Issues
(a) whether the judicial claim for refund was
belatedly filed on 23 January 2009, or way beyond
the 30-day period to appeal as provided in Section
112(c) of the Tax Code, as amended; and
(b) whether the submission of incomplete
documents at the administrative level (BIR)
renders the judicial claim premature and
dismissible for lack of jurisdiction.19
In its petition, Total Gas argues that its judicial claim was
filed within the prescriptive period for claiming excess
unutilized input VAT refund as provided under Section 112 of
the NIRC and expounded in the Court’s ruling in CIR v. Aichi
Forging Company of Asia20 (Aichi)and in compliance with
Section 112 of the NIRC. In addition to citing Section 112(C)
of the Tax Code, Total Gas points out that in one of its
previous claims for refund of excess unutilized input VAT, the
CTA En Banc in CTA En Banc Case No. 674,21faulted the BIR
in not considering that the reckoning period for the 120-day
period should be counted from the date of submission of
complete documents.22 It then adds that the previous ruling of
the CTA En Bancwas in accordance with law because Section
112(C) of the Tax Code is clear in providing that the 120-day
period should be counted from the date of its submission of the
complete documents or from August 28, 2008 and not from the
date it filed its administrative claim on May 15, 2008. 23Total
Gas argues that, since its claim was filed within the period of
exception provided in CIR v. San Roque Power
Corporation24 (San Roque), it did not have to strictly comply
with 120+30-day period before it could seek judicial relief.25
Moreover, Total Gas questions the logic of the CTA En
Banc which stated that the petition was filed both belatedly
and prematurely. Total Gas points out that on the one hand,
the CTA En Banc ruled that it filed the judicial claim
belatedly as it was way beyond the 120+30-day period. Yet, it
also affirmed the findings of its division that its petition for
review was prematurely filed since the 120-day period did not
even commence to run for lack of complete supporting
documents.26
For Total Gas, the CTA En Banc violated the doctrine
of stare decisis because the tax tribunal had, on numerous
occasions, held that the submission of incomplete supporting
documents should not make the judicial appeal premature
and dismissible for lack of jurisdiction. In these decisions, the
CTA En Banc had previously held that noncompliance with
RMO No. 53-98 should not be fatal since the requirements
listed therein refer to requirements for refund or tax credit in
the administrative level for purposes of establishing the
authenticity of a taxpayer’s claim; and that in the judicial
level, it is the Rules of Court that govern and, thus, whether
or not the evidence submitted by the party to the court is
sufficient lies within the sound discretion of the court. Total
Gas emphasizes that RMO No. 53-98 does not state that non-
submission of supporting documents will nullify the judicial
claim. It posits that once a judicial claim is filed, what should
96
be examined are the evidence formally offered in the judicial
proceedings.27
Even assuming that the supporting documents submitted
to the BIR were incomplete, Total Gas argues that there was
no legal basis to hold that the CIR could not decide or act on
the claim for refund without the complete supporting
documents. It argues that under RMC No. 29-09, the BIR is
tasked with the duty to notify the taxpayer of the
incompleteness of its supporting documents and, if the
taxpayer fails to complete the supporting documents despite
such notice, the same shall be denied. The same regulation
provides that for purposes of computing the 120-day period, it
should be considered tolled when the taxpayer is notified.
Total Gas, however, insists that it was never notified and,
therefore, was justified in seeking judicial relief.28
Although Total Gas admits that RMC No. 29-09 was not
yet issued at the time it filed its administrative claim, the BIR
still erred for not notifying them of their lack of supporting
documents. According to Total Gas, the power to notify a
taxpayer of lacking documents and to deny its claim if the
latter would not comply is inherent in the CIR’s power to
decide refund cases pursuant to Section 4 of the NIRC. It adds
“[s]ound policy also dictates that it should be the taxpayer
who should determine whether he has already submitted all
documents pertinent to his claim. To rule otherwise would
result into a never-ending conflict/issue as to the completeness
of documents which, in turn, would delay the taxpayer’s claim,
and would put to naught the protection afforded by Section
112(C) of the Tax Code.”29
In her Comment,30 the CIR echoed the ruling of the CTA En
Banc, that Total Gas filed its petition out of time. She
countered that the 120-day period could not be counted from
the time Total Gas submitted its additional documents on
August 28, 2008 because such an interpretation of Section
112(D) would indefinitely extend the prescriptive period as
provided in favor of the taxpayer.
In its Reply,31 Total Gas insisted that Section 112(C) stated
that the 120-day period should be reckoned from the date of
submission of complete documents, and not from the date of
the filing of the administrative claim.
Ruling of the Court
The petition has merit.
Judicial claim timely filed
Section 112(C) of the NIRC provides:
SEC. 112. Refunds or Tax Credits of Input
Tax.—
xxxx
(C) Period within which Refund or Tax Credit of
Input Taxes shall be Made.—In proper cases, the
Commissioner shall grant a refund or issue the tax
credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of
submission of complete documents in support of the
application filed in accordance with 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) daysfrom the receipt of the decision denying
the claim or after the expiration of the one hundred
twenty day-period, appeal the decision or the unacted
claim with the Court of Tax Appeals.
xxxx
[Emphasis and underscoring supplied]
97
 From the above, it is apparent that the CIR has 120
days from the date of submission of complete
documents to decide a claim for tax credit or refund of
creditable input taxes. The taxpayer may, within 30 days from
receipt of the denial of the claim or after the expiration of the
120-day period, which is considered a “denial due to inaction,”
appeal the decision or unacted claim to the CTA.
To be clear, Section 112(C) categorically provides that the
120-day period is counted “from the date of submission of
complete documents in support of the application.”
Contrary to this mandate, the CTA En Banc counted the
running of the period from the date the application for refund
was filed or May 15, 2008, and, thus, ruled that the judicial
claim was belatedly filed.
This should be corrected.
Indeed, the 120-day period granted to the CIR to decide the
administrative claim under the Section 112 is primarily
intended to benefit the taxpayer, to ensure that his claim is
decided judiciously and expeditiously. After all, the sooner the
taxpayer successfully processes his refund, the sooner can
such resources be further reinvested to the business
translating to greater efficiencies and productivities that
would ultimately uplift the general welfare. To allow the CIR
to determine the completeness of the documents submitted
and, thus, dictate the running of the 120-day period, would
undermine these objectives, as it would provide the CIR the
unbridled power to indefinitely delay the administrative
claim, which would ultimately prevent the filing of a judicial
claim with the CTA.
A hypothetical situation illustrates the hazards of granting
the CIR the authority to decide when complete documents
have been submitted — A taxpayer files its administrative
claim for VAT refund/credit with supporting documents. After
121 days, the CIR informs the taxpayer that it must submit
additional documents. Considering that the CIR had
determined that complete documents have not yet been
submitted, the 120-day period to decide the administrative
claim has not yet begun to run. In the meantime, more than
120 days have already passed since the application with the
supporting documents was filed to the detriment of the
taxpayer, who has no opportunity to file a judicial claim until
the lapse of the 120+30-day period in Section 112(C). With no
limitation to the period for the CIR to determine when
complete documents have been submitted, the taxpayer may
be left in a limbo and at the mercy of the CIR, with no
adequate remedy available to hasten the processing of its
administrative claim.
Thus, the question must be asked: In an administrative
claim for tax credit or refund of creditable input VAT, from
what point does the law allow the CIR to determine when it
should decide an application for refund? Or stated
differently: Under present law, when should the submission of
documents be deemed “completed” for purposes of determining
the running of the 120-day period?
Ideally, upon filing his administrative claim, a taxpayer
should complete the necessary documents to support his claim
for tax credit or refund or for excess utilized VAT. After all,
should the taxpayer decide to submit additional documents
and effectively extend the 120-day period, it grants the CIR
more time to decide the claim. Moreover, it would be
prejudicial to the interest of a taxpayer to prolong the period
of processing of his application before he may reap the
benefits of his claim. Therefore, ideally, the CIR has a period
of 120 days from the date an administrative claim is filed
within which to decide if a claim for tax credit or refund of
excess unutilized VAT has merit.
Thus, when the VAT was first introduced through
Executive Order No. 273,32 the pertinent rule was that:
(e) Period within which refund of input taxes may be
made by the Commissioner.—The Commissioner shall
refund input taxes within 60 days from the date the
application for refund was filed with him or his duly
authorized representative. No refund or input taxes
98
 shall be allowed unless the VAT-registered person files
an application for refund within the period prescribed in
paragraphs (a), (b) and (c), as the case may be.
[Emphasis supplied]
Here, the CIR was not only given 60 days within which to
decide an administrative claim for refund of input taxes, but
the beginning of the period was reckoned “from the date the
application for refund was filed.”
When Republic Act (R.A.) No. 771633was, however, enacted
on May 5, 1994, the law was amended to read:
(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 for creditable input taxes within sixty (60)
days from the date of submission of complete
documents in support of the application filed in
accordance with sub-paragraphs (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 sixty-day period, appeal the
decision or the unacted claim with the Court of Tax
Appeals.
[Emphasis supplied]
Again, while the CIR was given only 60 days within which
to act upon an administrative claim for refund or tax credit,
the period came to be reckoned “from the date of
submission of complete documents in support of the
application.” With this amendment, the date when a
taxpayer made its submission of complete documents became
relevant. In order to ensure that such date was at least
determinable, RMO No. 4-94 provides:
REVENUE MEMORANDUM ORDER NO. 40-94
SUBJECT : Prescribing the Modified Procedures on
the Processing of Claims for Value-Added Tax
Credit/Refund
III. Procedures
REGIONAL OFFICEA
Revenue District Office
In General:
1. Ascertain the completeness of the supporting
documents prior to the receipt of the application for VAT
credit/refund from the taxpayer.
2. Receive application for VAT Credit/Refund (BIR
Form No. 2552) in three (3) copies in the following
manner:
a. stamp the word “RECEIVED” on the
appropriate space provided in all copies of
application;
b. indicate the claim number;
c. indicate the date of receipt; and
d. initial by receiving officer.
The application shall be received only if the required
attachments prescribed in RAMO 1-91 have been fully
complied with. x x x
Then, when the NIRC34 was enacted on January 1, 1998,
the rule was once more amended to read:
(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
99
 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]
This time, the period granted to the CIR to act upon an
administrative claim for refund was extended to 120 days.
The reckoning point however, remained “from the date of
submission of complete documents.”
Aware that not all taxpayers were able to file the complete
documents to allow the CIR to properly evaluate an
administrative claim for tax credit or refund of creditable
input taxes, the CIR issued RMC No. 49-2003, which
provided:
Q-18: For pending claims with incomplete
documents, what is the period within which to submit the
supporting documents required by the investigating/pro-
cessing office? When should the investigating/processing
office officially receive claims for tax credit/refund and
what is the period required to process such claims?
A-18: For pending claimswhich have not been
acted upon by the investigating/processing office due to
incomplete documentation, the taxpayer-claimants
are given thirty (30) days within which to submit
the documentary requirements unless given
further extension by the head of the processing
unit, but such extension should not exceed thirty
(30) days.
For claims to be filed by claimants with the respective
investigating/processing office of the administrative
agency, the same shall be officially received only upon
submission of complete documents.
For current and future claims for tax credit/refund,
the same shall be processed within one hundred twenty
(120) days from receipt of the complete documents. If, in
the course of the investigation and processing of the
claim, additional documents are required for the proper
determination of the legitimate amount of claim, the
taxpayer-claimants shall submit such documents within
thirty (30) days from request of the
investigating/processing office, which shall be
construed as within the one hundred twenty (120)
day period.
[Emphases supplied]
Consequently, upon filing of his application for tax credit or
refund for excess creditable input taxes, the taxpayer-
claimant is given thirty (30) days within which to complete
the required documents, unless given further extension by the
head of the processing unit. If, in the course of the
investigation and processing of the claim, additional
documents are required for the proper determination of the
legitimate amount of claim, the taxpayer-claimants shall
submit such documents within thirty (30) days from request of
the investigating/processing office. Notice, by way of a request
from the tax collection authority to produce the complete
documents in these cases, became essential. It is only upon
the submission of these documents that the 120-day period
would begin to run.
Then, when R.A. No. 933735 was passed on July 1, 2005, the
same provision under the NIRC was retained. With the
amendment to Section 112, particularly the deletion of what
was once Section 112(B) of the NIRC, Section 112(D) was
amended and renamed 112(C). Thus:
100
 (C) Period within which Refund or Tax Credit of
Input Taxes shall be Made.—In proper cases, the
Commissioner shall grant a refund or issue the tax
credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of
submission of complete documents in support of the
application filed in accordance with Subsection (A)
hereof.
In case of full or partial denial of the claim for tax
refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period
prescribed above, the taxpayer affected may, within
thirty (30) days from the receipt of the decision denying
the claim or after the expiration of the one hundred
twenty day-period, appeal the decision or the unacted
claim with the Court of Tax Appeals.
With the amendments only with respect to its place under
Section 112, the Court finds that RMC No. 49-2003 should
still be observed. Thus, taking the foregoing changes to the
law altogether, it becomes apparent that, for purposes of
determining when the supporting documents have been
completed — it is the taxpayer who ultimately determines
when complete documents have been submitted for the purpose
of commencing and continuing the running of the 120-day
period. After all, he may have already completed the
necessary documents the moment he filed his administrative
claim, in which case, the 120-day period is reckoned from the
date of filing. The taxpayer may have also filed the complete
documents on the 30th day from filing of his application,
pursuant to RMC No. 49-2003. He may very well have filed
his supporting documents on the first day he was notified by
the BIR of the lack of the necessary documents. In such cases,
the 120-day period is computed from the date the taxpayer is
able to submit the complete documents in support of his
application.
Then, except in those instances where the BIR would
require additional documents in order to fully appreciate a
claim for tax credit or refund, in terms what additional
document must be presented in support of a claim for tax
credit or refund — it is the taxpayer who has that right and
the burden of providing any and all documents that would
support his claim for tax credit or refund. After all, in a claim
for tax credit or refund, it is the taxpayer who has the burden
to prove his cause of action. As such, he enjoys relative
freedom to submit such evidence to prove his claim.
The foregoing conclusion is but a logical consequence of the
due process guarantee under the Constitution. Corollary to
the guarantee that one be afforded the opportunity to be
heard, it goes without saying that the applicant should be
allowed reasonable freedom as to when and how to present his
claim within the allowable period.
Thereafter, whether these documents
are actually complete as required by law — is for the
CIR and the courts to determine. Besides, as between a
taxpayer-applicant, who seeks the refund of his creditable
input tax and the CIR, it cannot be denied that the former has
greater interest in ensuring that the complete set of
documentary evidence is provided for proper evaluation of the
State.
Lest it be misunderstood, the benefit given to the taxpayer
to determine when it should complete its submission of
documents is not unbridled. Under RMC No. 49-2003, if in the
course of the investigation and processing of the claim,
additional documents are required for the proper
determination of the legitimacy of the claim, the taxpayer-
claimants shall submit such documents within thirty (30)
days from request of the investigating/processing
office. Again, notice, by way of a request from the tax
collection authority to produce the complete
documents in these cases, is essential.
Moreover, under Section 112(A) of the NIRC,36 as amended
by R.A. No. 9337, a taxpayer has two (2) years, after the close
101
of the taxable quarter when the sales were made, to apply for
the issuance of a tax credit certificate or refund of creditable
input tax due or paid attributable to such sales. Thus, before
the administrative claim is barred by prescription, the tax-
payer must be able to submit his complete documents in
support of the application filed. This is because, it is upon the
complete submission of his documents in support of his
application that it can be said that the application was,
“officially received” as provided under RMC No. 49-2003.
To summarize, for the just disposition of the subject
controversy, the rule is that from the date an administrative
claim for excess unutilized VAT is filed, a taxpayer has thirty
(30) days within which to submit the documentary
requirements sufficient to support his claim, unless given
further extension by the CIR. Then, upon filing by the
taxpayer of his complete documents to support his application,
or expiration of the period given, the CIR has 120 days within
which to decide the claim for tax credit or refund. Should the
taxpayer, on the date of his filing, manifest that he no longer
wishes to submit any other addition documents to complete
his administrative claim, the 120-day period allowed to the
CIR begins to run from the date of filing.
In all cases, whatever documents a taxpayer intends to file
to support his claim must be completed within the two-year
period under Section 112(A) of the NIRC. The 30-day period
from denial of the claim or from the expiration of the 120-day
period within which to appeal the denial or inaction of the
CIR to the CTA must also be respected.
It bears mentioning at this point that the foregoing
summation of the rules should only be made applicable to
those claims for tax credit or refund filed prior to June 11,
2014, such as the claim at bench. As it now stands, RMC 54-
2014 dated June 11, 2014 mandates that:
The application for VAT refund/tax credit must be
accompanied by complete supporting documentsas
enumerated in Annex “A” hereof. In addition, the
taxpayer shall attach a statement under
oath attesting to the completeness of the submitted
documents (Annex B). The affidavit shall further state
that the said documents are the only documents which
the taxpayer will present to support the claim. If the
taxpayer is a juridical person, there should be a sworn
statement that the officer signing the affidavit (i.e., at
the very least, the Chief Financial Officer) has been
authorized by the Board of Directors of the company.
Upon submission of the administrative claim and its
supporting documents, the claim shall be processed and
no other documents shall be accepted/required from the
taxpayer in the course of its evaluation. A decision shall
be rendered by the Commissioner based only on the
documents submitted by the taxpayer. The application
for tax refund/tax credit shall be denied where the
taxpayer/claimant failed to submit the complete
supporting documents. For this purpose, the concerned
processing/
investigating office shall prepare and issue the
corresponding Denial Letter to the taxpayer/claimant.”
Thus, under the current rule, the reckoning of the 120-day
period has been withdrawn from the taxpayer by RMC No. 54-
2014, since it requires him at the time he files his claim to
complete his supporting documents and attest that he will no
longer submit any other document to prove his claim. Further,
the taxpayer is barred from submitting additional documents
after he has filed his administrative claim.
On this score, the Court finds that the foregoing
issuance cannot be applied retroactively to the case at
bar since it imposes new obligations upon taxpayers in order
to perfect their administrative claim, that is, [1] compliance
with the mandate to submit the “supporting documents”
enumerated under RMC No. 54-2014 under its “Annex A”; and
[2] the filing of “a statement under oath attesting to the
completeness of the submitted documents,” referred to in
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RMC No. 54-2014 as “Annex B.” This should not prejudice
taxpayers who have every right to pursue their claims in the
manner provided by existing regulations at the time it was
filed.
As provided under Section 246 of the Tax Code:
SEC. 246. Non-Retroactivity of Rulings.—Any
revocation, modification or reversal of any of the rules and
regulations promulgated in accordance with the preceding
Sections or any of the rulings or circulars promulgated by the
Commissioner shall not be given retroactive application
if the revocation, modification or reversal will be
prejudicial to the taxpayers, except in the following cases:
(a) Where the taxpayer deliberately misstates or
omits material facts from his return or any document
required of him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the
Bureau of Internal Revenue are materially different
from the facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith.
[Emphasis and italics supplied]
Applying the foregoing precepts to the case at bench, it is
observed that the CIR made no effort to question the
inadequacy of the documents submitted by Total Gas. It
neither gave notice to Total Gas that its documents were
inadequate, nor ruled to deny its claim for failure to
adequately substantiate its claim. Thus, for purposes of
counting the 120-day period, it should be reckoned from
August 28, 2008, the date when Total Gas made its
“submission of complete documents to support its application”
for refund of excess unutilized input VAT. Consequently,
counting from this later date, the BIR had 120 days to decide
the claim or until December 26, 2008. With absolutely no
action or notice on the part of the BIR for 120 days, Total Gas
had 30 days or until January 25, 2009 to file its judicial claim.
Total Gas, thus, timely filed its judicial claim on January
23, 2009.
Anent RMO No. 53-98, the CTA Division found that the
said order provided a checklist of documents for the BIR to
consider in granting claims for refund, and served as a guide
for the courts in determining whether the taxpayer had
submitted complete supporting documents.
This should also be corrected.
To quote RMO No. 53-98:
REVENUE MEMORANDUM ORDER NO. 53-98
SUBJECT: Checklist of Documents to be Submitted by
a Taxpayer upon Audit of his Tax Liabilities as well as of
the Mandatory Reporting Requirements to be Prepared
by a Revenue Officer, all of which Comprise a Complete
Tax Docket.
TO: All Internal Revenue Officers, Employees and
Others Concerned
I. BACKGROUND
It has been observed that for the same kind of
tax audit case, Revenue Officers differ in their
request for requirements from taxpayers as well as
in the attachments to the dockets resulting to
tremendous complaints from taxpayers and
confusion among tax auditors and reviewers.
For equity and uniformity, this Bureau comes up
with a prescribed list of requirements from
taxpayers, per kind of tax, as well as of the
internally prepared reporting requirements, all of
which comprise a complete tax docket.
II. OBJECTIVE
This order is issued to:
a. Identify the documents to be required from a
taxpayer during audit, according to particular kind
of tax; and
103
 b. Identify the different audit reporting
requirements to be prepared, submitted and
attached to a tax audit docket.
III. LIST OF REQUIREMENTS PER TAX TYPE
Income Tax/Withholding Tax
– Annex A (3 pages)
Value-Added Tax
– Annex B (2 pages)
– Annex B-1 (5 pages)
xxxx
As can be gleaned from the above, RMO No. 53-98 is
addressed to internal revenue officers and employees, for
purposes of equity and uniformity, to guide them as to what
documents they may require taxpayers to present upon
audit of their tax liabilities. Nothing stated in the issuance
would show that it was intended to be a benchmark in
determining whether the documents submitted by a taxpayer
are actually complete to support a claim for tax credit or
refund of excess unutilized excess VAT. As expounded
in Commissioner of Internal Revenue v. Team Sual
Corporation (formerly Mirant Sual Corporation):37
The CIR’s reliance on RMO 53-98 is misplaced. There
is nothing in Section 112 of the NIRC, RR 3-88 or RMO
53-98 itself that requires submission of the complete
documents enumerated in RMO 53-98 for a grant of a
refund or credit of input VAT. The subject of RMO 53-98
states that it is a “Checklist of Documents to be
Submitted by a Taxpayer upon Auditof his Tax
Liabilities x x x.” In this case, TSC was applying for a
grant of refund or credit of its input tax. There was no
allegation of an audit being conducted by the CIR. Even
assuming that RMO 53-98 applies, it specifically states
that some documents are required to be submitted by
the taxpayer “if applicable.”
Moreover, if TSC indeed failed to submit the complete
documents in support of its application, the CIR could
have informed TSC of its failure, consistent with
Revenue Memorandum Circular No. (RMC) 42-03.
However, the CIR did not inform TSC of the document it
failed to submit, even up to the present petition. The
CIR likewise raised the issue of TSC’s alleged failure to
submit the complete documents only in its motion for
reconsideration of the CTA Special First Division’s 4
March 2010 Decision. Accordingly, we affirm the CTA
EB’s finding that TSC filed its administrative claim on
21 December 2005, and submitted the complete
documents in support of its application for refund or
credit of its input tax at the same time.
[Emphasis included. Underlining ours]
As explained earlier and underlined in Team Sual above,
taxpayers cannot simply be faulted for failing to submit the
complete documents enumerated in RMO No. 53-98, absent
notice from a revenue officer or employee that other
documents are required. Granting that the BIR found that the
documents submitted by Total Gas were inadequate, it should
have notified the latter of the inadequacy by sending it a
request to produce the necessary documents in order to make
a just and expeditious resolution of the claim.
Indeed, a taxpayer’s failure with the requirements listed
under RMO No. 53-98 is not fatal to its claim for tax credit or
refund of excess unutilized excess VAT. This holds especially
true when the application for tax credit or refund of excess
unutilized excess VAT has arrived at the judicial level. After
all, in the judicial level or when the case is elevated to the
Court, the Rules of Court governs. Simply put, the question of
whether the evidence submitted by a party is sufficient to
warrant the granting of its prayer lies within the sound
discretion and judgment of the Court.
At this point, it is worth emphasizing that the reckoning of
the 120-day period from August 28, 2008 cannot be
104
doubted. First, a review of the records of the case undubitably
show that Total Gas filed its supporting documents on August
28, 2008, together with a transmittal letter bearing the same
date. These documents were then stamped and signed as
received by the appropriate officer of the
BIR. Second, contrary to RMO No. 40-94, which mandates
officials of the BIR to indicate the date of receipt of documents
received by their office in every claim for refund or credit of
VAT, the receiving officer failed to indicate the precise date
and time when he received these documents. Clearly, the
error is attributable to the BIR officials and should not
prejudice Total Gas.
Third, it is observed that whether before the CTA or this
Court, the BIR had never questioned the date it received the
supporting documents filed by Total Gas, or the propriety of
the filing thereof. In contrast to the continuous efforts of Total
Gas to complete the necessary documents needed to support
its application, all that was insisted by the CIR was that the
reckoning period should be counted from the date Total Gas
filed its application for refund of excess unutilized input VAT.
There being no question as to whether these documents were
actually received on August 28, 2008, this Court shall not, by
way of conjecture, cast doubt on the truthfulness on such
submission. Finally, in consonance with the presumption that
a person acts in accordance with the ordinary course of
business, it is presumed that such documents were received
on the date stated therein.
Verily, should there be any doubt on whether Total Gas
filed its supporting documents on August 28, 2008, it is
incumbent upon the CIR to allege and prove such assertion.
As the saying goes, contra preferentum.
If only to settle any doubt, this Court is by no means
setting a precedent by leaving it to the mercy of the taxpayer
to determine when the 120-day reckoning period should begin
to run by providing absolute discretion as to when he must
comply with the mandate submitting complete documents in
support of his claim. In addition to the limitations thoroughly
discussed above, the peculiar circumstance applicable herein,
as to relieve Total Gas from the application of the rule, is the
obvious failure of the BIR to comply with the specific
directive, under RMO 40-94, to stamp the date it
received the supporting documents which Total Gas had
submitted to the BIR for its consideration in the processing of
its claim. The utter failure of the tax administrative agency to
comply with this simple mandate to stamp the date it receive
the documents submitted by Total Gas — should not in any
manner prejudice the taxpayer by casting doubt as to when it
was able to submit its complete documents for purposes of
determining the 120-day period.
While it is still true a taxpayer must prove not only his
entitlement to a refund but also his compliance with the
procedural due process38 — it is also true that when the law or
rule mandates that a party or authority must comply with a
specific obligation to perform an act for the benefit of another,
the noncompliance thereof by the former should not operate to
prejudice the latter, lest it render the nugatory the objective of
the rule. Such is the situation in case at bar.
Judicial claim not prematurely filed
The CTA En Banc curiously ruled in the assailed decision
that the judicial claim of Total Gas was not only belatedly
filed, but prematurely filed as well, for failure of Total Gas to
prove that it had submitted the complete supporting
documents to warrant the grant of the tax refund and to
reckon the commencement of the 120-day period. It asserted
that Total Gas had failed to submit all the required
documents to the CIR and, thus, the 120-day period for the
CIR to decide the claim had not yet begun to run, resulting in
the premature filing of the judicial claim. It wrote that the
taxpayer must first submit the complete supporting
documents before the 120-day period could commence, and
that the CIR could not decide the claim for refund without the
complete supporting documents.
105
 The Court disagrees.
The alleged failure of Total Gas to submit the complete
documents at the administrative level did not render its
petition for review with the CTA dismissible for lack of
jurisdiction. First, the 120-day period had commenced to run
and the 120+30 day period was, in fact, complied with. As
already discussed, it is the taxpayer who determines when
complete documents have been submitted for the purpose of
the running of the 120-day period. It must again be pointed
out that this in no way precludes the CIR from requiring
additional documents necessary to decide the claim, or even
denying the claim if the taxpayer fails to submit the additional
documents requested.
Second, the CIR sent no written notice informing Total Gas
that the documents were incomplete or required it to submit
additional documents. As stated above, such notice by way of
a written request is required by the CIR to be sent to Total
Gas. Neither was there any decision made denying the
administrative claim of Total Gas on the ground that it had
failed to submit all the required documents. It was precisely
the inaction of the BIR which prompted Total Gas to file the
judicial claim. Thus, by failing to inform Total Gas of the need
to submit any additional document, the BIR cannot now argue
that the judicial claim should be dismissed because it failed to
submit complete documents.
Finally, it should be mentioned that the appeal made by
Total Gas to the CTA cannot be said to be premature on the
ground that it did not observe the otherwise mandatory and
jurisdictional 120+30-day period. When Total Gas filed its
appeal with the CTA on January 23, 2009, it simply relied on
BIR Ruling No. DA-489-03, which, at that time, was not
yet struck down by the Court’s ruling in Aichi. As explained
in San Roque, this Court recognized a period in time wherein
the 120-day period need not be strictly observed. Thus:
To repeat, a claim for tax refund or credit, like a claim for
tax exemption, is construed strictly against the taxpayer. One
of the conditions for a judicial claim of refund or credit under
the VAT System is compliance with the 120+30-day
mandatory and jurisdictional periods. Thus, strict compliance
with the 120+30-day period is necessary for such a claim to
prosper, whether before, during, or after the effectivity of
the Atlasdoctrine, 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 period as
mandatory and jurisdictional.
xxxx
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 period are
mandatory and jurisdictional.
At this stage, a review of the nature of a judicial claim
before the CTA is in order. In Atlas Consolidated Mining and
Development Corporation v. CIR, it was ruled —
x x x First, a judicial claim for refund or tax credit in
the CTA is by no means an original action but rather
an appeal by way of petition for review of a previous,
unsuccessful administrative claim. Therefore, as in every
appeal or petition for review, a petitioner has to convince
the appellate court that the quasi-judicial agency a
quo did not have any reason to deny its claims. In this
case, it was necessary for petitioner to show the CTA not
only that it was entitled under substantive law to the
grant of its claims but also that it satisfied all the
documentary and evidentiary requirements for an
administrative claim for refund or tax credit. Second,
cases filed in the CTA are litigated de novo. Thus, a
petitioner should prove every minute aspect of its case
106
 by presenting, formally offering and submitting its
evidence to the CTA. Since it is crucial for a petitioner in
a judicial claim for refund or tax credit to show that its
administrative claim should have been granted in the
first place, part of the evidence to be submitted to the
CTA must necessarily include whatever is required for
the successful prosecution of an administrative claim.39
[Underscoring supplied]
A distinction must be made between administrative cases
appealed due to inaction and those dismissed at the
administrative level due to the failure of the taxpayer to
submit supporting documents. If an administrative claim was
dismissed by the CIR due to the taxpayer’s failure to submit
complete documents despite notice/request, then the judicial
claim before the CTA would be dismissible, not for lack of
jurisdiction, but for the taxpayer’s failure to substantiate the
claim at the administrative level. When a judicial claim for
refund or tax credit in the CTA is an appeal of an unsuccessful
administrative claim, the taxpayer has to convince the CTA
that the CIR had no reason to deny its claim. It, thus, becomes
imperative for the taxpayer to show the CTA that not only is
he entitled under substantive law to his claim for refund or
tax credit, but also that he satisfied all the documentary and
evidentiary requirements for an administrative claim. It is,
thus, crucial for a taxpayer in a judicial claim for refund or
tax credit to show that its administrative claim should have
been granted in the first place. Consequently, a taxpayer
cannot cure its failure to submit a document requested by the
BIR at the administrative level by filing the said document
before the CTA.
In the present case, however, Total Gas filed its judicial
claim due to the inaction of the BIR. Considering that the
administrative claim was never acted upon; there was no
decision for the CTA to review on appeal per se. Consequently,
the CTA may give credence to all evidence presented by Total
Gas, including those that may not have been submitted to the
CIR as the case is being essentially decided in the first
instance. The Total Gas must prove every minute aspect of its
case by presenting and formally offering its evidence to the
CTA, which must necessarily include whatever is required for
the successful prosecution of an administrative claim.40
The Court cannot, however, make a ruling on the issue of
whether Total Gas is entitled to a refund or tax credit
certificate in the amount of P7,898,433.98. Considering that
the judicial claim was denied due course and dismissed by the
CTA Division on the ground of premature and/or belated
filing, no ruling on the issue of Total Gas entitlement to the
refund was made. The Court is not a trier of facts, especially
when such facts have not been ruled upon by the lower courts.
The case shall, thus, be remanded to the CTA Division for
trial de novo.
WHEREFORE, the petition is PARTIALLY GRANTED.
The October 11, 2012 Decision and the May 8, 2013
Resolution of the Court of Tax Appeals En Banc, in C.T.A.
E.B. Case No. 776 are REVERSED and SET ASIDE.
The case is REMANDED to the CTA Third Division for
trial de novo.
SO ORDERED.
Sereno (CJ.), Carpio, Velasco, Jr., Leonardo-De Castro,
Peralta, Bersamin, Del Castillo, Villarama, Jr., Perez,
Reyesand Perlas-Bernabe, JJ., concur.
Brion, J., On Leave.
Leonen, J., See Separate Concurring Opinion.
Jardeleza, J., No part.
Notes.—The taxpayer may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate
or refund of the creditable input tax due or paid to such sales. (Commissioner of
Internal Revenue vs. San Roque Power Corporation, 690 SCRA 336 [2013])
A tax credit or refund, like tax exemption, is strictly construed against the
taxpayer. (Silicon Philippines, Inc. [formerly Intel Philippines Manufacturing, Inc.]
vs. Commissioner of Internal Revenue, 754 SCRA 279 [2015])
——o0o——
107
 Same; Same; Appeals; While, as a matter of sound practice, the
G.R. No. 172129. September 12, 2008.* Supreme Court refrains from reviewing the factual determinations of
COMMISSIONER OF INTERNAL REVENUE, the Court of Appeals or reevaluate the evidence upon which its
petitioner, vs. MIRANT PAGBILAO CORPORATION decision is founded, an exception to this rule is when the Court of
Appeals and the trial court diametrically differ in their findings.—
(Formerly SOUTHERN ENERGY QUEZON, INC.),
As a matter of sound practice, the Court refrains from reviewing the
respondent.
factual determinations of the CA or reevaluate the evidence upon
Taxation; Tax Refunds and Tax Credits; Unjust Enrichment;
which its decision is founded. One exception to this rule is when the
Quantum of Proof; A claim for tax refund may be based on a statute
CA and the trial court diametrically differ in their findings, as here.
granting tax exemption, or, the result of legislative grace, in which
In such a case, it is incumbent upon the Court to review and
case, the claim is to be construed strictissimi juris against the
determine if the CA might have overlooked, misunderstood, or
taxpayer; A tax refund may also be, as usually it is, predicated on
misinterpreted certain facts or circumstances of weight, which, if
tax refund provisions allowing a refund of erroneous or excess
properly considered, would justify a different conclusion. In the
payment of tax, on which case it is founded on the principle of
instant case, the CTA, unlike the CA, doubted the veracity of OR
solutio indebiti, a basic postulate that no one should unjustly enrich
No. 0189 and did not appreciate the same to support MPC’s claim
himself at the expense of another; A claim for tax refund proper
for tax refund or credit.
necessitates only the preponderance-of-evidence threshold like in any
Same; Same; Value Added Tax (VAT); Evidence; The law
ordinary civil case.—The divergent factual findings and rulings of
considers a duly-executed Value Added Tax (VAT) invoice or Official
the CTA and CA impel us to evaluate the evidence adduced below,
Receipt referred to in Section 110(A)(1)(B) of the National Internal
particularly the April 14, 1998 OR 0189 in the amount of PhP
Revenue Code as sufficient evidence to support a claim for input tax
135,996,570 [for US$ 5,190,000 at US$1: PhP 26.203 rate of
credit.—Without necessarily saying that the BIR is precluded from
exchange]. Verily, a claim for tax refund may be based on a statute
requiring additional evidence to prove that input tax had indeed
granting tax exemption, or, as Commissioner of Internal Revenue v.
paid or, in fine, that the taxpayer is indeed entitled to a tax refund
Fortune Tobacco Corporation, 559 SCRA 160 (2008), would have it,
or credit for input VAT, we agree with the CA’s above disposition.
the result of legislative grace. In such case, the claim is to be
As the Court distinctly notes, the law considers a duly-executed
construed strictissimi juris against the taxpayer, meaning that the
VAT invoice or OR referred to in the above provision as sufficient
claim cannot be made to rest on vague inference. Where the rule of
evidence to support a claim for input tax credit. And any doubt as to
strict interpretation against the taxpayer is applicable as the claim
what OR No. 0189 was for or tended to prove should reasonably be
for refund partakes of the nature of an exemption, the claimant
put to rest by the SGV report on which the CTA notably placed
must show that he clearly falls under the exempting statute. On the
much reliance. The SGV report stated that “[OR] No. 0189 dated
other hand, a tax refund may be, as usually it is, predicated on tax
April 14, 1998 is for the payment of the VAT on the progress
refund provisions allowing a refund of erroneous or excess payment
billings” from Mitsubishi Japan “for the period April 7, 1993 to
of tax. The return of what was erroneously paid is founded on the
September 6, 1996 for the E & M Equipment Erection Portion of the
principle of solutio indebiti, a basic postulate that no one should
Company’s contract with Mitsubishi Corporation (Japan).”
unjustly enrich himself at the expense of another. The caveat
Same; Same; Same; Prescription; Unutilized input Value
against unjust enrichment covers the government. And as
Added Tax (VAT) payments not otherwise used for any internal
decisional law teaches, a claim for tax refund proper, as here,
revenue tax due the taxpayer must be claimed within two years
necessitates only the preponderance-of-evidence threshold like in
reckoned from the close of the taxable quarter when the relevant
any ordinary civil case.
_______________
sales were made pertaining to the input Value Added Tax (VAT)
regardless of whether said tax was paid or not—the reckoning frame

108
would always be the end of the quarter when the pertinent sales or
transaction was made, regardless when the input VAT was paid.—
The above proviso 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.
Same; Same; Same; Same; Sections 204(C) and 229 of the
National Internal Revenue Code (NIRC) apply only to instances of
erroneous payment or illegal collection of internal revenue taxes.—
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
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.
Same; Same; Same; Same; The Court reminds the Bureau of
Internal Revenue (BIR) and other tax agencies of their duty to treat
claims for refunds and tax credits with proper attention and
urgency—the all too familiar complaint is that the government acts
with dispatch when it comes to tax collection, but pays little, if any,
attention to tax claims for refund or exemption.—The Court wishes
to remind the BIR and other tax agencies of their duty to treat
claims for refunds and tax credits with proper attention and
urgency. Had RDO No. 60 and, later, the BIR proper acted, instead
of sitting, on MPC’s underlying application for effective zero rating,
the matter of addressing MPC’s right, or lack of it, to tax credit or
refund could have plausibly been addressed at their level and
perchance freed the taxpayer and the government from the rigors of
a tedious litigation. The all too familiar complaint is that the
government acts with dispatch when it comes to tax collection, but
pays little, if any, attention to tax claims for refund or exemption. It
is high time our tax collectors prove the cynics wrong.
PETITION for review on certiorari of the decision and
resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
The Solicitor General for petitioner.
Salvador, Guevara and Associates for respondent.
VELASCO, JR., J.:
Before us is a Petition for Review on Certiorari under Rule
45 assailing and seeking to set aside the Decision1 dated
December 22, 2005 of the Court of Appeals (CA) in CA-G.R.
SP No. 78280 which modified the March 18, 2003 Decision2 of
the Court of Tax Appeals (CTA) in CTA Case No. 6133
entitled Mirant Pagbilao Corporation (Formerly Southern
Energy Quezon, Inc.) v. Commissioner of Internal Revenue and
ordered the Bureau of Internal Revenue (BIR) to refund or
issue a tax credit certificate (TCC) in favor of respondent
Mirant Pagbilao Corporation (MPC) in the amount
representing its unutilized input value added tax (VAT) for
the second quarter of 1998. Also assailed is the CA’s
Resolution3 of March 31, 2006 denying petitioner’s motion for
reconsideration.
The Facts
MPC, formerly Southern Energy Quezon, Inc., and also
formerly known as Hopewell (Phil.) Corporation, is a domestic
109
firm engaged in the generation of power which it sells to the
National Power Corporation (NPC). For the construction of
the electrical and mechanical equipment portion of its
Pagbilao, Quezon plant, which appears to have been
undertaken from 1993 to 1996, MPC secured the services of
Mitsubishi Corporation (Mitsubishi) of Japan.
Under Section 134 of Republic Act No. (RA) 6395, the NPC’s
revised charter, NPC is exempt from all taxes. In Maceda v.
Macaraig,5 the Court construed the exemption as covering
both direct and indirect taxes.
In the light of the NPC’s tax exempt status, MPC, on the
belief that its sale of power generation services to NPC is,
pursuant to Sec. 108(B)(3) of the Tax Code,6 zero-rated for
VAT purposes, filed on December 1, 1997 with Revenue
District Office (RDO) No. 60 in Lucena City an Application for
Effective Zero Rating. The application covered the
construction and operation of its Pagbilao power station under
a Build, Operate, and Transfer scheme.
Not getting any response from the BIR district office, MPC
refiled its application in the form of a “request for ruling” with
the VAT Review Committee at the BIR national office on
January 28, 1999. On May 13, 1999, the Commissioner of
Internal Revenue issued VAT Ruling No. 052-99, stating that
“the supply of electricity by Hopewell Phil. to the NPC, shall
be subject to the zero percent (0%) VAT, pursuant to Section
108 (B) (3) of the National Internal Revenue Code of 1997.”
It must be noted at this juncture that consistent with its
belief to be zero-rated, MPC opted not to pay the VAT
component of the progress billings from Mitsubishi for the
period covering April 1993 to September 1996—for the E & M
Equipment Erection Portion of MPC’s contract with
Mitsubishi. This prompted Mitsubishi to advance the VAT
component as this serves as its output VAT which is essential
for the determination of its VAT payment. Apparently, it was
only on April 14, 1998 that MPC paid Mitsubishi the VAT
component for the progress billings from April 1993 to
September 1996, and for which Mitsubishi issued Official
Receipt (OR) No. 0189 in the aggregate amount of PhP
135,993,570.
On August 25, 1998, MPC, while awaiting approval of its
application aforestated, filed its quarterly VAT return for the
second quarter of 1998 where it reflected an input VAT of PhP
148,003,047.62, which included PhP 135,993,570 supported by
OR No. 0189. Pursuant to the procedure prescribed in
Revenue Regulations No. 7-95, MPC filed on December 20,
1999 an administrative claim for refund of unutilized input
VAT in the amount of PhP 148,003,047.62.
Since the BIR Commissioner failed to act on its claim for
refund and obviously to forestall the running of the two-year
prescriptive period under Sec. 229 of the National Internal
Revenue Code (NIRC), MPC went to the CTA via a petition for
review, docketed as CTA Case No. 6133.
Answering the petition, the BIR Commissioner,
citing Kumagai-Gumi Co. Ltd. v. CIR,7 asserted that MPC’s
claim for refund cannot be granted for this main reason:
MPC’s sale of electricity to NPC is not zero-rated for its failure
to secure an approved application for zero-rating.
Before the CTA, among the issues stipulated by the parties
for resolution were, in gist, the following:
1. Whether or not [MPC] has unapplied or unutilized creditable
input VAT for the 2nd quarter of 1998 attributable to zero-rated
sales to NPC which are proper subject for refund pursuant to
relevant provisions of the NIRC;
2. Whether the creditable input VAT of MPC for said period, if
any, is substantiated by documents; and
3. Whether the unutilized creditable input VAT for said
quarter, if any, was applied against any of the VAT output tax of
MPC in the subsequent quarter.
To provide support to the CTA in verifying and analyzing
documents and figures and entries contained therein, the
Sycip Gorres & Velayo (SGV), an independent auditing firm,
was commissioned.
110
 The Ruling of the CTA 2. Supported by broker’s
computations 91,601.00 990,090.69
On the basis of its affirmative resolution of the first issue, b.) Input taxes without supporting
the CTA, by its Decision dated March 18, 2003, granted documents as summarized in
MPC’s claim for input VAT refund or credit, but only for the Annex A of SGV & Co.’s supple-
amount of PhP 10,766,939.48. The fallo of the CTA’s decision mentary report (CTA records,
page 134) 252,447.45
reads:
c.) Claimed input taxes on pur-
“In view of all the foregoing, the instant petition is PARTIALLY
chases of services from Mitsubi-
GRANTED. Accordingly, respondent is hereby ORDERED to
shi Corp. for being substantiated
REFUND or in the alternative, ISSUE A TAX CREDIT
by dubious OR 135,996,570.008
CERTIFICATE in favor of the petitioner its unutilized input VAT
Refundable Input P10,766,939.48
payments directly attributable to its effectively zero-rated sales for
SO ORDERED.”9
the second quarter of 1998 in the reduced amount of
P10,766,939.48, computed as follows: Explaining the disallowance of over PhP 137 million
Claimed Input VAT P148,003,047.62 claimed input VAT, the CTA stated that most of MPC’s
Less: Disallowances purchases upon which it anchored its claims for refund or tax
a.) As summarized by SGV & Co. in its initial report (Exh. “P”) credit have not been amply substantiated by pertinent
I. Input Taxes on Purchases of Services: documents, such as but not limited to VAT ORs, invoices, and
1. Supported by docu- other supporting documents. Wrote the CTA:
ments other than VAT “We agree with the above SGV findings that out of the remaining
Ors P 10,629.46 taxes of P136,246,017.45, the amount of P252,477.45 was not
2. Supported by photocop- supported by any document and should therefore be outrightly
ied VAT OR 879.09 disallowed.
II. Input Taxes on Purchases of Goods: As to the claimed input tax of P135,993,570.00 (P136,246,017.45
1. Supported by docu- less P252,477.45) on purchases of services from Mitsubishi
ments other than VAT Corporation, Japan, the same is found to be of doubtful veracity.
invoices 165,795.70 While it is true that said amount is substantiated by a VAT official
2. Supported by Invoices receipt with Serial No. 0189 dated April 14, 1998 x x x, it must be
with TIN only 1,781.82162 observed, however, that said VAT allegedly paid pertains to the
162 SUPREME COURT REPORTS services which were rendered for the period 1993 to 1996. x x x”
ANNOTATED
Commissioner of Internal Revenue vs. Mirant The Ruling of the CA
Pagbilao Corporation
3. Supported by photo- Aggrieved, MPC appealed the CTA’s Decision to the
copied VAT invoices 3,153.62 CA via a petition for review under Rule 43, docketed as CA-
III. Input Taxes on Importation of Goods: G.R. SP No. 78280. On December 22, 2005, the CA rendered
1. Supported by photocopied its assailed decision modifying that of the CTA decision by
documents [IEDs and/or granting most of MPC’s claims for tax refund or credit. And in
Bureau of Customs a Resolution of March 31, 2006, the CA denied the BIR
(BOC) Ors] 716,250.00
111
Commissioner’s motion for reconsideration. The decretal
portion of the CA decision reads:
“WHEREFORE, premises considered, the instant petition is
GRANTED. The assailed Decision of the Court of Tax Appeals
dated March 18, 2003 is hereby MODIFIED. Accordingly,
respondent Commissioner of Internal Revenue is ordered to refund
or issue a tax credit certificate in favor of petitioner Mirant
Pagbilao Corporation its unutilized input VAT payments directly
attributable to its effectively zero-rated sales for the second quarter
of 1998 in the total amount of P146,760,509.48.
SO ORDERED.”10
The CA agreed with the CTA on MPC’s entitlement to (1) a
zero-rating for VAT purposes for its sales and services to tax-
exempt NPC; and (2) a refund or tax credit for its unutilized
input VAT for the second quarter of 1998. Their disagreement,
however, centered on the issue of proper documentation,
particularly the evidentiary value of OR No. 0189.
The CA upheld the disallowance of PhP 1,242,538.14
representing zero-rated input VAT claims supported only by
photocopies of VAT OR/Invoice, documents other than VAT
In-voice/OR, and mere broker’s computations. But the CA
allowed MPC’s refund claim of PhP 135,993,570 representing
input VAT payments for purchases of goods and/or services
from Mitsubishi supported by OR No. 0189. The appellate
court ratiocinated that the CTA erred in disallowing said
claim since the OR from Mitsubishi was the best evidence for
the payment of input VAT by MPC to Mitsubishi as required
under Sec. 110(A)(1)(b) of the NIRC. The CA ruled that the
legal requirement of a VAT Invoice/OR to substantiate
creditable input VAT was complied with through OR No. 0189
which must be viewed as conclusive proof of the payment of
input VAT. To the CA, OR No. 0189 represented an
undisputable acknowledgment and receipt by Mitsubishi of
the input VAT payment of MPC.
The CA brushed aside the CTA’s ruling and disquisition
casting doubt on the veracity and genuineness of the
Mitsubishi-issued OR No. 0189. It reasoned that the issuance
date of the said receipt, April 14, 1998, must be taken
conclusively to represent the input VAT payments made by
MPC to Mitsubishi as MPC had no real control on the
issuance of the OR. The CA held that the use of a different
exchange rate reflected in the OR is of no consequence as
what the OR undeniably attests and acknowledges was
Mitsubishi’s receipt of MPC’s input VAT payment.
The Issue
Hence, the instant petition on the sole issue of “whether or
not respondent [MPC] is entitled to the refund of its input
VAT payments made from 1993 to 1996 amounting to [PhP]
146,760,509.48.”11
The Court’s Ruling
As a preliminary matter, it should be stressed that the BIR
Commissioner, while making reference to the figure PhP
146,760,509.48, joins the CA and the CTA on their disposition
on the propriety of the refund of or the issuance of a TCC for
the amount of PhP 10,766,939.48. In fine, the BIR
Commissioner trains his sight and focuses his arguments on
the core issue of whether or not MPC is entitled to a refund
for PhP 135,993,570 (PhP 146,760,509.48 - PhP 10,766,939.48
= PhP 135,993,570) it allegedly paid as creditable input VAT
for services and goods purchased from Mitsubishi during the
1993 to 1996 stretch.
The divergent factual findings and rulings of the CTA and
CA impel us to evaluate the evidence adduced below,
particularly the April 14, 1998 OR 0189 in the amount of PhP
135,996,570 [for US$ 5,190,000 at US$1: PhP 26.203 rate of
exchange]. Verily, a claim for tax refund may be based on a
statute granting tax exemption, or, as Commissioner of
Internal Revenue v. Fortune Tobacco Corporation12would have
it, the result of legislative grace. In such case, the claim is to
be construed strictissimi juris against the taxpayer,13 meaning
that the claim cannot be made to rest on vague inference.
Where the rule of strict interpretation against the taxpayer is
applicable as the claim for refund partakes of the nature of an
exemption, the claimant must show that he clearly falls under
the exempting statute. On the other hand, a tax refund may
112
be, as usually it is, predicated on tax refund provisions
allowing a refund of erroneous or excess payment of tax. The
return of what was erroneously paid is founded on the
principle of solutio indebiti, a basic postulate that no one
should unjustly enrich himself at the expense of another. The
caveat against unjust enrichment covers the
government.14 And as decisional law teaches, a claim for tax
refund proper, as here, necessitates only the preponderance-
of-evidence threshold like in any ordinary civil case.15
We apply the foregoing elementary principles in our
evaluation on whether OR 0189, in the backdrop of the factual
antecedents surrounding its issuance, sufficiently proves the
alleged unutilized input VAT claimed by MPC.
The Court can review issues of fact where there are
divergent findings by the trial and appellate courts
As a matter of sound practice, the Court refrains from
reviewing the factual determinations of the CA or reevaluate
the evidence upon which its decision is founded. One
exception to this rule is when the CA and the trial court
diametrically differ in their findings,16 as here. In such a case,
it is incumbent upon the Court to review and determine if the
CA might have overlooked, misunderstood, or misinterpreted
certain facts or circumstances of weight, which, if properly
considered, would justify a different conclusion.17 In the
instant case, the CTA, unlike the CA, doubted the veracity of
OR No. 0189 and did not appreciate the same to support
MPC’s claim for tax refund or credit.
Petitioner BIR Commissioner, echoing the CTA’s stand,
argues against the sufficiency of OR No. 0189 to prove
unutilized input VAT payment by MPC. He states in this
regard that the BIR can require additional evidence to prove
and ascertain payment of creditable input VAT, or that the
claim for refund or tax credit was filed within the prescriptive
period, or had not previously been refunded to the taxpayer.
To bolster his position on the dubious character of OR No.
0189, or its insufficiency to prove input VAT payment by
MPC, petitioner proffers the following arguments:
(1) The input tax covered by OR No. 0189 pertains to
purchases by MPC from Mitsubishi covering the period from
1993 to 1996; however, MPC’s claim for tax refund or credit
was filed on December 20, 1999, clearly way beyond the two-
year prescriptive period set in Sec. 112 of the NIRC;
(2) MPC failed to explain why OR No. 0189 was issued by
Mitsubishi (Manila) when the invoices which the VAT were
originally billed came from the Mitsubishi’s head office in
Japan;
(3) The exchange rate used in OR No. 0189 was pegged at
PhP 26.203: USD 1 or the exchange rate prevailing in 1993 to
1996, when, on April 14, 1998, the date OR No. 0189 was
issued, the exchange rate was already PhP 38.01 to a US
dollar;
(4) OR No. 0189 does not show or include payment of
accrued interest which Mitsubishi was charging and
demanded from MPC for having advanced a considerable
amount of VAT. The demand, per records, is embodied in the
May 12, 1995 letter of Mitsubishi to MPC;
(5) MPC failed to present to the CTA its VAT returns for
the second and third quarters of 1995, when the bulk of the
VAT payment covered by OR No. 0189—specifically PhP
109,329,135.17 of the total amount of PhP 135,993,570—was
billed by Mitsubishi, when such return is necessary to
ascertain that the total amount covered by the receipt or a
large portion thereof was not previously refunded or credited;
and
(6) No other documents proving said input VAT payment
were presented except OR No. 0189 which, considering the
fact that OR No. 0188 was likewise issued by Mitsubishi and
presented before the CTA but admittedly for payments made
by MPC on progress billings covering service purchases from
1993 to 1996, does not clearly show if such input VAT
113
payment was also paid for the period 1993 to 1996 and would
be beyond the two-year prescriptive period.
The petition is partly meritorious.
Belated payment by MPC of its obligation
for creditable input VAT
As no less found by the CTA, citing the SGV’s report, the
payments covered by OR No. 0189 were for goods and service
purchases made by MPC through the progress billings from
Mitsubishi for the period covering April 1993 to September
1996—for the E & M Equipment Erection Portion of MPC’s
contract with Mitsubishi.18 It is likewise undisputed that said
payments did not include payments for the creditable input
VAT of MPC. This fact is shown by the May 12, 1995
letter19 from Mitsubishi where, as earlier indicated, it apprised
MPC of the advances Mitsubishi made for the VAT
payments, i.e., MPC’s creditable input VAT, and for which it
was holding MPC accountable for interest therefor.
In net effect, MPC did not, for the VATable MPC-
Mitsubishi 1993 to 1996 transactions adverted to,
immediately pay the corresponding input VAT. OR No. 0189
issued on April 14, 1998 clearly reflects the belated payment
of input VAT corresponding to the payment of the progress
billings from Mitsubishi for the period covering April 7, 1993
to September 6, 1996. SGV found that OR No. 0189 in the
amount of PhP 135,993,570 (USD 5,190,000) was duly
supported by bank statement evidencing payment to
Mitsubishi (Japan).20 Undoubtedly, OR No. 0189 proves
payment by MPC of its creditable input VAT relative to its
purchases from Mitsubishi.
OR No. 0189 by itself sufficiently proves
payment of VAT
The CA, citing Sec. 110(A)(1)(B) of the NIRC, held that OR
No. 0189 constituted sufficient proof of payment of creditable
input VAT for the progress billings from Mitsubishi for the
period covering April 7, 1993 to September 6, 1996. Sec.
110(A)(1)(B) of the NIRC pertinently provides:
“Section 110. Tax Credits.—
A. Creditable Input Tax.—
(1) Any input tax evidenced by a VAT invoice or official
receipt issued in accordance with Section 113 hereof on the
following transactions shall be creditable against the output tax:
(a) Purchase or importation of goods:
xxxx
(b) Purchase of services on which a value-added tax
has been actually paid.” (Emphasis ours.)
Without necessarily saying that the BIR is precluded from
requiring additional evidence to prove that input tax had
indeed paid or, in fine, that the taxpayer is indeed entitled to
a tax refund or credit for input VAT, we agree with the CA’s
above disposition. As the Court distinctly notes, the law
considers a duly-executed VAT invoice or OR referred to in the
above provision as sufficient evidence to support a claim for
input tax credit. And any doubt as to what OR No. 0189 was
for or tended to prove should reasonably be put to rest by the
SGV report on which the CTA notably placed much reliance.
The SGV report stated that “[OR] No. 0189 dated April 14,
1998 is for the payment of the VAT on the progress billings”
from Mitsubishi Japan “for the period April 7, 1993 to
September 6, 1996 for the E & M Equipment Erection Portion
of the Company’s contract with Mitsubishi Corporation
(Japan).”21
VAT presumably paid on April 14, 1998
While available records do not clearly indicate when MPC
actually paid the creditable input VAT amounting to PhP
135,993,570 (USD 5,190,000) for the aforesaid 1993 to 1996
service purchases, the presumption is that payment was made
on the date appearing on OR No. 0189, i.e., April 14, 1998. In
fact, said creditable input VAT was reflected in MPC’s VAT
return for the second quarter of 1998.
114
 The aforementioned May 12, 1995 letter from Mitsubishi to
MPC provides collaborating proof of the belated payment of
the creditable input VAT angle. To reiterate,
Mitsubishi, via said letter, apprised MPC of the VAT
component of the service purchases MPC made and reminded
MPC that Mitsubishi had advanced VAT payments to which
Mitsubishi was entitled and from which it was demanding
interest payment. Given the scenario depicted in said letter, it
is understandable why Mitsubishi, in its effort to recover the
amount it advanced, used the PhP 26.203: USD 1 exchange
formula in OR No. 0189 for USD 5,190,000.
No showing of interest payment not fatal to
claim for refund
Contrary to petitioner’s posture, the matter of nonpayment
by MPC of the interests demanded by Mitsubishi is not an
argument against the fact of payment by MPC of its creditable
input VAT or of the authenticity or genuineness of OR No.
0189; for at the end of the day, the matter of interest payment
was between Mitsubishi and MPC and may very well be
covered by another receipt. But the more important
consideration is the fact that MPC, as confirmed by the SGV,
paid its obligation to Mitsubishi, and the latter issued to MPC
OR No. 0189, for the VAT component of its 1993 to 1996
service purchases.
The next question is, whether or not MPC is entitled to a
refund or a TCC for the alleged unutilized input VAT of PhP
135,993,570 covered by OR No. 0189 which sufficiently proves
payment of the input VAT.
We answer the query in the negative.
Claim for refund or tax credit filed out of time
The claim for refund or tax credit for the creditable input
VAT payment made by MPC embodied in OR No. 0189 was
filed beyond the period provided by law for such claim. Sec.
112(A) of the NIRC pertinently reads:
(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 ours.)
The above proviso 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.”22 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
115
 To be sure, MPC cannot avail itself of the provisions of
either Sec. 204(C) or 229 of the NIRC which, for the purpose of
refund, prescribes a different starting point for the two-year
prescriptive limit for the filing of a claim therefor. Secs.
204(C) and 229 respectively provide:
“Sec. 204. Authority of the Commissioner to Compromise, Abate
and Refund or Credit Taxes.—The Commissioner may—
xxxx
(c) Credit or refund taxes erroneously or illegally received or
penalties imposed without authority, refund the value of internal
revenue stamps when they are returned in good condition by the
purchaser, and, in his discretion, redeem or change unused stamps
that have been rendered unfit for use and refund their value upon
proof of destruction. No credit or refund of taxes or penalties
shall be allowed unless the taxpayer files in writing with the
Commissioner a claim for credit or refund within two (2)
years after the payment of the tax or penalty: Provided,
however, That a return filed showing an overpayment shall be
considered as a written claim for credit or refund.
xxxx
Sec. 229. Recovery of Tax Erroneously or Illegally Collected.—
No suit or proceeding shall be maintained in any court for the
recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any
penalty claimed to have been collected without authority, of any
sum alleged to have been excessively or in any manner wrongfully
collected without authority, or of any sum alleged to have been
excessively or in any manner wrongfully collected, until a claim for
refund or credit has been duly filed with the Commissioner; but
such suit or proceeding may be maintained, whether or not such
tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after
the expiration of two (2) years from the date of payment of
the taxor 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.”
(Emphasis ours.)
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. In Commissioner of Internal Revenue v. Seagate
Technology (Philippines), the Court explained the nature of
the VAT and the entitlement to tax refund or credit of a zero-
rated taxpayer:
“Viewed broadly, the VAT is a uniform tax x x x levied on every
importation of goods, whether or not in the course of trade or
business, or imposed on each sale, barter, exchange or lease of goods
or properties or on each rendition of services in the course of trade
or business as they pass along the production and distribution
chain, the tax being limited only to the value added to such goods,
properties or services by the seller, transferor or lessor. It is an
indirect tax that may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services. As such, it
should be understood not in the context of the person or entity that
is primarily, directly and legally liable for its payment, but in terms
of its nature as a tax on consumption. In either case, though, the
same conclusion is arrived at.
The law that originally imposed the VAT in the country, as well
as the subsequent amendments of that law, has been drawn from
the tax credit method. Such method adopted the mechanics and self-
enforcement features of the VAT as first implemented and practiced
116
in Europe x x x. Under the present method that relies on invoices,
an entity can credit against or subtract from the VAT charged on its
sales or outputs the VAT paid on its purchases, inputs and imports.
If at the end of a taxable quarter the output taxes charged by a
seller are equal to the input taxes passed on by the suppliers, no
payment is required. It is when the output taxes exceed the input
taxes that the excess has to be paid. If, however, the input taxes
exceed the output taxes, the excess shall be carried over to the
succeeding quarter or quarters. Should the input taxes result from
zero-rated or effectively zero-rated transactions or from the
acquisition of capital goods, any excess over the output taxes shall
instead be refunded to the taxpayer or credited against other
internal revenue taxes.
xxxx
Zero-rated transactions generally refer to the export sale of
goods and supply of services. The tax rate is set at zero. When
applied to the tax base, such rate obviously results in no tax charge-
175
VOL. 565, SEPTEMBER 12, 2008 175
Commissioner of Internal Revenue vs. Mirant
Pagbilao Corporation
able against the purchaser. The seller of such transactions
charges no output tax, but can claim a refund of or a tax
credit certificate for the VAT previously charged by
suppliers.”23 (Emphasis added.)
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.
As a final consideration, the Court wishes to remind the
BIR and other tax agencies of their duty to treat claims for
refunds and tax credits with proper attention and urgency.
Had RDO No. 60 and, later, the BIR proper acted, instead of
sitting, on MPC’s underlying application for effective zero
rating, the matter of addressing MPC’s right, or lack of it, to
tax credit or refund could have plausibly been addressed at
their level and perchance freed the taxpayer and the
government from the rigors of a tedious litigation.
The all too familiar complaint is that the government acts
with dispatch when it comes to tax collection, but pays little, if
any, attention to tax claims for refund or exemption. It is high
time our tax collectors prove the cynics wrong.
WHEREFORE, the petition is PARTLY GRANTED. The
Decision dated December 22, 2005 and the Resolution dated
March 31, 2006 of the CA in CA-G.R. SP No. 78280 are
AFFIRMED with the MODIFICATION that the claim of
respondent MPC for tax refund or credit to the extent of PhP
135,993,570, representing its input VAT payments for service
purchases from Mitsubishi Corporation of Japan for the
construction of a portion of its Pagbilao, Quezon power
station, is DENIED on the ground that the claim had
prescribed. Accordingly, petitioner Commissioner of Internal
Revenue is ordered to refund or, in the alternative, issue a tax
credit certificate in favor of MPC, its unutilized input VAT
payments directly attributable to its effectively zero-rated
sales for the second quarter in the total amount of PhP
10,766,939.48.
No pronouncement as to costs.
SO ORDERED.
Quisumbing (Chairperson), Carpio-Morales,
Tinga and Brion, JJ., concur.
Petition partly granted, judgment and resolution affirmed
with modification.
Notes.—Tax refunds are in the nature of tax exemptions, and as such they are
regarded as in derogation of sovereign authority and to be construed strictissimi
juris against the person or entity claiming the exemption. (Commissioner of
Internal Revenue vs. S.C. Johnson and Son, Inc.,309 SCRA 87 [1999])
If a taxpayer suffered a net loss in a subsequent year, incurring no tax liability
to which a previous year’s tax credit could be applied, there is no reason for the
Bureau of Internal Revenue to withhold the tax refund which rightfully belongs to
the taxpayer. (BPI-Family Savings Bank, Inc. vs. Court of Appeals, 330 SCRA 507
[2000])
——o0o——
117
 G.R. No. 184823. October 6, 2010.*
COMMISSIONER OF INTERNAL REVENUE,
petitioner, vs. AICHI FORGING COMPANY OF ASIA, INC.,
respondent.
Taxation; Value Added Tax (VAT); Prescription; Tax Refunds;
Section 112(A) of the National Internal Revenue Code (NIRC) is the
applicable provision in determining the start of the two-year period
for claiming a refund/credit of unutilized input Value Added Tax
(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.”—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, 565 SCRA 154
(2008), 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.”
Same; Same; Same; Words and Phrases; 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.—In Commissioner of
Internal Revenue v. Primetown Property Group, Inc., 531 SCRA 436
(2007), 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. Thus: Both Article 13 of the Civil Code
and Section 31, Chapter VIII, Book I of the Administrative Code of
1987 deal with the same subject matter—the computation of legal
periods. Under the Civil Code, a year is equivalent to 365 days
whether it be a regular year or a leap year. Under the
Administrative Code of 1987, however, a year is composed of 12
calendar months. Needless to state, under the Administrative Code
of 1987, the number of days is irrelevant. There obviously exists a
manifest incompatibility in the manner of computing legal periods
under the Civil Code and the Administrative Code of 1987. For this
reason, we hold that Section 31, Chapter VIII, Book I of the
Administrative Code of 1987, being the more recent law, governs
the computation of legal periods. Lex posteriori derogat priori.
Same; Same; Same; Where the taxpayer did not wait for the
decision of the Commission of Internal Revenue or the lapse of the
120-day period, it having simultaneously filed the administrative
and the judicial claims, the filing of said judicial claim with the
Court of Tax Appeals is premature.—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.
Same; Same; Same; Words and Phrases; The phrase “within
two (2) years x x x apply for the issuance of a tax credit certificate or
refund” in Section 112(A) of the National Internal Revenue
Code (NIRC) refers to applications for refund/credit filed with the
Commission of Internal Revenue (CIR) and not to appeals made to
the Court of Tax Appeals (CTA)—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.—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
118
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.
PETITION for review on certiorari of the decision and
resolution of the Court of Appeals.425
VOL. 632, OCTOBER 6, 2010 425
Commissioner of Internal Revenue vs. Aichi Forging
Company of Asia, Inc.
The facts are stated in the opinion of the Court.
The Solicitor General for petitioner.
Bernaldo, Mirador & Directo Law Offices for 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 Certiorariunder 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, which was paid pursuant to Section 106(A)
8
(2) (a) (1), (2) and (3) of the National Internal Revenue Code of
1997 (NIRC);9that 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;10 and that in
its application for refund/credit filed with the DOF One-Stop
Shop Inter-Agency Tax Credit and Duty Drawback Center, it
only claimed the amount of 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;
119
 6. Petitioner must prove that its sales are export sales
contemplated under Sections 106(A) (2) (a), and 108(B)
(1) of the Tax Code of 1997;
7. Petitioner must prove that the claim was filed within
the two (2) year period prescribed in Section 229 of the
Tax Code;
8. In an action for refund, the burden of proof is on the
taxpayer to establish its right to refund, and failure to
sustain the burden is fatal to the claim for refund; and
9. Claims for refund are construed strictly against the
claimant for the same partake of the nature of
exemption from taxation.13
Trial ensued, after which, on January 4, 2008, the Second
Division of the CTA rendered a Decision partially granting
respondent’s claim for refund/credit. Pertinent portions of the
Decision read:
“For a VAT registered entity whose sales are zero-rated, to
validly claim a refund, Section 112 (A) of the NIRC of 1997, as
amended, provides:
SEC. 112. Refunds or Tax Credits of Input Tax.—
(A) Zero-rated or Effectively Zero-rated Sales.—Any
VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close
of the taxable quarter when the sales were made, apply for
the issuance of a tax credit certificate or refund of creditable
input tax due or paid attributable to such sales, except
transitional input tax, to the extent that such input tax has
not been applied against output tax: x x x
Pursuant to the above provision, petitioner must comply with
the following requisites: (1) the taxpayer is engaged in sales which
are zero-rated or effectively zero-rated; (2) the taxpayer is VAT-
registered; (3) the claim must be filed within two years after the
close of the taxable quarter when such sales were made; and (4) the
creditable input tax due or paid must be attributable to such sales,
except the transitional input tax, to the extent that such input tax
has not been applied against the output tax.
The Court finds that the first three requirements have been
complied [with] by petitioner.
With regard to the first requisite, the evidence presented by
petitioner, such as the Sales Invoices (Exhibits “II” to “II-262,” “JJ”
to “JJ-431,” “KK” to “KK-394” and “LL”) shows that it is engaged in
sales which are zero-rated.
The second requisite has likewise been complied with. The
Certificate of Registration with OCN 1RC0000148499 (Exhibit “C”)
with the BIR proves that petitioner is a registered VAT taxpayer.
In compliance with the third requisite, petitioner filed its
administrative claim for refund on September 30, 2004 (Exhibit
“N”) and the present Petition for Review on September 30, 2004,
both within the two (2) year prescriptive period from the close of the
taxable quarter when the sales were made, which is from
September 30, 2002.
As regards, the fourth requirement, the Court finds that there
are some documents and claims of petitioner that are baseless and
have not been satisfactorily substantiated.
xxxx
In sum, petitioner has sufficiently proved that it is entitled to a
refund or issuance of a tax credit certificate representing unutilized
excess input VAT payments for the period July 1, 2002 to
September 30, 2002, which are attributable to its zero-rated sales
for the same period, but in the reduced amount of 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
430
430 SUPREME COURT REPORTS
ANNOTATED
Commissioner of Internal Revenue vs. Aichi Forging
Company of Asia, Inc.
hereby ORDERED TO REFUND OR ISSUE A TAX CREDIT
CERTIFICATE in favor of petitioner [in] the reduced amount of
120
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,17which 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.18According 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 Bancaffirmed 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
121
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.33Respondent 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.39In 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
122
period of two years is about to end, the suit or proceeding
must be started in the [CTA] before the end of the two-year
period without awaiting the decision of the [CIR].”41 Lastly,
respondent argues that even if the period had already lapsed,
it may be suspended for reasons of equity considering that it
is not a jurisdictional requirement.42
Our Ruling
The petition has merit.
Unutilized input VAT must be claimed
within two years after the close of the
taxable quarter when the sales were
made
In computing the two-year prescriptive period for claiming
a refund/credit of unutilized input VAT, the Second Division
of the CTA applied Section 112(A) of the NIRC, which states:
“SEC. 112. Refunds or Tax Credits of Input Tax.—
(A) Zero-rated or Effectively Zero-rated Sales—Any VAT-
registered person, whose sales are zero-rated or effectively zero-
rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a
tax credit certificate or refund of creditable input tax due or paid
attributable to such sales, except transitional input tax, to the
extent that such input tax has not been applied against output
tax: Provided, however, That in the case of zero-rated sales under
Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2),
the acceptable foreign currency exchange proceeds thereof had been
duly accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP): Provided, further, That
where the taxpayer is engaged in zero-rated or effectively zero-rated
sale and also in taxable or exempt sale of goods or properties or
services, and the amount of creditable input tax due or paid cannot
be directly and entirely attributed to any one of the transactions, it
shall be allocated proportionately on the basis of the volume of
sales.” (Emphasis supplied.)
The CTA En Banc, on the other hand, took into
consideration Sections 114 and 229 of the NIRC, which read:
“SEC. 114. Return and Payment of Value-Added Tax.—
(A) In General.—Every person liable to pay the value-added
tax imposed under this Title shall file a quarterly return of the
amount of his gross sales or receipts within twenty-five (25)
days following the close of each taxable quarter prescribed
for each taxpayer: Provided, however, That VAT-registered
persons shall pay the value-added tax on a monthly basis.
Any person, whose registration has been cancelled in accordance
with Section 236, shall file a return and pay the tax due thereon
within twenty-five (25) days from the date of cancellation of
registration: Provided, that only one consolidated return shall be
filed by the taxpayer for his principal place of business or head
office and all branches.
xxxx
SEC. 229. Recovery of tax erroneously or illegally collected.—
No suit or proceeding shall be maintained in any court for the
recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any
penalty claimed to have been collected without authority, or of any
sum alleged to have been excessively or in any manner wrongfully
collected, until a claim for refund or credit has been duly filed with
the Commissioner; but such suit or proceeding may be maintained,
whether or not such tax, penalty or sum has been paid under
protest or duress. In any case, no such suit or proceeding shall
be filed after the expiration of two (2) years from the date of
payment of the tax or penalty regardless of any supervening
cause that may arise after payment: Provided, however, That the
Commissioner may, even without written claim therefor, refund or
credit any tax, where on the face of the return upon which payment
was made, such payment appears clearly to have been erroneously
paid.” (Emphasis supplied.)
Hence, the CTA En Banc ruled that the reckoning of the
two-year period for filing a claim for refund/credit of
unutilized input VAT should start from the date of payment of
tax and not from the close of the taxable quarter when the
sales were made.43
The pivotal question of when to reckon the running of the
two-year prescriptive period, however, has already been
resolved in Commissioner of Internal Revenue v. Mirant
Pagbilao Corporation,44 where we ruled that Section 112(A) of
the NIRC is the applicable provision in determining the start
123
of the two-year period for claiming a refund/credit of (c) Credit or refund taxes erroneously or illegally
unutilized input VAT, and that Sections 204(C) and 229 of the received or penalties imposed without authority, refund the
NIRC are inapplicable as “both provisions apply only to value of internal revenue stamps when they are returned in
instances of erroneous payment or illegal collection of internal good condition by the purchaser, and, in his discretion,
redeem or change unused stamps that have been rendered
revenue taxes.”45 We explained that:
unfit for use and refund their value upon proof of destruction.
“The above proviso [Section 112 (A) of the NIRC] clearly provides
No credit or refund of taxes or penalties shall be allowed
in no uncertain terms that unutilized input VAT payments not
unless the taxpayer files in writing with the Commissioner a
otherwise used for any internal revenue tax due the
claim for credit or refund within two (2) years after the
taxpayer must be claimed within two years reckoned from
payment of the tax or penalty: Provided, however, That a
the close of the taxable quarter when the relevant sales
return filed showing an overpayment shall be considered as a
were made pertaining to the input VAT regardless of
written claim for credit or refund.
whether said tax was paid or not. As the CA aptly puts it, albeit
xxxx
it erroneously applied the aforequoted Sec. 112 (A), “[P]rescriptive
Sec. 229. Recovery of Tax Erroneously or Illegally
period commences from the close of the taxable quarter when the
Collected.—No suit or proceeding shall be maintained in any
sales were made and not from the time the input VAT was paid nor
court for the recovery of any national internal revenue tax
from the when a zero-rated VAT taxpayer pays its input VAT a year
hereafter alleged to have been erroneously or illegally
after the pertinent transaction, said taxpayer only has a year to file
assessed or collected, or of any penalty claimed to have been
a claim for refund or tax credit of the unutilized creditable input
collected without authority, of any sum alleged to have been
VAT. The reckoning frame would always be the end of the quarter
excessively or in any manner wrongfully collected without
when the pertinent sales or transaction was made, regardless when
authority, or of any sum alleged to have been excessively or in
the input VAT was paid. Be that as it may, and given that the last
any manner wrongfully collected, until a claim for refund or
creditable input VAT due for the period covering the progress
credit has been duly filed with the Commissioner; but such
billing of September 6, 1996 is the third quarter of 1996 ending on
suit or proceeding may be maintained, whether or not such
September 30, 1996, any claim for unutilized creditable input VAT
tax, penalty, or sum has been paid under protest or duress.
refund or tax credit for said quarter prescribed two years after
In any case, no such suit or proceeding shall be filed after
September 30, 1996 or, to be precise, on September 30, 1998.
the expiration of two (2) years from the date of payment of the
Consequently, MPC’s claim for refund or tax credit filed on
tax or penalty regardless of any supervening cause that may
December 10, 1999 had already prescribed.”
arise after payment: Provided, however, That the
Reckoning for prescriptive period under
Commissioner may, even without a written claim therefor,
Secs. 204(C) and 229 of the NIRC inapplicable
refund or credit any tax, where on the face of the return upon
To be sure, MPC cannot avail itself of the provisions of either
which payment was made, such payment appears clearly to
Sec. 204(C) or 229 of the NIRC which, for the purpose of refund,
have been erroneously paid.
prescribes a different starting point for the two-year prescriptive
Notably, the above provisions also set a two-year prescriptive
limit for the filing of a claim therefor. Secs. 204(C) and 229
period, reckoned from date of payment of the tax or penalty, for the
respectively provide:
filing of a claim of refund or tax credit. Notably too, both
Sec. 204. Authority of the Commissioner to Compromise,
provisions apply only to instances of erroneous payment or
Abate and Refund or Credit Taxes.—The Commissioner
illegal collection of internal revenue taxes.
may—
MPC’s creditable input VAT not erroneously paid
xxxx

124
 For perspective, under Sec. 105 of the NIRC, creditable input Administrative Code of 1987, which states that a year is
VAT is an indirect tax which can be shifted or passed on to the composed of 12 calendar months, it is the latter that must
buyer, transferee, or lessee of the goods, properties, or services of prevail following the legal maxim, Lex posteriori derogat
the taxpayer. The fact that the subsequent sale or transaction priori.50 Thus:
involves a wholly-tax exempt client, resulting in a zero-rated or “Both Article 13 of the Civil Code and Section 31, Chapter VIII,
effectively zero-rated transaction, does not, standing alone, deprive Book I of the Administrative Code of 1987 deal with the same
the taxpayer of its right to a refund for any unutilized creditable subject matter—the computation of legal periods. Under the Civil
input VAT, albeit the erroneous, illegal, or wrongful payment angle Code, a year is equivalent to 365 days whether it be a regular year
does not enter the equation. or a leap year. Under the Administrative Code of 1987, however, a
xxxx year is composed of 12 calendar months. Needless to state, under
Considering the foregoing discussion, it is clear that Sec. 112 the Administrative Code of 1987, the number of days is irrelevant.
(A) of the NIRC, providing a two-year prescriptive period There obviously exists a manifest incompatibility in the manner
reckoned from the close of the taxable quarter when the of computing legal periods under the Civil Code and the
relevant sales or transactions were made pertaining to the Administrative Code of 1987. For this reason, we hold that Section
creditable input VAT, applies to the instant case, and not 31, Chapter VIII, Book I of the Administrative Code of 1987, being
to the other actions which refer to erroneous payment of the more recent law, governs the computation of legal periods. Lex
taxes.”46 (Emphasis supplied.) posteriori derogat priori.
In view of the foregoing, we find that the CTA En Applying Section 31, Chapter VIII, Book I of the Administrative
Banc erroneously applied Sections 114(A) and 229 of the Code of 1987 to this case, the two-year prescriptive period (reckoned
NIRC in computing the two-year prescriptive period for from the time respondent filed its final adjusted return on April 14,
claiming refund/credit of unutilized input VAT. To be clear, 1998) consisted of 24 calendar months, computed as follows:
Section 112 of the NIRC is the pertinent provision for the Year 1st calendar April 15, 1998 to May 14, 1998
refund/credit of input VAT. Thus, the two-year period should month
be reckoned from the close of the taxable quarter when the 2nd calendar May 15, 1998 to June 14, 1998
sales were made. month
The administrative claim was timely filed 3rd calendar June 15, 1998 to July 14, 1998
Bearing this in mind, we shall now proceed to determine month
whether the administrative claim was timely filed. 4th calendar July 15, 1998 to August 14, 1998
Relying on Article 13 of the Civil Code,47which provides that month
a year is equivalent to 365 days, and taking into account the 5th calendar August 15, 1998 to September 14,
fact that the year 2004 was a leap year, petitioner submits month 1998
that the two-year period to file a claim for tax refund/ credit 6th calendar September 15, 1998 to October 14,
for the period July 1, 2002 to September 30, 2002 expired on month 1998
September 29, 2004.48 7th calendar October 15, 1998 to November 14,
We do not agree. month 1998
In Commissioner of Internal Revenue v. Primetown 8th calendar November 15, 1998 to December 14,
Property Group, Inc.,49 we said that as between the Civil Code, month 1998
which provides that a year is equivalent to 365 days, and the 9th calendar December 15, 1998 to January 14,

125
Year 1st calendar April 15, 1998 to May 14, 1998 day respondent filed its final adjusted return. Hence, it was filed
month within the reglementary period.”51
month 1999 Applying this to the present case, the two-year period to
10thcalendar January 15, 1999 to February 14, 1999 file a claim for tax refund/credit for the period July 1, 2002 to
month September 30, 2002 expired on September 30, 2004. Hence,
11thcalendar February 15, 1999 to March 14, 1999 respondent’s administrative claim was timely filed.
month The filing of the judicial claim was
12th calendar March 15, 1999 to April 14, 1999 premature
month However, notwithstanding the timely filing of the
administrative claim, we are constrained to deny respondent’s
Year 2 13th calendar month April 15, 1999 to May 14, 1999
claim for tax refund/credit for having been filed in violation of
Section 112(D) of the NIRC, which provides that:
“SEC. 112. Refunds or Tax Credits of Input Tax.—
14th calendar May 15, 1999 to June 14, 1999
xxxx
month
(D) Period within which Refund or Tax Credit of Input Taxes
15th calendar June 15, 1999 to July 14, 1999 shall be Made.—In proper cases, the Commissioner shall grant a
month refund or issue the tax credit certificate for creditable input taxes
16th calendar July 15, 1999 to August 14, 1999 within one hundred twenty (120) days from the date of
month submission of complete documents in support of the
17th calendar August 15, 1999 to September 14, 1999 application filed in accordance with Subsections (A) and (B)
month hereof.
18th calendar September 15, 1999 to October 14, In case of full or partial denial of the claim for tax refund or tax
month 1999
credit, or the failure on the part of the Commissioner to act on the
application within the period prescribed above, the taxpayer
19th calendar October 15, 1999 to November 14, 1999
affected may, within thirty (30) days from the receipt of the
month
decision denying the claim or after the expiration of the one
20th calendar November 15, 1999 to December 14,
hundred twenty day-period, appeal the decision or the
month 1999 unacted claim with the Court of Tax Appeals.” (Emphasis
21st calendar December 15, 1999 to January 14, 2000 supplied.)
month Section 112(D) of the NIRC clearly provides that the CIR
22nd calendar January 15, 2000 to February 14, 2000 has “120 days, from the date of the submission of the complete
month documents in support of the application [for tax
23rd calendar February 15, 2000 to March 14, 2000 refund/credit],” within which to grant or deny the claim. In
month case of full or partial denial by the CIR, the taxpayer’s
24th calendar March 15, 2000 to April 14, 2000 recourse is to file an appeal before the CTA within 30 days
month from receipt of the decision of the CIR. However, if after the
We therefore hold that respondent’s petition (filed on April 14, 120-day period the CIR fails to act on the application for tax
2000) was filed on the last day of the 24th calendar month from the refund/credit, the remedy of the taxpayer is to appeal the
inaction of the CIR to CTA within 30 days.
126
 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.53relied 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.
Corona (C.J., Chairperson), Velasco, Jr., Leonardo-De
Castro and Perez, JJ., concur.
Petition granted, judgment and resolution reversed and set
aside.
Notes.—Under Section 29 of R.A. No. 8800, there are three requisites
to enable the CTA to acquire jurisdiction over the petition for review
contemplated therein—(i) there must be a ruling by the DTI Secretary, (ii)
the petition must be filed by an interested party adversely affected by the
ruling; and (iii) such ruling must be “in connection with the imposition of a
safeguard measure. (Southern Cross Cement Corporation vs. Cement
Manufacturers Association of the Philippines, 465 SCRA 532 [2005])
As early as 1988, the BIR issued several VAT rulings to the effect that
the sales of gold to the Central Bank by a VAT-registered person or entity
are considered export sales, and as export sales, the sale is zero-rated,
hence, no tax is chargeable to it as purchaser; Zero rating is primarily
intended to be enjoyed by the seller which charges no output VAT but can
claim refund of or tax credit certificate for the input VAT previously
charged to the suppliers. (Commissioner of Internal Revenue vs. Manila
Mining Corporation, 468 SCRA 571 [2005])
127
 G.R. No. 204277. May 30, 2016.* PGAPL are irrelevant to the present case, because they did not rule
on the jurisdictional and mandatory nature of the 120- and 30-day
PROCTER AND GAMBLE ASIA PTE. LTD., periods. Indeed, Aichi is the prevailing doctrine on the matter of
petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, mandatory compliance with the 120- and 30-day periods in the
filing of judicial claims of tax credit or refund before the CTA.
respondent.
However, in the manner of most rules, the AichiDoctrine is also
Taxation; Tax Credit; Tax Refund; Under Section 112 of the
subject to exceptions. In accordance with the equitable estoppel
National Internal Revenue Code (NIRC), if the administrative claim
principle under Section 246 of the NIRC, we ruled in San Roque-
for tax credit or refund of input taxes is not acted upon by the
Taganito that there are exceptions to the strict rule that compliance
Commissioner of Internal Revenue (CIR) within one hundred twenty
with the AichiDoctrine is mandatory and jurisdictional, one of
(120) days from the date of submission of complete documents in
which is BIR Ruling No. DA-489-03. If the CIR issues a ruling,
support of the application, the taxpayer affected may appeal the
either a specific one applicable to a particular taxpayer or a general
unacted claim with the Court of Tax Appeals (CTA) within thirty
interpretative rule applicable to all taxpayers, and, as a result,
(30) days from the expiration of the 120-day period.—Under Section
misleads the taxpayers affected by the rule, into filing prematurely
112 of the NIRC, if the administrative claim for tax credit or refund
judicial claims with the CTA, the CIR cannot be allowed to later on
of input taxes is not acted upon by the CIR within 120 days from
question the CTA’s assumption of jurisdiction over such claim.
the date of submission of complete documents in support of the
Since then, this Court has consistently adopted the ruling in San
application, the taxpayer affected may appeal the unacted claim
Roque-Taganito in holding that BIR Ruling No. DA-489-03 is an
with the CTA within 30 days from the expiration of the 120-day
exception to the AichiDoctrine. We see no reason to disturb what is
period. In Commissioner of Internal Revenue v. Aichi Forging
now a settled ruling.
Company of Asia, Inc., 632 SCRA 422 (2010), this Court ruled that
Same; Delegation of Powers; The Supreme Court (SC) upheld
observance of the 120- and 30-day periods is crucial in the filing of
the validity of the Bureau of Internal Revenue (BIR) ruling (BIR
an appeal before the CTA. By “crucial,” this Court meant that its
Ruling No. DA-489-03), because the power to interpret rules and
observance is jurisdictional and mandatory, not merely permissive.
regulations is not exclusive and may be delegated by the
Contrary to the PGAPL’s claim, this court has not abandoned
Commissioner of Internal Revenue (CIR) to the Deputy
the Aichidoctrine, more specifically in Intel, San
Commissioner.—The respondent now impugns the validity of BIR
Roque(2009), Panasonic, AT&T, Hitachi, Silicon, Kepco, Microsoft,
Ruling No. DA-489-03. The CIR argues that the BIR ruling was
Southern Philippines Power Corporation, and Western Mindanao
issued only by the Deputy Commissioner and not by the CIR, who,
Power Corporation.
under Section 4 of the NIRC, has original and exclusive jurisdiction
Same; Same; Same; Commissioner of Internal Revenue v. Aichi
in interpreting provisions of the NIRC. We are not persuaded by the
Forging Company of Asia, Inc., 632 SCRA 422 (2010), is the
CIR’s contention. This issue has been settled in the Court En Banc’s
prevailing doctrine on the matter of mandatory compliance with the
resolution dated October 8, 2013 in the consolidated cases of San
one hundred twenty (120)- and thirty (30)-day periods in the filing of
Roque-Taganito where we upheld the validity of the BIR ruling,
judicial claims of tax credit or refund before the Court of Tax
because the power to interpret rules and regulations is not
Appeals (CTA).—The Commissioner of Internal Revenue v. Aichi
exclusive and may be delegated by the CIR to the Deputy
Forging Company of Asia, Inc., 632 SCRA 422 (2010), Doctrine
Commissioner.
could not have been overturned by subsequent cases before this
Court that were decided based on another issue and the application PETITION for review on certiorari of the decision and
of a different doctrine or rule of law. In the same vein, the cases resolution of the Court of Tax Appeals En Banc.
cited by The facts are stated in the opinion of the Court.
_______________
128
 A.M. Sison, Jr. Partners and Zambrano and Gruba Law
Offices for petitioner.
Office of the Solicitor General for respondent.
BRION, J.:
Before us is a petition for review on certiorari1 under Rule
45 of the Rules of Court seeking the reversal of the
decision2dated June 18, 2012, and the resolution3dated
November 8, 2012 of the Court of Tax Appeals (CTA) En
Banc in C.T.A. E.B. Case No. 740 (CTA Case No. 7683). In the
assailed decision and resolution, the CTA En Banc affirmed
the decision4 dated November 9, 2010 and resolution5 dated
March 7, 2011, of the CTA Second Division (CTA Division).
The latter dismissed the petition of Procter & Gamble Asia
Pte. Ltd. (PGAPL) for premature filing.
The Facts
Petitioner PGAPL is a foreign corporation duly organized
and existing under the laws of Singapore, with a Regional
Operating Headquarters (ROHQ) in the Philippines. The
ROHQ provides management, marketing, technical and
financial advisory, and other qualified services to its related
parties. PGAPL is registered as a Value-Added Tax (VAT)
taxpayer with the Bureau of Internal Revenue (BIR). On the
other hand, respondent is the duly appointed Commissioner of
Internal Revenue (CIR), empowered to perform the duties of
said office including, among others, the duty to act upon and
approve claims for refunds or tax credits as provided by law.
On October 24, 2005, and January 26, 2006, PGAPL filed
with the BIR its Original Quarterly VAT returns for the Third
and Fourth quarters of 2005, respectively.
On April 4, 2007, PGAPL amended its Quarterly VAT
returns for the last two quarters of 2005, reporting both sales
subject to 10% VAT and zero-rated sales. For the last two
quarters of 2005, PGAPL claimed it incurred unutilized input
VAT amounting to P53,624,427.14.
On August 21, 2007, PGAPL filed an administrative claim
for tax refund with the BIR for input VAT attributable to its
zero-rated sales covering the period July 2005 to September
2005 and October 2005 to December 2005.
Claiming that the CIR has not acted on its application,
PGAPL elevated the case to the CTA by filing a petition for
review6before the CTA division on September 27, 2007.
The CTA Division dismissed PGAPL’s petition.7 It ruled
that the filing of the judicial claim for tax refund or credit
before the CTA is premature, because the petitioner proceeded
with its appeal even before the expiration of the 120-day
period given to the CIR to decide on its claim for tax refund or
credit of excess input VAT. Section 112 of the National
Internal Revenue Code of 1997 (NIRC) provides that in case of
denial of his claim for tax credit or refund or failure of the CIR
to act on the application within 120 days, the taxpayer may,
within 30 days from the receipt of the notice of denial or after
the expiration of the 120-day period, appeal the decision or
unacted claim with the CTA. The CTA Division emphasized
that, as enunciated in Commissioner of Internal Revenue v.
Aichi Forging Company of Asia, Inc.,8 compliance with the
aforesaid 120- and 30-day periods is crucial in filing an
appeal before the CTA (Aichi Doctrine).
PGAPL moved for reconsideration, but the CTA denied its
motion in a resolution dated March 7, 2011.9 The CTA
Division struck down PGAPL’s argument that respondent is
already estopped from raising the issue of jurisdiction
considering that it already actively participated in all stages
of the proceedings and that the CTA has proceeded to try the
case without bringing into petitioner’s attention that it has no
jurisdiction to do so. It ruled that parties are not barred from
assailing the jurisdiction of the court, even when the case has
already been tried and decided upon. Jurisdiction must exist
as a matter of law and may not be conferred by the consent of
the parties or by estoppel.10
Thereafter, petitioner filed a petition for review11 before the
CTA En Banc.
129
 In its decision12 dated June 18, 2012, the CTA En
Banc affirmed the decision and resolution of the CTA
Division. It found that PGAPL’s administrative claim for
excess input VAT credit or refund was timely filed with the
BIR on August 21, 2007. However, its judicial claim before the
CTA was filed on September 27, 2007, or only 37 days after it
had filed its administrative claim.
Based on these timelines, the CTA En Banc held that
PGAPL’s petition was prematurely filed. Thus, the CTA had
no jurisdiction to hear and decide its appeal. The CTA En
Banc reiterated that, based on Aichi, the premature filing of a
taxpayer’s claim for tax credit or refund on input VAT before
the CTA warrants dismissal as the CTA did not acquire
jurisdiction over the claim.
The CTA En Banc further held that, contrary to
petitioner’s claim, the AichiDoctrine was not effectively
abandoned by the Supreme Court in its rulings in Hitachi
Global Storage Technologies Corp. v. Commissioner of Internal
Revenue,13Silicon Philippines, Inc. v. Commissioner of Internal
Revenue,14 and Kepco Philippines Corporation v. Commissioner
of Internal Revenue.15 It observed that in PGAPL’s cited cases,
the issue of compliance with the 120- and 30-day periods
under Section 112 of the NIRC was never squarely raised.
Thus, Aichi remains the prevailing doctrine on the compliance
with the 120- and 30-day periods.
The CTA En Banc further ruled that Hitachi, Silicon,
and Kepco could not have overturned Aichi. Such reversal
would run counter to the constitutional mandate that no
doctrine or principle of law laid down by the court in a
decision rendered En Banc or in division may be modified or
reversed except by the Supreme Court sitting En Banc.16
The CTA En Banc also denied petitioner’s motion for
reconsideration.17Hence, on December 28, 2010, PGAPL filed
the present petition.
PGAPL insists that this Court had abandoned
the Aichi Doctrine not only in Hitachi, Silicon, and Kepco, but
also in Microsoft Philippines, Inc. v. Commissioner of Internal
Revenue,18 Southern Philippines Power Corporation v.
Commissioner of Internal Revenue,19 and Western Mindanao
Power Corporation v. Commissioner of Internal Revenue.20
PGAPL also posits that the premature filing of its judicial
claim is not fatal to its case. It is not jurisdictional, but merely
a failure to exhaust administrative remedies, which, when
analyzed more closely, only amounts to a lack of cause of
action. Thus, its petition before the CTA might have been
infirm, but the CIR should be deemed to have waived this
infirmity when it did not file a motion to dismiss and opted to
participate at the trial.
PGAPL further argues that its constitutional rights to due
process and equal protection of laws were violated when their
judicial claim for tax credit or refund was dismissed due to
noncompliance with the Aichi Doctrine. It noted that the
claims filed by the taxpayers in Intel,21 San
Roque, Panasonic, AT&T, Hitachi, Silicon, Kepco, Microsof
22 23 24
t, Southern Philippines Power, and Western Mindanao
Power were given due course despite the similar failure to
observe the 120- and 30-day periods.
Finally, petitioner claims that even assuming that
the Aichi Doctrine has not been overturned, it does not apply
to its case, because the facts in Aichi are not identical with
those in the present case. Further, the respondent should be
considered estopped from questioning the jurisdiction of the
CTA, considering that it has participated in all stages of the
case.
On February 6, 2013,25 we required the CIR to comment on
the petition.
In the meantime, on February 12, 2013, we decided the
consolidated 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 Revenue.26 In San
Roque-Taganito, we recognized the effectivity of BIR Ruling
130
No. DA-489-03, which expressly stated 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.” We said:
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. 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. (emphasis
ours)
In finding that the said BIR ruling is a general
interpretative rule, which is an exception to the doctrine
laid down in Aichi, this court held that taxpayers acting in
good faith should not be made to suffer for adhering to
general interpretative rules of the CIR interpreting tax laws,
should such interpretation later turn out to be erroneous and
be reversed by the CIR or this court. Thus, We clarified
that strict compliance with the 120- and 30-day periods
is necessary for a judicial claim of tax credit or refund
to prosper, except for the period from December 10,
2003, the issuance of BIR DA-489-03, to October 6, 2010,
when this court adopted the Aichi Doctrine. Hence, a
judicial claim for tax credit or refund filed within the period
mentioned above will be deemed to have been filed on time.
On May 6, 2013, even before the CIR could comment,
PGAPL filed a manifestation27 invoking in its favor this court’s
ruling San Roque-Taganito. Petitioner claims that since its
judicial claim was filed before the CTA on September 27,
2007, when BIR Ruling No. DA-489-03 was in effect, its
judicial claim should be deemed as having been timely filed.
In her comment28 dated June 11, 2013, the CIR argues that
her office has the exclusive and original jurisdiction to
interpret tax laws, subject to the review of the Secretary of
Finance, as provided in Section 4 of the NIRC. Hence, BIR
Ruling No. DA-489-03 was issued ultra vires, having been
issued by BIR Deputy Commissioner Jose Mario C. Bunag,
not by the CIR. The CIR further claims that even if we
assume that the said ruling is valid, it still does not apply to
the case of PGAPL, because it did not prove that it acted in
good faith. According to respondent, if PGAPL truly relied on
the BIR ruling in good faith, it should have raised the rule set
forth in the said BIR ruling as early as the time the present
case was pending before the CTA.
The Court’s Ruling
We find the petition meritorious.
BIR Ruling No. DA-489-03 is an
exception to the Aichi Doctrine
Under Section 112 of the NIRC,29 if the administrative
claim for tax credit or refund of input taxes is not acted upon
by the CIR within 120 days from the date of submission of
complete documents in support of the application, the
taxpayer affected may appeal the unacted claim with the CTA
within 30 days from the expiration of the 120-day period.
In Aichi, this Court ruled that observance of the 120- and
30-day periods is crucial in the filing of an appeal before the
CTA. By “crucial,” this Court meant that its observance is
jurisdictional and mandatory, not merely permissive.
131
 Contrary to the PGAPL’s claim, this court has not
abandoned the Aichi doctrine, more specifically in Intel, San
Roque(2009), Panasonic, AT&T, Hitachi, Silicon, Kepco, Micro
soft, Southern Philippines Power Corporation, and Western
Mindanao Power Corporation.
While all such cases dealt with claims for tax credit or
refund of excess input tax, the rulings of this Court were on
the issue of compliance with applicable requirements
supporting the taxpayer’s claim. The issue of whether
compliance with the 120- and 30-day periods under Section
112 of the NIRC is mandatory and jurisdictional was never
squarely raised in any of the petitioner’s cited cases.
The basic rule is that past decisions of this Court be
followed in the adjudication of cases. However, for a ruling of
this Court to come within this rule (known as stare decisis),
the Court must categorically rule on an issue expressly raised
by the parties; it must be a ruling on an issue directly
raised.30 When the court resolves an issue merely sub
silentio, stare decisis does not apply on the issue touched
upon.31
In fact, the same argument was struck down by this court
in San Roque-Taganito. There, we held that, “[a]ny issue,
whether raised or not by the parties, but not passed
upon by the court, does not have any value as a
precedent.”32(emphasis in the original)
From this perspective, the AichiDoctrine could not have
been overturned by subsequent cases before this Court that
were decided based on another issue and the application of a
different doctrine or rule of law. In the same vein, the cases
cited by PGAPL are irrelevant to the present case, because
they did not rule on the jurisdictional and mandatory nature
of the 120- and 30-day periods.
Indeed, Aichi is the prevailing doctrine on the matter of
mandatory compliance with the 120- and 30-day periods in
the filing of judicial claims of tax credit or refund before the
CTA. However, in the manner of most rules,
the Aichi Doctrine is also subject to exceptions.
In accordance with the equitable estoppel principle under
Section 246 of the NIRC,33 we ruled in San Roque-
Taganitothat there are exceptions to the strict rule that
compliance with the Aichi Doctrine is mandatory and
jurisdictional, one of which is BIR Ruling No. DA-489-03. If
the CIR issues a ruling, either a specific one applicable to a
particular taxpayer or a general interpretative rule applicable
to all taxpayers, and, as a result, misleads the taxpayers
affected by the rule, into filing prematurely judicial claims
with the CTA, the CIR cannot be allowed to later on question
the CTA’s assumption of jurisdiction over such claim.34
Since then, this Court has consistently adopted the ruling
in San Roque-Taganitoin holding that BIR Ruling No. DA-
489-03 is an exception to the Aichi Doctrine.35 We see no
reason to disturb what is now a settled ruling.
Therefore, as a general interpretative rule, all taxpayers may
rely on BIR Ruling No. DA-489-03 from the time of its
issuance on December 10, 2003, until its effective reversal by
the Aichi Doctrine adopted on October 6, 2010. Thus, judicial
claims for tax credit or refund instituted before the CTA
should be given due course, despite their failure to comply
with the 120- and 30-day periods.
BIR Ruling No. DA-489-03 is
valid even if issued by the
Deputy Commissioner
The respondent now impugns the validity of BIR Ruling
No. DA-489-03. The CIR argues that the BIR ruling was
issued only by the Deputy Commissioner and not by the CIR,
who, under Section 4 of the NIRC,36 has original and exclusive
jurisdiction in interpreting provisions of the NIRC.
132
 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.
We are not persuaded by the CIR’s contention.
This issue has been settled in the Court En Banc’s
resolution dated October 8, 2013 in the consolidated cases
of San Roque-Taganito37 where we upheld the validity of the
BIR ruling, because the power to interpret rules and
regulations is not exclusive and may be delegated by the
CIR38 to the Deputy Commissioner.
PGAPL is presumed to have
relied on BIR Ruling No.
DA-489-03 in good faith
Finally, the CIR questions PGAPL’s good faith in relying on
BIR Ruling No. DA-489-03. To the CIR, if PGAPL truly relied
on the BIR ruling in good faith, it should have cited the ruling
as basis as early as the proceedings before the CTA. The CIR
claims that since PGAPL failed to establish that it acted in
good faith, it cannot raise the exception set forth in BIR
Ruling No. DA-489-03.
We disagree with the CIR’s reasoning.
First, good faith is always presumed and this presumption
can only be overcome by clear and convincing evidence.39 Good
faith, or its absence, is a question of fact that is better
determined by the lower courts. This Court cannot, without
sufficient reason, throw out a presumption that arises as a
matter of law and is well-entrenched in our legal system.40
The mere allegation that the petitioner failed to raise BIR
Ruling No. DA-489-03 before the CTA is insufficient to negate
this presumption.
Second, even if petitioner did not raise the BIR ruling
before the CTA, we can take cognizance of an official act
emanating from the BIR, an executive department of the
government.41 Judicial notice of BIR Ruling No. DA-489-03 is
all the more mandatory especially when it has been applied
consistently by this Court in its past rulings.42
Based on the foregoing, we rule that the judicial claim that
PGAPL filed with the CTA on September 27, 2007 (during the
effectivity of BIR Ruling No. DA-489-03) was timely filed.
WHEREFORE, premises considered, we GRANT the
petition. The decision dated June 18, 2012, and the resolution
dated November 8, 2012 of the CTA En Banc in C.T.A. E.B.
Case No. 740 are hereby REVERSED and SET ASIDE.
Accordingly, we REMAND the case to the CTA Second
Division for the proper determination of the creditable or
refundable amount due to the petitioner, if any.
SO ORDERED.
Carpio (Chairperson), Del Castillo and Mendoza, JJ.,
concur.
Leonen, J., I dissent consistent with my position in San
Roque v. CIR.
Petition granted, judgment and resolution reversed and set
aside.
Notes.—The proper party to question, or claim a refund or tax credit of an
indirect tax is the statutory taxpayer, as it is the company on which the tax is
imposed by law and which paid the same even if the burden thereof was shifted or
passed on to another. (Silkair [Singapore] Pte., Ltd. vs. Commissioner of Internal
Revenue, 613 SCRA 638 [2010])
In the more recent case of Taganito Mining Corporation v. CIR, 726 SCRA 637
(2014), the Supreme Court (SC) reconciled the pronouncements in CIR v. Aichi
Forging Company of Asia, Inc., 632 SCRA 422 (2010) and CIR v. San Roque Power
Corporation, 690 SCRA 336 (2013), holding that from December 10, 2003 to
October 6, 2010 which refers to the interregnum when Bureau of Internal Revenue
(BIR) Ruling No. DA-489-03 was issued until the date of promulgation of Aichi,
taxpayer-claimants need not observe the stringent one hundred twenty (120)-day
period; but before and after said window period, the mandatory and jurisdictional
nature of the 120-day period remained in force. (Cargill Philippines, Inc. vs.
Commissioner of Internal Revenue, 753 SCRA 124 [2015])
133
 G.R. No. 187485. February 12, 2013.*
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.
SAN ROQUE POWER CORPORATION, respondent.
G.R. No. 196113. February 12, 2013.*
TAGANITO MINING CORPORATION,
petitioner, vs. COMMISSIONER OF INTERNAL REVENUE,
respondent.
G.R. No. 197156. February 12, 2013.*
PHILEX MINING CORPORATION,
petitioner, vs. COMMISSIONER OF INTERNAL REVENUE,
respondent.
Taxation; Tax Refund; Tax Credit; Waiting Period; It is
indisputable that compliance with the 120-day waiting period is
mandatory and jurisdictional. The waiting period, originally fixed
at 60 days only, was part of the provisions of the first Value-Added
Tax (VAT) law, Executive Order No. 273, which took effect on 1
January 1988. The waiting period was extended to 120 days effective
1 January 1998 under RA 8424 or the Tax Reform Act of 1997.—
Clearly, San Roque failed to comply with the 120-day waiting
period, the time expressly given by law to the Commissioner to
decide whether to grant or deny San Roque’s application for tax
refund or credit. It is indisputable that compliance with the 120-day
waiting period is mandatory and jurisdictional. The waiting
period, originally fixed at 60 days only, was part of the provisions of
the first VAT law, Executive Order No. 273, which took effect on 1
January 1988. The waiting period was extended to 120 days
effective 1 January 1998 under RA 8424 or the Tax Reform Act of
1997. Thus, the waiting period has been in our statute books
for more than fifteen (15) years before San Roque filed its
judicial claim. Failure to comply with the 120-day waiting period
violates a mandatory provision of law. It violates the doctrine of
exhaustion of administrative remedies and renders the petition
premature and thus without a cause of action, with the effect that
the CTA does not acquire jurisdiction over the taxpayer’s petition.
Philippine jurisprudence is replete with cases upholding and
reiterating these doctrinal principles.
Same; Court of Tax Appeals; Jurisdiction; The charter of the
Court of Tax Appeals expressly provides that its jurisdiction is to
review on appeal decisions of the Commissioner of Internal Revenue
in cases involving refunds of internal revenue taxes.—The charter of
the CTA expressly provides that its jurisdiction is to review on
appeal “decisions of the Commissioner of Internal Revenue in
cases involving x x x refunds of internal revenue taxes.” When a
taxpayer prematurely files a judicial claim for tax refund or credit
with the CTA without waiting for the decision of the Commissioner,
there is no “decision” of the Commissioner to review and thus the
CTA as a court of special jurisdiction has no jurisdiction over the
appeal. The charter of the CTA also expressly provides that if the
Commissioner fails to decide within “a specific period” required
by law, such “inaction shall be deemed a denial” of the
application for tax refund or credit. It is the Commissioner’s
decision, or inaction “deemed a denial,” that the taxpayer can take
to the CTA for review. Without a decision or an “inaction x x x
deemed a denial” of the Commissioner, the CTA has no jurisdiction
over a petition for review.
Civil Law; Human Relations; It is hornbook doctrine that a
person committing a void act contrary to a mandatory provision of
law cannot claim or acquire any right from his void act. A right
cannot spring in favor of a person from his own void or illegal
act.―It is hornbook doctrine that a person committing a void act
contrary to a mandatory provision of law cannot claim or acquire
any right from his void act. A right cannot spring in favor of a
person from his own void or illegal act. This doctrine is repeated in
Article 2254 of the Civil Code, which states, “No vested or acquired
right can arise from acts or omissions which are against the law or
which infringe upon the rights of others.” For violating a mandatory
provision of law in filing its petition with the CTA, San Roque
cannot claim any right arising from such void petition. Thus, San
Roque’s petition with the CTA is a mere scrap of paper.
Taxation; Tax Refund; Tax Credit; The Supreme Court should
not establish the precedent that non-compliance with mandatory and
jurisdictional conditions can be excused if the claim is otherwise
meritorious, particularly in claims for tax refunds or credit.—This
Court cannot disregard mandatory and jurisdictional conditions
mandated by law simply because the Commissioner chose not to
contest the numerical correctness of the claim for tax refund or
credit of the taxpayer. Non-compliance with mandatory periods,
non-observance of prescriptive periods, and non-adherence to
exhaustion of administrative remedies bar a taxpayer’s claim for
134
tax refund or credit, whether or not the Commissioner questions the
numerical correctness of the claim of the taxpayer. This Court
should not establish the precedent that non-compliance with
mandatory and jurisdictional conditions can be excused if the claim
is otherwise meritorious, particularly in claims for tax refunds or
credit. Such precedent will render meaningless compliance with
mandatory and jurisdictional requirements, for then every tax
refund case will have to be decided on the numerical correctness of
the amounts claimed, regardless of non-compliance with mandatory
and jurisdictional conditions.
Same; Appeals; The taxpayer may, if he wishes, appeal the
decision of the Commissioner to the Court of Tax Appeals within 30
days from receipt of the Commissioner’s decision, or if the
Commissioner does not act on the taxpayer’s claim within the 120-
day period, the taxpayer may appeal to the Court of Tax Appeals
within 30 days from the expiration of the 120-day period.—Section
112(C) also expressly grants the taxpayer a 30-day period to appeal
to the CTA the decision or inaction of the Commissioner, thus: x x x
the taxpayer affected may, within thirty (30) days from the
receipt of the decision denying the claim or after the
expiration of the one hundred twenty day-period, appeal the
decision or the unacted claim with the Court of Tax Appeals.
(Emphasis supplied) This law is clear, plain, and unequivocal.
Following the well-settled verba legis doctrine, this law should be
applied exactly as worded since it is clear, plain, and unequivocal.
As this law states, the taxpayer may, if he wishes, appeal the
decision of the Commissioner to the CTA within 30 days from
receipt of the Commissioner’s decision, or if the Commissioner does
not act on the taxpayer’s claim within the 120-day period, the
taxpayer may appeal to the CTA within 30 days from the expiration
of the 120-day period.
Same; Tax Refund; Tax Credit; The taxpayer may, within two
(2) years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of
the creditable input tax due or paid to such sales.—Section 112(A)
clearly, plainly, and unequivocally provides that the taxpayer
“may, within two (2) years after the close of the taxable quarter
when the sales were made, apply for the issuance of a tax
credit certificate or refund of the creditable input tax due or
paid to such sales.” In short, the law states that the taxpayer may
apply with the Commissioner for a refund or credit “within two (2)
years,” which means at anytime within two years. Thus, the
application for refund or credit may be filed by the taxpayer with
the Commissioner on the last day of the two-year prescriptive
period and it will still strictly comply with the law. The two-year
prescriptive period is a grace period in favor of the taxpayer and he
can avail of the full period before his right to apply for a tax refund
or credit is barred by prescription.
Same; Same; Same; The two-year prescriptive period in Section
112(A) refers to the period within which the taxpayer can file an
administrative claim for tax refund or credit. Stated otherwise, the
two-year prescriptive period does not refer to the filing of the judicial
claim with the Court of Tax Appeals but to the filing of the
administrative claim with the Commissioner.—Section 112(C)
provides that the Commissioner shall decide the application for
refund or credit “within one hundred twenty (120) days from the
date of submission of complete documents in support of the
application filed in accordance with Subsection (A).” The reference
in Section 112(C) of the submission of documents “in support of the
application filed in accordance with Subsection A” means that the
application in Section 112(A) is the administrative claim that the
Commissioner must decide within the 120-day period. In short, the
two-year prescriptive period in Section 112(A) refers to the period
within which the taxpayer can file an administrative claim for tax
refund or credit. Stated otherwise, the two-year prescriptive
period does not refer to the filing of the judicial claim with
the CTA but to the filing of the administrative claim with
the Commissioner. As held in Aichi, the “phrase ‘within two years
x x x apply for the issuance of a tax credit or refund’ refers to
applications for refund/credit with the CIR and not to
appeals made to the CTA.”
Same; Same; Same; If the 30-day period, or any part of it, is
required to fall within the two-year prescriptive period (equivalent to
730 days), then the taxpayer must file his administrative claim for
refund or credit within the first 610 days of the two-year prescriptive
period.—If the 30-day period, or any part of it, is required to fall
within the two-year prescriptive period (equivalent to 730 days),
then the taxpayer must file his administrative claim for refund or
credit within the first 610 days of the two-year prescriptive
period. Otherwise, the filing of the administrative claim
135
beyond the first 610 days will result in the appeal to the CTA
being filed beyond the two-year prescriptive period. Thus, if
the taxpayer files his administrative claim on the 611th day, the
Commissioner, with his 120-day period, will have until the 731st
day to decide the claim. If the Commissioner decides only on the
731st day, or does not decide at all, the taxpayer can no longer file
his judicial claim with the CTA because the two-year prescriptive
period (equivalent to 730 days) has lapsed. The 30-day period
granted by law to the taxpayer to file an appeal before the CTA
becomes utterly useless, even if the taxpayer complied with the law
by filing his administrative claim within the two-year prescriptive
period.
Same; Value-Added Tax; Input Value-Added Tax (VAT); Words
and Phrases; The input Value-Added Tax (VAT) is a tax liability of,
and legally paid by, a VAT-registered seller of goods, properties or
services used as input by another VAT-registered person in the sale
of his own goods, properties, or services.—The input VAT
is not “excessively” collected as understood under Section 229
because at the time the input VAT is collected the amount
paid is correct and proper. The input VAT is a tax liability of,
and legally paid by, a VAT-registered seller of goods, properties or
services used as input by another VAT-registered person in the sale
of his own goods, properties, or services. This tax liability is true
even if the seller passes on the input VAT to the buyer as part of
the purchase price. The second VAT-registered person, who is not
legally liable for the input VAT, is the one who applies the input
VAT as credit for his own output VAT. If the input VAT is in fact
“excessively” collected as understood under Section 229, then it is
the first VAT-registered person―the taxpayer who is legally liable
and who is deemed to have legally paid for the input VAT―who can
ask for a tax refund or credit under Section 229 as an ordinary
refund or credit outside of
341
VOL. 690, FEBRUARY 12, 2013 3 However, such “excess” input VAT can be applied against the
41
Commissioner of Internal Revenue vs. San
Roque Power Corporation
the VAT System. In such event, the second VAT-registered
taxpayer will have no input VAT to offset against his own output
VAT.
Same; Same; For simplicity and efficiency in tax collection, the
Value-Added Tax (VAT) is imposed not just on the value added by
the taxpayer, but on the entire selling price of his goods, properties or
services.—As its name implies, the Value-Added Tax system is a tax
on the value added by the taxpayer in the chain of transactions. For
simplicity and efficiency in tax collection, the VAT is imposed not
just on the value added by the taxpayer, but on the entire selling
price of his goods, properties or services. However, the taxpayer is
allowed a refund or credit on the VAT previously paid by those who
sold him the inputs for his goods, properties, or services. The net
effect is that the taxpayer pays the VAT only on the value that he
adds to the goods, properties, or services that he actually sells.
Same; Same; Input Value-Added Tax (VAT); A taxpayer can
apply his input Value-Added Tax (VAT) only against his output
VAT. The only exception is when the taxpayer is expressly “zero-rated
or effectively zero-rated” under the law, like companies generating
power through renewable sources of energy.―Under Section 110(B),
a taxpayer can apply his input VAT only against his output VAT.
The only exception is when the taxpayer is expressly “zero-rated or
effectively zero-rated” under the law, like companies generating
power through renewable sources of energy. Thus, a non zero-rated
VAT-registered taxpayer who has no output VAT because he has no
sales cannot claim a tax refund or credit of his unused input VAT
under the VAT System. Even if the taxpayer has sales but his input
VAT exceeds his output VAT, he cannot seek a tax refund or credit
of his “excess” input VAT under the VAT System. He can only
carry-over and apply his “excess” input VAT against his
future output VAT. If such “excess” input VAT is an “excessively”
collected tax, the taxpayer should be able to seek a refund or credit
for such “excess” input VAT whether or not he has output VAT. The
VAT System does not allow such refund or credit. Such “excess”
input VAT is not an “excessively” collected tax under Section 229.
The “excess” input VAT is a correctly and properly collected tax.
output VAT because the VAT is a tax imposed only on the value
added by the taxpayer. If the input VAT is in fact “excessively”
collected under Section 229, then it is the person legally liable to
pay the input VAT,
342
3 SUPREME COURT REPORTS
136
42 ANNOTATED
Commissioner of Internal Revenue vs. San
Roque Power Corporation
not the person to whom the tax was passed on as part of the
purchase price and claiming credit for the input VAT under the
VAT System, who can file the judicial claim under Section 229.
Same; Tax Refund; Tax Credit; It is clear that what can be
refunded or credited is a tax that is “erroneously, illegally,
excessively or in any manner wrongfully collected.”—From the plain
text of Section 229, it is clear that what can be refunded or credited
is a tax that is “erroneously, x x x illegally, x x x excessively orin
any manner wrongfully collected.” In short, there must be
a wrongful paymentbecause what is paid, or part of it, is not
legally due. As the Court held in Mirant, Section 229 should “apply
only to instances of erroneous payment or illegal collection
of internal revenue taxes.” Erroneous or wrongful payment
includes excessive payment because they all refer to payment of
taxes not legally due. Under the VAT System, there is no claim or
issue that the “excess” input VAT is “excessively or in any manner
wrongfully collected.” In fact, if the “excess” input VAT is an
“excessively” collected tax under Section 229, then the taxpayer
claiming to apply such “excessively” collected input VAT to offset
his output VAT may have no legal basis to make such offsetting.
The person legally liable to pay the input VAT can claim a refund or
credit for such “excessively” collected tax, and thus there will no
longer be any “excess” input VAT. This will upend the present VAT
System as we know it.
Same; Same; Same; A claim for tax refund or credit, like a
claim for tax exemption, is construed strictly against the
taxpayer.―A claim for tax refund or credit, like a claim for tax
exemption, is construed strictly against the taxpayer. One of the
conditions for a judicial claim of refund or credit under the VAT
System is compliance with the 120+30 day mandatory and
jurisdictional periods. Thus, strict compliance with the 120+30 day
periods is necessary for such a claim to prosper, whether before,
during, or after the effectivity of the Atlas doctrine, except for the
period from the issuance of BIR Ruling No. DA-489-03 on 10
December 2003 to 6 October 2010 when the Aichi doctrine was
adopted, which again reinstated the 120+30 day periods as
mandatory and jurisdictional.
Same; A reversal of a Bureau of Internal Revenue (BIR)
regulation or ruling cannot adversely prejudice a taxpayer who in
good faith relied on the BIR regulation or ruling prior to its
reversal.—
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VOL. 690, FEBRUARY 12, 2013 3
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Commissioner of Internal Revenue vs. San
Roque Power Corporation
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.
Same; Statutory Construction; Taxpayers should not be
prejudiced by an erroneous interpretation by the Commissioner,
particularly on a difficult question of law.—Taxpayers should not be
prejudiced by an erroneous interpretation by the Commissioner,
particularly on a difficult question of law. The abandonment of
the Atlas doctrine by Mirantand Aichi is proof that the reckoning of
the prescriptive periods for input VAT tax refund or credit is a
difficult question of law. The abandonment of the Atlas doctrine did
not result in Atlas, or other taxpayers similarly situated, being
made to return the tax refund or credit they received or could have
received under Atlasprior to its abandonment. This Court is
applying Mirant and Aichi prospectively. Absent fraud, bad faith or
misrepresentation, the reversal by this Court of a general
interpretative rule issued by the Commissioner, like the reversal of
a specific BIR ruling under Section 246, should also apply
prospectively.
Same; Judgments; Court of Tax Appeals decisions do not
constitute precedents, and do not bind the Supreme Court or the
public.—There is also the claim that there are numerous CTA
decisions allegedly supporting the argument that the filing dates of
the administrative and judicial claims are inconsequential, as long
as they are within the two-year prescriptive period. Suffice it to
137
state that CTA decisions do not constitute precedents, and do not
bind this Court or the public. That is why CTA decisions are
appealable to this Court, which may affirm, reverse or modify the
CTA decisions as the facts and the law may warrant. Only decisions
of this Court constitute binding precedents, forming part of the
Philippine legal system.
Same; Tax Refund; Tax Credit; Under the novel amendment
introduced by RA 7716, mere inaction by the Commissioner during
the 60-day period is deemed a denial of the claim. Thus, Section
4.106-2(c) states that “if no action on the claim for tax refund/credit
has been taken by the Commissioner after the sixty (60) day period,”
the taxpayer “may” already file the judicial claim even long before
the lapse of the two-year prescriptive period.—Under the novel
amendment introduced by RA 7716, mere inaction by the
Commissioner during the 60-day period is deemed a denial of the
claim. Thus, Section 4.106-2(c) states that “if no action on the claim
for tax refund/credit has been taken by the Commissioner after the
sixty (60) day period,” the taxpayer “may” already file the judicial
claim even long before the lapse of the two-year prescriptive period.
Prior to the amendment by RA 7716, the taxpayer had to wait until
the two-year prescriptive period was about to expire if the
Commissioner did not act on the claim. With the amendment by RA
7716, the taxpayer need not wait until the two-year prescriptive
period is about to expire before filing the judicial claim because
mere inaction by the Commissioner during the 60-day period is
deemed a denial of the claim. This is the meaning of the phrase
“but before the lapse of the two (2) year period” in Section
4.106-2(c). As Section 4.106- 2(c) reiterates that the judicial claim
can be filed only “after the sixty (60) day period,” this period
remains mandatory and jurisdictional. Clearly, Section 4.106-2(c)
did not amend Section 106(d) but merely faithfully implemented it.
Same; Taxes are the lifeblood of the nation.—Taxes are the
lifeblood of the nation. The Philippines has been struggling to
improve its tax efficiency collection for the longest time with
minimal success. Consequently, the Philippines has suffered the
economic adversities arising from poor tax collections, forcing the
government to continue borrowing to fund the budget deficits. This
Court cannot turn a blind eye to this economic malaise by being
unduly liberal to taxpayers who do not comply with statutory
requirements for tax refunds or credits. The tax refund claims in
the present cases are not a pittance. Many other companies stand to
gain if this Court were to rule otherwise. The dissenting opinions
will turn on its head the well-settled doctrine that tax refunds are
strictly construed against the taxpayer.
SERENO, C.J., Separate Dissenting Opinion:
Taxation; Judgments; View that in Miranda, et al. v. Imperial,
et al., 77 Phil. 1073 (1947), while the Supreme Court had ruled:
“only decisions of this Honorable Court establish jurisprudence or
doctrines in this jurisdiction,” decisions of the Court of Appeals (CA)
which cover points of law still undecided in the Philippines may still
serve as judicial guides or precedents to lower courts; If unreversed
decisions of the CA are given weight in applying and interpreting the
law, Court of Tax Appeals (CTA) decisions must also be accorded the
same treatment considering they are both appellate courts, apart
from the fact that the CTA is a highly specialized body specifically
created for the purpose of reviewing tax cases.—In Miranda, et al. v.
Imperial, et al., 77 Phil. 1073 (1947), (Miranda case) while the
Court had ruled: “only decisions of this Honorable Court establish
jurisprudence or doctrines in this jurisdiction,” decisions of the
Court of Appeals (CA) which cover points of law still undecided in
the Philippines may still serve as judicial guides or precedents to
lower courts. Indeed, decisions of the CA have a persuasive juridical
effect. And they may attain the status of doctrines if after having
been subjected to test in the crucible of analysis and revision, the
Supreme Court should find the same to have merits and qualities
sufficient for their consecration as rules of jurisprudence. If
unreversed decisions of the CA are given weight in applying and
interpreting the law, Court of Tax Appeals (CTA) decisions must
also be accorded the same treatment considering they are both
appellate courts, apart from the fact that the CTA is a highly
specialized body specifically created for the purpose of reviewing tax
cases. This is especially the case when the doctrine and practice in
the CTA has to do only with a procedural step.
Same; Tax Refund; Tax Credit; View that although tax refunds
or credit, just like tax exemptions, are strictly construed against
taxpayers, reason dictates that such strict construction properly
applies only when what is being construed is the substantive right to
refund of taxpayers.—Although I recognize the well-settled rule in
taxation that tax refunds or credit, just like tax exemptions, are
strictly construed against taxpayers, reason dictates that such strict
138
construction properly applies only when what is being construed is
the substantive right to refund of taxpayers. When courts
themselves have allowed for procedural liberality, then they should
not be so strict regarding procedural lapses that do not really
impair the proper administration of justice. After all, the higher
objective of procedural rule is to insure that the substantive rights
of the parties are protected.
Same; View that it is violative of the right to procedural due
process of taxpayers when the Court itself allowed the taxpayers to
believe that they were observing the proper procedural periods and,
in a sudden jurisprudential turn, deprived them of the relief
provided for and earlier relied on by the taxpayers.—We find it
violative of the right to procedural due process of taxpayers when
the Court itself allowed the taxpayers to believe that they were
observing the proper procedural periods and, in a sudden
jurisprudential turn, deprived them of the relief provided for and
earlier relied on by the taxpayers. It is with this reason and in the
interest of substantial justice that the strict application of the
120+<30 day period should be applied prospectively to claims for
refund or credit of excess input VAT. To apply these rules
retroactively would be tantamount to punishing the public for
merely following interpretations of the law that have the
imprimatur of this Court. To do so creates a tear in the public order
and sow more distrust in public institutions. We would be fostering
uncertainty in the minds of the public, especially in the business
community, if we cannot guarantee our own obedience to these
rules.
VELASCO, J., Dissenting Opinion:
Taxation; Tax Revenue Regulations; View that tax revenue
regulations are “issuances signed by the Secretary of Finance, upon
recommendation of the Commissioner of Internal Revenue, that
specify, prescribe or define rules and regulations for the effective
enforcement of the provisions of the [NIRC] and related statutes.”—
Tax revenue regulations are “issuances signed by the Secretary of
Finance, upon recommendation of the Commissioner of Internal
Revenue, that specify, prescribe or define rules and
regulations for the effective enforcement of the provisions
of the [NIRC] and related statutes.” As these issuances are
mandated by the Tax Code itself, they are in the nature of a
subordinate legislation that is as compelling as the provisions of the
NIRC it implements. RR 7-95, therefore, provides a binding set of
rules in the filing of claims for the refund/credit of input VAT and
prevails over all other rulings and issuances of the BIR in all
matters concerning the interpretation and proper application of the
VAT provisions of the NIRC.
Same; Prescription; View that applying Section 112(A) of the
1997 National Internal Revenue Code (NIRC), this Court, in Mirant,
modified the Atlas doctrine and set the commencement of the 2-year
prescriptive period from the date of the close of the relevant taxable
quarter.—Mirant was decided under the aegis of the 1997 NIRC
and resolved a claim for refund/credit of input VAT for the period
April 1993 to September 1996. However, it likewise did not set forth
the period prescribed in Sec. 112(D) of the 1997 NIRC in filing the
judicial claim after the administrative claim has been filed. Like in
Atlas, the issue resolved in Mirantis the date from which the 2-year
prescriptive period to file the claim should be counted.
Applying Sec. 112(A) of the 1997 NIRC, this Court, in Mirant,
modified the Atlas doctrine and set the commencement of the 2-year
prescriptive period from the date of the close of the relevant taxable
quarter. In so ruling, this Court declared in Mirant that the
provisions of Sec. 229 of the 1997 NIRC do not apply to claims for
refund/credit of input taxes because these taxes are not erroneously
or illegally collected taxes: 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. Ergo, the 2-year period set forth in Sec. 229 does not
apply to judicial claims for the refund/credit of input VAT.
Same; Statutory Construction; View that in Commissioner of
Internal Revenue v. American Express, 462 SCRA 197 (2005), the
Supreme Court ruled that when the legislature reenacts a law that
has been construed by an executive agency using substantially the
same language, it is an indication of the adoption by the legislature
of the prior construction by the agency.—In Commissioner of
Internal Revenue v. American Express, 462 SCRA 197 (2005), We
139
ruled that when the legislature reenacts a law that has been
construed by an executive agency using substantially the same
language, it is an indication of the adoption by the legislature of the
prior construction by the agency: [U]pon the enactment of RA 8424,
which substantially carries over the particular provisions on zero
rating of services under Section 102(b) of the Tax Code, the
principle of legislative approval of administrative interpretation by
reenactment clearly obtains. This principle means that “the
reenactment of a statute substantially unchanged is persuasive
indication of the adoption by Congress of a prior executive
construction.” The legislature is presumed to have reenacted the
law with full knowledge of the contents of the revenue regulations
then in force regarding the VAT, and to have approved or confirmed
them because they would carry out the legislative purpose. The
particular provisions of the regulations we have mentioned earlier
are, therefore, re-enforced. “When a statute is susceptible of the
meaning placed upon it by a ruling of the government agency
charged with its enforcement and the [l]egislature thereafter
[reenacts] the provisions [without] substantial change, such action
is to some extent confirmatory that the ruling carries out the
legislative purpose.”
Same; Prescription; View that if it is the Supreme Court’s
position that the prescribed periods of 120 days for administrative
claim and 30 days for judicial claims are jurisdictional at the time
the judicial claims were filed in these cases, then the cases should
have been decided adversely against the taxpayers for filing the
claim in breach of Sec. 112 of the 1997 National Internal Revenue
Code (NIRC).—The common thread that runs through these cases is
the cavalier treatment of the 120 and 30-day periods prescribed by
Sec. 112 of the 1997 NIRC. If it is the Court’s position that the
prescribed periods of 120 days for administrative claim and 30 days
for judicial claims are jurisdictional at the time the judicial claims
were filed in these cases, then the cases should have been decided
adversely against the taxpayers for filing the claim in breach of Sec.
112 of the 1997 NIRC. When these cases were entertained by the
Court despite the clear departure from Sec. 112, the Court,
wittingly or unwittingly, led the taxpayers to believe that the 120
and 30-day periods are dispensable as long as both the
administrative and judicial claims for refund/credit of input VAT
were filed within 2 years from the close of the relevant taxable
quarter. Simply put, the taxpayers relied in good faith on RR
7-95 and honestly believed and regarded the 120 and 30-day periods
as merely discretionary and dispensable. Hence, noted tax experts
and commentators, Victor A. Deoferio, Jr. and Victorino Mamalateo,
recommended that for safe measure and to avert the forfeiture of
the right to avail of the judicial remedies, taxpayers should “file an
appeal with the Court of Tax Appeals, without waiting for the
expiration of the 120-day period, if the two-year period is about to
lapse.”
Same; Same; Operative Fact Doctrine; View that while Court of
Tax Appeals (CTA) Decisions are not binding on the Supreme Court,
the actual manner in which the Bureau of Internal Revenue and the
Court of Tax Appeals themselves regarded the 120 and 30-day
periods––in the course of handling administrative and judicial
claims for refund/tax credit during the period in question, as
evidenced by the factual recitals in the CTA Decisions––constitutes
an operative fact that cannot simply be ignored.—I hasten to state
that, while CTA Decisions are not binding on the Court, the actual
manner in which the BIR and the CTA themselves regarded
the 120 and 30-day periods―in the course of handling
administrative and judicial claims for refund/tax credit during the
period in question, as evidenced by the factual recitals in the
CTA Decisions―constitutes an operative fact that cannot
simply be ignored. The truth of the matter is that, whatever
may have been the law and the regulation in force at the
time, taxpayers took guidance from and relied heavily upon
the manner in which the BIR and the CTA viewed the 120-
and 30-day periods, as reflected in their treatment of claims
for input VAT refund/credit, and these taxpayers acted
accordingly by filing their claims in the manner permitted
and encouraged by the BIR and the CTA. This is a reality that
even this Court cannot afford to turn a blind eye to.
Same; Same; Tax Refund; View that historically speaking, in
order to enable refund-seeking taxpayers to file their judicial claims
within the two-year prescriptive period, the Bureau of Internal
Revenue and the Court of Tax Appeals did in actual practice treat
the 120-day and 30-day periods provided in Sec. 112(D) as merely
discretionary and dispensable; and this served as guidance for the
taxpayers.―It is exceedingly clear that, historically speaking, in
order to enable refund-seeking taxpayers to file their judicial claims
140
within the two-year prescriptive period, the BIR and the CTA did in
actual practice treat the 120-day and 30-day periods provided in
Sec. 112(D) as merely discretionary and dispensable; and this
served as guidance for the taxpayers. The taxpaying public took
heed of the prevailing practices of the BIR and CTA and
acted accordingly. This is a matter which this Court must
acknowledge and accept.350
3 SUPREME COURT REPORTS
50 ANNOTATED
Commissioner of Internal Revenue vs. San
Roque Power Corporation
Same; Same; View that the Supreme Court is definite and
categorical that the prescriptive period of 120 and 30 days under
Sec. 112 of the 1997 National Internal Revenue Code (NIRC) is
mandatory and jurisdictional.—All doubts on whether or not the
120 and 30-day periods are merely discretionary and dispensable
were erased when the Court promulgated Aichi on October 6, 2010.
There, the Court is definite and categorical that the prescriptive
period of 120 and 30 days under Sec. 112 of the 1997 NIRC is
mandatory and jurisdictional. Aichi explained that the 2-year
period provided in Sec. 112(A)of the 1997 NIRC refers only to the
prescription period for the filing of an administrative claim with
the CIR. Meanwhile, the judicial claim contemplated under
said Sec. 112(C)must be filed within a mandatory and
jurisdictional period of thirty (30) days after the taxpayer’s
receipt of the CIR’s decision denying the claim, or within thirty (30)
days after the CIR’s inaction for a period of 120 days from the
submission of the complete documents supporting the claim. Hence,
the period for filing the judicial claim under Sec. 112(C) may stretch
out beyond the 2-year threshold provided in Sec. 112(A) as long as
the administrative claim is filed within the said 2-year period.
Same; Same; View that the Supreme Court should not turn a
blind eye to the subordinate legislations issued by the Secretary of
Finance (and RMCs issued by the CIR) and the various decisions of
this Court as well as the then prevailing practices of the Bureau of
Internal Revenue and the Court of Tax Appeals suggesting that the
taxpayers can dispense with the 120 and 30 day-periods in filing
their judicial claim for refund/credit of input Value-Added Tax
(VAT) so long as both the administrative and judicial claims are
filed within two (2) years from the close of the relevant taxable
quarter.—The Court should not turn a blind eye to the subordinate
legislations issued by the Secretary of Finance (and RMCs issued by
the CIR) and the various decisions of this Court as well as the then
prevailing practices of the BIR and the CTA suggesting that the
taxpayers can dispense with the 120 and 30 day-periods in filing
their judicial claim for refund/credit of input VAT so long as both
the administrative and judicial claims are filed within two (2) years
from the close of the relevant taxable quarter. I humbly submit that
in deciding claims for refund/credit of input VAT, the following
guideposts should be observed: (1) For judicial claims for
refund/credit of input VAT filed from January 1, 1996 (effectivity of
RR 7-95) up to October
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Commissioner of Internal Revenue vs. San
Roque Power Corporation
31, 2005 (prior to effectivity of RR 16-2005), the Court may
treat the filing of the judicial claim within the 120 day (or 60-day,
for judicial claims filed before January 1, 1998), or beyond the
120+30 day-period (or 60+30 day-period) as permissible provided
that both the administrative and judicial claims are filed within two
(2) years from the close of the relevant taxable quarter. Thus, the
120 and 30-day periods under Sec. 112 may be considered merely
discretionary and may be dispensed with. (2) For judicial claims
filed from November 1, 2005 (date of effectivity of RR 16-2005), the
prescriptive period under Sec. 112(C) is mandatory and
jurisdictional. Hence, judicial claims for refund/credit of input VAT
must be filed within a mandatory and jurisdictional period of thirty
(30) days after the taxpayer’s receipt of the CIR’s decision denying
the claim, or within thirty (30) days after the CIR’s inaction for a
period of 120 days from the submission of the complete documents
supporting the claim. The judicial claim may be filed even beyond
the 2-year threshold in Sec. 112(A) as long as the administrative
claim is filed within said 2-year period. (3) RR 16-2005, as fortified
by our ruling in Aichi, must be applied PROSPECTIVELY in the
same way that the ruling in Atlas and Mirant must be applied
prospectively.
Same; Statutory Construction; View that the Supreme Court
has previously held that “in declaring a law or executive action null
141
and void, or, by extension, no longer without force and effect, undue
harshness and resulting unfairness must be avoided.”—This Court,
I maintain, is duty-bound to sustain and give due credit to
the taxpayers’ bona fide reliance on RR Nos. 7-95 and 14-
2005, RMC Nos. 42-03 and 49-03, along with guidance provided by
the then prevailing practices of the BIR and the CTA, prior to their
modification by RR 16-2005. Such prospective application of the
latter revenue regulation comports with the simplest notions of
what is fair and just––the precepts of due process. The Court has
previously held that “in declaring a law or executive action null and
void, or, by extension, no longer without force and effect, undue
harshness and resulting unfairness must be avoided.” Such
pronouncement can be applied to a change in the implementing
rules of the law. The reliance on the previous rules, in particular RR
Nos. 7-95 and 14-2005, along with RMC Nos. 42-03 and 49-03, and
the guidance provided by the then prevailing practices of the BIR
and the CTA, most certainly have had irreversible consequences
that cannot just be ignored; the past cannot always be erased by a
new judicial declaration.
LEONEN, J., Separate Opinion:
Courts; Supreme Court; View that the Supreme Court does not
make law. Its duty is to construe: i.e., declare authoritatively the
meaning of existing text.—I am however unable to agree with the
conclusion that the interpretation we have just put on these
provisions take effect only when we pronouncethem. Thus, in the
view of the ponencia, that it is to be applied “prospectively.” My
disagreement stems from the idea that we do not make law. Ours is
a duty to construe: i.e., declare authoritatively the meaning of
existing text. I can grant that words are naturally open textured
and do have their own degrees of ambiguity. This can be based on
their intrinsic text, language structure, context, and the
interpreter’s standpoint.
Statutory Construction; Statutes; View that an “erroneous
application and enforcement of the law by public officers do not
preclude a subsequent correct application of the statute, and the
Government is never estopped by mistake or error on the part of its
agents”; Accordingly, while the Bureau of Internal Revenue (BIR)
Commissioner is given the power and authority to interpret tax laws
pursuant to Section 4 of the National Internal Revenue Code
(NIRC), it cannot legislate guidelines contrary to the law it is tasked
to implement.—Settled is the principle that an “erroneous
application and enforcement of the law by public officers do not
preclude a subsequent correct application of the statute, and the
Government is never estopped by mistake or error on the part of its
agents.” Accordingly, while the BIR Commissioner is given the
power and authority to interpret tax laws pursuant to Section 4 of
the NIRC, it cannot legislate guidelines contrary to the law it is
tasked to implement. Hence, its interpretation is not conclusive and
will be ignored if judicially found to be erroneous. Concededly,
under Section 246 of the NIRC, “[a]ny revocation, modification or
reversal of any BIR ruling or circular shall not be given retroactive
application if the revocation, modification or reversal will be
prejudicial to the taxpayers.” However, if it is patently clear that
the ruling is contrary to the text of the law, there can be no reliance
in good faith by the practitioners.
PETITIONS for review on certiorari of the decisions and
resolutions of the Court of Tax Appeals.
The facts are stated in the opinion of the Court.
The Office of the Solicitor General for petitioner.
Ilao & Ilao Law Offices for San Roque Power Corp. and
Taganito Mining Corporation.
Tirso A. Tejada for Philex Mining Corporation.
CARPIO, J.:
The Cases
G.R. No. 187485 is a petition for review1assailing the
Decision2 promulgated on 25 March 2009 as well as the
Resolution3promulgated on 24 April 2009 by the Court of Tax
Appeals En Banc (CTA EB) in CTA EB No. 408. The CTA EB
affirmed the 29 November 2007 Amended Decision4 as well as
the 11 July 2008 Resolution5 of the Second Division of the
Court of Tax Appeals (CTA Second Division) in CTA Case No.
6647. The CTA Second Division ordered the Commissioner of
Internal Revenue (Commissioner) to refund or issue a tax
credit for P483,797,599.65 to San Roque Power Corporation
(San Roque) for unutilized input value-added tax (VAT) on
purchases of capital goods and services for the taxable year
2001.
142
 G.R. No. 196113 is a petition for review6assailing the
Decision7 promulgated on 8 December 2010 as well as the
Resolution8promulgated on 14 March 2011 by the CTA EB in
CTA EB No. 624. In its Decision, the CTA EB reversed the 8
January 2010 Decision9 as well as the 7 April 2010
Resolution10 of the CTA Second Division and granted the CIR’s
petition for review in CTA Case No. 7574. The CTA EB
dismissed, for having been prematurely filed, Taganito Mining
Corporation’s (Taganito) judicial claim for P8,365,664.38 tax
refund or credit. G.R. No. 197156 is a petition for
review11 assailing the Decision12promulgated on 3 December
2010 as well as the Resolution13 promulgated on 17 May 2011
by the CTA EB in CTA EB No. 569. The CTA EB affirmed the
20 July 2009 Decision as well as the 10 November 2009
Resolution of the CTA Second Division in CTA Case No. 7687.
The CTA Second Division denied, due to prescription, Philex
Mining Corporation’s (Philex) judicial claim for
P23,956,732.44 tax refund or credit.
On 3 August 2011, the Second Division of this Court
resolved14 to consolidate G.R. No. 197156 with G.R. No.
196113, which were pending in the same Division, and with
G.R. No. 187485, which was assigned to the Court En Banc.
The Second Division also resolved to refer G.R. Nos. 197156
and 196113 to the Court En Banc, where G.R. No. 187485, the
lower-numbered case, was assigned.
G.R. No. 187485
CIR v. San Roque Power Corporation
The Facts
The CTA EB’s narration of the pertinent facts is as follows:
[CIR] is the duly appointed Commissioner of Internal Revenue,
empowered, among others, to act upon and approve claims for
refund or tax credit, with office at the Bureau of Internal Revenue
(“BIR”) National Office Building, Diliman, Quezon City.
[San Roque] is a domestic corporation duly organized and
existing under and by virtue of the laws of the Philippines with
principal office at Barangay San Roque, San Manuel, Pangasinan.
It was incorporated in October 1997 to design, construct, erect,
assemble, own, commission and operate power-generating plants
and related facilities pursuant to and under contract with the
Government of the Republic of the Philippines, or any subdivision,
instrumentality or agency thereof, or any government-owned or
controlled corporation, or other entity engaged in the development,
supply, or distribution of energy.
As a seller of services, [San Roque] is duly registered with the
BIR with TIN/VAT No. 005-017-501. It is likewise registered with
the Board of Investments (“BOI”) on a preferred pioneer status, to
engage in the design, construction, erection, assembly, as well as to
own, commission, and operate electric power-generating plants and
related activities, for which it was issued Certificate of Registration
No. 97-356 on February 11, 1998.
On October 11, 1997, [San Roque] entered into a Power Purchase
Agreement (“PPA”) with the National Power Corporation (“NPC”) to
develop hydro-potential of the Lower Agno River and generate
additional power and energy for the Luzon Power Grid, by building
the San Roque Multi-Purpose Project located in San Manuel,
Pangasinan. The PPA provides, among others, that [San Roque]
shall be responsible for the design, construction, installation,
completion, testing and commissioning of the Power Station and
shall operate and maintain the same, subject to NPC instructions.
During the cooperation period of twenty-five (25) years commencing
from the completion date of the Power Station, NPC will take and
pay for all electricity available from the Power Station.
On the construction and development of the San Roque
MultiPurpose Project which comprises of the dam, spillway and
power plant, [San Roque] allegedly incurred, excess input VAT in
the amount of P559,709,337.54 for taxable year 2001 which it
declared in its Quarterly VAT Returns filed for the same year. [San
Roque] duly filed with the BIR separate claims for refund, in the
total
357
VOL. 690, FEBRUARY 12, 2013 357
Commissioner of Internal Revenue vs. San Roque
Power Corporation
amount of P559,709,337.54, representing unutilized input taxes as
declared in its VAT returns for taxable year 2001.
However, on March 28, 2003, [San Roque] filed amended
Quarterly VAT Returns for the year 2001 since it increased its
unutilized input VAT to the amount of P560,200,283.14.
143
Consequently, [San Roque] filed with the BIR on even date,
separate amended claims for refund in the aggregate amount of
P560,200,283.14.
[CIR’s] inaction on the subject claims led to the filing by [San
Roque] of the Petition for Review with the Court [of Tax Appeals] in
Division on April 10, 2003.
Trial of the case ensued and on July 20, 2005, the case was
submitted for decision.15
The Court of Tax Appeals’ Ruling: Division
The CTA Second Division initially denied San Roque’s
claim. In its Decision16dated 8 March 2006, it cited the
following as bases for the denial of San Roque’s claim: lack of
recorded zero-rated or effectively zero-rated sales; failure to
submit documents specifically identifying the purchased
goods/services related to the claimed input VAT which were
included in its Property, Plant and Equipment account; and
failure to prove that the related construction costs were
capitalized in its books of account and subjected to
depreciation.
The CTA Second Division required San Roque to show that
it complied with the following requirements of Section 112(B)
of Republic Act No. 8424 (RA 8424)17 to be entitled to a tax
refund or credit of input VAT attributable to capital goods
imported or locally purchased: (1) it is a VAT-registered
entity; (2) its input taxes claimed were paid on capital goods
duly supported by VAT invoices and/or official receipts; (3) it
did not offset or apply the claimed input VAT payments on
capital goods against any output VAT liability; and (4) its
claim for refund was filed within the two-year prescriptive
period both in the administrative and judicial levels.
The CTA Second Division found that San Roque complied
with the first, third, and fourth requirements, thus:
The fact that [San Roque] is a VAT registered entity is admitted
(par. 4, Facts Admitted, Joint Stipulation of Facts, Records, p. 157).
It was also established that the instant claim of P560,200,823.14 is
already net of the P11,509.09 output tax declared by [San Roque] in
its amended VAT return for the first quarter of 2001. Moreover, the
entire amount of P560,200,823.14 was deducted by [San Roque]
from the total available input tax reflected in its amended VAT
returns for the last two quarters of 2001 and first two quarters of
2002 (ExhibitsM-6, O-6, OO-1 & QQ-1). This means that the
claimed input taxes of P560,200,823.14 did not form part of the
excess input taxes of P83,692,257.83, as of the second quarter of
2002 that was to be carried-over to the succeeding quarters.
Further, [San Roque’s] claim for refund/tax credit certificate of
excess input VAT was filed within the two-year prescriptive period
reckoned from the dates of filing of the corresponding quarterly
VAT returns.
For the first, second, third, and fourth quarters of 2001, [San
Roque] filed its VAT returns on April 25, 2001, July 25, 2001,
October 23, 2001 and January 24, 2002, respectively (Exhibits “H,
J, L, and N”). These returns were all subsequently amended on
March 28, 2003 (Exhibits “I, K, M, and O”). On the other hand, [San
Roque] originally filed its separate claims for refund on July 10,
2001, October 10, 2001, February 21, 2002, and May 9, 2002 for the
first, second, third, and fourth quarters of 2001, respectively,
(Exhibits “EE, FF, GG, and HH”) and subsequently filed amended
claims for all quarters on March 28, 2003 (Exhibits “II, JJ, KK, and
LL”). Moreover, the Petition for Review was filed on April 10, 2003.
Counting from the respective dates when [San Roque] originally
filed its VAT returns for the first, second, third and fourth quarters
of 2001, the administrative claims for refund (original and
amended) and the Petition for Review fall within the two-year
prescriptive period.18
San Roque filed a Motion for New Trial and/or
Reconsideration on 7 April 2006. In its 29 November 2007
Amended Decision,19the CTA Second Division found legal basis
to partially grant San Roque’s claim. The CTA Second
Division ordered the Commissioner to refund or issue a tax
credit in favor of San Roque in the amount of
P483,797,599.65, which represents San Roque’s unutilized
input VAT on its purchases of capital goods and services for
the taxable year 2001. The CTA based the adjustment in the
amount on the findings of the independent certified public
accountant. The following reasons were cited for the
disallowed claims: erroneous computation; failure to ascertain
whether the related purchases are in the nature of capital
144
goods; and the purchases pertain to capital goods. Moreover,
the reduction of claims was based on the following: the
difference between San Roque’s claim and that appearing on
its books; the official receipts covering the claimed input VAT
on purchases of local services are not within the period of the
claim; and the amount of VAT cannot be determined from the
submitted official receipts and invoices. The CTA Second
Division denied San Roque’s claim for refund or tax credit of
its unutilized input VAT attributable to its zero-rated or
effectively zero-rated sales because San Roque had no record
of such sales for the four quarters of 2001.
The dispositive portion of the CTA Second Division’s 29
November 2007 Amended Decision reads:
WHEREFORE, [San Roque’s] “Motion for New Trial and/or
Reconsideration” is hereby PARTIALLY GRANTED and this
Court’s Decision promulgated on March 8, 2006 in the instant case
is hereby MODIFIED.
Accordingly, [the CIR] is hereby ORDERED to REFUND or in
the alternative, to ISSUE A TAX CREDIT CERTIFICATE in favor
of [San Roque] in the reduced amount of Four Hundred Eighty
Three Million Seven Hundred Ninety Seven Thousand Five
Hundred Ninety Nine Pesos and Sixty Five Centavos
(P483,797,599.65) representing unutilized input VAT on purchases
of capital goods and services for the taxable year 2001.
SO ORDERED.20
The Commissioner filed a Motion for Partial
Reconsideration on 20 December 2007. The CTA Second
Division issued a Resolution dated 11 July 2008 which denied
the CIR’s motion for lack of merit.
The Court of Tax Appeals’ Ruling: En Banc
The Commissioner filed a Petition for Review before the
CTA EB praying for the denial of San Roque’s claim for refund
or tax credit in its entirety as well as for the setting aside of
the 29 November 2007 Amended Decision and the 11 July
2008 Resolution in CTA Case No. 6647.
The CTA EB dismissed the CIR’s petition for review and
affirmed the challenged decision and resolution.
The CTA EB cited Commissioner of Internal Revenue v.
Toledo Power, Inc.21and Revenue Memorandum Circular No.
49-03,22 as its bases for ruling that San Roque’s judicial claim
was not prematurely filed. The pertinent portions of the
Decision state:
More importantly, the Court En Banc has squarely and
exhaustively ruled on this issue in this wise:
It is true that Section 112(D) of the abovementioned
provision applies to the present case. However, what
the petitioner failed to consider is Section 112(A) of the
same provision.The respondent is also covered by the two
(2) year prescriptive period. We have repeatedly held that the
claim for refund with the BIR and the subsequent appeal to
the Court of Tax Appeals must be filed within the two-year
period.
Accordingly, the Supreme Court held in the case of Atlas
Consolidated Mining and Development Corporation vs.
Commissioner of Internal Revenue that the two-year
prescriptive period for filing a claim for input tax is reckoned
from the date of the filing of the quarterly VAT return and
payment of the tax due. If the said period is about to
expire but the BIR has not yet acted on the application
for refund, the taxpayer may interpose a petition for
review with this Court within the two year period.
In the case of Gibbs vs. Collector, the Supreme Court held
that if, however, the Collector (now Commissioner) takes time
in deciding the claim, and the period of two years is about to
end, the suit or proceeding must be started in the Court of
Tax Appeals before the end of the two-year period without
awaiting the decision of the Collector.
Furthermore, in the case of Commissioner of Customs and
Commissioner of Internal Revenue vs. The Honorable Court of
Tax Appeals and Planters Products, Inc., the Supreme
Court held that the taxpayer need not wait indefinitely
for a decision or ruling which may or may not be
forthcoming and which he has no legal right to
expect. It is disheartening enough to a taxpayer to keep him
waiting for an indefinite period of time for a ruling or decision
of the Collector (now Commissioner) of Internal Revenue on
his claim for refund. It would make matters more
145
exasperating for the taxpayer if we were to close the doors of
the courts of justice for such a relief until after the Collector
(now Commissioner) of Internal Revenue, would have, at his
personal convenience, given his go signal.
This Court ruled in several cases that once the petition is
filed, the Court has already acquired jurisdiction over the
claims and the Court is not bound to wait indefinitely for no
reason for whatever action respondent (herein petitioner) may
take. At stake are claims for refund and unlike disputed
assessments, no decision of respondent (herein
petitioner) is required before one can go to this
Court. (Emphasis supplied and citations omitted)
Lastly, it is apparent from the following provisions of
Revenue Memorandum Circular No. 49-03 dated August 18,
2003, that [the CIR] knows that claims for VAT refund or tax
credit filed with the Court [of Tax Appeals] can proceed
simultaneously with the ones filed with the BIR and that
taxpayers need not wait for the lapse of the subject 120-day
period, to wit:
In response to [the] request of selected taxpayers for
adoption of procedures in handling refund cases that are
aligned to the statutory requirements that refund cases
should be elevated to the Court of Tax Appeals before the
lapse of the period prescribed by law, certain provisions of
RMC No. 42-2003 are hereby amended and new provisions
are added thereto.
In consonance therewith, the following amendments are
being introduced to RMC No. 42-2003, to wit:
I.) A-17 of Revenue Memorandum Circular No. 42-2003 is
hereby revised to read as follows:
In cases where the taxpayer has filed a “Petition for
Review” with the Court of Tax Appeals involving a
claim for refund/TCC that is pending at the
administrative agency (Bureau of Internal Revenue or
OSS-DOF), the administrative agency and the tax court
may act on the case separately.While the case is pending
in the tax court and at the same time is still under process by
the administrative agency, the litigation lawyer of the BIR,
upon receipt of the summons from the tax court, shall request
from the head of the investigating/processing office for the
docket containing certified true copies of all the documents
pertinent to the claim. The docket shall be presented to the
court as evidence for the BIR in its defense on the tax
credit/refund case filed by the taxpayer. In the meantime, the
investigating/processing office of the administrative agency
shall continue processing the refund/TCC case until such time
that a final decision has been reached by either the CTA or
the administrative agency.
If the CTA is able to release its decision ahead of the
evaluation of the administrative agency, the latter
shall cease from processing the claim.On the other hand,
if the administrative agency is able to process the claim of the
taxpayer ahead of the CTA and the taxpayer is amenable to
the findings thereof, the concerned taxpayer must file a
motion to withdraw the claim with the CTA.23 (Emphasis
supplied)
G.R. No. 196113
Taganito Mining Corporation v. CIR
The Facts
The CTA Second Division’s narration of the pertinent facts
is as follows:
Petitioner, Taganito Mining Corporation, is a corporation duly
organized and existing under and by virtue of the laws of the
Philippines, with principal office at 4th Floor, Solid Mills Building,
De La Rosa St., Lega[s]pi Village, Makati City. It is duly registered
with the Securities and Exchange Commission with Certificate of
Registration No. 138682 issued on March 4, 1987 with the following
primary purpose:
To carry on the business, for itself and for others, of mining
lode and/or placer mining, developing, exploiting, extracting,
milling, concentrating, converting, smelting, treating,
refining, preparing for market, manufacturing, buying,
selling, exchanging, shipping, transporting, and otherwise
producing and dealing in nickel, chromite, cobalt, gold, silver,
copper, lead, zinc, brass, iron, steel, limestone, and all kinds
of ores, metals and their by-products and which by-products
thereof of every kind and description and by whatsoever
process the same can be or may hereafter be produced, and
generally and without limit as to amount, to buy, sell, locate,
exchange, lease, acquire and deal in lands, mines, and
146
 mineral rights and claims and to conduct all business administered by Bureau of Internal Revenue (BIR) under Section 4
appertaining thereto, to purchase, locate, lease or otherwise of the NIRC. He holds office at the BIR National Office Building,
acquire, mining claims and rights, timber rights, water rights, Diliman, Quezon City.
concessions and mines, buildings, dwellings, plants [Taganito] filed all its Monthly VAT Declarations and Quarterly
machinery, spare parts, tools and other properties whatsoever Vat Returns for the period January 1, 2005 to December 31, 2005.
which this corporation may from time to time find to be to its For easy reference, a summary of the filing dates of the original and
advantage to mine lands, and to explore, work, exercise, amended Quarterly VAT Returns for taxable year 2005 of
develop or turn to account the same, and to acquire, develop [Taganito] is as follows:
and utilize water rights in such manner as may be authorized Exhibit(s) Quarter Nature Mode of Filing
or permitted by law; to purchase, hire, make, construct or of filing Date
otherwise, acquire, provide, maintain, equip, alter, erect, the
improve, repair, manage, work and operate private roads, Return
barges, vessels, aircraft and vehicles, private telegraph and
L to L-4 1st Original Electronic April
telephone lines, and other communication media, as may be
15,
needed by the corporation for its own purpose, and to
purchase, import, construct, machine, fabricate, or otherwise 2005
acquire, and maintain and operate bridges, piers, wharves, M to M-3 Amended Electronic July 20,
wells, reservoirs, plumes, watercourses, waterworks, 2005
aqueducts, shafts, tunnels, furnaces, cook ovens, crushing N to N-4 Amended Electronic October
works, gasworks, electric lights and power plants and 18,
compressed air plants, chemical works of all kinds, 2006
concentrators, smelters, smelting plants, and refineries, Q to Q-3 2nd Original Electronic July 20,
matting plants, warehouses, workshops, factories, dwelling 2005
houses, stores, hotels or other buildings, engines, machinery, R to R-4 Amended Electronic October
spare parts, tools, implements and other works, conveniences
18,
and properties of any description in connection with or which
2006
may be directly or indirectly conducive to any of the objects of
the corporation, and to contribute to, subsidize or otherwise U to U-4 3rd Original Electronic October
aid or take part in any operations; 19,
and is a VAT-registered entity, with Certificate of Registration (BIR 2005
Form No. 2303) No. OCN 8RC0000017494. Likewise, [Taganito] is V to V-4 Amended Electronic October
registered with the Board of Investments (BOI) as an exporter of 18,
beneficiated nickel silicate and chromite ores, with BOI Certificate 2006
of Registration No. EP-88-306. Y to Y-4 4th Original Electronic January
Respondent, on the other hand, is the duly appointed 20,
Commissioner of Internal Revenue vested with authority to exercise 2006
the functions of the said office, including inter alia, the power to
Z to Z-4 Amended Electronic October
decide refunds of internal revenue taxes, fees and other charges,
18,
penalties imposed in relation thereto, or other matters arising
under the National Internal Revenue Code (NIRC) or other laws 2006

147
 As can be gleaned from its amended Quarterly VAT Returns, In his Answer filed on March 28, 2007, [the CIR] interposes the
[Taganito] reported zero-rated sales amounting to following defenses:
P1,446,854,034.68; input VAT on its domestic purchases and 4. [Taganito’s] alleged claim for refund is subject to
importations of goods (other than capital goods) and services administrative investigation/examination by the Bureau of
amounting to P2,314,730.43; and input VAT on its domestic Internal Revenue (BIR);
purchases and importations of capital goods amounting to 5. The amount of P8,365,664.38 being claimed by
P6,050,933.95, the details of which are summarized as follows: [Taganito] as alleged unutilized input VAT on domestic
Period Zero-Rated Input VAT on Input VAT on Total purchases of goods and services and on importation of capital
Covered Sales Domestic Purchases Domestic Purchases Input goods for the period January 1, 2005 to December 31, 2005 is
and Importations and Importations VAT not properly documented;
6. [Taganito] must prove that it has complied with the
of Goods and of Capital
provisions of Sections 112 (A) and (D) and 229 of the National
Services Goods
Internal Revenue Code of 1997 (1997 Tax Code) on the
01/01/05 - P551,179,871.58 P1,491,880.56 P239,803.22 P1,731,683.78
prescriptive period for claiming tax refund/credit;
03/31/05 7. Proof of compliance with the prescribed checklist of
04/01/05 - 64,677,530.78 204,364.17 5,811,130.73 6,015,494.90 requirements to be submitted involving claim for VAT refund
06/30/05 pursuant to Revenue Memorandum Order No. 53-
07/01/05 - 480,784,287.30 144,887.67 - 144,887.67 98, otherwise there would be no sufficient compliance
09/30/05 with the filing of administrative claim for refund, the
10/01/05 - 350,212,345.02 473,598.03 - 473,598.03 administrative claim thereof being mere pro-forma,
12/31/05 which is a condition sine qua non prior to the filing of
TOTAL P1,446,854,034.68 P2,314,730.43 P6,050,933.95 P8,365,664.38 judicial claim in accordance with the provision of Section
On November 14, 2006, [Taganito] filed with [the CIR], through 229 of the 1997 Tax Code. Further, Section 112 (D) of the Tax
BIR’s Large Taxpayers Audit and Investigation Division II (LTAID Code, as amended, requires the submission of complete
II), a letter dated November 13, 2006 claiming a tax credit/refund of documents in support of the application filed with the
its supposed input VAT amounting to P8,365,664.38 for the period BIR before the 120-day audit period shall apply, and before
covering January 1, 2004 to December 31, 2004. On the same date, the taxpayer could avail of judicial remedies as
[Taganito] likewise filed an Application for Tax Credits/Refunds for provided for in the law. Hence, [Taganito’s] failure to
the period covering January 1, 2005 to December 31, 2005 for the submit proof of compliance with the above-stated
same amount. requirements warrants immediate dismissal of the petition
On November 29, 2006, [Taganito] sent again another letter for review.
dated November 29, 2004 to [the CIR], to correct the period of the 8. [Taganito] must prove that it has complied with the
above claim for tax credit/refund in the said amount of invoicing requirements mentioned in Sections 110 and 113 of
P8,365,664.38 as actually referring to the period covering January the 1997 Tax Code, as amended, in relation to provisions of
1, 2005 to December 31, 2005. Revenue Regulations No. 7-95.
As the statutory period within which to file a claim for refund for 9. In an action for refund/credit, the burden of proof is on
said input VAT is about to lapse without action on the part of the the taxpayer to establish its right to refund, and failure to
[CIR], [Taganito] filed the instant Petition for Review on February sustain the burden is fatal to the claim for
17, 2007. refund/credit (Asiatic Petroleum Co. vs. Llanes, 49 Phil.

148
466 cited in Collector of Internal Revenue vs. Manila
Jockey Club, Inc., 98 Phil. 670);
10. Claims for refund are construed strictly against the
claimant for the same partake the nature of exemption from
taxation (Commissioner of Internal Revenue vs.
Ledesma, 31 SCRA 95) and as such, they are looked upon
with disfavor (Western Minolco Corp. vs. Commissioner of
Internal Revenue, 124 SCRA 1211).
SPECIAL AND AFFIRMATIVE DEFENSES
11. The Court of Tax Appeals has no jurisdiction to
entertain the instant petition for review for failure on the part
of [Taganito] to comply with the provision of Section 112 (D)
of the 1997 Tax Code which provides, thus:
Section 112. Refunds or Tax Credits of Input
Tax.―
xxx xxx xxx
(D) Period within which refund or Tax Credit of
Input Taxes shall be Made.―In proper cases, the
Commissioner shall grant a refund or issue the tax
credit certificate for creditable input taxes within one
hundred (120) days from the date of submission of
complete documents in support of the application
filed in accordance with Subsections (A) and (B)
hereof.
In cases of full or partial denial for tax refund or tax
credit, or the failure on the part of the Commissioner to
act on the application within the period prescribed
above, the taxpayer affected may, within thirty (30)
days from the receipt of the decision denying the
claim or after the expiration of the one hundred
twenty day-period, appeal the decision or the
unacted claim with the Court of Tax
Appeals. (Emphasis supplied.)
12. As stated, [Taganito] filed the administrative claim
for refund with the Bureau of Internal Revenue on November
14, 2006. Subsequently on February 14, 2007, the instant
petition was filed. Obviously the 120 days given to the
Commissioner to decide on the claim has not yet lapsed when
the petition was filed. The petition was prematurely filed,
hence it must be dismissed for lack of jurisdiction.
During trial, [Taganito] presented testimonial and documentary
evidence primarily aimed at proving its supposed entitlement to the
refund in the amount of P8,365,664.38, representing input taxes for
the period covering January 1, 2005 to December 31, 2005. [The
CIR], on the other hand, opted not to present evidence. Thus, in the
Resolution promulgated on January 22, 2009, this case was
submitted for decision as of such date, considering [Taganito’s]
“Memorandum” filed on January 19, 2009 and [the CIR’s]
“Memorandum” filed on December 19, 2008.24
The Court of Tax Appeals’ Ruling: Division
The CTA Second Division partially granted Taganito’s
claim. In its Decision25dated 8 January 2010, the CTA Second
Division found that Taganito complied with the requirements
of Section 112(A) of RA 8424, as amended, to be entitled to a
tax refund or credit of input VAT attributable to zero-rated or
effectively zero-rated sales.26
The pertinent portions of the CTA Second Division’s
Decision read:
Finally, records show that [Taganito’s] administrative claim filed
on November 14, 2006, which was amended on November 29, 2006,
and the Petition for Review filed with this Court on February 14,
2007 are well within the two-year prescriptive period, reckoned
from March 31, 2005, June 30, 2005, September 30, 2005, and
December 31, 2005, respectively, the close of each taxable quarter
covering the period January 1, 2005 to December 31, 2005.
In fine, [Taganito] sufficiently proved that it is entitled to a tax
credit certificate in the amount of P8,249,883.33 representing
unutilized input VAT for the four taxable quarters of 2005.
WHEREFORE, premises considered, the instant Petition for
Review is hereby PARTIALLY GRANTED. Accordingly, [the CIR] is
hereby ORDERED to REFUND to [Taganito] the amount of EIGHT
MILLION TWO HUNDRED FORTY NINE THOUSAND EIGHT
HUNDRED EIGHTY THREE PESOS AND THIRTY THREE
CENTAVOS (P8,249,883.33) representing its unutilized input taxes
attributable to zero-rated sales from January 1, 2005 to December
31, 2005.
SO ORDERED.27
The Commissioner filed a Motion for Partial
Reconsideration on 29 January 2010. Taganito, in turn, filed a
149
Comment/Opposition on the Motion for Partial
Reconsideration on 15 February 2010.
In a Resolution28 dated 7 April 2010, the CTA Second
Division denied the CIR’s motion. The CTA Second Division
ruled that the legislature did not intend that Section 112
(Refunds or Tax Credits of Input Tax) should be read in
isolation from Section 229 (Recovery of Tax Erroneously or
Illegally Collected) or vice versa. The CTA Second Division
applied the mandatory statute of limitations in seeking
judicial recourse prescribed under Section 229 to claims for
refund or tax credit under Section 112.
The Court of Tax Appeals’ Ruling: En Banc
On 29 April 2010, the Commissioner filed a Petition for
Review before the CTA EB assailing the 8 January 2010
Decision and the 7 April 2010 Resolution in CTA Case No.
7574 and praying that Taganito’s entire claim for refund be
denied.
In its 8 December 2010 Decision,29 the CTA EB granted the
CIR’s petition for review and reversed and set aside the
challenged decision and resolution.
The CTA EB declared that Section 112(A) and (B) of the
1997 Tax Code both set forth the reckoning of the two-year
prescriptive period for filing a claim for tax refund or credit
over input VAT to be the close of the taxable quarter when the
sales were made. The CTA EB also relied on this Court’s
rulings in the cases of Commissioner of Internal Revenue v.
Aichi Forging Company of Asia, Inc.
(Aichi)30 and Commissioner of Internal Revenue v. Mirant
Pagbilao Corporation (Mirant).31Both Aichi and Mirant ruled
that the two-year prescriptive period to file a refund for input
VAT arising from zero-rated sales should be reckoned from
the close of the taxable quarter when the sales were made.
Aichi further emphasized that the failure to await the decision
of the Commissioner or the lapse of 120-day period prescribed
in Section 112(D) amounts to a premature filing.
The CTA EB found that Taganito filed its administrative
claim on 14 November 2006, which was well within the period
prescribed under Section 112(A) and (B) of the 1997 Tax Code.
However, the CTA EB found that Taganito’s judicial claim
was prematurely filed. Taganito filed its Petition for Review
before the CTA Second Division on 14 February 2007. The
judicial claim was filed after the lapse of only 92 days from
the filing of its administrative claim before the CIR, in
violation of the 120-day period prescribed in Section 112(D) of
the 1997 Tax Code.
The dispositive portion of the Decision states:
WHEREFORE, the instant Petition for Review is hereby
GRANTED. The assailed Decision dated January 8, 2010 and
Resolution dated April 7, 2010 of the Special Second Division of this
Court are hereby REVERSED and SET ASIDE. Another one is
hereby entered DISMISSING the Petition for Review filed in CTA
Case No. 7574 for having been prematurely filed.
SO ORDERED.32
In his dissent,33 Associate Justice Lovell R. Bautista
insisted that Taganito timely filed its claim before the CTA.
Justice Bautista read Section 112(C) of the 1997 Tax Code
(Period within which Refund or Tax Credit of Input Taxes
shall be Made) in conjunction with Section 229 (Recovery of
Tax Erroneously or Illegally Collected). Justice Bautista also
relied on this Court’s ruling in Atlas Consolidated Mining and
Development Corporation v. Commissioner of Internal Revenue
(Atlas),34 which stated that refundable or creditable input VAT
and illegally or erroneously collected national internal
revenue tax are the same, insofar as both are monetary
amounts which are currently in the hands of the government
but must rightfully be returned to the taxpayer. Justice
Bautista concluded:
Being merely permissive, a taxpayer claimant has the option of
seeking judicial redress for refund or tax credit of excess or
unutilized input tax with this Court, either within 30 days from
receipt of the denial of its claim, or after the lapse of the 120-day
period in the event of inaction by the Commissioner, provided that
150
both administrative and judicial remedies must be undertaken
within the 2-year period.35
Taganito filed its Motion for Reconsideration on 29
December 2010. The Commissioner filed an Opposition on 26
January 2011. The CTA EB denied for lack of merit Taganito’s
motion in a Resolution36dated 14 March 2011. The CTA EB did
not see any justifiable reason to depart from this Court’s
rulings in Aichi and Mirant.
G.R. No. 197156
Philex Mining Corporation v. CIR
The Facts
The CTA EB’s narration of the pertinent facts is as follows:
[Philex] is a corporation duly organized and existing under the
laws of the Republic of the Philippines, which is principally engaged
in the mining business, which includes the exploration and
operation of mine properties and commercial production and
marketing of mine products, with office address at 27 Philex
Building, Fairlaine St., Kapitolyo, Pasig City.
[The CIR], on the other hand, is the head of the Bureau of
Internal Revenue (“BIR”), the government entity tasked with the
duties/functions of assessing and collecting all national internal
revenue taxes, fees, and charges, and enforcement of all forfeitures,
penalties and fines connected therewith, including the execution of
judgments in all cases decided in its favor by [the Court of Tax
Appeals] and the ordinary courts, where she can be served with
court processes at the BIR Head Office, BIR Road, Quezon City.
On October 21, 2005, [Philex] filed its Original VAT Return for
the third quarter of taxable year 2005 and Amended VAT Return
for the same quarter on December 1, 2005.
On March 20, 2006, [Philex] filed its claim for refund/tax credit
of the amount of P23,956,732.44 with the One Stop Shop Center of
the Department of Finance. However, due to [the CIR’s] failure to
act on such claim, on October 17, 2007, pursuant to Sections 112
and 229 of the NIRC of 1997, as amended, [Philex] filed a Petition
for Review, docketed as C.T.A. Case No. 7687.
In [her] Answer, respondent CIR alleged the following special
and affirmative defenses:
4. Claims for refund are strictly construed against the
taxpayer as the same partake the nature of an exemption;
5. The taxpayer has the burden to show that the taxes
were erroneously or illegally paid. Failure on the part of
[Philex] to prove the same is fatal to its cause of action;
6. [Philex] should prove its legal basis for claiming for the
amount being refunded.37
The Court of Tax Appeals’ Ruling: Division
The CTA Second Division, in its Decision dated 20 July
2009, denied Philex’s claim due to prescription. The CTA
Second Division ruled that the two-year prescriptive period
specified in Section 112(A) of RA 8424, as amended, applies
not only to the filing of the administrative claim with the BIR,
but also to the filing of the judicial claim with the CTA. Since
Philex’s claim covered the 3rd quarter of 2005, its
administrative claim filed on 20 March 2006 was timely filed,
while its judicial claim filed on 17 October 2007 was filed late
and therefore barred by prescription.
On 10 November 2009, the CTA Second Division denied
Philex’s Motion for Reconsideration.
The Court of Tax Appeals’ Ruling: En Banc
Philex filed a Petition for Review before the CTA EB
praying for a reversal of the 20 July 2009 Decision and the 10
November 2009 Resolution of the CTA Second Division in
CTA Case No. 7687.
The CTA EB, in its Decision38 dated 3 December 2010,
denied Philex’s petition and affirmed the CTA Second
Division’s Decision and Resolution.
The pertinent portions of the Decision read:
In this case, while there is no dispute that [Philex’s]
administrative claim for refund was filed within the two-year
prescriptive period; however, as to its judicial claim for
refund/credit, records show that on March 20, 2006, [Philex] applied
the administrative claim for refund of unutilized input VAT in the
amount of P23,956,732.44 with the One Stop Shop Center of the
Department of Finance, per Application No. 52490. From March 20,
2006, which is also presumably the date [Philex] submitted
supporting documents, together with the aforesaid application for
refund, the CIR has 120 days, or until July 18, 2006, within which
to decide the claim. Within 30 days from the lapse of the 120-day
151
period, or from July 19, 2006 until August 17, 2006, [Philex] should
have elevated its claim for refund to the CTA. However, [Philex]
filed its Petition for Review only on October 17, 2007, which is 426
days way beyond the 30-day period prescribed by law.
Evidently, the Petition for Review in CTA Case No. 7687 was
filed 426 days late. Thus, the Petition for Review in CTA Case No.
7687 should have been dismissed on the ground that the Petition
for Review was filed way beyond the 30-day prescribed period; thus,
no jurisdiction was acquired by the CTA in Division; and not due to
prescription.
WHEREFORE, premises considered, the instant Petition for
Review is hereby DENIED DUE COURSE, and accordingly,
DISMISSED. The assailed Decision dated July 20, 2009, dismissing
the Petition for Review in CTA Case No. 7687 due to prescription,
and Resolution dated November 10, 2009 denying [Philex’s] Motion
for Reconsideration are hereby AFFIRMED, with modification that
the dismissal is based on the ground that the Petition for Review in
CTA Case No. 7687 was filed way beyond the 30-day prescribed
period to appeal.
SO ORDERED.39
The Issues
G.R. No. 187485
CIR v. San Roque Power Corporation
The Commissioner raised the following grounds in the
Petition for Review:
I. The Court of Tax Appeals En Banc erred in holding that [San Roque’s]
claim for refund was not prematurely filed.
II. The Court of Tax Appeals En Banc erred in affirming the amended
decision of the Court of Tax Appeals (Second Division) granting [San
Roque’s] claim for refund of alleged unutilized input VAT on its
purchases of capital goods and services for the taxable year 2001 in
the amount of P483,797,599.65.40
G.R. No. 196113
Taganito Mining Corporation v. CIR
Taganito raised the following grounds in its Petition for
Review:
I. The Court of Tax Appeals En Banc committed serious error and acted
with grave abuse of discretion tantamount to lack or excess of
jurisdiction n erroneously applying the Aichi doctrine in violation of
[Taganito’s] right to due process.
II. The Court of Tax Appeals committed serious error and acted with
grave abuse of discretion amounting to lack or excess of jurisdiction in
erroneously interpreting the provisions of Section 112 (D).41
G.R. No. 197156
Philex Mining Corporation v. CIR
Philex raised the following grounds in its Petition for
Review:
I. The CTA En Banc erred in denying the petition due to alleged
prescription. The fact is that the petition was filed with the CTA
within the period set by prevailing court rulings at the time it was
filed.
II. The CTA En Banc erred in retroactively applying the Aichi ruling in
denying the petition in this instant case.42
The Court’s Ruling
For ready reference, the following are the provisions of the
Tax Code applicable to the present cases:
Section 105:
Persons Liable.―Any person who, in the course of
trade or business, sells, barters, exchanges, leases goods
or properties, renders services, and any person who
imports goods shall be subject to the value-added tax
(VAT)imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount
of tax may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or
services. This rule shall likewise apply to existing contracts
of sale or lease of goods, properties or services at the time of
the effectivity of Republic Act No. 7716.
xxxx
Section 110(B):
Sec. 110. Tax Credits.―
(B) Excess Output or Input Tax.―If at the end of any taxable
quarter the output tax exceeds the input tax, the excess shall
be paid by the VAT-registered person. If the input tax
exceeds the output tax, the excess shall be carried over
to the succeeding quarter or quarters: [Provided, That
the input tax inclusive of input VAT carried over from the
previous quarter that may be credited in every quarter shall
not exceed seventy percent (70%) of the output
VAT:]43 Provided, however, That any input tax attributable
152
 to zero-rated sales by a VAT-registered person may at
his option be refunded or credited against other
internal revenue taxes, subject to the provisions of
Section 112.
Section 112:44
Sec. 112. Refunds or Tax Credits of Input Tax.―
(A) Zero-Rated or Effectively Zero-Rated Sales.―Any VAT-
registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after
the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate
or refund of creditable input tax due or paid
attributable to such sales, except transitional input tax, to
the extent that such input tax has not been applied against
output tax: Provided, however, That in the case of zero-rated
sales under Section 106(A)(2)(a)(1), (2) and (B) and Section
108(B)(1) and (2), the acceptable foreign currency exchange
proceeds thereof had been duly accounted for in accordance
with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP): Provided, further, That where the taxpayer is
engaged in zero-rated or effectively zero-rated sale and also in
taxable or exempt sale of goods or properties or services, and
the amount of creditable input tax due or paid cannot be
directly and entirely attributed to any one of the transactions,
it shall be allocated proportionately on the basis of the volume
of sales.
(B) Capital Goods.―A VAT–registered person may apply for
the issuance of a tax credit certificate or refund of input taxes
paid on capital goods imported or locally purchased, to the
extent that such input taxes have not been applied against
output taxes. The application may be made only within two
(2) years after the close of the taxable quarter when the
importation or purchase was made.
(C) Cancellation of VAT Registration.―A person whose
registration has been cancelled due to retirement from or
cessation of business, or due to changes in or cessation of
status under Section 106(C) of this Code may, within two (2)
years from the date of cancellation, apply for the issuance of a
tax credit certificate for any unused input tax which may be
used in payment of his other internal revenue taxes.
(D) Period within which Refund or Tax Credit of Input Taxes
shall be Made.―In proper cases, the Commissioner shall
grant a refund or issue the tax credit certificate for creditable
input taxes within one hundred twenty (120) days from
the date of submission of complete documents in
support of the application filed in accordance with Subsection
(A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or
tax credit, or the failure on the part of the Commissioner to
act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from the
receipt of the decision denying the claim or after the
expiration of the one hundred twenty day-period,
appeal the decision or the unacted claim with the Court of
Tax Appeals.
(E) Manner of Giving Refund.―Refunds shall be made upon
warrants drawn by the Commissioner or by his duly
authorized representative without the necessity of being
countersigned by the Chairman, Commission on Audit, the
provisions of the Administrative Code of 1987 to the contrary
notwithstanding: Provided, that refunds under this
paragraph shall be subject to post audit by the Commission on
Audit.
Section 229:
Recovery of Tax Erroneously or Illegally Collected.―No suit or
proceeding shall be maintained in any court for the recovery
of any national internal revenue tax hereafter alleged to have
been erroneously or illegally assessed or collected, or of any
penalty claimed to have been collected without authority, or of
any sum alleged to have been excessively or in any
manner wrongfully collected, until a claim for refund or
credit has been duly filed with the Commissioner; but such
suit or proceeding may be maintained, whether or not such
tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the
expiration of two (2) years from the date of payment of
the tax or penalty regardless of any supervening cause that
may arise after payment: Provided, however, That the
Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return upon
153
 which payment was made, such payment appears clearly to
have been erroneously paid.
(All emphases supplied)
I. Application of the 120+30 Day Periods
a. G.R. No. 187485 — CIR v. San Roque Power
Corporation
On 10 April 2003, a mere 13 days after it filed its amended
administrative claim with the Commissioner on 28 March
2003, San Roque filed a Petition for Review with the CTA
docketed as CTA Case No. 6647. From this we gather two
crucial facts: first, San Roque did not wait for the 120-day
period to lapse before filing its judicial claim; second, San
Roque filed its judicial claim more than four (4)
years before the Atlas45 doctrine, which was promulgated by
the Court on 8 June 2007.
Clearly, San Roque failed to comply with the 120-day
waiting period, the time expressly given by law to the
Commissioner to decide whether to grant or deny San Roque’s
application for tax refund or credit. It is indisputable that
compliance with the 120-day waiting period is mandatory
and jurisdictional. The waiting period, originally fixed at 60
days only, was part of the provisions of the first VAT law,
Executive Order No. 273, which took effect on 1 January 1988.
The waiting period was extended to 120 days effective 1
January 1998 under RA 8424 or the Tax Reform Act of
1997. Thus, the waiting period has been in our statute
books for more than fifteen (15) years beforeSan Roque
filed its judicial claim.
Failure to comply with the 120-day waiting period violates
a mandatory provision of law. It violates the doctrine of
exhaustion of administrative remedies and renders the
petition premature and thus without a cause of action, with
the effect that the CTA does not acquire jurisdiction over the
taxpayer’s petition. Philippine jurisprudence is replete with
cases upholding and reiterating these doctrinal principles.46
The charter of the CTA expressly provides that its
jurisdiction is to review on appeal “decisions of the
Commissioner of Internal Revenue in cases involving x x x
refunds of internal revenue taxes.”47 When a taxpayer
prematurely files a judicial claim for tax refund or credit with
the CTA without waiting for the decision of the Commissioner,
there is no “decision” of the Commissioner to review and thus
the CTA as a court of special jurisdiction has no jurisdiction
over the appeal. The charter of the CTA also expressly
provides that if the Commissioner fails to decide within “a
specific period” required by law, such “inaction shall be
deemed a denial”48 of the application for tax refund or credit.
It is the Commissioner’s decision, or inaction “deemed a
denial,” that the taxpayer can take to the CTA for review.
Without a decision or an “inaction x x x deemed a denial” of
the Commissioner, the CTA has no jurisdiction over a petition
for review.49
San Roque’s failure to comply with the 120-
day mandatory period renders its petition for review with
the CTA void. Article 5 of the Civil Code provides, “Acts
executed against provisions of mandatory or prohibitory laws
shall be void, except when the law itself authorizes their
validity.” San Roque’s void petition for review cannot be
legitimized by the CTA or this Court because Article 5 of the
Civil Code states that such void petition cannot be legitimized
“except when the law itself authorizes [its] validity.” There is
no law authorizing the petition’s validity.
It is hornbook doctrine that a person committing a void act
contrary to a mandatory provision of law cannot claim or
acquire any right from his void act. A right cannot spring in
favor of a person from his own void or illegal act. This doctrine
is repeated in Article 2254 of the Civil Code, which states, “No
vested or acquired right can arise from acts or omissions
which are against the law or which infringe upon the rights of
others.”50 For violating a mandatory provision of law in filing
its petition with the CTA, San Roque cannot claim any right
arising from such void petition. Thus, San Roque’s petition
with the CTA is a mere scrap of paper.
154
 This Court cannot brush aside the grave issue of the exist at the time San Roque failed to comply with the 120-day
mandatory and jurisdictional nature of the 120-day period period. Thus, San Roque cannot invoke the Atlas doctrine as
just because the Commissioner merely asserts that the case an excuse for its failure to wait for the 120-day period to lapse.
was prematurely filed with the CTA and does not question the In any event, the Atlasdoctrine merely stated that the two-
entitlement of San Roque to the refund. The mere fact that a year prescriptive period should be counted from the date of
taxpayer has undisputed excess input VAT, or that the tax payment of the output VAT, not from the close of the taxable
was admittedly illegally, erroneously or excessively collected quarter when the sales involving the input VAT were
from him, does not entitle him as a matter of right to a tax made. The Atlas doctrine does not interpret, expressly
refund or credit. Strict compliance with the mandatory and or impliedly, the 120+3052 day periods.
jurisdictional conditions prescribed by law to claim such tax In fact, Section 106(b) and (e) of the Tax Code of 1977 as
refund or credit is essential and necessary for such claim to amended, which was the law cited by the Court in Atlas as the
prosper. Well-settled is the rule that tax refunds or applicable provision of the law did not yet provide for the 30-
credits, just like tax exemptions, are strictly construed day period for the taxpayer to appeal to the CTA from the
against the taxpayer.51 The burden is on the taxpayer to decision or inaction of the Commissioner.53Thus, the Atlas
show that he has strictly complied with the conditions for the doctrine cannot be invoked by anyone to disregard
grant of the tax refund or credit. compliance with the 30-day mandatory and
This Court cannot disregard mandatory and jurisdictional jurisdictional period. Also, the difference between
conditions mandated by law simply because the Commissioner the Atlas doctrine on one hand, and the Mirant54 doctrine on
chose not to contest the numerical correctness of the claim for the other hand, is a mere 20 days. The Atlasdoctrine counts
tax refund or credit of the taxpayer. Non-compliance with the two-year prescriptive period from the date of payment of
mandatory periods, non-observance of prescriptive periods, the output VAT, which means within 20 days after the close of
and non-adherence to exhaustion of administrative the taxable quarter. The output VAT at that time must be
remedies bara taxpayer’s claim for tax refund or credit, paid at the time of filing of the quarterly tax returns, which
whether or not the Commissioner questions the numerical were to be filed “within 20 days following the end of each
correctness of the claim of the taxpayer. This Court should not quarter.”
establish the precedent that non-compliance with mandatory Thus, in Atlas, the three tax refund claims listed below
and jurisdictional conditions can be excused if the claim is were deemed timely filed because the administrative claims
otherwise meritorious, particularly in claims for tax refunds filed with the Commissioner, and the petitions for review filed
or credit. Such precedent will render meaningless compliance with the CTA, were all filed within two years from the date of
with mandatory and jurisdictional requirements, for then payment of the output VAT, following Section 229:
every tax refund case will have to be decided on the numerical Period Date of Date of Filing Date of
correctness of the amounts claimed, regardless of non- Covered Filing Administrative Filing
compliance with mandatory and jurisdictional conditions. Return Claim Petition
San Roque cannot also claim being misled, misguided or & Payment With CTA
confused by the Atlas doctrine because San Roque filed its of Tax
petition for review with the CTA more than four years 2nd Quarter, 20 July 21 August 1990 20 July
before Atlas was promulgated. The Atlas doctrine did not 1990 1990 1992
155
Close of However, San Roque’s fatal mistake is that it did not wait for
Quarter the Commissioner to decide within the 120-day period, a
30 June 1990 mandatory period whether the Atlas or the Mirant doctrine is
3rd Quarter, 18 October 21 November 9 October applied.
1990 1990 1990 1992 _______________
Close of At the time San Roque filed its petition for review with the
Quarter CTA, the 120+30 day mandatory periods were already in the
30 September law. Section 112(C)56 expressly grants the Commissioner 120
1990 days within which to decide the taxpayer’s claim. The law is
4th Quarter, 20 January 19 February 14 January clear, plain, and unequivocal: “x x x the Commissioner shall
1990 1991 1991 1993 grant a refund or issue the tax credit certificate for creditable
Close of input taxes within one hundred twenty (120) days from
Quarter the date of submission of complete documents.” Following
31 December the verba legis doctrine, this law must be applied exactly as
1990 worded since it is clear, plain, and unequivocal. The taxpayer
cannot simply file a petition with the CTA without waiting for
Atlas paid the output VAT at the time it filed the quarterly the Commissioner’s decision within the 120-day mandatory
tax returns on the 20th, 18th, and 20th day after the close of and jurisdictional period. The CTA will have no jurisdiction
the taxable quarter. Had the two-year prescriptive period because there will be no “decision” or “deemed a denial”
been counted from the “close of the taxable quarter” as decision of the Commissioner for the CTA to review. In San
expressly stated in the law, the tax refund claims of Atlas Roque’s case, it filed its petition with the CTA a mere 13 days
would have already prescribed. In contrast, after it filed its administrative claim with the Commissioner.
the Mirant doctrine counts the two-year prescriptive period Indisputably, San Roque knowingly violated the mandatory
from the “close of the taxable quarter when the sales were 120-day period, and it cannot blame anyone but itself.
made” as expressly stated in the law, which means the last Section 112(C) also expressly grants the taxpayer a 30-day
day of the taxable quarter. The 20-day period to appeal to the CTA the decision or inaction of the
difference between
55 the Atlas doctrine and the Commissioner, thus:
later Mirantdoctrine is not material to San Roque’s x x x the taxpayer affected may, within thirty (30) days from the
receipt of the decision denying the claim or after the
claim for tax refund.
expiration of the one hundred twenty day-period, appeal the
Whether the Atlas doctrine or the Mirant doctrine is decision or the unacted claim with the Court of Tax Appeals.
applied to San Roque is immaterial because what is at issue (Emphasis supplied)
in the present case is San Roque’s non-compliance with the This law is clear, plain, and unequivocal. Following the well-
120-day mandatory and jurisdictional period, which is counted settled verba legisdoctrine, this law should be applied exactly
from the date it filed its administrative claim with the as worded since it is clear, plain, and unequivocal. As this law
Commissioner. The 120-day period may extend beyond the states, the taxpayer may, if he wishes, appeal the decision of
two-year prescriptive period, as long as the administrative the Commissioner to the CTA within 30 days from receipt of
claim is filed within the two-year prescriptive period. the Commissioner’s decision, or if the Commissioner does not
156
act on the taxpayer’s claim within the 120-day period, the
taxpayer may appeal to the CTA within 30 days from the
expiration of the 120-day period.
b. G.R. No. 196113 — Taganito Mining Corporation v.
CIR
Like San Roque, Taganito also filed its petition for review
with the CTA without waiting for the 120-day period to lapse.
Also, like San Roque, Taganito filed its judicial claim before
the promulgation of the Atlas doctrine. Taganito filed a
Petition for Review on 14 February 2007 with the CTA. This
is almost four months beforethe adoption of
the Atlas doctrine on 8 June 2007. Taganito is similarly
situated as San Roque―both cannot claim being misled,
misguided, or confused by the Atlas doctrine.
However, Taganito can invoke BIR Ruling No. DA-489-
03 dated 10 December 2003, which expressly ruled that the
57
“taxpayer-claimant need not wait for the lapse of the
120-day period before it could seek judicial relief with
the CTA by way of Petition for Review.” Taganito filed its
judicial claim after the issuance of BIR Ruling No. DA-489-03
but before the adoption of the Aichi doctrine. Thus, as will be
explained later, Taganito is deemed to have filed its judicial
claim with the CTA on time.
c. G.R. No. 197156 – Philex Mining Corporation v. CIR
Philex (1) filed on 21 October 2005 its original VAT Return
for the third quarter of taxable year 2005; (2) filed on 20
March 2006 its administrative claim for refund or credit; (3)
filed on 17 October 2007 its Petition for Review with the CTA.
The close of the third taxable quarter in 2005 is 30 September
2005, which is the reckoning date in computing the two-year
prescriptive period under Section 112(A).
Philex timely filed its administrative claim on 20 March
2006, within the two-year prescriptive period. Even if the two-
year prescriptive period is computed from the date of payment
of the output VAT under Section 229, Philex still filed its
administrative claim on time. Thus, the Atlas doctrine is
immaterial in this case. The Commissioner had until 17
July 2006, the last day of the 120-day period, to decide
Philex’s claim. Since the Commissioner did not act on Philex’s
claim on or before 17 July 2006, Philex had until 17 August
2006, the last day of the 30-day period, to file its judicial
claim. The CTA EB held that 17 August 2006 was indeed
the last day for Philex to file its judicial claim. However,
Philex filed its Petition for Review with the CTA only on 17
October 2007, or four hundred twenty-six (426) days after the
last day of filing. In short, Philex was late by one year
and 61 days in filing its judicial claim. As the CTA EB
correctly found:
Evidently, the Petition for Review in C.T.A. Case No. 7687
was filed 426 days late. Thus, the Petition for Review in C.T.A.
Case No. 7687 should have been dismissed on the ground that the
Petition for Review was filed way beyond the 30-day prescribed
period; thus, no jurisdiction was acquired by the CTA Division;
x x x58 (Emphasis supplied)
Unlike San Roque and Taganito, Philex’s case is not one of
premature filing but of late filing. Philex did not file any
petition with the CTA within the 120-day period. Philex did
not also file any petition with the CTA within 30 days after
the expiration of the 120-day period. Philex filed its judicial
claim long after the expiration of the 120-day period, in fact
426 days after the lapse of the 120-day period. In any event,
whether governed by jurisprudence before, during, or
after the Atlas case, Philex’s judicial claim will have to
be rejected because of late filing. Whether the two-year
prescriptive period is counted from the date of payment of the
output VAT following the Atlas doctrine, or from the close of
the taxable quarter when the sales attributable to the input
VAT were made following the Mirant and Aichi doctrines,
Philex’s judicial claim was indisputably filed late.
The Atlas doctrine cannot save Philex from the late filing of
its judicial claim. The inaction of the Commissioner on
Philex’s claim during the 120-day period is, by express
provision of law, “deemed a denial” of Philex’s claim. Philex
had 30 days from the expiration of the 120-day period to file
its judicial claim with the CTA. Philex’s failure to do so
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rendered the “deemed a denial” decision of the Commissioner
final and inappealable. The right to appeal to the CTA from a
decision or “deemed a denial” decision of the Commissioner is
merely a statutory privilege, not a constitutional right. The
exercise of such statutory privilege requires strict compliance
with the conditions attached by the statute for its
exercise.59 Philex failed to comply with the statutory
conditions and must thus bear the consequences.
II. Prescriptive Periods under Section 112(A) and (C)
There are three compelling reasons why the 30-day period
need not necessarily fall within the two-year prescriptive
period, as long as the administrative claim is filed within the
two-year prescriptive period.
First, Section 112(A) clearly, plainly, and unequivocally
provides that the taxpayer “may, within two (2) years after
the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate
or refund of the creditable input tax due or paid to such
sales.” In short, the law states that the taxpayer may apply
with the Commissioner for a refund or credit “within two (2)
years,” which means at anytime within two years. Thus,
the application for refund or credit may be filed by the
taxpayer with the Commissioner on the last day of the two-
year prescriptive period and it will still strictly comply with
the law. The two-year prescriptive period is a grace period in
favor of the taxpayer and he can avail of the full period before
his right to apply for a tax refund or credit is barred by
prescription.
Second, Section 112(C) provides that the Commissioner
shall decide the application for refund or credit “within one
hundred twenty (120) days from the date of submission of
complete documents in support of the application filed in
accordance with Subsection (A).” The reference in Section
112(C) of the submission of documents “in support of the
application filed in accordance with Subsection A” means that
the application in Section 112(A) is the administrative claim
that the Commissioner must decide within the 120-day period.
In short, the two-year prescriptive period in Section 112(A)
refers to the period within which the taxpayer can file an
administrative claim for tax refund or credit. Stated
otherwise, the two-year prescriptive period does not
refer to the filing of the judicial claim with the CTA but
to the filing of the administrative claim with the
Commissioner. As held in Aichi, the “phrase ‘within two
years x x x apply for the issuance of a tax credit or
refund’ refers to applications for refund/credit with the
CIR and not to appeals made to the CTA.”
Third, if the 30-day period, or any part of it, is required to
fall within the two-year prescriptive period (equivalent to 730
days60), then the taxpayer must file his administrative claim
for refund or credit within the first 610 days of the two-year
prescriptive period. Otherwise, the filing of the
administrative claim beyond the first 610 days will
result in the appeal to the CTA being filed beyond the
two-year prescriptive period. Thus, if the taxpayer files
his administrative claim on the 611th day, the Commissioner,
with his 120-day period, will have until the 731st day to
decide the claim. If the Commissioner decides only on the
731st day, or does not decide at all, the taxpayer can no longer
file his judicial claim with the CTA because the two-year
prescriptive period (equivalent to 730 days) has lapsed. The
30-day period granted by law to the taxpayer to file an appeal
before the CTA becomes utterly useless, even if the taxpayer
complied with the law by filing his administrative claim
within the two-year prescriptive period.
The theory that the 30-day period must fall within the two-
year prescriptive period adds a condition that is not found in
the law. It results in truncating 120 days from the 730 days
that the law grants the taxpayer for filing his administrative
claim with the Commissioner. This Court cannot interpret a
law to defeat, wholly or even partly, a remedy that the law
expressly grants in clear, plain, and unequivocal language.
Section 112(A) and (C) must be interpreted according to its
clear, plain, and unequivocal language. The taxpayer can file
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his administrative claim for refund or credit
at anytime within the two-year prescriptive period. If he files
his claim on the last day of the two-year prescriptive period,
his claim is still filed on time. The Commissioner will have
120 days from such filing to decide the claim. If the
Commissioner decides the claim on the 120th day, or does not
decide it on that day, the taxpayer still has 30 days to file his
judicial claim with the CTA. This is not only the plain
meaning but also the only logical interpretation of Section
112(A) and (C).
III. “Excess” Input VAT and “Excessively” Collected
Tax
The input VAT is not “excessively” collected as understood
under Section 229 because at the time the input VAT is
collected the amount paid is correct and proper. The
input VAT is a tax liability of, and legally paid by, a VAT-
registered seller61 of goods, properties or services used as input
by another VAT-registered person in the sale of his own goods,
properties, or services. This tax liability is true even if the
seller passes on the input VAT to the buyer as part of the
purchase price. The second VAT-registered person, who is not
legally liable for the input VAT, is the one who applies the
input VAT as credit for his own output VAT.62 If the input
VAT is in fact “excessively” collected as understood under
Section 229, then it is the first VAT-registered person―the
taxpayer who is legally liable and who is deemed to have
legally paid for the input VAT―who can ask for a tax refund
or credit under Section 229 as an ordinary refund or credit
outside of the VAT System. In such event, the second VAT-
registered taxpayer will have no input VAT to offset against
his own output VAT.
In a claim for refund or credit of “excess” input VAT under
Section 110(B) and Section 112(A), the input VAT is not
“excessively” collected as understood under Section 229. At
the time of payment of the input VAT the amount paid is the
correct and proper amount. Under the VAT System, there is
no claim or issue that the input VAT is “excessively” collected,
that is, that the input VAT paid is more than what is legally
due. The person legally liable for the input VAT cannot claim
that he overpaid the input VAT by the mere existence of an
“excess” input VAT. The term “excess” input VAT simply
means that the input VAT available as credit exceeds the
output VAT, not that the input VAT is excessively collected
because it is more than what is legally due. Thus, the
taxpayer who legally paid the input VAT cannot claim for
refund or credit of the input VAT as “excessively” collected
under Section 229.
Under Section 229, the prescriptive period for filing a
judicial claim for refund is two years from the date of payment
of the tax “erroneously, x x x illegally, x x x excessively or in
any manner wrongfully collected.” The prescriptive period is
reckoned from the date the person liable for the tax pays the
tax. Thus, if the input VAT is in fact “excessively” collected,
that is, the person liable for the tax actually pays more than
what is legally due, the taxpayer must file a judicial claim for
refund within two years from his date of payment. Only the
person legally liable to pay the tax can file the judicial
claim for refund. The person to whom the tax is passed
on as part of the purchase price has no personality to
file the judicial claim under Section 229.63
Under Section 110(B) and Section 112(A), the prescriptive
period for filing a judicial claim for “excess” input VAT is two
years from the close of the taxable quarter when the sale was
made by the person legally liable to pay the output VAT. This
prescriptive period has no relation to the date of payment of
the “excess” input VAT. The “excess” input VAT may have
been paid for more than two years but this does not bar the
filing of a judicial claim for “excess” VAT under Section
112(A), which has a different reckoning period from Section
229. Moreover, the person claiming the refund or credit of the
input VAT is not the person who legally paid the input VAT.
Such person seeking the VAT refund or credit does not claim
that the input VAT was “excessively” collected from him, or
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that he paid an input VAT that is more than what is legally
due. He is not the taxpayer who legally paid the input VAT.
As its name implies, the Value-Added Tax system is a tax
on the value added by the taxpayer in the chain of
transactions. For simplicity and efficiency in tax collection,
the VAT is imposed not just on the value added by the
taxpayer, but on the entire selling price of his goods,
properties or services. However, the taxpayer is allowed a
refund or credit on the VAT previously paid by those who sold
him the inputs for his goods, properties, or services. The net
effect is that the taxpayer pays the VAT only on the value that
he adds to the goods, properties, or services that he actually
sells.
Under Section 110(B), a taxpayer can apply his input VAT
only against his output VAT. The only exception is when the
taxpayer is expressly “zero-rated or effectively zero-rated”
under the law, like companies generating power through
renewable sources of energy.64 Thus, a nonzero-rated VAT-
registered taxpayer who has no output VAT because he has no
sales cannot claim a tax refund or credit of his unused input
VAT under the VAT System. Even if the taxpayer has sales
but his input VAT exceeds his output VAT, he cannot seek a
tax refund or credit of his “excess” input VAT under the VAT
System. He can only carry-over and apply his “excess”
input VAT against his future output VAT. If such “excess”
input VAT is an “excessively” collected tax, the taxpayer
should be able to seek a refund or credit for such “excess”
input VAT whether or not he has output VAT. The VAT
System does not allow such refund or credit. Such “excess”
input VAT is not an “excessively” collected tax under Section
229. The “excess” input VAT is a correctly and properly
collected tax. However, such “excess” input VAT can be
applied against the output VAT because the VAT is a tax
imposed only on the value added by the taxpayer. If the input
VAT is in fact “excessively” collected under Section 229, then
it is the person legally liable to pay the input VAT, not the
person to whom the tax was passed on as part of the purchase
price and claiming credit for the input VAT under the VAT
System, who can file the judicial claim under Section 229.
Any suggestion that the “excess” input VAT under the VAT
System is an “excessively” collected tax under Section 229
may lead taxpayers to file a claim for refund or credit for such
“excess” input VAT under Section 229 as an ordinary tax
refund or credit outside of the VAT System. Under Section
229, mere payment of a tax beyond what is legally due can be
claimed as a refund or credit. There is no requirement under
Section 229 for an output VAT or subsequent sale of goods,
properties, or services using materials subject to input VAT.
From the plain text of Section 229, it is clear that what can
be refunded or credited is a tax that is “erroneously, x x x
illegally, xxx excessively or in any manner
wrongfully collected.” In short, there must be a wrongful
payment because what is paid, or part of it, is not legally
due. As the Court held in Mirant, Section 229 should “apply
only to instances of erroneous payment or illegal
collection of internal revenue taxes.” Erroneous or
wrongful payment includes excessive payment because they
all refer to payment of taxes not legally due. Under the
VAT System, there is no claim or issue that the “excess” input
VAT is “excessively or in any manner wrongfully collected.” In
fact, if the “excess” input VAT is an “excessively” collected tax
under Section 229, then the taxpayer claiming to apply such
“excessively” collected input VAT to offset his output VAT
may have no legal basis to make such offsetting. The person
legally liable to pay the input VAT can claim a refund or
credit for such “excessively” collected tax, and thus there will
no longer be any “excess” input VAT. This will upend the
present VAT System as we know it.
IV. Effectivity and Scope of the Atlas, Mirant and Aichi
Doctrines
The Atlas doctrine, which held that claims for refund or
credit of input VAT must comply with the two-year
prescriptive period under Section 229, should be effective
only from its promulgation on 8 June 2007 until its
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abandonment on 12 September 2008 in Mirant.
The Atlas doctrine was limited to the reckoning of the two-
year prescriptive period from the date of payment of the
output VAT. Prior to the Atlas doctrine, the two-year
prescriptive period for claiming refund or credit of input VAT
should be governed by Section 112(A) following the verba
legisrule. The Mirant ruling, which abandoned
the Atlas doctrine, adopted the verba legisrule, thus applying
Section 112(A) in computing the two-year prescriptive period
in claiming refund or credit of input VAT.
The Atlas doctrine has no relevance to the 120+30 day
periods under Section 112(C) because the application of the
120+30 day periods was not in issue in Atlas. The application
of the 120+30 day periods was first raised in Aichi, which
adopted the verba legis rule in holding that the 120+30 day
periods are mandatory and jurisdictional. The language of
Section 112(C) is plain, clear, and unambiguous. When
Section 112(C) states that “the Commissioner shall grant a
refund or issue the tax credit within one hundred twenty (120)
days from the date of submission of complete documents,” the
law clearly gives the Commissioner 120 days within which to
decide the taxpayer’s claim. Resort to the courts prior to the
expiration of the 120-day period is a patent violation of the
doctrine of exhaustion of administrative remedies, a ground
for dismissing the judicial suit due to prematurity. Philippine
jurisprudence is awash with cases affirming and reiterating
the doctrine of exhaustion of administrative remedies.65 Such
doctrine is basic and elementary.
When Section 112(C) states that “the taxpayer
affected may, within thirty (30) days from receipt of the
decision denying the claim or after the expiration of the one
hundred twenty-day period, appeal the decision or the
unacted claim with the Court of Tax Appeals,” the law does
not make the 120+30 day periods optional just because the
law uses the word “may.” The word “may” simply means that
the taxpayer may or may not appeal the decision of the
Commissioner within 30 days from receipt of the decision, or
within 30 days from the expiration of the 120-day period.
Certainly, by no stretch of the imagination can the word
“may” be construed as making the 120+30 day periods
optional, allowing the taxpayer to file a judicial claim one day
after filing the administrative claim with the Commissioner.
The old rule66 that the taxpayer may file the judicial claim,
without waiting for the Commissioner’s decision if the two-
year prescriptive period is about to expire, cannot apply
because that rule was adopted before the enactment of the 30-
day period. The 30-day period was adopted precisely to
do away with the old rule, so that under the VAT
System the taxpayer will always have 30 days to file the
judicial claim even if the Commissioner acts only on
the 120th day, or does not act at all during the 120-day
period. With the 30-day period always available to the
taxpayer, the taxpayer can no longer file a judicial claim for
refund or credit of input VAT without waiting for the
Commissioner to decide until the expiration of the 120-day
period.
To repeat, a claim for tax refund or credit, like a claim for
tax exemption, is construed strictly against the taxpayer. One
of the conditions for a judicial claim of refund or credit under
the VAT System is compliance with the 120+30 day
mandatory and jurisdictional periods. Thus, strict compliance
with the 120+30 day periods is necessary for such a claim to
prosper, whether before, during, or after the effectivity of
the Atlas doctrine, except for the period from the issuance of
BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October
2010 when the Aichi doctrine was adopted, which again
reinstated the 120+30 day periods as mandatory and
jurisdictional.
V. Revenue Memorandum Circular No. 49-03 (RMC 49-
03) dated 15 April 2003
There is nothing in RMC 49-03 that states, expressly or
impliedly, that the taxpayer need not wait for the 120-day
period to expire before filing a judicial claim with the CTA.
RMC 49-03 merely authorizes the BIR to continue processing
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the administrative claim even after the taxpayer has filed its
judicial claim, without saying that the taxpayer can file its
judicial claim before the expiration of the 120-day period.
RMC 49-03 states: “In cases where the taxpayer has filed a
‘Petition for Review’ with the Court of Tax Appeals involving a
claim for refund/TCC that is pending at the administrative
agency (either the Bureau of Internal Revenue or the One
Stop Shop Inter-Agency Tax Credit and Duty Drawback
Center of the Department of Finance), the administrative
agency and the court may act on the case separately.” Thus, if
the taxpayer files its judicial claim before the expiration of the
120-day period, the BIR will nevertheless continue to act on
the administrative claim because such premature filing
cannot divest the Commissioner of his statutory power and
jurisdiction to decide the administrative claim within the 120-
day period.
On the other hand, if the taxpayer files its judicial claim
after the 120-day period, the Commissioner can still continue
to evaluate the administrative claim. There is nothing new in
this because even after the expiration of the 120-day period,
the Commissioner should still evaluate internally the
administrative claim for purposes of opposing the taxpayer’s
judicial claim, or even for purposes of determining if the BIR
should actually concede to the taxpayer’s judicial claim. The
internal administrative evaluation of the taxpayer’s claim
must necessarily continue to enable the BIR to oppose
intelligently the judicial claim or, if the facts and the law
warrant otherwise, for the BIR to concede to the judicial
claim, resulting in the termination of the judicial proceedings.
What is important, as far as the present cases are
concerned, is that the mere filing by a taxpayer of a
judicial claim with the CTA before the expiration of the
120-day period cannot operate to divest the
Commissioner of his jurisdiction to decide an
administrative claim within the 120-day mandatory
period, unless the Commissioner has clearly given
cause for equitable estoppel to apply as expressly
recognized in Section 246 of the Tax Code.67
VI. BIR Ruling No. DA-489-03 dated 10 December 2003
BIR Ruling No. DA-489-03 does provide a valid claim for
equitable estoppel under Section 246 of the Tax Code. BIR
Ruling No. DA-489-03 expressly states that the “taxpayer-
claimant need not wait for the lapse of the 120-day
period before it could seek judicial relief with the CTA
by way of Petition for Review.” Prior to this ruling, the
BIR held, as shown by its position in the Court of
Appeals,68that the expiration of the 120-day period is
mandatory and jurisdictional before a judicial claim can be
filed.
There is no dispute that the 120-day period is mandatory
and jurisdictional, and that the CTA does not acquire
jurisdiction over a judicial claim that is filed before the
expiration of the 120-day period. There are, however, two
exceptions to this rule. The first exception is if the
Commissioner, through a specific ruling, misleads a particular
taxpayer to prematurely file a judicial claim with the CTA.
Such specific ruling is applicable only to such particular
taxpayer. The second exception is where the
Commissioner, through a general interpretative rule issued
under Section 4 of the Tax Code, misleads all taxpayers into
filing prematurely judicial claims with the CTA. In these
cases, the Commissioner cannot be allowed to later on
question the CTA’s assumption of jurisdiction over such claim
since equitable estoppel has set in as expressly authorized
under Section 246 of the Tax Code.
Section 4 of the Tax Code, a newprovision 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
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jurisdiction of the Commissioner, subject to review by the Secretary
of Finance.
The power to decide disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in relation
thereto, or other matters arising under this Code or other laws or
portions thereof administered by the Bureau of Internal Revenue is
vested in the Commissioner, subject to the exclusive appellate
jurisdiction of the Court of Tax Appeals.
Since the Commissioner has exclusive and original
jurisdiction to interpret tax laws, taxpayers acting in good
faith should not be made to suffer for adhering to general
interpretative rules of the Commissioner interpreting tax
laws, should such interpretation later turn out to be erroneous
and be reversed by the Commissioner or this Court. Indeed,
Section 246 of the Tax Code expressly provides that a reversal
of a BIR regulation or ruling cannot adversely prejudice a
taxpayer who in good faith relied on the BIR regulation or
ruling prior to its reversal. Section 246 provides as follows:
Sec. 246. Non-Retroactivity of Rulings.―Any revocation,
modification or reversal of any of the rules and
regulationspromulgated in accordance with the preceding Sections
or any of the rulings or circulars promulgated by the
Commissioner shall not be given retroactive application if the
revocation, modification or reversal will be prejudicial to
the taxpayers, except in the following cases:
(a) Where the taxpayer deliberately misstates or omits
material facts from his return or any document required of him by
the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of
Internal Revenue are materially different from the facts on which
the ruling is based; or
(c) Where the taxpayer acted in bad faith. (Emphasis supplied)
Thus, a general interpretative rule issued by the
Commissioner may be relied upon by taxpayers from the time
the rule is issued up to its reversal by the Commissioner or
this Court. Section 246 is not limited to a reversal only by the
Commissioner because this Section expressly states,
“Any revocation, modification or reversal” without specifying
who made the revocation, modification or reversal. Hence, a
reversal by this Court is covered under Section 246.
Taxpayers should not be prejudiced by an erroneous
interpretation by the Commissioner, particularly on a difficult
question of law. The abandonment of the Atlas doctrine
by Mirant and Aichi69 is proof that the reckoning of the
prescriptive periods for input VAT tax refund or credit is a
difficult question of law. The abandonment of
the Atlas doctrine did not result in Atlas, or other taxpayers
similarly situated, being made to return the tax refund or
credit they received or could have received under Atlas prior
to its abandonment. This Court is
applying Mirant and Aichi prospectively. Absent fraud, bad
faith or misrepresentation, the reversal by this Court of a
general interpretative rule issued by the Commissioner, like
the reversal of a specific BIR ruling under Section 246, should
also apply prospectively. As held by this Court in CIR v.
Philippine Health Care Providers, Inc.:70
In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this
Court held that under Section 246 of the 1997 Tax Code, the
Commissioner of Internal Revenue is precluded from
adopting a position contrary to one previously taken where
injustice would result to the taxpayer. Hence, where an
assessment for deficiency withholding income taxes was made,
three years after a new BIR Circular reversed a previous one upon
which the taxpayer had relied upon, such an assessment was
prejudicial to the taxpayer. To rule otherwise, opined the Court,
would be contrary to the tenets of good faith, equity, and fair play.
This Court has consistently reaffirmed its ruling in ABS-CBN
Broadcasting Corp. in the later cases of Commissioner of Internal
Revenue v. Borroughs, Ltd., Commissioner of Internal Revenue v.
Mega Gen. Mdsg. Corp., Commissioner of Internal Revenue v.
Telefunken Semiconductor (Phils.) Inc., and Commissioner of
Internal Revenue v. Court of Appeals. The rule is that the BIR
rulings have no retroactive effect where a grossly unfair
deal would result to the prejudice of the taxpayer, as in this
case.
More recently, in Commissioner of Internal Revenue v. Benguet
Corporation, wherein the taxpayer was entitled to tax refunds or
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credits based on the BIR’s own issuances but later was suddenly
saddled with deficiency taxes due to its subsequent ruling changing
the category of the taxpayer’s transactions for the purpose of paying
its VAT, this Court ruled that applying such ruling retroactively
would be prejudicial to the taxpayer. (Emphasis supplied)
Thus, the only issue is whether BIR Ruling No. DA-489-03
is a general interpretative rule applicable to all taxpayers or a
specific ruling applicable only to a particular taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule
because it was a response to a query made, not by a particular
taxpayer, but by a government agency tasked with processing
tax refunds and credits, that is, the One Stop Shop Inter-
Agency Tax Credit and Drawback Center of the
Department of Finance. This government agency is also the
addressee, or the entity responded to, in BIR Ruling No. DA-
489-03. Thus, while this government agency mentions in its
query to the Commissioner the administrative claim of Lazi
Bay Resources Development, Inc., the agency was in fact
asking the Commissioner what to do in cases like the tax
claim of Lazi Bay Resources Development, Inc., where the
taxpayer did not wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general
interpretative rule. Thus, all taxpayers can rely on BIR
Ruling No. DA-489-03 from the time of its issuance on 10
December 2003 up to its reversal by this Court in Aichi on 6
October 2010, where this Court held that the 120+30 day
periods are mandatory and jurisdictional.
However, BIR Ruling No. DA-489-03 cannot be given
retroactive effect for four reasons: first, it is admittedly an
erroneous interpretation of the law; second, prior to its
issuance, the BIR held that the 120-day period was
mandatory and jurisdictional, which is the correct
interpretation of the law; third, prior to its issuance, no
taxpayer can claim that it was misled by the BIR into filing a
judicial claim prematurely; and fourth, a claim for tax refund
or credit, like a claim for tax exemption, is strictly construed
against the taxpayer.
San Roque, therefore, cannot benefit from BIR Ruling No.
DA-489-03 because it filed its judicial claim prematurely on 10
April 2003, before the issuance of BIR Ruling No. DA-489-03
on 10 December 2003. To repeat, San Roque cannot claim that
it was misled by the BIR into filing its judicial claim
prematurely because BIR Ruling No. DA-489-03 was issued
only after San Roque filed its judicial claim. At the time San
Roque filed its judicial claim, the law as applied and
administered by the BIR was that the Commissioner had 120
days to act on administrative claims. This was in fact the
position of the BIR prior to the issuance of BIR Ruling No.
DA-489-03. Indeed, San Roque never claimed the benefit
of BIR Ruling No. DA-489-03 or RMC 49-03, whether in
this Court, the CTA, or before the Commissioner.
Taganito, however, filed its judicial claim with the CTA on
14 February 2007, after the issuance of BIR Ruling No. DA-
489-03 on 10 December 2003. Truly, Taganito can claim that
in filing its judicial claim prematurely without waiting for the
120-day period to expire, it was misled by BIR Ruling No. DA-
489-03. Thus, Taganito can claim the benefit of BIR Ruling
No. DA-489-03, which shields the filing of its judicial claim
from the vice of prematurity.
Philex’s situation is not a case of premature filing of its
judicial claim but of late filing, indeed very late filing. BIR
Ruling No. DA-489-03 allowed premature filing of a judicial
claim, which means non-exhaustion of the 120-day period for
the Commissioner to act on an administrative claim. Philex
cannot claim the benefit of BIR Ruling No. DA-489-03 because
Philex did not file its judicial claim prematurely but filed it
long after the lapse of the 30-day period following the
expiration of the 120-day period. In fact, Philex filed its
judicial claim 426 days after the lapse of the 30-day period.
VII. Existing Jurisprudence
There is no basis whatsoever to the claim that in five cases
this Court had already made a ruling that the filing dates of
the administrative and judicial claims are inconsequential, as
long as they are within the two-year prescriptive period. The
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effect of the claim of the dissenting opinions is that San
Roque’s failure to wait for the 120-day mandatory period to
lapse is inconsequential, thus allowing San Roque to claim the
tax refund or credit. However, the five cases cited by the
dissenting opinions do not support even remotely the claim
that this Court had already made such a ruling. None of
these five cases mention, cite, discuss, rule or even hint
that compliance with the 120-day mandatory period is
inconsequential as long as the administrative and
judicial claims are filed within the two-year
prescriptive period.
In CIR v. Toshiba Information Equipment (Phils.),
Inc.,71 the issue was whether any output VAT was actually
passed on to Toshiba that it could claim as input VAT subject
to tax credit or refund. The Commissioner argued that
“although Toshiba may be a VAT-registered taxpayer, it is not
engaged in a VAT-taxable business.” The Commissioner cited
Section 4.106-1 of Revenue Regulations No. 75 that “refund of
input taxes on capital goods shall be allowed only to the
extent that such capital goods are used in VAT-taxable
business.” In the words of the Court, “Ultimately, however,
the issue still to be resolved herein shall be whether
respondent Toshiba is entitled to the tax credit/refund of its
input VAT on its purchases of capital goods and services, to
which this Court answers in the affirmative.” Nowhere in this
case did the Court discuss, state, or rule that the filing dates
of the administrative and judicial claims are inconsequential,
as long as they are within the two-year prescriptive period.
In Intel Technology Philippines, Inc. v. CIR,72 the Court
stated: “The issues to be resolved in the instant case are (1)
whether the absence of the BIR authority to print or the
absence of the TIN-V in petitioner’s export sales invoices
operates to forfeit its entitlement to a tax refund/credit of its
unutilized input VAT attributable to its zero-rated sales; and
(2) whether petitioner’s failure to indicate “TIN-V” in its sales
invoices automatically invalidates its claim for a tax credit
certification.” Again, nowhere in this case did the Court
discuss, state, or rule that the filing dates of the
administrative and judicial claims are inconsequential, as
long as they are within the two-year prescriptive period.
In AT&T Communications Services Philippines, Inc. v.
CIR,73 the Court stated: “x x x the CTA First Division,
conceding that petitioner’s transactions fall under the
classification of zero-rated sales, nevertheless denied
petitioner’s claim ‘for lack of substantiation,’ x x x.” The
Court quoted the ruling of the First Division that “valid VAT
official receipts, and not mere sale invoices, should
have been submitted” by petitioner to substantiate its
claim. The Court further stated: “x x x the CTA En Banc, x x x
affirmed x x x the CTA First Division,” and “petitioner’s
motion for reconsideration having been denied x x x, the
present petition for review was filed.” Clearly, the sole issue in
this case is whether petitioner complied with the
substantiation requirements in claiming for tax refund or
credit. Again, nowhere in this case did the Court discuss,
state, or rule that the filing dates of the administrative and
judicial claims are inconsequential, as long as they are within
the two-year prescriptive period.
In CIR v. Ironcon Builders and Development
Corporation,74 the Court put the issue in this manner: “Simply
put, the sole issue the petition raises is whether or not the
CTA erred in granting respondent Ironcon’s application for
refund of its excess creditable VAT withheld.” The
Commissioner argued that “since the NIRC does not
specifically grant taxpayers the option to
refund excess creditable VAT withheld, it follows that such
refund cannot be allowed.” Thus, this case is solely about
whether the taxpayer has the right under the NIRC to ask for
a cash refund of excess creditable VAT withheld. Again,
nowhere in this case did the Court discuss, state, or rule that
the filing dates of the administrative and judicial claims are
inconsequential, as long as they are within the two-year
prescriptive period.
165
 In CIR v. Cebu Toyo Corporation,75 the issue was whether
Cebu Toyo was exempt or subject to VAT. Compliance with
the 120-day period was never an issue in Cebu Toyo. As the
Court explained:
Both the Commissioner of Internal Revenue and the Office of the
Solicitor General argue that respondent Cebu Toyo Corporation, as
a PEZA-registered enterprise, is exempt from national and local
taxes, including VAT, under Section 24 of Rep. Act No. 7916 and
Section 109 of the NIRC. Thus, they contend that respondent Cebu
Toyo Corporation is not entitled to any refund or credit on input
taxes it previously paid as provided under Section 4.103-1 of
Revenue Regulations No. 7-95, notwithstanding its registration as a
VAT taxpayer. For petitioner claims that said registration was
erroneous and did not confer upon the respondent any right to claim
recognition of the input tax credit.
The respondent counters that it availed of the income tax
holiday under E.O. No. 226 for four years from August 7, 1995
making it exempt from income tax but not from other taxes such as
VAT. Hence, according to respondent, its export sales are
not exempt from VAT, contrary to petitioner’s claim, but its
export sales is subject to 0% VAT. Moreover, it argues that it
was able to establish through a report certified by an independent
Certified Public Accountant that the input taxes it incurred from
April 1, 1996 to December 31, 1997 were directly attributable to its
export sales. Since it did not have any output tax against which
said input taxes may be offset, it had the option to file a claim for
refund/tax credit of its unutilized input taxes.
Considering the submission of the parties and the evidence on
record, we find the petition bereft of merit.
Petitioner’s contention that respondent is not entitled to
refund for being exempt from VAT is untenable. This
argument turns a blind eye to the fiscal incentives granted to
PEZA-registered enterprises under Section 23 of Rep. Act No. 7916.
Note that under said statute, the respondent had two options with
respect to its tax burden. It could avail of an income tax holiday
pursuant to provisions of E.O. No. 226, thus exempt it from income
taxes for a number of years but not from other internal revenue
taxes such as VAT; or it could avail of the tax exemptions on all
taxes, including VAT under P.D. No. 66 and pay only the
preferential tax rate of 5% under Rep. Act No. 7916. Both the Court
of Appeals and the Court of Tax Appeals found that respondent
availed of the income tax holiday for four (4) years starting from
August 7, 1995, as clearly reflected in its 1996 and 1997 Annual
Corporate Income Tax Returns, where respondent specified that it
was availing of the tax relief under E.O. No. 226. Hence,
respondent is not exempt from VAT and it correctly
registered itself as a VAT taxpayer. In fine, it is engaged in
taxable rather than exempt transactions. (Emphasis supplied)
Clearly, the issue in Cebu Toyo was whether the
taxpayer was exempt from VAT or subject to VAT at 0%
tax rate. If subject to 0% VAT rate, the taxpayer could claim
a refund or credit of its input VAT. Again, nowhere in this
case did the Court discuss, state, or rule that the filing dates
of the administrative and judicial claims are inconsequential,
as long as they are within the two-year prescriptive period.
While this Court stated in the narration of facts in Cebu Toyo
that the taxpayer “did not bother to wait for the Resolution of
its (administrative) claim by the CIR” before filing its judicial
claim with the CTA, this issue was not raised before the
Court. Certainly, this statement of the Court is not a binding
precedent that the taxpayer need not wait for the 120-day
period to lapse.
Any issue, whether raised or not by the parties, but
not passed upon by the Court, does not have any value
as precedent. As this Court has explained as early as 1926:
It is contended, however, that the question before us was
answered and resolved against the contention of the appellant in
the case of Bautista vs. Fajardo (38 Phil. 624). In that case no
question was raised nor was it even suggested that said section 216
did not apply to a public officer. That question was not discussed
nor referred to by any of the parties interested in that case. It has
been frequently decided that the fact that a statute has been
accepted as valid, and invoked and applied for many years in cases
where its validity was not raised or passed on, does not prevent a
court from later passing on its validity, where that question is
squarely and properly raised and presented. Where a question
passes the Court sub silentio, the case in which the question
was so passed is not binding on the Court (McGirr vs.
Hamilton and Abreu, 30 Phil. 563), nor should it be
166
considered as a precedent. (U.S. vs. Noriega and Tobias, 31 Phil.
310; Chicote vs. Acasio, 31 Phil. 401; U.S. vs. More, 3 Cranch [U.S.]
159, 172; U.S. vs. Sanges, 144 U.S. 310, 319; Cross vs. Burke, 146
U.S. 82.) For the reasons given in the case of McGirr vs. Hamilton
and Abreu, supra, the decision in the case of Bautista vs. Fajardo,
supra, can have no binding force in the interpretation of the
question presented here.76(Emphasis supplied)
In Cebu Toyo, the nature of the 120-day period, whether it
is mandatory or optional, was not even raised as an issue by
any of the parties. The Court never passed upon this
issue.
Thus, Cebu Toyo does not constitute binding precedent on the
nature of the 120-day period.
There is also the claim that there are numerous CTA
decisions allegedly supporting the argument that the filing
dates of the administrative and judicial claims are
inconsequential, as long as they are within the two-year
prescriptive period. Suffice it to state that CTA decisions do
not constitute precedents, and do not bind this Court or the
public. That is why CTA decisions are appealable to this
Court, which may affirm, reverse or modify the CTA decisions
as the facts and the law may warrant. Only decisions of this
Court constitute binding precedents, forming part of the
Philippine legal system.77 As held by this Court in The
Philippine Veterans Affairs Office v. Segundo:78
x x x Let it be admonished that decisions of the Supreme Court
“applying or interpreting the laws or the Constitution . . . form part
of the legal system of the Philippines,” and, as it were, “laws” by
their own right because they interpret what the laws say or
mean. Unlike rulings of the lower courts, which bind the
parties to specific cases alone, our judgments are universal
in their scope and application, and equally mandatory in
character. Let it be warned that to defy our decisions is to court
contempt. (Emphasis supplied)
The same basic doctrine was reiterated by this Court in De
Mesa v. Pepsi Cola Products Phils., Inc.:79
The principle of stare decisis et non quieta movere is entrenched
in Article 8 of the Civil Code, to wit:
ART. 8. Judicial decisions applying or interpreting the
laws or the Constitution shall form a part of the legal system
of the Philippines.
It enjoins adherence to judicial precedents. It requires our
courts to follow a rule already established in a final decision
of the Supreme Court. That decision becomes a judicial precedent
to be followed in subsequent cases by all courts in the land. The
doctrine of stare decisis is based on the principle that once a
question of law has been examined and decided, it should be
deemed settled and closed to further argument. (Emphasis
supplied)
VIII. Revenue Regulations No. 7-95 Effective 1
January 1996
Section 4.106-2(c) of Revenue Regulations No. 7-95, by its
own express terms, applies only if the taxpayer files the
judicial claim “after” the lapse of the 60-day period, a period
with which San Roque failed to comply. Under Section
4.106-2(c), the 60-day period is still mandatory and
jurisdictional.
Moreover, it is a hornbook principle that a prior
administrative regulation can never prevail over a later
contrary law, more so in this case where the later law was
enacted precisely to amend the prior administrative
regulation and the law it implements.
The laws and regulation involved are as follows:
1977 Tax Code, as amended by Republic Act No. 7716 (1994)
Sec. 106. Refunds or tax credits of creditable input tax.―
(a) x x x x
(d) Period within which refund or tax credit of input tax
shall be made―In proper cases, the Commissioner shall grant
a refund or issue the tax credit for creditable input
taxes within sixty (60) days from the date of submission of
complete documents in support of the application filed in
accordance with subparagraphs (a) and (b) hereof. In case
of full or partial denial of the claim for tax refund or tax
credit, or the failure on the part of the Commissioner to
act on the application within the period prescribed
167
 above, the taxpayer affected may, within thirty (30)
days from receipt of the decision denying the claim or
after the expiration of the sixty-day period, appeal the
decision or the unacted claim with the Court of Tax
Appeals.
Revenue Regulations No. 7-95 (1996)
Section 4.106-2. Procedures for claiming refunds or tax
credits of input tax―(a) x x x
xxxx
(c) Period within which refund or tax credit of input taxes
shall be made.―In proper cases, the Commissioner shall
grant a tax credit/refund for creditable input taxes within
sixty (60) days from the date of submission of complete
documents in support of the application filed in accordance
with subparagraphs (a) and (b) above.
In case of full or partial denial of the claim for tax
credit/refund as decided by the Commissioner of Internal
Revenue, the taxpayer may appeal to the Court of Tax
Appeals within thirty (30) days from the receipt of said denial,
otherwise the decision will become final. However, if no
action on the claim for tax credit/refund has been
taken by the Commissioner of Internal
Revenue after the sixty (60) day period from the date of
submission of the application but before the lapse of
the two (2) year period from the date of filing of the
VAT return for the taxable quarter, the taxpayer may
appeal to the Court of Tax Appeals.
xxxx
1997 Tax Code
Section 112. Refunds or Tax Credits of Input Tax―
(A) x x x
xxxx
(D) Period within which Refund or Tax Credit of Input
Taxes shall be made.―In proper cases, the Commissioner
shall grant the refund or issue the tax credit certificate for
creditable input taxes within one hundred twenty (120)
daysfrom the date of submission of complete documents in
support of the application filed in accordance with
Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax
refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the
period prescribed above, the taxpayer affected may,
within thirty (30) days from the receipt of the decision
denying the claim or after the expiration of the
hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals.
There can be no dispute that under Section 106(d) of the
1977 Tax Code, as amended by RA 7716, the Commissioner
has a 60-day period to act on the administrative claim. This
60-day period is mandatory and jurisdictional.
Did Section 4.106-2(c) of Revenue Regulations No. 7-95
change this, so that the 60-day period is no longer mandatory
and jurisdictional? The obvious answer is no.
Section 4.106-2(c) itself expressly states that if, “after the
sixty (60) day period,” the Commissioner fails to act on the
administrative claim, the taxpayer may file the judicial claim
even “before the lapse of the two (2) year period.” Thus,
under Section 4.106-2(c) the 60-day period is still
mandatory and jurisdictional.
Section 4.106-2(c) did not change Section 106(d) as
amended by RA 7716, but merely implemented it, for two
reasons. First, Section 4.106-2(c) still expressly requires
compliance with the 60-day period. This cannot be
disputed.
Second, under the novel amendment introduced by RA
7716, mere inaction by the Commissioner during the 60-day
period is deemed a denial of the claim. Thus, Section 4.106-
2(c) states that “if no action on the claim for tax refund/credit
has been taken by the Commissioner after the sixty (60) day
period,” the taxpayer “may” already file the judicial
claim even long before the lapse of the two-year prescriptive
period. Prior to the amendment by RA 7716, the taxpayer had
to wait until the two-year prescriptive period was about to
expire if the Commissioner did not act on the claim.80With the
amendment by RA 7716, the taxpayer need not wait until the
two-year prescriptive period is about to expire before filing the
168
judicial claim because mere inaction by the Commissioner
during the 60-day period is deemed a denial of the claim. This
is the meaning of the phrase “but before the lapse of
the two (2) year period” in Section 4.106-2(c). As Section
4.106-2(c) reiterates that the judicial claim can be filed only
“after the sixty (60) day period,” this period remains
mandatory and jurisdictional. Clearly, Section 4.106-2(c) did
not amend Section 106(d) but merely faithfully implemented
it.
Even assuming, for the sake of argument, that Section
4.106-2(c) of Revenue Regulations No. 7-95, an administrative
issuance, amended Section 106(d) of the Tax Code to make the
period given to the Commissioner non-mandatory, still the
1997 Tax Code, a much later law, reinstated the original
intent and provision of Section 106(d) by extending the 60-day
period to 120 days and re-adopting the original wordings
of Section 106(d). Thus, Section 4.106-2(c), a mere
administrative issuance, becomes inconsistent with Section
112(D), a later law. Obviously, the later law prevails over a
prior inconsistent administrative issuance.
Section 112(D) of the 1997 Tax Code is clear, unequivocal,
and categorical that the Commissioner has 120 days to act on
an administrative claim. The taxpayer can file the judicial
claim (1) only within thirty days after the Commissioner
partially or fully denies the claim within the 120-day
period, or (2) only within thirty days from the expiration
of the 120-day period if the Commissioner does not act
within the 120-day period.
There can be no dispute that upon effectivity of the 1997
Tax Code on 1 January 1998, or more than five years
before San Roque filed its administrative claim on 28
March 2003, the law has been clear: the 120-day period is
mandatory and jurisdictional. San Roque’s claim, having been
filed administratively on 28 March 2003, is governed by the
1997 Tax Code, not the 1977 Tax Code. Since San Roque filed
its judicial claim before the expiration of the 120-day
mandatory and jurisdictional period, San Roque’s claim
cannot prosper.
San Roque cannot also invoke Section 4.106-2(c), which
expressly provides that the taxpayer can only file the judicial
claim “after” the lapse of the 60-day period from the filing of
the administrative claim. San Roque filed its judicial
claim just 13 days after filing its administrative claim.
To recall, San Roque filed its judicial claim on 10 April 2003, a
mere 13 days after it filed its administrative claim.
Even if, contrary to all principles of statutory construction
as well as plain common sense, we gratuitously apply now
Section 4.106-2(c) of Revenue Regulations No. 7-95, still San
Roque cannot recover any refund or credit because San
Roque did not wait for the 60-day period to lapse,
contrary to the express requirement in Section 4.106-
2(c). In short, San Roque does not even comply with
Section 4.106-2(c). A claim for tax refund or credit is strictly
construed against the taxpayer, who must prove that his
claim clearly complies with all the conditions for granting the
tax refund or credit. San Roque did not comply with the
express condition for such statutory grant.
A final word. Taxes are the lifeblood of the nation. The
Philippines has been struggling to improve its tax efficiency
collection for the longest time with minimal success.
Consequently, the Philippines has suffered the economic
adversities arising from poor tax collections, forcing the
government to continue borrowing to fund the budget deficits.
This Court cannot turn a blind eye to this economic malaise
by being unduly liberal to taxpayers who do not comply with
statutory requirements for tax refunds or credits. The tax
refund claims in the present cases are not a pittance. Many
other companies stand to gain if this Court were to rule
otherwise. The dissenting opinions will turn on its head the
well-settled doctrine that tax refunds are strictly construed
against the taxpayer.
WHEREFORE, the Court hereby (1) GRANTS the petition
of the Commissioner of Internal Revenue in G.R. No. 187485
169
to DENY the P483,797,599.65 tax refund or credit claim of
San Roque Power Corporation; (2) GRANTS the petition of
Taganito Mining Corporation in G.R. No. 196113 for a tax
refund or credit of P8,365,664.38; and (3) DENIES the petition
of Philex Mining Corporation in G.R. No. 197156 for a tax
refund or credit of P23,956,732.44.
SO ORDERED.
Leonardo-De Castro, Brion, Peralta, Bersamin, Abad,
Villarama, Jr., Perez and Reyes, JJ., concur.
Sereno, C.J., I join the dissent of J. Velasco; but I partly
digress (See Separate Dissenting Opinion).
Velasco, Jr., J., I dissent. Please see Dissenting Opinion.
Del Castillo, J., I join J. Leonen in his separate opinion.
Mendoza and Perlas-Bernabe, JJ., I join the dissent of J.
Velasco.
Leonen, J., See separate opinion.

Notes.―Once the option to carry-over and apply the excess

quarterly income tax against income tax due for the taxable
quarters of the succeeding taxable years has been made, such
option shall be considered irrevocable for that taxable period
and no application for tax refund or issuance of a tax credit
certificate shall be allowed therefor. (Commissioner of Internal
Revenue vs. Bank of the Philippine Islands, 592 SCRA 219
[2009])
Tax refunds, like tax exemptions, are construed strictly
against the taxpayer and liberally in favor of the taxing
authority; It has been a long-standing policy and practice of
the Supreme Court to respect the conclusions of quasi-judicial
agencies such as the Court of Tax Appeals (CTA), a highly
specialized body specifically created for the purpose of
reviewing tax cases. (United Airlines, Inc. vs. Commissioner of
Internal Revenue, 631 SCRA 567 [2010])
――o0o――
© Copyright 2018 Central Book Supply, Inc. All rights reserved.

170

G.R. No. 183880. January 20, 2014.*
COMMISSIONER OF INTERNAL REVENUE,
petitioner, vs. TOLEDO POWER COMPANY, respondent.
Taxation; Value-Added Tax; A Value-Added Tax (VAT)-
registered person, whose sales are zero-rated or effectively zero-rated,
may apply for the issuance of a tax credit or refund creditable input
tax due or paid attributable to such sales within two years after the
close of the taxable quarter when the sales were made.—Section 112
decrees that a VAT-registered person, whose sales are zero-rated or
effectively zero-rated, may apply for the issuance of a tax credit or
refund creditable input tax due or paid attributable to such sales
within two years after the close of the taxable quarter when the
sales were made. From the date of submission of complete
documents in support of its application, the Commissioner of
Internal Revenue (CIR) has 120 days to decide whether or not to
grant the claim for refund or issuance of tax credit certificate. In
case of full or partial denial of the claim for tax refund or tax credit,
or the failure on the part of the CIR to act on the application within
the given period, the taxpayer may, within 30 days from receipt of
the decision denying the claim or after the expiration of the 120-day
period, appeal with the Court of Tax Appeals (CTA) the decision or
inaction of the CIR.
_______________
* THIRD DIVISION.
277
Same; Same; Since the imprinting of the word “zero-rated” was
required merely to distinguish sales subject to 10% VAT, those that
are subject to 0% Value-Added Tax (VAT) (zero-rated) and exempt
sales, to enable the Bureau of Internal Revenue to properly
implement and enforce the other VAT provisions of the Tax Code.—
In the present case, we agree with the CTA’s findings that the
words “zero-rated” appeared on the VAT invoices/official receipts
presented by the TPI in support of its refund claim. Although the
same was merely stamped and not pre-printed, the same is
sufficient compliance with the law, since the imprinting of the word
“zero-rated” was required merely to distinguish sales subject to 10%
VAT, those that are subject to 0% VAT (zero-rated) and exempt
sales, to enable the Bureau of Internal Revenue to properly
implement and enforce the other VAT provisions of the Tax Code.
Same; Court of Tax Appeals; Appeals; It is doctrinal that the
Supreme Court will not lightly set aside the conclusions reached by
the Court of Tax Appeals (CTA) which, by the very nature of its
function of being dedicated exclusively to the resolution of tax
problems, has accordingly developed an expertise on the subject,
unless there has been an abuse or improvident exercise of
authority.—It is doctrinal that the Court will not lightly set aside
the conclusions reached by the CTA which, by the very nature of its
function of being dedicated exclusively to the resolution of tax
problems, has accordingly developed an expertise on the subject,
unless there has been an abuse or improvident exercise of
authority. In Barcelon, Roxas Securities, Inc. v. Commissioner of
Internal Revenue, 498 SCRA 126 (2006) the Court held that it
accords the findings of fact by the CTA with the highest respect. It
ruled that factual findings made by the CTA can only be disturbed
on appeal if they are supported by substantial evidence or there is a
showing of gross error or abuse on the part of the Tax Court. In the
absence of any clear and convincing proof to the contrary, this Court
must presume that the CTA rendered a decision which is valid in
every respect.
PETITION for review on certiorari of the decision and
resolution of the Court of Tax Appeals.
The facts are stated in the opinion of the Court.
Office of the Solicitor General for petitioner.
278
Salvador & Associates for respondent.
PERALTA, J.:
This resolves the Petition for Review on Certiorari under
Rule 45 of the Rules of Court seeking the reversal of the Court
of Tax Appeals (CTA) En Banc Decision1dated May 7, 2008,
and Resolution2 dated July 18, 2008.
The pertinent facts, as narrated by the CTA First Division,
are as follows:
Petitioner (herein respondent Toledo Power, Inc.) is a
general partnership duly organized and existing under
Philippine laws, with principal office at Sangi, Toledo City,
Cebu. It is principally engaged in the business of power
generation and subsequent sale thereof to the National Power
171
 Corporation (NPC), Cebu Electric Cooperative III (CEBECO), Total Available Input Tax
Excess Input Tax & Overpayment
_5,994,011,85
P5,909,588.96
Atlas Consolidated Mining and Development Corporation,
Atlas Fertilizer Corporation and Cebu Industrial Park Thus, for the third quarter of 2001, petitioner allegedly has
Development, Inc., and is registered with the Bureau of unutilized input VAT in the total amount of P5,909,588.96 on
Internal Revenue (BIR) as a Value-Added Tax taxpayer in its domestic purchase of taxable goods and services and
accordance with Section 236 of the National Internal Revenue importation of goods, which purchases and importations are
Code (NIRC) with Tax Identification No. 003-883-626-VAT all attributable to its zero-rated sale of power generation
and BIR Certificate of Registration bearing RDO Control No. services to NPC, CEBECO, Atlas Consolidated Mining and
94-083-000300. Development Corporation, Atlas Fertilizer Corporation and
On June 20, 2002, petitioner filed an application with the Cebu Industrial Park Development, Inc. Said input VAT of
Energy Regulatory Commission (ERC) for the issuance of a P5,909,588.96 paid by petitioner on its domestic purchase of
Certificate of Compliance pursuant to the Implementing goods and services for the third quarter of 2001 allegedly
Rules and Regulations of R.A. 9136, otherwise known as the remained unutilized against output VAT liability in said
“Electric Power Industry Reform Act of 2007” (EPIRA). period or even in subsequent matters.
_______________
280
1 Penned by Associate Justice Juanito C. Castañeda, Jr., with Presiding
Justice Ernesto D. Acosta and Associate Justices Lovell R. Bautista, Erlinda P. Uy, On January 25, 2002, petitioner filed with the BIR RDO
Caesar A. Casanova, and Olga Palanca-Enriquez, concurring; Rollo, pp. 28-41. No. 83 at Toledo City, Province of Cebu, its Quarterly VAT
2 Id., at pp. 43-45. Return for the fourth quarter of 2001 declaring, among
279 others, the following:
On October 25, 2001, petitioner filed with the BIR Revenue
District Office (RDO) No. 83 at Toledo City, Province of Cebu, Zero-Rated Sales/Receipts P127,259,720.44
its Quarterly VAT Return for the third quarter of 2001, Taxable Sales-Sale of Scrap/Others
Output Tax
309,697.50
28,154.33
declaring among others, the following: Less: Input Tax
On Domestic Purchases 1,374,608.64
Zero-rated Sales/Receipts P143,000,032.37 On Importation of Goods 1,873,327.00
Taxable Sales-Sale of Scrap/Others 378,651.74 Total Available Input Tax __3,247,935.64
Output Tax 34,422.89 Excess Input Tax & Overpayment P 3,219,781.31
Less: Input Tax
On Domestic Purchases
On Importation of Goods
4,765,458.58
1,242,792.00
Thus, petitioner allegedly had an excess input VAT credits
Total Available Input Tax __6,008,250,58 of P3,219,781.31 for the fourth quarter of 2001 which
Excess Input Tax & Overpayment P5,973,827.69 remained unutilized against output VAT liability in said
period or even in the subsequent quarters.
However, an amended Quarterly VAT Return for the same For the third and fourth quarters of 2001, petitioner
quarter of 2001 was filed on November 22, 2001. The incurred and accumulated input VAT from its domestic
amended return shows unutilized input VAT credits of purchase of goods and services, which are all attributable to
P5,909,588.96 arising from petitioner’s taxable purchases for its zero-rated sales of power generation services to NPC,
the third quarter of 2001 and the following other information: CEBECO, Atlas Consolidated Mining and Development
Corporation, Atlas Fertilizer Corporation and Cebu Industrial
Zero-rated Sales/Receipts P143,000,032.37
Taxable Sales-Sale of Scrap/Others 378,651.74 Park Development Inc., in the total amount of P9,129,370.27.
Output Tax 34,422.89 Said excess and unutilized input VAT was allegedly not
Less: Input Tax
On Domestic Purchases 4,718,099.85 utilized against any output VAT liability in the subsequent
On Importation of Goods 1,225,912.00 quarters nor carried over to the succeeding taxable quarters.
172
 On September 30, 2003, pursuant to the procedure
prescribed in Revenue Regulations No. 7-95, as amended,
petitioner filed with the BIR RDO No. 83, an administrative
claim for refund or unutilized input VAT for the third and
fourth quarter of 2001 in the amounts of P5,909,588.96 and
P3,219,781.31, respectively, or the aggregate amount of
P9,129,370.27.
Respondent (herein petitioner Commissioner of Internal
Revenue) has not ruled upon petitioner’s administrative claim
and in order to preserve its right to file a judicial claim for the
refund or issuance of a tax credit certificate of its unutilized
input VAT, petitioner filed a
Acting on the petition, the CTA First Division issued a
Decision dated May 17, 2007 partially granting Toledo Power,
Inc.’s (TPI) refund claim or issuance of tax credit certificate.
Pertinent portions of the Decision read:
_______________
3 Id., at pp. 47-53. (Citations omitted)
282
In sum, petitioner was able to show its entitlement to the refund
or issuance of tax credit certificate in the amount of P8,553,050.44
computed as follows:
Total Available Input VAT
9
P9,191,947.4

281Petition for Review to suspend the running of the two-year Less: Disallowed Input VAT
prescriptive period under Section 112(D) of the 1997 NIRC (P20,696.34+P52,363.64+P277,207.50) ___350,267.4
8
and Section 4.106-2(c) of Revenue Regulations No. 7-95, as Substantiated available input VAT P8,841,680.0
amended. On October 24, 2003, petitioner filed a Petition for 1
Less: Output VAT ____62,577.2
Review for the refund or issuance of a tax credit certificate in 2
the amount of P5,909,588.96 for the third quarter of 2001, Substantiated Unutilized Input VAT P8,779,102.7
docketed as CTA Case No. 6805 and, on January 22, 2004, Multiply by the ratio of substantiated
9

filed another Petition for Review for the refund or issuance of
tax credit certificate in the amount of P3,219,781.31 for the
fourth quarter of 2001, docketed as CTA Case No. 6851, both
for its unutilized input VAT paid by petitioner on its domestic
purchases of goods and services and importation of goods
attributable to zero-rated sales.
On January 30, 2004, petitioner filed a Motion for
Consolidation CTA Case Nos. 6805 and 6851, since these
cases involve the same parties, same facts and issues. The
said Motion was granted in open court on February 27, 2004
and confirmed in a Resolution dated March 8, 2004.
xxxx
After presenting its testimonial and documentary
evidence, petitioner formally offered its evidence on February
16, 2006. On March 24, 2006, this Court promulgated a
Resolution admitting all the exhibits offered by petitioner.
Respondent, on the other hand, failed to adduce any evidence.
In a Resolution dated July 6, 2006, this consolidated case
was ordered submitted for decision with only petitioner’s
Memorandum, as respondent failed to file one within the
period given by the Court.3
zero-rated sales to the total zero-rated sales
Substantiated zero-rated sales 263,300,858.
02
Total zero-rated sales 270,259,752.
81
Refundable Input VAT P8,553,050.4
4
IN VIEW OF THE FOREGOING, the Petition for Review
is PARTIALLY GRANTED. Respondent is hereby ORDERED to
refund or to issue a tax credit certificate in favor of petitioner in the
reduced amount of P8,553,050.44 representing the substantiated
unutilized input VAT for the third and fourth quarters of 2001.
SO ORDERED.4
The Commissioner of Internal Revenue (CIR), thereafter,
filed a Motion for Reconsideration against said Decision.
However, the same was denied in a Resolution dated October
15, 2007.
On appeal to the CTA En Banc, the CIR argued that TPI
failed to comply with the invoicing requirements to prove
entitlement to the refund or issuance of tax credit certificate.
173
In addition, he challenged the jurisdiction of the CTA First In a Resolution dated July 18, 2008, the CTA En
Division to entertain respondent’s petition for review for Banc denied the CIR’s motion for reconsideration.
failure on its part to comply with the provisions of Section 112 Undaunted by the adverse ruling of the CTA, the CIR now
(C) of the Tax Code. seeks recourse to this Court on the following ground:
_______________ THE COURT OF TAX APPEALS EN BANC ERRED IN
4 Id., at p. 62. (Emphasis in the original). RULING THAT THE GOVERNMENT IS LIABLE TO
283
REFUND PETITIONER FOR ALLEGED OVERPAYMENT
In a Decision dated May 7, 2008, the CTA En OF VAT.6
Banc affirmed with modification the First Division’s assailed
decision. It held — In essence, two issues must be addressed to determine
whether TPI is indeed entitled to its claim for refund or
x x x after re-examination of the records of this case, out of the issuance of tax credit certificate: (1) whether TPI complied
alleged Zero-rated sales amounting to P270,259,752.81, only the
with the 120+30 day rule under Section 112 (C) of the Tax
amount of P248,989,191.87 is fully substantiated. Therefore,
respondent is entitled to the refund or issuance of tax credit
Code, and (2) whether TPI sufficiently complied with the
certificate in the amount of P8,088,151.07 computed as follows: invoicing requirements under the Tax Code.
Let us discuss the issues in seriatim.
Total Available Input VAT P9,191,947.49 First, it must be emphasized that to validly claim a refund
Less: Disallowed Input VAT
(P20,696.34+P52,363.64+P277,207.50) ___350,267.48 or tax credit of input tax, compliance with the 120+30 day rule
Substantiated available input VAT P8,841,680.01 under Section 112 of the Tax Code is mandatory.
Less: Output VAT 62,577.22
Substantiated Unutilized Input VAT P8,779,102.79 Pertinent portions of Section 112 of the Tax Code, as
Multiply by the ratio of substantiated zero-rated sales
to the total zero-rated sales
amended by Republic Act No. 9337,7 state:
SEC. 112. Refunds or Tax Credits of Input Tax.—
Substantiated zero-rated sales 248,989,191.87 (A) Zero-rated or Effectively Zero-Rated Sales.—Any
Total zero-rated sales 270,259,752.81
VAT-registered person, whose sales are zero-rated or
Refundable Input VAT P8,088,151.07 effectively zero-rated may, within two (2) years after the close
of the taxable quarter when the sales were made, apply for
WHEREFORE, premises considered, the Petition for Review En the issuance of a tax credit certificate or refund of creditable
Banc is DENIED for lack of merit. Accordingly, the Decision dated input tax due or paid attributable to such sales, except
May 17, 2007 and Resolution dated October 15, 2007 transitional input tax, to the extent that
are AFFIRMED with MODIFICATION. Petitioner is _______________
hereby ORDERED TO REFUND to respondent the sum
of EIGHT MILLION EIGHTY-EIGHT THOUSAND ONE 6 Id., at p. 17.
7 An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113,
HUNDRED FIFTY-ONE PESOS AND SEVEN CENTAVOS 114, 116, 117, 119, 121, 148, 151, 236, 237 and 288 of the National Internal
(P8,088,151.07) only for the third and fourth quarters of taxable Revenue Code of 1997, as Amended, and for Other Purposes.
year 2001. 285such input tax has not been applied against output
SO ORDERED.5 tax: Provided, however, That in the case of zero-rated sales
_______________ under Section 106(A)(2)(a)(1), (2) and (b) and Section
5 Id. at pp. 39-40. (Emphasis in the original)
108(B)(1) and (2), the acceptable foreign currency exchange
284
proceeds thereof had been duly accounted for in accordance
174
 with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP): Provided, further, That where the taxpayer is
engaged in zero-rated or effectively zero-rated sale and also in
taxable or exempt sale of goods of properties or services, and
the amount of creditable input tax due or paid cannot be
directly and entirely attributed to any one of the transactions,
it shall be allocated proportionately on the basis of the volume
of sales: Provided, finally, That for a person making sales that
are zero-rated under Section 108(B)(6), the input taxes shall
be allocated ratably between his zero-rated and non-zero-
rated sales.
xxxx
(C) Period within which Refund or Tax Credit of Input
Taxes shall be Made.—In proper cases, the Commissioner
shall grant a refund or issue the tax credit certificate for
creditable input taxes within one hundred twenty (120) days
from the date of submission of complete documents in support
of the application filed in accordance with Subsection (A)
hereof.
In case of full or partial denial of the claim for tax refund
or tax credit, or the failure on the part of the Commissioner to
act on the application within the period prescribed above, the
taxpayer may, within thirty (30) days from the receipt of the
decision denying the claim or after the expiration of the one
hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals.
Section 112 decrees that a VAT-registered person, whose
sales are zero-rated or effectively zero-rated, may apply for
the issuance of a tax credit or refund creditable input tax due
or paid attributable to such sales within two years after the
close of the taxable quarter when the sales were made. From
286the date of submission of complete documents in support of
its application, the CIR has 120 days to decide whether or not
to grant the claim for refund or issuance of tax credit
certificate. In case of full or partial denial of the claim for tax
refund or tax credit, or the failure on the part of the CIR to act
on the application within the given period, the taxpayer may,
within 30 days from receipt of the decision denying the claim
or after the expiration of the 120-day period, appeal with the
CTA the decision or inaction of the CIR.
Recently, in the consolidated cases of Commissioner of
Internal Revenue v. San Roque Power Corporation,8 (San
Roque), the Court confirmed the mandatory and jurisdictional
nature of the 120+30 day rule. It ratiocinated as follows:
At the time San Roque filed its petition for review with the
CTA, the 120+30 day mandatory periods were already in the
law. Section 112 (C) expressly grants the Commissioner 120
days within which to decide the taxpayer’s claim. The law is
clear, plain and unequivocal: “x x x the Commissioner shall
grant a refund or issue the tax credit certificate for creditable
input taxes within one hundred twenty (120) days from
the date of submission of complete documents.” Following
the verba legis doctrine, this law must be applied exactly as
worded since it is clear, plain and unequivocal. The taxpayer
cannot simply file a petition with the CTA without waiting for
the Commissioner’s decision within the 120-day mandatory
and jurisdictional period. The CTA will have no jurisdiction
because there will be no “decision” or “deemed a denial”
decision of the Commissioner for the CTA to review. In San
Roque’s case, it filed its petition with the CTA a mere 13 days
after it filed its administrative claim with the Commissioner.
Indisputably, San Roque knowingly violated the mandatory
120-day period, and it cannot blame anyone but itself.
_______________
8 G.R. Nos. 187485, 196113, and 197156, February 12, 2013, 690 SCRA 336.
287
Section 112(C) also expressly grants the taxpayer a 30-day
period to appeal to the CTA the decision or inaction of the
Commissioner, thus:
x x x the taxpayer affected may, within thirty (30)
days from the receipt of the decision denying the
claim or after the expiration of the one-hundred
twenty day-period, appeal the decision or the unacted
claim with the Court of Tax Appeals. (Emphasis
supplied.)
This law is clear, plain, and unequivocal. Following the well-
settled verba legis doctrine, this law should be applied exactly
as worded since it is clear, plain and unequivocal. As this law
175
states, the taxpayer may, if he wishes, appeal the decision of
the Commissioner to the CTA within 30 days from receipt of
the Commissioner’s decision, or if the Commissioner does not
act on the taxpayer’s claim within the 120-day period, the
taxpayer may appeal to the CTA within 30 days from the
expiration of the 120-day period.
xxxx
When Section 112 (C) states that “the taxpayer
affected may, within thirty (30) days from receipt of the
decision denying the claim or after the expiration of the one
hundred twenty-day period, appeal the decision or the
unacted claim with the Court of Tax Appeals,” the law does
not make the 120+30 day periods optional just because the
law uses the word “may.” The word “may” simply means that
the taxpayer may or may not appeal the decision of the
Commissioner within 30 days from receipt of the decision, or
within 30 days from the expiration of the 120-day period.
Certainly by no stretch of the imagination can the word “may”
be construed as making the 120+30 day periods optional,
allowing the taxpayer to file a judicial claim one day after
filing the administrative claim with the Commissioner.
The old rule that the taxpayer may file the judicial claim,
without waiting for the Commissioner’s decision if the two-
year prescriptive period is about to expire, can-
288not 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 120thday, or does not act
at all during the 120-day period. With the 30-day period
always available to the taxpayer, the taxpayer can no longer
file a judicial claim for refund or credit of input VAT without
waiting for the Commissioner to decide until the expiration of
the 120-day period.
To repeat, a claim for tax refund or credit, like a claim for
tax exemption, is construed strictly against the taxpayer. One
of the conditions for a judicial claim of refund or credit under
the VAT System is compliance with the 120+30 day
mandatory and jurisdictional periods. Thus, strict compliance
with the 120+30 day periods is necessary for such a claim to
prosper, whether before, during, or after the effectivity of
the Atlas doctrine, except for the period from the issuance of
BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October
2010 when the Aichi doctrine was adopted, which again
reinstated the 120+30 day periods as mandatory and
jurisdictional.9
In a nutshell, the rules on the determination of the
prescriptive period for filing a tax refund or credit of
unutilized input VAT, as provided in Section 112 of the Tax
Code, are as follows:
(1) An administrative claim must be filed with the CIR
within two years after the close of the taxable quarter when
the zero-rated or effectively zero-rated sales were made.
(2) The CIR has 120 days from the date of submission of
complete documents in support of the administrative claim
within which to decide whether to
_______________
9 CIR v. San Roque Power Corporation, supra, at pp. 387-399. (Citations
omitted; emphasis in the original)
289grant a refund or issue a tax credit certificate. The 120-
day period may extend beyond the two-year period from the
filing of the administrative claim if the claim is filed in the
later part of the two-year period. If the 120-day period expires
without any decision from the CIR, then the administrative
claim may be considered to be denied by inaction.
(3) A judicial claim must be filed with the CTA within 30
days from the receipt of the CIR’s decision denying the
administrative claim or from the expiration of the 120-day
period without any action from the CIR.
(4) All taxpayers, however, can rely on BIR Ruling No. DA-
489-03 from the time of its issuance on 10 December 2003 up
to its reversal by this Court in Aichi on 6 October 2010, as an
exception to the mandatory and jurisdictional 120+30 day
periods.10
Here, TPI filed its third and fourth quarterly VAT returns
for 2001 on October 25, 2001 and January 25, 2002,
respectively. It then filed an administrative claim for refund
176
of its unutilized input VAT for the third and fourth quarters of
2001 on September 30, 2003. Thus, the CIR had 120 days or
until January 28, 2004, after the submission of TPI’s
administrative claim and complete documents in support of its
application, within which to decide on its claim. Then, it is
only after the expiration of the 120-day period, if there is
inaction on the part of the CIR, where TPI may elevate its
claim with the CTA within 30 days.
In the present case, however, it appears that TPI’s judicial
claims for refund of its unutilized input VAT covering the
third and fourth quarters of 2001 were prematurely filed on
October 24, 2003 and January 22, 2004, respectively.
_______________
10 Mindanao II Geothermal Partnership v. Commissioner of Internal
Revenue, G.R. Nos. 193301 & 194637, March 11, 2013, 693 SCRA 49, 89.
290
However, although TPI’s judicial claim for the fourth
quarter of 2001 has been filed prematurely, the most recent
pronouncements of the Court provide for a window wherein
the same may be entertained.
As held in the San Roque ponencia, strict compliance with
the 120+30 day mandatory and jurisdictional periods is not
necessary when the judicial claims are filed between
December 10, 2003 (issuance of BIR Ruling No. DA-489-03
which states that the taxpayer need not wait for the 120-day
period to expire before it could seek judicial relief) to October 6,
2010 (promulgation of the Aichi doctrine).
Clearly, therefore, TPI’s refund claim of unutilized input
VAT for the third quarter of 2001 was denied for being
prematurely filed with the CTA, while its refund claim of
unutilized input VAT for the fourth quarter of 2001 may be
entertained since it falls within the exception provided in the
Court’s most recent rulings.
With that settled, we now resolve the issue of whether TPI
sufficiently complied with the invoicing requirements under
the Tax Code with respect to the fourth quarter of 2001.
Section 113 (A), in relation to Section 237 of the Tax Code,
provides:
SEC. 113. Invoicing and Accounting Requirements for
VAT-Registered Persons.—
(A) Invoicing Requirements.—A VAT-registered person
shall, for every sale, issue an invoice or receipt. In addition to
the information shall be indicated in the invoice or receipt:
(1) A statement that the seller is a VAT-
registered person, followed by his taxpayer’s
identification number (TIN); and
(2) The total amount which the purchaser pays
or is obligated to pay to the seller with the indication
that such amount includes value-added tax.
291
xxxx
SEC. 237. Issuance of Receipts or Sales of Commercial
Invoices.—All persons subject to an internal revenue tax
shall, for each sale or transfer of merchandise or for services
rendered valued at Twenty-five pesos (P25.00) or more, issue
duly registered receipts or sales or commercial invoices,
prepared at least in duplicate, showing the date of
transaction, quantity, unit cost and description of
merchandise or nature of service: Provided, however, That in
the case of sales, receipts or transfers in the amount of One
hundred pesos (P100.00) or more, or regardless of the amount,
where the sale or transfer is made by a person liable to value-
added tax to another person also liable to value-added tax; or
where the receipt is issued to cover payment made as rentals,
commissions, compensations or fees, receipts or invoices shall
be issued which shall show the name, business style, if any,
and address of the purchaser, customer or client: Provided,
further, That where the purchaser is a VAT-registered person,
in addition to the information herein required, the invoice or
receipts shall further show the Taxpayer Identification
Number (TIN) of the purchaser.
Section 4.108-1 of Revenue Regulations No. 7-95 states:
Section 4.108-1. Invoicing Requirements.—All VAT-
registered persons shall, for every sale or lease of goods or
properties or services, issue duly registered receipts or sales
or commercial invoices which must show:
1. the name, TIN and address of seller;
2. date of transaction;
177
 3. quantity, unit cost and description of
merchandise or nature of service;
4. the name, TIN, business style, if any, and
address of the VAT-registered purchaser,
customer or client;
5. the word “zero-rated” imprinted on the
invoice covering zero-rated sales; and
2926. the invoice value or consideration.11
In the present case, we agree with the CTA’s findings that
the words “zero-rated” appeared on the VAT invoices/official
receipts presented by the TPI in support of its refund claim.
Although the same was merely stamped and not pre-printed,
the same is sufficient compliance with the law, since the
imprinting of the word “zero-rated” was required merely to
distinguish sales subject to 10% VAT, those that are subject to
0% VAT (zero-rated) and exempt sales, to enable the Bureau
of Internal Revenue to properly implement and enforce the
other VAT provisions of the Tax Code.
Moreover, it is doctrinal that the Court will not lightly set
aside the conclusions reached by the CTA which, by the very
nature of its function of being dedicated exclusively to the
resolution of tax problems, has accordingly developed an
expertise on the subject, unless there has been an abuse or
improvident exercise of authority.12
In Barcelon, Roxas Securities, Inc. v. Commissioner of
Internal Revenue,13 the Court held that it accords the
findings of fact by the CTA with the highest respect. It ruled
that factual findings made by the CTA can only be disturbed
on appeal if they are supported by substantial evidence or
there is a showing of gross error or abuse on the part of the
Tax Court. In the absence of any clear and convincing proof to
the contrary, this Court must presume that the CTA rendered
a decision which is valid in every respect.14
WHEREFORE, premises considered, the instant petition
is PARTIALLY GRANTED. The Commissioner of Internal
Revenue is hereby ORDERED to refund or issue tax credit
_______________
11 Underscoring supplied.
12 Commissioner of Internal Revenue v. Asian Transmission Corporation,
G.R. No. 179617, January 19, 2011, 640 SCRA 189, 200.
13 529 Phil. 785; 498 SCRA 126 (2006).
14 Id., at pp. 794-795; p. 136.
293certificate in favor of Toledo Power, Inc. only for the fourth
quarter of 2001. This case is hereby REMANDED to the
Court of Tax Appeals for the proper computation of the
refundable amount representing unutilized input VAT for the
fourth quarter of 2001.
SO ORDERED.
Velasco, Jr. (Chairperson), Abad and Mendoza,
JJ., concur.
Leonen, J., I dissent consistent with my opinion in the
San Roque case.
Petition partially granted, Commissioner of Internal
Revenue ordered to refund or issue tax credit certificate in
favor of Toledo Power, Inc.
Notes.—The Supreme Court is without jurisdiction to
review decisions rendered by a division of the Court of Tax
Appeals (CTA), exclusive appellate jurisdiction over which is
vested in the CTA en banc. (Commissioner of Customs vs.
Gelmart Industries Philippines, Inc., 579 SCRA 272 [2009])
Historically, the activity of showing motion pictures, films
or movies by cinema/theater operators or proprietors has
always been considered as a form of entertainment subject to
amusement tax; Only lessors or distributors of
cinematographic films are included in the coverage of Value-
Added Tax (VAT). (Commissioner of Internal Revenue vs. SM
Prime Holdings, Inc., 613 SCRA 774 [2010])
——o0o——
{C}{C}{C}
© Copyright 2018 Central Book Supply, Inc. All rights reserved.
178
 G.R. No. 190021. October 22, 2014.*
COMMISSIONER OF INTERNAL REVENUE,
petitioner, vs. BURMEISTER AND WAIN SCANDINAVIAN
CONTRACTOR MINDANAO, INC., respondent.
Taxation; In the recent case of CIR v. San Roque Power
Corporation, 690 SCRA 336,promulgated on February 12, 2013, the
Supreme Court (SC) clarified that (a) the Atlas doctrine was effective
only from its promulgation on June 8, 2007 until its abandonment
on September 12, 2008 in CIR v. Mirant Pagbilao Corp., 565 SCRA
154, and (b) prior to the Atlas doctrine, Section 112(A) should be
applied following the verba legis rule adopted in Mirant.—In the
case of Atlas Consolidated Mining and Dev’t. Corp. v. CIR (Atlas),
524 SCRA 73, which was promulgated on June 8, 2007, the two-
year prescriptive period stated in Section 112(A) was counted from
the date of payment of the output VAT. At that time, the output
VAT must be paid at the time of filing of the quarterly tax returns,
which meant within 20 days following the end of each
quarter. However, on September 12, 2008, the Atlas doctrine was
abandoned in the case of CIR v. Mirant Pagbilao Corp., 565 SCRA
154, which adopted the verba legis rule and counted the two-year
prescriptive period from the “close of the taxable quarter when
the sales were made” as expressly stated in the law, regardless
when the input VAT was paid. In the recent case of CIR v. San
Roque Power Corporation (San Roque), 690 SCRA 336, promulgated
on February 12, 2013, the Court clarified that (a) the Atlas doctrine
was effective only from its promulgation on June 8, 2007 until its
abandonment on September 12, 2008 in Mirant, and (b) prior to
the Atlas doctrine, Section 112(A) should be applied following
the verba legis rule adopted in Mirant.
Same; Tax Refund; Tax Credit; The taxpayer can file its
administrative claim for refund or credit at any time within the two
(2)-year prescriptive period. If it files its claim on the last day of said
period, it is still filed on time. The Commissioner of Internal
Revenue (CIR) will have one hundred twenty (120) days from such
filing to decide the claim. If the CIR decides the claim on the
120th day, or does not decide it on that day, the taxpayer still has
thirty (30) days to file its judicial claim with the Court of Tax
Appeals (CTA); otherwise, the judicial claim would be, properly
speaking, dismissed for being filed out of time and not, as the CTA
En Banc puts it, prescribed.—In fine, the taxpayer can file
its administrative claim for refund or credit at any time within
the two-year prescriptive period. If it files its claim on the last
day of said period, it is still filed on time. The CIR will have 120
days from such filing to decide the claim. If the CIR decides the
claim on the 120thday, or does not decide it on that day, the
taxpayer still has 30 days to file its judicial claim with the
CTA; otherwise, the judicial claim would be, properly speaking,
dismissed for being filed out of time and not, as the CTA En
Banc puts it, prescribed. It bears emphasis that Section 112(D)
(now renumbered as Section 112[C]) of RA 8424, which is explicit on
the mandatory and jurisdictional nature of the 120+30-day
period, was already effective on January 1, 1998. Hence, it is of no
consequence that the Aichi and San Roque rulings were not yet in
existence when respondent’s administrative claim was filed in 1999,
so as to rid itself of the said section’s mandatory and jurisdictional
application.
Same; Same; Same; The inaction of the Commissioner of In-
ternal Revenue (CIR) on the claim during the one hundred twenty
(120)-day period is, by express provisions of law, “deemed a denial”
of such claim, and the failure of the taxpayer to file its judicial claim
within thirty (30) days from the expiration of the 120-day period
shall render the “deemed a denial” decision of the CIR final and
inappealable.—The inaction of the CIR on the claim during the 120-
day period is, by express provision of law, “deemed a denial” of such
claim, and the failure of the taxpayer to file its judicial claim within
30 days from the expiration of the 120-day period shall render the
“deemed a denial” decision of the CIR final and
inappealable. The right to appeal to the CTA from a decision or
“deemed a denial” decision of the Commissioner is merely a
statutory privilege, not a constitutional right. The exercise
of such statutory privilege requires strict compliance with
the conditions attached by the statute for its exercise. Thus,
respondent’s failure to comply with the statutory conditions is fatal
to its claim. This is so, notwithstanding the fact that the CIR, for
his part, failed to raise the issue of noncompliance with the
mandatory periods at the earliest opportunity.
Same; Same; Same; In the case of Nippon Express (Philippines)
Corporation v. CIR, 693 SCRA 456 (2013), the Supreme Court (SC)
ruled that, because the 120+30-day period is jurisdictional, the issue
179
of whether the taxpayer complied with the said time frame may be
broached at any stage, even on appeal.—In the case of Nippon
Express (Philippines) Corporation v. CIR, 693 SCRA 456 (2013), the
Court ruled that, because the 120+30-day period is
jurisdictional, the issue of whether the taxpayer complied
with the said time frame may be broached at any stage, even
on appeal. Well-settled is the rule that the question of
jurisdiction over the subject matter can be raised at any
time during the proceedings. Jurisdiction cannot be waived
because it is conferred by law and is not dependent on the consent
or objection or the acts or omissions of the parties or any one of
them. Therefore, respondent’s contention on this score is of no
moment.
Same; It has been pronounced time and again that taxes are the
lifeblood of the government and, consequently, tax laws must be
faithfully and strictly implemented as they are not intended to be
liberally construed.—Indeed, it has been pronounced time and again
that taxes are the lifeblood of the government and, consequently,
tax laws must be faithfully and strictly implemented as they are not
intended to be liberally construed. Hence, with this in mind and in
light of the foregoing considerations, the Court so holds that the
CTA En Banc committed reversible error when it granted
respondent’s claim for refund or tax credit despite its
noncompliance with the mandatory periods under Section 112(D)
(now renumbered as Section 112[C]) of RA 8424. Accordingly, the
claim for refund/tax credit must be denied.
PETITION for review on certiorari of the decision and
resolution of the Court of Tax Appeals En Banc.
The facts are stated in the opinion of the Court.
The Solicitor General for petitioner.
Zambrano & Gruba Law Offices for respondent.
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the
Decision2 dated August 13, 2009 and the Resolution3 dated
October 22, 2009 of the Court of Tax Appeals (CTA) En
Banc in C.T.A. EB No. 487 which affirmed the Decision4 dated
September 17, 2008 and the Resolution5 dated April 13, 2009
of the CTA First Division in C.T.A. Case No. 6220 granting
respondent Burmeister and Wain Scandinavian Contractor
Mindanao, Inc. (respondent) a refund of its unutilized input
taxes attributable to zero-rated sales of services for the fourth
quarter of taxable year 1998.
The Facts
Respondent is a corporation duly organized and existing
under the laws of the Philippines, and primarily engaged in
the business of constructing, erecting, assembling,
commissioning, operating, maintaining, rehabilitating, and
managing industrial and power-generating plants and related
facilities for the conversion into electricity of coal distillate,
and other fuels, provided by and under contract with the
Philippine Government, or any government-owned and -
controlled corporations, or other entities engaged in the
development, supply, or distribution of electricity.6 It is
registered as a value-added tax (VAT) taxpayer.7
Respondent subcontracted from a consortium8 of
nonresident foreign corporations the actual operation and
maintenance of two 100-megawatt power barges owned by the
National Power Corporation, which services are subject to
zero percent (0%) VAT, pursuant to Bureau of Internal
Revenue (BIR) Ruling No. 023-95 issued on February 14,
1995, that was reconfirmed on January 7, 1999 in its VAT
Review Committee Ruling No. 003-99.9
On January 21, 1999, respondent filed its Quarterly VAT
Return for the fourth quarter of taxable year 1998 indicating
zero-rated sales of P68,761,361.50 and input VAT of
P1,834,388.55 paid on its domestic purchases of goods and
services for the same period.10
On July 21, 1999, respondent filed an Application for Tax
Credit/Refund of VAT Paid for the period July to December
1998 in the amount of P4,154,969.51, which was not acted
upon by herein petitioner, the Commissioner of Internal
Revenue (CIR).11
180
 On January 9, 2001, respondent filed a petition for review
before the CTA, praying for the refund or the issuance of a tax
credit certificate in the amount of P1,834,388.55 representing
its alleged unutilized input VAT payment for the fourth
quarter of 1998. The petition was denied on January 29, 2003
due to insufficiency of evidence. However, on appeal before the
Court of Appeals (CA), docketed as C.A.-G.R. S.P. No. 79272,
the case was remanded to the CTA on April 19, 2005 for the
reception of respondent’s evidence consisting of VAT invoices
and receipts which had not been submitted earlier, but were
already attached to its motion for reconsideration of the denial
of the CTA petition.12
The CTA First Division’s Ruling
On September 17, 2008, after due trial, the CTA First
Division rendered a Decision13 in C.T.A. Case No. 6220
ordering the CIR to refund or issue a tax credit certificate in
favor of respondent in the reduced amount of P1,556,913.68
representing the latter’s valid claim. It was determined that
the administrative claim filed on July 21, 1999 and the
petition for review filed on January 9, 2001 fell within the
two-year prescriptive period reckoned from January 21, 1999,
the date when respondent filed its Quarterly VAT Return for
the fourth quarter of taxable year 1998.14
The CIR moved for the reconsideration of the aforesaid
CTA First Division Decision, but was denied in a
Resolution15dated April 13, 2009.
Undaunted, the CIR elevated the case to the CTA En
Banc on petition for review, docketed as C.T.A. EB No. 487,
lamenting the alleged failure on the part of respondent to
comply with the periods mandated under Section 112 of
Republic Act No. (RA) 8424,16 otherwise known as the Tax
Reform Act of 1997. From the time the administrative claim
for refund was filed on July 21, 1999, the CIR had 120 days, or
until November 18, 1999, to act on the application, failing in
which, respondent may elevate the case before the CTA
within 30 days from November 18, 1999, or until
December 18, 1999. However, respondent filed its
judicial claim only on January 9, 2001.
The CTA En Banc’s Ruling
In a Decision17 dated August 13, 2009, the CTA En
Banc dismissed the petition holding that the CIR could not
raise for the first time on appeal the issue of prescription in
the filing of respondent’s judicial claim for refund, viz.:
It is worthy to note that the present case was remanded from the
CA to the CTA ordering the latter to admit and consider the VAT
receipts and invoices attached to respondent’s Motion for
Reconsideration to determine respondent’s claim for refund. During
the proceedings before the CA until this case was remanded to the
CTA, [CIR] never questioned the period within which the
respondent’s judicial claim for refund was filed. When the CTA
First Division partially granted respondent’s judicial claim for
refund, [the CIR] immediately filed his Motion for Reconsideration
to which he neither mentioned nor raised the issue of prescription.
More than eight years have lapsed before the [CIR] brought the
issue of prescription and was questioned only now at the CTA En
Banc level after an unfavorable judgment was issued against him.18
The CIR filed a motion for reconsideration but was likewise
denied in a Resolution19 dated October 22, 2009 for lack of
merit, hence, the present petition.
The Issue Before the Court
The lone issue for the Court’s resolution is whether or not
the CTA En Banccorrectly dismissed the petition for review on
the ground that the issue of prescription was belatedly raised.
The Court’s Ruling
The petition is meritorious.
181
 Section 112 of RA 8424,20 which was in force at the time of
the filing of respondent’s claim for credit or refund of its
creditable input tax, pertinently reads as follows:
SEC. 112. Refunds or Tax Credits of Input Tax.—
(A) Zero-rated or Effectively Zero-Rated Sales.—Any VAT-
registered person, whose sales are zero-rated or effectively zero-
rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a
tax credit certificate or refund of creditable input tax due or paid
attributable to such sales x x x.
xxxx
(D) Period within which Refund or Tax Credit of Input Taxes shall
be Made.—In proper cases, the Commissioner shall grant a refund
or issue the tax credit certificate for creditable input taxes within
one hundred twenty (120) 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.21 (Emphases supplied)
It should be recalled that the CTA First Division declared
in its September 17, 2008 Decision that the administrative
claim filed on July 21, 1999 and the petition for review filed
on January 9, 2001 fell within the two-year prescriptive
period reckoned from January 21, 1999, the date when
respondent filed its Quarterly VAT Return for the fourth
quarter of taxable year 1998.22
The CIR argues, on the other hand, that the two-year
period for filing both the administrative and judicial claims
should be reckoned from the close of the fourth taxable
quarter when the relevant sales were made, which fell on
December 31, 1998. As such, respondent only had until
December 31, 2000 to file both its administrative and judicial
claims.23 While it filed its administrative claim on July 21,
1999 within the two-year prescriptive period, the same is not
true with the petition for review that was filed with the CTA
only on January 9, 2001.24 To support its contention, the CIR
cited the case of CIR v. Mirant Pagbilao Corp.25 (Mirant).
To resolve the matter, the Court deems it fit to briefly
discuss the doctrinal metamorphosis of the two-year
prescriptive period provided under Section 112(A) as above
cited.
In the case of Atlas Consolidated Mining and Dev’t. Corp. v.
CIR26 (Atlas), which was promulgated on June 8, 2007, the
two-year prescriptive period stated in Section 112(A)27 was
counted from the date of payment of the output VAT.28 At
that time, the output VAT must be paid at the time of filing of
the quarterly tax returns, which meant within 20 days
following the end of each quarter.29 However,
on September 12, 2008, the Atlas doctrine was abandoned in
the case of Mirant which adopted the verba legis rule and
counted the two-year prescriptive period from the “close of
the taxable quarter when the sales were made” as
expressly stated in the law,30 regardless when the input VAT
was paid.31 In the recent case of CIR v. San Roque Power
Corporation32 (San Roque), promulgated on February 12,
2013, the Court clarified that (a) the Atlas doctrine was
effective only from its promulgation on June 8, 2007 until its
abandonment on September 12, 2008 in Mirant, and (b) prior
to the Atlas doctrine, Section 112(A) should be applied
following the verba legis rule adopted in Mirant.33
Thus, applying Section 112(A) strictly as worded, it may
then be concluded that the administrative claim filed by
respondent on July 21, 1999 was filed within the two-year
prescriptive period reckoned from the close of the fourth
taxable quarter falling on December 31, 1998, the last day of
filing being December 31, 2000.
In fact, whether the two-year prescriptive period is counted
from the date of payment (January 21, 1999) of the output
182
VAT following Atlas, or from the close of the taxable quarter
when the sales were made (December 31, 1998) pursuant
to Mirant, the conclusion that the administrative claim was
timely filed would equally stand.
The CIR insists, however, that both the administrative and
judicial claims should fall within the two-year prescriptive
period. This argument is untenable.
It should be pointed out that on October 6, 2010, the Court
held in the case of CIR v. Aichi Forging Company of Asia,
Inc.34(Aichi) that 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.35 The Court gave three (3)
compelling reasons for this ruling in San Roque, namely:
First, Section 112(A) clearly, plainly, and unequivocally provides
that the taxpayer “may, within two (2) years after the close of the
taxable quarter when the sales were made, apply for the
issuance of a tax credit certificate or refund of the creditable
input tax due or paid to such sales.” In short, the law states that the
taxpayer may apply with the Commissioner for a refund or
credit “within two (2) years,” which means at anytime within
two years. Thus, the application for refund or credit may be filed
by the taxpayer with the Commissioner on the last day of the two-
year prescriptive period and it will still strictly comply with the law.
The two-year prescriptive period is a grace period in favor of the
taxpayer and he can avail of the full period before his right to apply
for a tax refund or credit is barred by prescription.
Second, Section 112(C) provides that the Commissioner shall
decide the application for refund or credit “within one hundred
twenty (120) days from the date of submission of complete
documents in support of the application filed in accordance with
Subsection (A).” The reference in Section 112(C) of the submission
of documents “in support of the application filed in accordance with
Subsection A” means that the application in Section 112(A) is the
administrative claim that the Commissioner must decide within the
120-day period. In short, the two-year prescriptive period in Section
112(A) refers to the period within which the taxpayer can file an
administrative claim for tax refund or credit. Stated otherwise,
the two-year prescriptive period does not refer to the filing
of the judicial claim with the CTA but to the filing of the
administrative claim with the Commissioner. x x x.
Third, if the 30-day period, or any part of it, is required to fall
within the two-year prescriptive period (equivalent to 730 days),
then the taxpayer must file his administrative claim for refund or
credit within the first 610 days of the two-year prescriptive
period. Otherwise, the filing of the administrative claim
beyond the first 610 days will result in the appeal to the CTA
being filed beyond the two-year prescriptive period. Thus, if
the taxpayer files his administrative claim on the 611th day, the
Commissioner, with his 120-day period, will have until the 731st day
to decide the claim. If the Commissioner decides only on the
731st day, or does not decide at all, the taxpayer can no longer file
his judicial claim with the CTA because the two-year prescriptive
period (equivalent to 730 days) has lapsed. The 30-day period
granted by law to the taxpayer to file an appeal before the CTA
becomes utterly useless, even if the taxpayer complied with the law
by filing his administrative claim within the two-year prescriptive
period.36 (Emphases in the original)
In fine, the taxpayer can file itsadministrative claim for
refund or credit at any time within the two-year
prescriptive period. If it files its claim on the last day of
said period, it is still filed on time.37 The CIR will have 120
days from such filing to decide the claim. If the CIR decides
the claim on the 120th day, or does not decide it on that
day, the taxpayer still has 30 days to file its judicial
claim with the CTA;38 otherwise, the judicial claim would be,
properly speaking, dismissed for being filed out of time and
not, as the CTA En Banc puts it, prescribed.
It bears emphasis that Section 112(D)39(now renumbered as
Section 112[C]) of RA 8424, which is explicit on
the mandatory and jurisdictional nature of the 120+30-
day period, was already effective on January 1, 1998.40 Hence,
it is of no consequence that the Aichi and San Roquerulings
were not yet in existence when respondent’s administrative
claim was filed in 1999, so as to rid itself of the said section’s
mandatory and jurisdictional application.
183
 That being said, and notwithstanding the fact that
respondent’s administrative claim had been timely filed, the
Court is nonetheless constrained to deny the averred tax
refund or credit, as its judicial claim therefor was filed beyond
the 120+30-day period, and, hence — as earlier stated —
deemed to be filed out of time.
As the records would show, the CIR had 120 days from the
filing of the administrative claim on July 21, 1999, or until
November 18, 1999, to decide on respondent’s application.
Since the CIR did not act at all, respondent had until
December 18, 1999, the last day of the 30-day period, to
file its judicial claim. However, respondent filed its petition
for review with the CTA only on January 9, 2001 and,
thus, was one (1) year and 22 days late. As a consequence
of the late filing of said petition, the CTA did not properly
acquire jurisdiction over the claim.41
In this relation, it is significant to point out that the CTA,
being a court of special jurisdiction, can take cognizance only
of matters that are clearly within its jurisdiction. Section 7 of
RA 1125,42 as amended by RA 9282,43 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 x (Emphasis supplied)
The inaction of the CIR on the claim during the 120-day
period is, by express provision of law, “deemed a denial” of
such claim, and the failure of the taxpayer to file its judicial
claim within 30 days from the expiration of the 120-day period
shall render the “deemed a denial” decision of the CIR
final and inappealable. The right to appeal to the CTA from
a decision or “deemed a denial” decision of the
Commissioner is merely a statutory privilege, not a
constitutional right. The exercise of such statutory
privilege requires strict compliance with the
conditions attached by the statute for its
exercise.44 Thus, respondent’s failure to comply with the
statutory conditions is fatal to its claim. This is so,
notwithstanding the fact that the CIR, for his part, failed to
raise the issue of noncompliance with the mandatory periods
at the earliest opportunity.
In the case of Nippon Express (Philippines) Corporation v.
CIR,45 the Court ruled that, because the 120+30-day period
is jurisdictional, the issue of whether the taxpayer
complied with the said time frame may be broached at
any stage, even on appeal. Well-settled is the rule that
the question of jurisdiction over the subject matter can
be raised at any time during the proceedings.
Jurisdiction cannot be waived because it is conferred by law
and is not dependent on the consent or objection or the acts or
omissions of the parties or any one of them.46 Therefore,
respondent’s contention on this score is of no moment.
Indeed, it has been pronounced time and again that taxes
are the lifeblood of the government and, consequently, tax
laws must be faithfully and strictly implemented as they are
not intended to be liberally construed.47 Hence, with this in
mind and in light of the foregoing considerations, the Court so
holds that the CTA En Banccommitted reversible error when
it granted respondent’s claim for refund or tax credit despite
its noncompliance with the mandatory periods under Section
112(D) (now renumbered as Section 112[C]) of RA 8424.
Accordingly, the claim for refund/tax credit must be denied.
184
 WHEREFORE, the petition is GRANTED. The Decision
dated August 13, 2009 and the Resolution dated October 22,
2009 of the Court of Tax Appeals (CTA) En Banc in C.T.A. EB
No. 487 are hereby REVERSED and SET ASIDE.
Respondent Burmeister and Wain Scandinavian Contractor
Mindanao, Inc.’s judicial claim for refund or tax credit through
its petition for review before the CTA is DENIED.
SO ORDERED.
Sereno (CJ., Chairperson), Leonardo-De Castro,
Bersamin and Perez, JJ., concur.
Petition granted, judgment and resolution reversed and set
aside.
Notes.—Taxes are the lifeblood of the nation.
(Commissioner of Internal Revenue vs. San Roque Power
Corporation, 690 SCRA 336 [2013])
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 Court of Tax Appeals does not
acquire jurisdiction over the taxpayer’s petition. (Republic vs.
GST Philippines, Inc., 707 SCRA 695 [2013])
——o0o——

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185
 G.R. No. 191498. January 15, 2014.*
COMMISSIONER OF INTERNAL REVENUE,
petitioner, vs. MINDANAO II GEOTHERMAL
PARTNERSHIP, respondent.
Taxation; Prescription; It is only the administrative claim that
must be filed within the two-year prescriptive period; the judicial
claim need not fall within the two-year prescriptive period.—
In Commissioner of Internal Revenue v. Aichi Forging Company of
Asia, Inc. (Aichi), 632 SCRA 422 (2010) we dispelled the
misconception that both the administrative and judicial
claims must be filed within the two-year prescriptive period: 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
_______________
* FIRST DIVISION.
646are 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. (Emphasis supplied) The
message of Aichi is clear: it is only the administrative claim
that must be filed within the two-year prescriptive period;
the judicial claim need not fall within the two-year prescriptive
period.
Same; Same; It is only the administrative claim that must be
filed within the two-year prescriptive period; and the two-year
prescriptive period begins to run from the close of the taxable quarter
when the relevant sales were made.—The task at hand is to
determine the applicable period for this case. In this case,
Mindanao II filed its administrative claims for refund or credit for
the second, third and fourth quarters of 2004 on 6 October 2005.
The case thus falls within the first period as indicated in the above
timeline. In other words, it is covered by the rule prior to the advent
of either Atlas or Mirant. Accordingly, the proper reckoning date in
this case, as provided by Section 112(A) of the 1997 Tax Code, is
the close of the taxable quarter when the relevant sales
were made. x x x We sum up our conclusions so far: (1) it is only
the administrative claim that must be filed within the two-year
prescriptive period; and (2) the two-year prescriptive period begins
to run from the close of the taxable quarter when the relevant sales
were made. Bearing
647these in mind, we now proceed to determine whether
Mindanao II’s administrative claims for the second, third, and
fourth quarters of 2004 were timely filed.
Same; Appeals; The taxpayer can file the appeal in one of two
ways: (1) file the judicial claim within thirty days after the
Commissioner denies the claim within the 120-day period, or (2) file
the judicial claim within thirty days from the expiration of the 120-
day period if the Commissioner does not act within the 120-day
period.—The San Roque pronouncement is clear. The taxpayer can
file the appeal in one of two ways: (1) file the judicial claim within
thirty days after the Commissioner denies the claim within the 120-
day period, or (2) file the judicial claim within thirty days from the
expiration of the 120-day period if the Commissioner does not act
within the 120-day period.
Same; Same; The 30-day period to appeal is both mandatory
and jurisdictional.—What is up for debate is the nature of the 30-
day time requirement. The CIR posits that it is mandatory.
Mindanao II contends that the requirement of judicial recourse
within 30 days is only directory and permissive, as indicated by the
use of the word “may” in Section 112(D). The answer is found
186
in San Roque. There, we declared that the 30-day period to appeal Date filed Quarter Taxable
is both mandatory and jurisdictional. Original Amended Year
PETITION for review on certiorari of the decision and 26 July 2004 12 July 2nd 2004
resolution of the Court of Tax Appeals En Banc. 2005
The facts are stated in the opinion of the Court. 22 October 12 July 3rd 2004
The Solicitor General for petitioner. 2004 2005
Villanueva, Caña & Associates Law Offices for 25 January 12 July 4th 2004
respondent. 2005 2005
SERENO, CJ.: On 6 October 2005, Mindanao II filed with the Bureau of
This Rule 45 Petition1 requires this Court to address the Internal Revenue (BIR) an application for the refund or credit
question of timeliness with respect to petitioner’s of accumulated unutilized creditable input taxes.9 In support
administrative and judicial claims for refund and credit of of the administrative claim for refund or credit, Mindanao II
accumulated alleged, among others, that it is registered with the BIR as a
_______________
1 Rollo, pp. 8-42.
value-added taxpayer10and all its sales are zero-rated under
648unutilized input Value Added Tax (VAT) under Section the EPIRA law.11 It further stated that for the second, third,
112(A) and Section 112(D) of the 1997 Tax Code. and fourth quarters of taxable year 2004, it paid input VAT in
Petitioner Mindanao II Geothermal Partnership (Mindanao the aggregate amount of P7,167,005.84, which were directly
II) assails the Decision2 and Resolution3 of the Court of Tax attributable to the zero-rated sales. The input taxes had not
Appeals En Banc (CTA En Banc) in CTA En Banc Case No. been applied against output tax.
448, affirming the Decision in CTA Case No. 7507 of the CTA Pursuant to Section 112(D) of the 1997 Tax Code, the
Second Division.4 The latter ordered the refund or issuance of Commissioner of Internal Revenue (CIR) had a period of 120
a tax credit certificate in the amount of P6,791,845.24 days, or until 3 February 2006, to act on the claim. The
representing unutilized input VAT incurred for the second, administrative claim, however, remained unresolved on 3
third, and fourth quarters of taxable year 2004 in favor of February 2006.
herein respondent, Mindanao II. Under the same provision, Mindanao II could treat the
Facts inaction of the CIR as a denial of its claim, in which case, the
Mindanao II is a partnership registered with the Securities former would have 30 days to file an appeal to the CTA, that
and Exchange Commission.5 It is engaged in the business of is, on 5 March 2006. Mindanao II, however, did not file an
power generation and sale of electricity to the National Power appeal within the 30-day period.
Corporation (NAPOCOR)6 and is accredited by the Apparently, Mindanao II believed that a judicial claim
Department of Energy.7 must be filed within the two-year prescriptive period provided
Mindanao II filed its Quarterly VAT Returns for the under Section 112(A) and that such time frame was to be
second, third and fourth quarters of taxable year 2004 on the reckoned from the filing of its Quarterly VAT Returns for the
following dates:8 second, third, and fourth quarters of taxable year 2004, that
is, from 26 July 2004, 22 October 2004, and 25 January 2005,
respectively. Thus, on 21 July 2006, Mindanao II, claiming
inaction on the part of the CIR and that the two-year
187
prescriptive period was about to expire, filed a Petition for
Review with the CTA docketed as CTA Case No. 6133.12
On 8 June 2007, while the application for refund or credit
of unutilized input VAT of Mindanao II was pending beforethe
CTA Second Division, this Court promulgated Atlas
Consolidated Mining and Development Corporation v.
CIR13(Atlas). Atlas held that the two-year prescriptive period
for the filing of a claim for an input VAT refund or credit is to
be reckoned from the date of filing of the
corresponding quarterly VAT return and payment of the
tax.
On 12 August 2008, the CTA Second Division rendered a
Decision14 ordering the CIR to grant a refund or a tax credit
certificate, but only in the reduced amount of P6,791,845.24,
representing unutilized input VAT incurred for the second,
third and fourth quarters of taxable year 2004.15
In support of its ruling, the CTA Second Division held that
Mindanao II complied with the twin requisites for VAT zero-
rating under the EPIRA law: first, it is a generation company,
and second, it derived sales from power generation. It also
ruled that Mindanao II satisfied the requirements for the
grant of a refund/credit under Section 112 of the Tax Code: (1)
there must be zero-rated or effectively zero-rated sales; (2)
input taxes must have been incurred or paid; (3) the
creditable input tax due or paid must be attributable to zero-
rated sales or effectively zero-rated sales; (4) the input VAT
payments must not have been applied against any output
liability; and (5) the claim must be filed within the two-year
prescriptive period.16
As to the second requisite, however, the input tax claim to
the extent of P375,160.60 corresponding to purchases of
services from Mitsubishi Corporation was disallowed, since it
was not substantiated by official receipts.17
As regards to the fifth requirement in section 112 of the
Tax Code, the tax court, citing Atlas, counted from 26 July
2004, 22 October 2004, and 25 January 2005 — the dates
when Mindanao II filed its Quarterly VAT Returns for the
second, third, and fourth quarters of taxable year 2004,
respectively — and determined that both the administrative
claim filed on 6 October 2005 and the judicial claim filed on 21
July 2006 fell within the two-year prescriptive period.18
On 1 September 2008, the CIR filed a Motion for Partial
Reconsideration,19pointing out that prescription had already
set in, since the appeal to the CTA was filed only on 21 July
2006, which was way beyond the last day to appeal — 5
March 2006.20 As legal basis for this argument, the CIR relied
on Section 112(D) of the 1997 Tax Code.21
Meanwhile, on 12 September 2008, this Court
promulgated CIR v. Mirant Pagbilao Corporation
(Mirant).22 Mirant fixed the reckoning date of the two-year
prescriptive period for the application for refund or credit of
unutilized input VAT at the close of the taxable quarter
when the relevant sales were made, as stated in Section
112(A).23
On 3 December 2008, the CTA Second Division denied the
CIR’s Motion for Partial Reconsideration.24 The tax court stood
by its reliance on Atlas25 and on its finding that both the
administrative and judicial claims of Mindanao II were timely
filed.26
On 7 January 2009, the CIR elevated the matter to the
CTA En Banc via a Petition for Review.27 Apart from the
contention that the judicial claim of Mindanao II was filed
beyond the 30-day period fixed by Section 112(D) of the 1997
Tax Code,28 the CIR argued that Mindanao II erroneously
fixed 26 July 2004, the date when the return for the second
quarter was filed, as the date from which to reckon the two-
year prescriptive period for filing an application for refund or
credit of unutilized input VAT under Section 112(A). As the
two-year prescriptive period ended on 30 June 2006, the
Petition for Review of Mindanao II was filed out of time on 21
July 2006.29 The CIR invoked the recently
promulgated Mirantto support this theory.
On 11 November 2009, the CTA En Banc rendered its
Decision denying the CIR’s Petition for Review.30 On the
188
question whether the application for refund was timely filed,
it held that the CTA Second Division correctly applied
the Atlas ruling.31 It reasoned that Atlas remained to be the
controlling doctrine. Mirant was a new doctrine and, as such,
the latter should not apply retroactively to Mindanao II who
had relied on the old doctrine of Atlas and had acted on the
faith thereof.32
As to the issue of compliance with the 30-day period for
appeal to the CTA, the CTA En Banc held that this was a
requirement only when the CIR actuallydenies the
taxpayer’s claim. But in cases of CIR inaction, the 30-day
period is not a mandatory requirement; the judicial claim is
seasonably filed as long as it is filed after the lapse of the 120-
day waiting period but within two years from the date of filing
of the return.33
The CIR filed a Motion for Partial Reconsideration34 of the
Decision, but it was denied for lack of merit.35
Dissatisfied, the CIR filed this Rule 45 Petition, raising the
following arguments in support of its appeal:
I.
THE CTA 2ND DIVISION LACKED JURISDICTION TO
TAKE COGNIZANCE OF THE CASE.
II.
THE COURT A QUO’S RELIANCE ON THE RULING IN
ATLAS IS MISPLACED.36
Issues
The resolution of this case hinges on the question of
compliance with the following time requirements for the grant
of a claim for refund or credit of unutilized input VAT: (1) the
two-year prescriptive period for filing an application for
refund or credit of unutilized input VAT; and (2) the 120+30
day period for filing an appeal with the CTA.
The Court’s Ruling
We deny Mindanao II’s claim for refund or credit of
unutilized input VAT on the ground that its judicial claims
were filed out of time, even as we hold that its application for
refund was filed on time.
I.
MINDANAO II’S APPLICATION FOR
REFUND WAS FILED ON TIME
We find no error in the conclusion of the tax courts that the
application for refund or credit of unutilized input VAT was
timely filed. The problem lies with their bases for the
conclusion as to: (1) what should be filed within the
prescriptive period; and (2) the date from which to reckon the
prescriptive period.
We thus take a different route to reach the same
conclusion, initially focusing our discussion on what should be
filed within the two-year prescriptive period.
A. The Judicial Claim Need
Not Be Filed Within the Two-
Year Prescriptive Period
Section 112(A) provides:
SEC. 112. Refunds or Tax Credits of Input Tax. —
(A) Zero-rated or Effectively Zero-rated Sales — Any
VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the
close of the taxable quarter when the sales were made,
apply for the issuance of a tax credit certificate or
refund of creditable input tax due or paid attributable
to such sales, except transitional input tax, to the extent
that such input tax has not been applied against output
tax: 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.
656Both the CTA Second Division and CTA En
Banc decisions held that the phrase “apply for the issuance of
189
a tax credit certificate or refund” in Section 112(A) is
construed to refer to both the administrative claim filed with
the CIR and the judicial claim filed with the CTA. This view,
however, has no legal basis.
In Commissioner of Internal Revenue v. Aichi Forging
Company of Asia, Inc. (Aichi), we dispelled the misconception
that both the administrative and judicial claims must be
filed within the two-year prescriptive period:37
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. (Emphasis supplied)
The message of Aichi is clear: it is only the
administrative claim that must be filed within the two-
year prescriptive period; the judicial claim need not fall
within the two-year prescriptive period.
Having disposed of this question, we proceed to the date for
reckoning the prescriptive period under Section 112(A).
B. Reckoning Date is the Close
of the Taxable Quarter When the
Relevant Sales Were Made.
The other flaw in the reasoning of the tax courts is their
reliance on the Atlasruling, which fixed the reckoning point to
the date of filing the return and payment of the tax.
The CIR’s Stand
The CIR’s stand is that Atlas is not applicable to the case
at hand as it involves Section 230 of the 1977 Tax Code, which
contemplates recovery of tax payments erroneously or
illegally collected. On the other hand, this case deals with
claims for tax refund or credit of unutilized input VAT for the
second, third, and fourth quarters of 2004, which are covered
by Section 112 of the 1977 Tax Code.38
The CIR further contends that Mindanao II cannot claim
good faith reliance on the Atlas doctrine since the case was
decided only on 8 June 2007, two years after Mindanao II filed
its claim for refund or credit with the CIR and one year after
it filed a Petition for Review with the CTA on 21 July 2006.39
In lieu of Atlas, the CIR proposes that it is the Court’s
ruling in Mirant that should apply to this case despite the fact
that the latter was promulgated on 12 September
2008, after Mindanao II had filed its administrative claim in
2005.40 It argues that Mirant can be applied retroactively to
this case, since the decision merely interprets Section 112, a
provision that was already effective when Mindanao II filed
its claims for tax refund or credit.
The Taxpayer’s Defense
On the other hand, Mindanao II counters that Atlas,
decided by the Third Division of this Court, could not have
been superseded by Mirant, a Second Division Decision of this
Court. A doctrine laid down by the Supreme Court in a
Division may be modified or reversed only through a decision
of the Court sitting en banc.41
190
 Mindanao II further contends that when it filed its Petition
for Review, the prevailing rule in the CTA reckons the two-
year prescriptive period from the date of the filing of the VAT
return.42
Finally, after building its case on Atlas, Mindanao II
assails the CIR’s reliance on the Mirant doctrine stating that
it cannot be applied retroactively to this case, lest it violate
the rock-solid rule that a judicial ruling cannot be given
retroactive effect if it will impair vested rights.43
Section 112(A) is the Applicable Rule
The issue posed is not novel. In the recent case
of Commissioner of Internal Revenue v. San Roque Power
Corporation44(San Roque), this Court resolved the threshold
question of when to reckon the two-year prescriptive period
for filing an administrative claim for refund or credit of
unutilized input VAT under the 1997 Tax Code in view of our
pronouncements in Atlas and Mirant. In that case, we
delineated the scope and effectivity of
the Atlas and Mirant doctrines as follows:
The Atlas doctrine, which held that claims for refund or
credit of input VAT must comply with the two-year
prescriptive period under Section 229, should be effective
only from its promulgation on 8 June 2007 until its
abandonment on 12 September 2008 in Mirant.
The Atlas doctrine was limited to the reckoning of the two-
year prescriptive period from the date of payment of the
output VAT. Prior to the Atlas doctrine, the two-year
prescriptive period for claiming refund or credit of
input VAT should be governed by Section 112(A)
following the verba legis rule. The Mirant ruling, which
abandoned the Atlasdoctrine, adopted the verba legis rule,
thus applying Section 112(A) in computing the two-year
prescriptive period in claiming refund or credit of input VAT.
(Emphases supplied)
Furthermore, San Roque distinguished between Section
112 and Section 229 of the 1997 Tax Code:
The input VAT is not “excessively” collected as understood
under Section 229 because at the time the input VAT is
collected the amount paid is correct and proper. The input
VAT is a tax liability of, and legally paid by, a VAT-registered
seller of goods, properties or services used as input by another
VAT-registered person in the sale of his own goods,
properties, or services. This tax liability is true even if the
seller passes on the input VAT to the buyer as part of the
purchase price. The second VAT-registered person, who is not
legally liable for the input VAT, is the one who applies the
input VAT as credit for his own output VAT. If the input VAT
is in fact “excessively” collected as understood under Section
229, then it is the first VAT-registered person — the taxpayer
who is legally liable and who is deemed to have legally paid
for the input VAT — who can ask for a tax refund or credit
under Section 229 as an ordinary refund or credit outside of
the VAT System. In such event, the second VAT-registered
taxpayer will have no input VAT to offset against his own
output VAT.
In a claim for refund or credit of “excess” input VAT under
Section 110(B) and Section 112(A), the input VAT is not
“excessively” collected as understood under Section 229. At
the time of payment of the input VAT the amount paid is the
correct and proper amount. Under the VAT System, there is
no claim or issue that the input VAT is “excessively” collected,
that is, that the input VAT paid is more than what is legally
due. The person legally liable for the input VAT cannot claim
that he overpaid the input VAT by the mere existence of an
“excess” input VAT. The term “excess” input VAT simply
means that the input VAT available as credit exceeds the
output VAT, not that the input VAT is excessively collected
because it is more than what is legally due. Thus, the
taxpayer who legally paid the input VAT cannot claim for
refund or credit of the input VAT as “excessively” collected
under Section 229.
Under Section 229, the prescriptive period for filing a
judicial claim for refund is two years from the date of
payment of the tax “erroneously, . . . illegally, . . . excessively
or in any manner wrongfully collected.” The prescriptive
period is reckoned from the date the person liable for the tax
pays the tax. Thus, if the input VAT is in fact “excessively”
collected, that is, the person liable for the tax actually pays
191
more than what is legally due, the taxpayer must file a
judicial claim for refund within two years from his date of
payment. Only the person legally liable to pay the tax can file
the judicial claim for refund. The person to whom the tax is
passed on as part of the purchase price has no personality to
file the judicial claim under Section 229.661
Under Section 110(B) and Section 112(A), the prescriptive
period for filing a judicial claim for “excess” input VAT is two
years from the close of the taxable quarter when the sale was
made by the person legally liable to pay the output VAT. This
prescriptive period has no relation to the date of payment of
the “excess” input VAT. The “excess” input VAT may have
been paid for more than two years but this does not bar the
filing of a judicial claim for “excess” VAT under Section
112(A), which has a different reckoning period from Section
229. Moreover, the person claiming the refund or credit of the
input VAT is not the person who legally paid the input VAT.
Such person seeking the VAT refund or credit does not claim
that the input VAT was “excessively” collected from him, or
that he paid an input VAT that is more than what is legally
due. He is not the taxpayer who legally paid the input VAT.
As its name implies, the Value-Added Tax system is a tax
on the value added by the taxpayer in the chain of
transactions. For simplicity and efficiency in tax collection,
the VAT is imposed not just on the value added by the
taxpayer, but on the entire selling price of his goods,
properties or services. However, the taxpayer is allowed a
refund or credit on the VAT previously paid by those who sold
him the inputs for his goods, properties, or services. The net
effect is that the taxpayer pays the VAT only on
662the value that he adds to the goods, properties, or services
that he actually sells.
Under Section 110(B), a taxpayer can apply his input VAT
only against his output VAT. The only exception is when the
taxpayer is expressly “zero-rated or effectively zero-rated”
under the law, like companies generating power through
renewable sources of energy. Thus, a non zero-rated VAT-
registered taxpayer who has no output VAT because he has no
sales cannot claim a tax refund or credit of his unused input
VAT under the VAT System. Even if the taxpayer has sales
but his input VAT exceeds his output VAT, he cannot seek a
tax refund or credit of his “excess” input VAT under the VAT
System. He can only carry-over and apply his “excess” input
VAT against his future output VAT. If such “excess” input
VAT is an “excessively” collected tax, the taxpayer should be
able to seek a refund or credit for such “excess” input VAT
whether or not he has output VAT. The VAT System does not
allow such refund or credit. Such “excess” input VAT is not an
“excessively” collected tax under Section 229. The “excess”
input VAT is a correctly and properly collected tax. However,
such “excess” input VAT can be applied against the output
VAT because the VAT is a tax imposed only on the value
added by the taxpayer. If the input VAT is in fact
“excessively” collected under Section 229, then it is the person
legally liable to pay the input VAT, not the person to whom
the tax was passed on as part of the purchase price and
claiming credit for the input VAT under the VAT System, who
can file the judicial claim under Section 229.
Any suggestion that the “excess” input VAT under the VAT
System is an “excessively” collected tax under Section 229
may lead taxpayers to file a claim for refund or credit for such
“excess” input VAT under Section 229 as an ordinary tax
refund or credit outside of the VAT System. Under Section
229, mere payment of a tax beyond what is legally due can be
claimed as a refund or credit. There is no requirement under
Section 229 for an output VAT or subsequent sale of goods,
properties, or services using materials subject to input
VAT.663
From the plain text of Section 229, it is clear that what can
be refunded or credited is a tax that is “erroneously . . .
illegally, . . . excessively or in any manner wrongfully
collected.” In short, there must be a wrongful payment
because what is paid, or part of it, is not legally due. As the
Court held in Mirant, Section 229 should “apply only to
instances of erroneous payment or illegal collection of internal
revenue taxes.” Erroneous or wrongful payment includes
excessive payment because they all refer to payment of taxes
not legally due. Under the VAT System, there is no claim or
issue that the “excess” input VAT is “excessively or in any
manner wrongfully collected.” In fact, if the “excess” input
192
 VAT is an “excessively” collected tax under Section 229, then
the taxpayer claiming to apply such “excessively” collected
input VAT to offset his output VAT may have no legal basis to
make such offsetting. The person legally liable to pay the
input VAT can claim a refund or credit for such “excessively”
collected tax, and thus there will no longer be any “excess”
input VAT. This will upend the present VAT System as we
know it.45
Two things are clear from the above quoted San
Roque disquisitions. First, when it comes to recovery of
unutilized input VAT, Section 112, and not Section 229 of the
1997 Tax Code, is the governing law. Second, prior to 8 June
2007, the applicable rule is neither Atlas nor Mirant, but
Section 112(A).
We present the rules laid down by San Roque in
determining the proper reckoning date of the two-year
prescriptive period through the following timeline:
8 June 2007 12 September
2008
Atlas: Date of Mirant: Close of
§112
(A):Close of filing of return taxable quarter
taxable quarter and payment of when the relevant
when the the tax sales were made
relevant sales
were made
Thus, the task at hand is to determine the applicable
period for this case.
In this case, Mindanao II filed its administrative claims for
refund or credit for the second, third and fourth quarters of
2004 on 6 October 2005. The case thus falls within the first
period as indicated in the above timeline. In other words, it is
covered by the rule prior to the advent of either Atlas
or Mirant.
Accordingly, the proper reckoning date in this case, as
provided by Section 112(A) of the 1997 Tax Code, is the
close of the taxable quarter when the relevant sales
were made.
C. The Administrative Claims
Were Timely Filed
We sum up our conclusions so far: (1) it is only the
administrative claim that must be filed within the two-year
prescriptive period; and (2) the two-year prescriptive period
begins to run from the close of the taxable quarter when the
relevant sales were made.
Bearing these in mind, we now proceed to determine
whether Mindanao II’s administrative claims for the second,
third, and fourth quarters of 2004 were timely filed.
Second Quarter
Since the zero-rated sales were made in the second quarter
of 2004, the date of reckoning the two-year prescriptive period
is the close of the second quarter, which is on 30 June 2004.
Applying Section 112(A), Mindanao II had two years from 30
June 2004, or until 30 June 2006 to file an administrative
claim with the CIR. Mindanao II filed its administrative claim
on 6 October 2005, which is within the two-year prescriptive
period. The administrative claim for the second quarter of
2004 was thus timely filed. For clarity, we present the rules
663laid down by San Roque in determining the proper
reckoning date of the two-year prescriptive period through the
following timeline:
TWO-YEAR PRESCRIPTIVE PERIOD
30 June 2004 6 October 2005 30 June 2006
Close of taxable quarter Date of filing of End of 2-year period
administrative claim
Third Quarter
As regards the claim for the third quarter of 2004, the two-
year prescriptive period started to run on 30 September 2004,
the close of the taxable quarter. It ended on 30 September
2006, pursuant to Section 112(A) of the 1997 Tax Code.
Mindanao II filed its administrative claim on 6 October 2005.
Thus, since the administrative claim was filed well within the
two-year prescriptive period, the administrative claim for the
third quarter of 2004 was timely filed. (See timeline below)
TWO-YEAR PRESCRIPTIVE PERIOD
193
 30 September 2004 6 October 2005 30 September 2006 prescribed above, the taxpayer affected may, within thirty
(30) days from the receipt of the decision denying the
Close of taxable quarter Date of filing of End of 2-year period claim or after the expiration of the one hundred
administrative claim twenty day-
Fourth Quarter 667period, appeal the decision or the unacted claim with the
Here, the two-year prescriptive period is counted starting Court of Tax Appeals. (Emphases supplied)
from the close of the fourth quarter which is on 31 December Section 112(D) speaks of two periods: the period of 120
2004. The last day of the prescriptive period for filing an days, which serves as a waiting period to give time for the CIR
application for tax refund/credit with the CIR was on 31 to act on the administrative claim for refund or credit, and the
December 2006. Mindanao II filed its administrative claim period of 30 days, which refers to the period for interposing an
with the CIR on 6 October 2005. Hence, the claims were filed appeal with the CTA. It is with the 30-day period that there is
on an issue in this case.
666time, pursuant to Section 112(A) of the 1997 Tax Code. The CTA En Banc’s holding is that, since the word “or” — a
(See timeline below) disjunctive term that signifies dissociation and independence
TWO-YEAR PRESCRIPTIVE PERIOD of one thing from another — is used in Section 112(D), the
31 December 2004 6 October 2005 31 December 2006
taxpayer is given two options: 1) file an appeal within 30 days
Close of taxable quarter Date of filing of End of 2-year period from the CIR’s denial of the administrative claim; or 2) file an
administrative claim appeal with the CTA after expiration of the 120-day period, in
II. which case the 30-day appeal period does not apply. The
MINDANAO II’S judicial claim is seasonably filed so long as it is filed after the
JUDICIAL CLAIMS WERE FILED OUT OF TIME lapse of the 120-day waiting period but before the lapse of the
Notwithstanding the timely filing of the administrative two-year prescriptive period under Section 112(A).46
claims, we find that the CTA En Banc erred in holding that We do not agree.
Mindanao II’s judicial claims were timely filed. The 30-day period applies not only to instances of actual
A. 30-Day Period Also Applies to denial by the CIR of the claim for refund or tax credit, but to
Appeals from Inaction cases of inaction by the CIR as well. This is the correct
Section 112(D) of the 1997 Tax Code states the time interpretation of the law, as held in San Roque:47
requirements for filing a judicial claim for refund or tax credit Section 112(C)48 also expressly grants the taxpayer a 30-
of input VAT: day period to appeal to the CTA the decision or inaction of the
(D) Period within which Refund or Tax Credit of Input Taxes Commissioner, thus:
shall be Made.—In proper cases, the Commissioner shall x x x the taxpayer affected may, within thirty (30) days
grant a refund or issue the tax credit certificate for creditable from the receipt of the decision denying the claim or after the
input taxes within one hundred twenty (120) days from expiration of the one hundred twenty day-period, appeal the
the date of submission of complete documents in decision or the unacted claim with the Court of Tax Appeals.
support of the application filed in accordance with Subsection This law is clear, plain, and unequivocal. Following the
(A) and (B) hereof. In case of full or partial denial of the claim well-settled verba legis doctrine, this law should be applied
for tax refund or tax credit, or the failure on the part of the exactly as worded since it is clear, plain, and unequivocal. As
Commissioner to act on the application within the period this law states, the taxpayer may, if he wishes, appeal the
decision of the Commissioner to the CTA within 30
194
 days from receipt of the Commissioner’s decision, or if
the Commissioner does not act on the taxpayer’s claim
within the 120-day period, the taxpayer may appeal to
the CTA within 30 days from the expiration of the 120-
day period. (Emphasis supplied)
The San Roque pronouncement is clear. The taxpayer can
file the appeal in one of two ways: (1) file the judicial claim
within thirty days after the Commissioner denies the claim
within the 120-day period, or (2) file the judicial claim within
thirty days from the expiration of the 120-day period if the
Commissioner does not act within the 120-day period.
B. The Judicial Claim Was
Belatedly Filed
In this case, the facts are not up for debate. Mindanao II
filed its administrative claim for refund or credit for the
second, third, and fourth quarters of 2004 on 6 October 2005.
The CIR, therefore, had a period of 120 days, or until 3
February 2006, to act on the claim. The CIR, however, failed
to do so. Mindanao II then could treat the inaction as a denial
and appeal it to the CTA within 30 days from 3 February
2006, or until 5 March 2006.
Mindanao II, however, filed a Petition for Review only on
21 July 2006, 138 days after the lapse of the 30-day period on
6695 March 2006. The judicial claim was therefore filed late.
(See timeline below.)
6 October 2005 3 February 2006 5 March
2006 21 July 2006
Administrative claim 30 days to Mindanao II’s
120-DAY WAITING appeal from judicial claim
PERIOD CIR inaction for refund
C. The 30-Day Period to Appeal is
Mandatory and Jurisdictional
However, what is up for debate is the nature of the 30-day
time requirement. The CIR posits that it is mandatory.
Mindanao II contends that the requirement of judicial
recourse within 30 days is only directory and permissive, as
indicated by the use of the word “may” in Section 112(D).49
The answer is found in San Roque. There, we declared that
the 30-day period to appeal is both mandatory and
jurisdictional:
Section 112(C) also expressly grants the taxpayer a 30-day
period to appeal to the CTA the decision or inaction of the
Commissioner, thus:
x x x the taxpayer affected may, within thirty (30) days
from the receipt of the decision denying the claim or
after the expiration of the one hundred twenty day-
period, appeal the decision or the unacted claim with the
Court of Tax Appeals. (Emphasis supplied)
This law is clear, plain, and unequivocal. Following the
well-settled verba legis doctrine, this law should be applied
exactly as worded since it is clear, plain, and unequivocal. As
this law states, the taxpayer may, if he wishes, appeal the
decision of the Commissioner to the CTA within 30 days from
receipt of the Commissioner’s decision, or if the Commissioner
does not act on the taxpayer’s claim within the 120-day
period, the taxpayer may appeal to the CTA within 30 days
from the expiration of the 120-day period.
xxxx
Section 112(A) and (C) must be interpreted according to its
clear, plain, and unequivocal language. The taxpayer can file
his administrative claim for refund or credit
at anytime within the two-year prescriptive period. If he files
his claim on the last day of the two-year prescriptive period,
his claim is still filed on time. The Commissioner will have
120 days from such filing to decide the claim. If the
Commissioner decides the claim on the 120th day, or does not
decide it on that day, the taxpayer still has 30 days to file his
judicial claim with the CTA. This is not only the plain
meaning but also the only logical interpretation of Section
112(A) and (C).
xxxx
When Section 112(C) states that “the taxpayer
affected may, within thirty (30) days from receipt of the
decision denying the claim or after the expiration of the one
hundred twenty-day period, appeal the decision or the
195
 unacted claim with the Court of Tax Appeals,” the law does
not make the 120+30 day periods optional just because the
law uses the word “may.” The word “may” simply means
that the taxpayer may or may not appeal the decision
of the Commissioner within 30 days from receipt of the
decision, or within 30 days from the expiration of the
120-day period. x x x.50
D. Exception to the mandatory and
jurisdictional nature of the 120+30
day period not applicable
Nevertheless, San Roque provides an exception to the
mandatory and jurisdictional nature of the 120+30 day period
— BIR Ruling No. DA-489-03 dated 10 December 2003. The
BIR ruling declares 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.”
Although Mindanao II has not invoked the BIR ruling, we
deem it prudent as well as necessary to dwell on this issue to
determine whether this case falls under the exception.
For this question, we come back to San Roque, which
provides that BIR Ruling No. DA-489-03 is a general
interpretative rule; thus, taxpayers can rely on it from the
time of its issuance on 10 December 2003 until its reversal
by this Court in Aichi on 6 October 2010, when the 120+30
day periods were held to be mandatory and jurisdictional. The
Court reasoned as follows:
Taxpayers should not be prejudiced by an erroneous
interpretation by the Commissioner, particularly on a difficult
question of law. The abandonment of the Atlas doctrine
by Mirant and Aichi is proof that the reckoning of the
prescriptive periods for input VAT tax refund or credit is a
difficult question of law. The abandonment of
the Atlasdoctrine did not result in Atlas, or other taxpayers
similarly situated, being made to return the tax refund or
credit they received or could have received under Atlas prior
to its abandonment. This Court is
applying Mirant and Aichiprospectively. Absent fraud, bad
faith or misrepresentation, the reversal by this Court of a
general interpretative rule issued by the Commissioner, like
the reversal of a specific BIR ruling under Section 246, should
also apply prospectively. x x x.
xxxx
Thus, the only issue is whether BIR Ruling No. DA-489-03
is a general interpretative rule applicable to all taxpayers or a
specific ruling applicable only to a particular taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule
because it was a response to a query made, not by a particular
taxpayer, but by a government agency tasked with processing
tax refunds and credits, that is,
672the One Stop Shop Inter-Agency Tax Credit and
Drawback Center of the Department of Finance. This
government agency is also the addressee, or the entity
responded to, in BIR Ruling No. DA-489-03. Thus, while this
government agency mentions in its query to the
Commissioner the administrative claim of Lazi Bay Resources
Development, Inc., the agency was in fact asking the
Commissioner what to do in cases like the tax claim of Lazi
Bay Resources Development, Inc., where the taxpayer did not
wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general
interpretative rule. Thus, all taxpayers can rely on BIR
Ruling No. DA-489-03 from the time of its issuance on 10
December 2003 up to its reversal by this Court in Aichi on 6
October 2010, where this Court held that the 120+30 day
periods are mandatory and jurisdictional.51
Thus, in San Roque, the Court applied this exception to
Taganito Mining Corporation (Taganito), one of the taxpayers
in San Roque. Taganito filed its judicial claim on 14 February
2007, after the BIR ruling took effect on 10 December 2003
and before the promulgation ofMirant. The Court stated:
Taganito, however, filed its judicial claim with the CTA on
14 February 2007, after the issuance of BIR Ruling No. DA-
489-03 on 10 December 2003. Truly, Taganito can claim that
in filing its judicial claim prematurely without waiting for the
120-day period to expire, it was misled by BIR Ruling No. DA-
489-03. Thus, Taganito can claim the benefit of BIR Ruling
No. DA-489-03, which shields the filing of its judicial claim
from the vice of prematurity.52
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 San Roque was also careful to point out that the BIR ruling Roque, filed its claim 426 days after the lapse of the 30-day
does not retroactively apply to premature judicial claims period, it could not avail itself of the benefit of the BIR ruling:
filed before the issuance of the BIR ruling: Philex’s situation is not a case of premature filing of its
However, BIR Ruling No. DA-489-03 cannot be given judicial claim but of late filing, indeed very late filing. BIR
retroactive effect for four reasons: first, it is admittedly an Ruling No. DA-489-03 allowed premature filing of a judicial
erroneous interpretation of the law; second, prior to its claim, which means non-exhaustion of the 120-day period for
issuance, the BIR held that the 120-day period was the Commissioner to act on an administrative claim. Philex
mandatory and jurisdictional, which is the correct cannot claim the benefit of BIR Ruling No. DA-489-03 because
interpretation of the law; third, prior to its issuance, no Philex did not file its judicial claim prematurely but filed it
taxpayer can claim that it was misled by the BIR into filing a long after the lapse of the 30-day period following the
judicial claim prematurely; and fourth, a claim for tax refund expiration of the 120day period.In fact, Philex filed its
or credit, like a claim for tax exemption, is strictly construed judicial claim 426 days after the lapse of the 30-day period.55
against the taxpayer.53 We sum up the rules established by San Roque on the
Thus, San Roque held that taxpayer San Roque Power mandatory and jurisdictional nature of the 30-day period to
Corporation, could not seek refuge in the BIR ruling as it appeal through the following timeline:
jumped the gun when it filed its judicial claim on 10 April 10 December 2003 5 October 2010
2003, prior to the issuance of the BIR ruling on 10 December ============I============]===========
2003. The Court stated: 60 or 120 days BIR ruling 120 day
San Roque, therefore, cannot benefit from BIR Ruling No. waiting period is applies:need not waiting
DA-489-03 because it filed its judicial claim prematurely on mandatory*60 days wait for the period is
10 April 2003, before the issuance of BIR Ruling No. DA-489- – 1 January 1988 expiration of 120 mandatory
03 on 10 December 2003. To repeat, San Roque cannot claim
(EO 273) days
that it was misled by the BIR into filing its judicial claim
*120 days – 1 January *but judicial claim must
prematurely because BIR Ruling No. DA-489-03 was issued
only after San Roque filed its judicial claim. At the time San 1998 (RA 8424 be filed within 120+30

Roque filed its judicial claim, the law as applied and days counted from the

administered by the BIR was that the Commissioner had 120 filing of the

days to act on administrative claims. This was in fact the
position of the BIR prior to the issuance of BIR Ruling No.
DA-489-03. Indeed, San Roque never claimed the benefit
of BIR Ruling No. DA-489-03 or RMC 49-03, whether in
this Court, the CTA, or before the Commissioner.54
San Roque likewise ruled out the application of the BIR
ruling to cases of late filing. The Court held that the BIR
ruling, as an exception to the mandatory and jurisdictional
nature of the 120+30 day periods, is limited to premature
filing and does not extend to late filing of a judicial claim.
Thus, the Court found that since Philex Mining
Corporation, the other party in the consolidated case San
administrative claim
Bearing in mind the foregoing rules for the timely filing of
a judicial claim for refund or credit of unutilized input VAT,
we rule on the present case of Mindanao II as follows:
We find that Mindanao II’s situation is similar to that of
Philex in San Roque.
As mentioned above, Mindanao II filed its judicial claim
with the CTA on 21 July 2006. This was after the issuance of
BIR Ruling No. DA-489-03 on 10 December 2003, but before
its reversal on 5 October 2010. However, while the BIR ruling
was in effect when Mindanao II filed its judicial claim, the
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rule cannot be properly invoked. The BIR ruling, as discussed A. Two-Year Prescriptive Period
earlier, contemplates premature filing. The situation of 1. It is only the administrative claim that must be filed
Mindanao II is one of latefiling. To repeat, its judicial claim within the two-year prescriptive period. (Aichi)
was filed on 21 July 2006 — long after 5 March 2006, the last 2. The proper reckoning date for the two-year prescriptive
day of the 30-day period for appeal. In fact, it filed its judicial period is the close of the taxable quarter when the
claim 138 days after the lapse of the 30-day period. (See relevant sales were made. (San Roque)
timeline below) 3. The only other rule is the Atlasruling, which applied
10 (Judicial claim) 21 July only from 8 June 2007 to 12 September 2008. Atlas
December 2006 states that the two-year prescriptive period for filing a
2003 5 October claim for tax refund or credit of unutilized input VAT
2010 payments should be counted from the date of filing of
Mandatory BIR ruling: premature Mindanao the VAT return and payment of the tax. (San Roque)
filing is excused but late II’s B. 120+30 Day Period
waiting filing is not excused judicial 1. The taxpayer can file an appeal in one of two ways: (1)
period of claim for file the judicial claim within thirty days after the
60/120 days refund Commissioner denies the claim within the 120-day
E. Undersigned dissented in San period, or (2) file the judicial claim within thirty days
Roque to the retroactive application from the expiration of the 120-day period if the
of the mandatory and jurisdictional Commissioner does not act within the 120-day period.
nature of the 120+30 day period. 2. The 30-day period always applies, whether there is a
It is worthy to note that in San Roque, denial or inaction on the part of the CIR.
this ponente registered her dissent to the retroactive 3. As a general rule, the 30-day period to appeal is both
application of the mandatory and jurisdictional nature of the mandatory and jurisdictional. (Aichi and San Roque).
120+30 day period provided under Section 112(D) of the Tax 4. As an exception to the general rule, premature filing is
Code which, in her view, is unfair to taxpayers. It has been allowed only if filed between 10 December 2003 and 5
the view of this ponente that the mandatory nature of 120+30 October 2010, when BIR Ruling No. DA-489-03 was still
day period must be completely applied prospectively or, at the in force. (San Roque)677
earliest, only upon the finality of Aichi in order to create 5. Late filing is absolutely prohibited, even during the
stability and consistency in our tax laws. Nevertheless, time when BIR Ruling No. DA-489-03 was in force. (San
this ponente is mindful of the fact that judicial precedents Roque)
cannot be ignored. Hence, the majority view expressed in San SUMMARY AND CONCLUSION
Roque must be applied.676 In sum, our finding is that the three administrative claims
for the refund or credit of unutilized input VAT were all
SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR timely filed, while the corresponding judicial claims were
CLAIMING REFUND OR CREDIT OF INPUT VAT belatedly filed.

The lessons of this case may be summed up as follows:

198
 The foregoing considered, the CTA lost jurisdiction over
Mindanao II’s claims for refund or credit. The CTA EB erred
in granting these claims.
WHEREFORE, we GRANT the Petition. The assailed
Court of Tax Appeals En Banc Decision dated 11 November
2009 and Resolution dated 3 March 2010 of the CTA EB Case
No. 448 (CTA Case No. 7507) are
hereby REVERSED and SET ASIDE. A new ruling is
entered DENYING respondent’s claim for a tax refund or
credit of P6,791,845.24.
SO ORDERED.
Leonardo-De Castro, Bersamin, Villarama, Jr. and Reyes,
JJ., concur.
Petition granted, judgment and resolution reversed and set
aside.
Notes.—The two-year prescriptive period in Section 112(A)
refers to the period within which the taxpayer can file an
administrative claim for tax refund or credit. Stated
otherwise, the two-year prescriptive period does not refer to
the filing of the judicial claim with the Court of Tax Appeals
but to the filing of the administrative claim with the
Commissioner. (Commissioner of Internal Revenue vs. San
Roque Power Corporation, 690 SCRA 336 [2013])678
If the 30-day period, or any part of it, is required to fall
within the two-year prescriptive period (equivalent to 730
days), then the taxpayer must file his administrative claim for
refund or credit within the first 610 days of the two-year
prescriptive period. (Id.)
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