CASE DIGESTS ON VALUE-ADDED TAX
III. VALUE ADDED TAX
1. Medicard Philippines, Inc. v. CIR, G.R. No. 222743
April 5, 2017
Background Facts of the Case:
Relevant to the Issue of the Proper VAT Base:
1. MEDICARD is a Health Maintenance Organization (HMO) that
provides prepaid health and medical insurance coverage to its
clients.
2. Individuals enrolled in its health care programs pay an annual
membership fee and are entitled to various preventive,
diagnostic and curative medical services provided by duly
licensed physicians, specialists and other professional technical
staff participating in the group practice health delivery system
at a hospital or clinic owned, operated or accredited by it.
3. As an HMO, MEDICARD primarily acts as an intermediary
between the purchaser of healthcare services (its members)
and the healthcare providers (the doctors, hospitals and
clinics) for a SERVICE FEE. Apart from this, MEDICARD may
also directly provide medical, hospital and laboratory services,
which depends upon its member's choice.
4. Thus, in the course of its business as such, MEDICARD members
can either avail of:
(1) medical services from MEDICARD's accredited
healthcare providers
(By enrolling membership with MEDICARD, its
members will be able to avail of the pre-arranged
medical services from its accredited healthcare
providers without the necessary protocol of posting
cash bonds or deposits prior to being attended to or
admitted to hospitals or clinics, especially during
emergencies, at any given time.) OR
(2) directly from MEDICARD
(MEDICARD may also directly provide medical,
hospital and laboratory services, which depends upon
its member's choice.)
In the former, MEDICARD members obviously knew that
beyond the agreement to pre-arrange the healthcare
needs of its members, MEDICARD would not actually be
providing the actual healthcare service. Thus, based on
industry practice, MEDICARD informs its would-be
member beforehand that:
ANNUAL
MEMBERSHIP FEE
80% of the amount 20% only would
would be earmarked for comprise its SERVICE
medical utilization FEE.
Issues Presented before the Court:
1) What is the Proper VAT Tax Base? Should the amounts that
MEDICARD earmarked and eventually paid to the medical
service providers still form part of its Gross Receipts for VAT
purposes?
1
2) What about the remaining 20%, is it liable for VAT?
Ruling of the Court
5. In favour of MEDICARD and against CIR.
6. The definition of gross receipts under Revenue Regulations Nos.
16-2005 and 4-2007, in relation to Section 108 (A) of
the National Internal Revenue Code, as amended byRepublic
Act No. 9337, for purposes of determining its Value-Added Tax
liability, is hereby declared to EXCLUDE the eighty percent
(80%) of the amount of the contract price earmarked as
fiduciary funds for the medical utilization of its members.
7. Further, the Value-Added Tax deficiency assessment issued
against Medicard Philippines, Inc. is hereby declared
unauthorized for having been issued without a Letter of
Authority by the Commissioner of Internal Revenue or his duly
authorized representatives.
ISSUE 1: NO. The amounts earmarked and eventually paid
by MEDICARD to the medical service providers (80% of the Annual
Membership Fee) do not form part of “gross receipts” for VAT
purposes
8. Since an HMO like MEDICARD is primarily engaged in arranging
for coverage or designated managed care services that are
needed by plan holders/members for fixed prepaid membership
fees and for a specified period of time, then MEDICARD is
principally engaged in the sale of services. Its VAT base and
corresponding liability is, thus, determined under Section 108
(A) 32 of the Tax Code, as amended by Republic Act No. 9337.
9. Under RR No. 16-2005. Under this RR, an HMO's gross receipts
and gross receipts in general were defined, thus:
Section 4.108-3. x x x
HMO's “gross receipts” shall be the total
amount of money or its equivalent representing the
SERVICE FEE actually or constructively received during
the taxable period for the services performed or to be
performed for another person, excluding the value-added
tax.
[PRESUMPTION OF WHAT COMPOSES THE
SERVICE FEE] The compensation for their services
representing their service fee, is PRESUMED to be the
total amount received as enrollment fee from their
members plus other charges received.
10. The CTA en banc overlooked that the definition of gross receipts
under RR No. 16-2005 merely presumed that the amount
received by an HMO as membership fee is the HMO's
compensation for their services. As a mere presumption, an
HMO is, thus, allowed to establish that a portion of the
amount it received as membership fee does NOT actually
compensate it but some other person, which in this case are
the medical service providers themselves.
11. The CTA's ruling and CIR's Comment have not pointed to any
portion of Section 108 of the NIRC that would extend the
definition of gross receipts even to amounts that do not only
pertain to the services to be performed by another person, other
than the taxpayer, but even to amounts that were indisputably
utilized not by MEDICARD itself but by the medical service
providers.
ISSUE 2: NO. It is exempt under Section 109 (G) – Medical services
rendered by NON-professionals.
12. Thus, in the course of its business as
such, MEDICARD members can either avail of medical
services from MEDICARD's accredited healthcare providers
or directly from MEDICARD. In the
former, MEDICARD members obviously knew that beyond
the agreement to pre-arrange the healthcare needs of its
members, MEDICARD would not actually be providing the
actual healthcare service. Thus, based on industry
practice, MEDICARD informs its would-be member
 CASE DIGESTS ON VALUE-ADDED TAX

beforehand that 80% of the amount would be earmarked for

medical utilization and only the remaining 20% comprises its
service fee. In the LATTER case, MEDICARD's sale of its
services is exempt from VAT under Section 109 (G).

2
 CASE DIGESTS ON VALUE-ADDED TAX
2. CIR v. PAGCOR, G.R. No. 177387
November 9, 2016
IS PAGCOR LIABLE TO VAT JUST BECAUSE IT WAS REMOVED FROM THE
ENUMERATION IN THE TAX CODE FOR THE GOCCS EXEMPT FROM VAT?
Facts:
1. Respondent Philippine Amusement and Gaming Corporation
(PAGCOR) has operated under a legislative franchise granted
by Presidential Decree No. 1869 (P.D. No. 1869), its
Charter, 4 whose Section 13 (2) provides that:
(2) Income and other Taxes — (a) Franchise
Holder:
No tax of any kind or form, income or
otherwise, as well as fees, charges or levies of whatever
nature, whether National or Local, shall be assessed
and collected under this Franchise from the
Corporation; nor shall any form of tax or charge attach
in any way to the earnings of the Corporation, except a
Franchise Tax of five percent (5%) of the gross revenue
or earnings derived by the Corporation from its operation
under this Franchise. Such tax shall be due and payable
quarterly to the National Government and shall be in lieu
of all kinds of taxes, levies, fees or assessments of any
kind, nature or description, levied, established or collected
by any municipal, provincial or national government
authority.
2. Notwithstanding the aforesaid 5% franchise tax imposed, the
Bureau of Internal Revenue (BIR) issued several assessments
against PAGCOR for alleged deficiency value-added tax
(VAT), final withholding tax on fringe benefits, and expanded
withholding tax.
Argument of CIR:
3. The CIR insists that R.A. No. 7716 31 has expressly repealed,
amended, or withdrawn the 5% franchise tax provision
in PAGCOR's Charter; hence, PAGCOR was liable for the 10%
VAT. 32
4. The CIR argues that PAGCOR's gambling operations are
embraced under the phrase sale or exchange of services,
including the use or lease of properties; that such operations
are not among those expressly exempted from the 10% VAT
under Section 3 of R.A. No. 7716; and that the legislative
purpose to withdraw PAGCOR's 5% franchise tax was
manifested by the language used in Section 20 of R.A. No.
7716.
Issue before the Court:
1) Is PAGCOR Exempt from VAT?
Issue 1: Yes. PAGCOR is exempt from the payment of VAT, because
PAGCORs charter, P.D. No. 1869, is a special law that grants
petitioner exemption from taxes
5. Petitioner is exempt from the payment of VAT, because
PAGCORs charter, P.D. No. 1869, is a special law that
grants petitioner exemption from taxes.
6. Firstly, a basic rule in statutory construction is that a special
law cannot be repealed or modified by a subsequently
enacted general law in the absence of any express provision
in the latter law to that effect. A special law must be
interpreted to constitute an exception to the general law in
the absence of special circumstances warranting a contrary
conclusion.
7. R.A. No. 7716, a general law, did not provide for the express
repeal of PAGCOR's Charter, which is a special law; hence,
the general repealing clause under Section 20 of R.A. No.
7716 must pertain only to franchises of electric, gas, and
water utilities, while the term other franchises in Section 102
of the NIRC should refer only to transport, communications
and utilities, exclusive of PAGCOR's casino operations.
8. Secondly, R.A. No. 7716 indicates that Congress has not
intended to repeal PAGCOR's privilege to enjoy the 5%
3
franchise tax in lieu of all other taxes. A contrary construction
would be unwarranted and myopic nitpicking.
9. Despite Section 3 of R.A. No. 7716 imposing 10% VAT on the
sale or exchange of services, including the use or lease of
properties, Section 4 of R.A. No. 7716 enumerates the
transactions exempt from VAT, viz.:
SEC. 4. Section 103 of the National Internal
Revenue Code, as amended, is hereby further amended to
read as follows:
"SEC. 103. Exempt transactions. — The
following shall be exempt from the value-
added tax:
xxx xxx xxx
"(q) Transactions which are exempt under
special laws…
10. Further, R.A. No. 7716 does not specifically
exclude PAGCOR's exemption under P.D. No. 1869 from the
grant of exemptions from VAT; hence, CIR’s contention
that R.A. No. 7716 expressly amended PAGCOR's franchise
has no leg to stand on.
11. [RS: medyo unnecessary ni siya na portion sa lis mota of the
case, but in case if i-ask whether or not (1) the persons
transacting to PAGCOR are liable to VAT, answer is YES AT
ZERO PERCENT (0%), so no VAT can be shifted to PAGCOR;
(2) PAGCOR itself is VAT Exempt under its charter.]
A close scrutiny of the above provisos clearly
gives PAGCOR a BLANKET EXEMPTION TO TAXES with no
distinction on whether the taxes are direct or indirect. XXX
Under the above provision [Section 13 (2) (b)
of P.D. 1869], the term "Corporation" or operator
refers to PAGCOR. Although the law does not
specifically mention PAGCOR's exemption from
indirect taxes, PAGCOR is undoubtedly exempt
from such taxes because the law exempts from
taxes persons or entities contracting
with PAGCOR in casino operations. Although,
differently worded, the provision clearly
exempts PAGCOR from indirect taxes. In fact, it
goes one step further by granting tax exempt
status to persons dealing with PAGCOR in
casino operations, thus:
[R.A. No. 9337], SEC. 6. Section 108 of the same
Code (R.A. No. 8424), as amended, is hereby
further amended to read as follows:
SEC. 108. Value-Added Tax on Sale of Services and
Use or Lease of Properties.
(B) Transactions Subject to Zero Percent (0%)
Rate. The following services performed in the
Philippines by VAT-registered persons shall be
subject to zero percent (0%) rate:
xxx xxx xxx
(3) Services rendered to persons or
entities whose exemption under
special laws or international
agreements to which the Philippines
is a signatory effectively subjects the
supply of such services to zero
percent (0%) rate;
Indeed, by extending the exemption to entities or
individuals dealing with PAGCOR, the legislature
clearly granted exemption also from indirect
taxes. It must be noted that the indirect tax of
VAT, as in the instant case, can be shifted or
passed to the buyer, transferee, or lessee of the
goods, properties, or services subject to
VAT. Thus, by extending the tax exemption to
entities or individuals dealing with PAGCOR in
casino operations, it is
 CASE DIGESTS ON VALUE-ADDED TAX

exempting PAGCOR from being liable to

indirect taxes.

4
 CASE DIGESTS ON VALUE-ADDED TAX

3. Silicon Philippines v. CIR, G.R. No. 173241 or sale of taxable goods or services. Based on this definition, the Court
March 25, 2015 finds that the items reflected in petitioner's Summary of Importation of
Goods are not capital goods.
FACTS:
Petitioner Silicon Philippines, Inc. is engaged in the business of
designing, developing, manufacturing and exporting advance and
largescale integrated circuit components or "IC's." It is registered with the
BIR as a VAT taxpayer. It filed with CIR, an application for credit/refund
of unutilized input VAT. Because of Respondent’s inaction, Petitioner
filed a Petition for Review with the Court of Tax Appeals Division. It
alleged that it generated and recorded zero-rated export sales paid to it
in acceptable foreign currency and accounted for in accordance with the
rules and regulations of the BSP.

The CTA Division partially granted Silicon's claim for refund of unutilized
input VAT on capital goods but did not allow the deductions for training
materials, office supplies, and other similar items as they were not
considered as capital goods. With regard to the claim for credit/refund of
input VAT attributable to its zero-rated export sales, the CTA Division
denied the same because Silicon failed to present an Authority to Print
(ATP) from the BIR; neither did it print on its export sales invoices the ATP
and the word "zero-rated." Petitioner elevated the case to the CTA En
Banc which denied the Petition for lack of merit.

ISSUE:
1. WON there a need to show that Silicon secured an ATP from
the BIR and to indicate the same in its export sales invoices;
and to print the word "zero-rated" in its export sales
invoices. -YES
2. WON the supplies (i.e. training materials, office supplies,
etc.) are classified as capital goods. – NO.

HELD:
1. In a claim for credit/refund of input VAT attributable to zero-
rated sales, Section 112 (A) of the NIRC lays down four
requisites: (a) the taxpayer must be VAT-registered; (b) the
taxpayer must be engaged in sales which are zero-rated or
effectively zero-rated; (c) the claim must be filed within two
years after the close of the taxable quarter when such sales
were made; and (d) 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.

. To prove that the claimant is engaged in sales which are zero-rated or

effectively zero-rated, duly registered invoices or receipts evidencing
zero-rated sales must be presented. However, since the ATP is not
indicated in the invoices or receipts, the only way to verify whether the
invoices or receipts are duly registered is by requiring the claimant to
present its ATP from the BIR. Without this proof, the invoices or receipts
would have no probative value for the purpose of refund. Similarly,
failure to print the word "zero-rated" on the sales invoices or receipts
covering zero-rated sales is fatal to a claim for credit/refund of input
VAT on zero-rated sales.

In this case, petitioner failed to present its ATP and to print the word
"zero-rated" on its export sales invoices.

2. To claim a refund of input VAT on capital goods, Section 112

(B) 56 of the NIRC requires that: (a) the claimant must be a
VAT registered person; (b) the input taxes claimed must have
been paid on capital goods; (c) the input taxes must not have
been applied against any output tax liability; and (d) the
administrative claim for refund must have been filed within
two (2) years after the close of the taxable quarter when the
importation or purchase was made.

The term "Capital goods or properties" refers to those goods or

properties with estimated useful life greater that one year and which are
treated as depreciable assets, used directly or indirectly in the production

5
 CASE DIGESTS ON VALUE-ADDED TAX

4. Cargill Philippines, Inc. v. CIR, G.R. No. 203774

March 11, 2015

FACTS:
A VAT-registered domestic corporation filed two administrative and
judicial claims for refund of its unutilized input VAT from its export sales.
These claims were filed on different dates, to wit:
1. For the first claim, the administrative claim was filed on June
27, 2003 while the judicial claim was filed on June 30, 2003;
and
2. For the second claim, both administrative and judicial claims
were filed on May 31, 2005.
In the judicial claims, the CIR asked that the claims be denied because the
judicial claims were premature due to non-exhaustion of administrative
remedies.

ISSUE:
Whether or not the judicial claims are premature?

RULING:
The first claim is premature while the second claim is not.

The observance of the 120-day period is a mandatory and jurisdictional

requisite to the filing of a judicial claim for refund before the CTA. As
such, its non-observance would warrant the dismissal of the judicial
claim for lack of jurisdiction. It was, delineated in Aichi that the two (2)-
year prescriptive period would only apply to administrative claims, and
not to judicial claims. Accordingly, once the administrative claim is filed
within the two (2)-year prescriptive period, the taxpayer-claimant must
wait for the lapse of the 120-day period and, thereafter, he has a 30-day
period within which to file his judicial claim before the CTA, even if said
120-day and 30-day periods would exceed the aforementioned two (2)-
year prescriptive period.

Nevertheless, there is a recognized exception to the mandatory and

jurisdictional nature of the 120-day period. During the period December
10, 2003 (when BIR Ruling No. DA-489-03 was issued) to October 6, 2010
(when the Aichi case was promulgated), taxpayers-claimants need not
observe the 120-day period before it could file a judicial claim for refund
of excess input VAT before the CTA; but before and after said window
period, the mandatory and jurisdictional nature of the 120-day period
remained in force.

Since the first judicial claim was filed before the exemption window
period, it is prematurely filed. And since the second judicial claim was
filed within the exemption window period, it is not prematurely filed.
Note: To apply the exemption window period (Dec. 10, 2003 to Oct. 6,
2010), the important thing to look out for here is the date when the
judicial claim was made.

6
 CASE DIGESTS ON VALUE-ADDED TAX

5. Rohm Apollo Semi-Conductor Philippines v. CIR, G.R. No. 168950 before it could seek judicial relief with the CTA by way of Petition for
January 14, 2015 Review.

FACTS: A final note, the taxpayers are reminded that that when the 120-day
Rohm Apollo is a domestic corporation, registered with the SEC and the period lapses and there is inaction on the part of the CIR, they must no
PEZA. It is also registered with the Bureau of Internal Revenue (BIR) as a longer wait for it to come up with a decision thereafter. The CIR's inaction
value-added taxpayer. is the decision itself. It is already a denial of the refund claim. Thus, the
taxpayer must file an appeal within 30 days from the lapse of the 120-day
Sometime in June 2000, prior to the commencement of its operations on waiting period.
1 September 2001, Rohm Apollo engaged the services of Shimizu
Contractors for the construction of a factory and made initial payments
on July and August of the same year. Rohm Apollo treated the payments
as capital goods purchases and thus filed with the BIR an administrative
claim for the refund or credit of accumulated unutilized creditable input
taxes on 11 December 2000. As the close of the taxable quarter when the
purchases were made was 30 September 2000, the administrative claim
was filed well within the two-year prescriptive period.

(Section 112 (B), in relation to Section

112 (A) of the 1997 Tax Code sets a time frame for
the filing of the application at two years from the
close of the taxable quarter when the purchase was
made.)

Pursuant to Section 112 (D) of the 1997 Tax Code, the Commissioner of
Internal Revenue had a period of 120 days from the filing of the
application for a refund or credit on 11 December 2000, or until 10 April
2001, to act on the claim. The waiting period, however, lapsed without
any action by the CIR on the claim.

Instead of filing a judicial claim within 30 days from the lapse of the 120-
day period on 10 April, or until 10 May 2001, Rohm Apollo filed a Petition
for Review with the CTA on 11 September 2002. The CTA division and en
banc denied the petition.

ISSUE: WON the Petition was filed on time?

RULING:

The taxpayer's judicial claim for a refund/tax credit was filed beyond
the prescriptive period.
Section 112 (D) of the 1997 Tax Code states the time requirements for
filing a judicial claim for the refund or tax credit of input VAT. It speaks of
two periods: the period of 120 days, which serves as a waiting period to
give time for the CIR to act on the administrative claim for a refund or
credit; and the period of 30 days, which refers to the period for filing a
judicial claim with the CTA.

The landmark case of Commissioner of Internal Revenue v. San Roque

Power Corporation 21 has interpreted Section 112 (D). The Court held that
the taxpayer can file an appeal in one of two ways: (1) file the judicial
claim within 30 days after the Commissioner denies the claim within the
120-day waiting period, or (2) file the judicial claim within 30 days from
the expiration of the 120-day period if the Commissioner does not act
within that 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.

As a general rule, the 30-day period to appeal is both mandatory and

jurisdictional. The only exception to the general rule is when BIR Ruling
No. DA-489-03 was still in force, that is, between 10 December 2003 and
5 October 2010, The BIR Ruling excused premature filing, declaring that
the taxpayer-claimant need not wait for the lapse of the 120-day period

7
 CASE DIGESTS ON VALUE-ADDED TAX

6. Fort Bonifacio Development Corporation v. CIR, et. al., hand, is an amount subtracted directly from one's total tax
consolidated cases of G.R. No. 175707, G.R. NO. 18003, G.R. No. liability.
181092
November 19, 2014. Note: The rates and section numbers here may not be applicable at the
present because the facts on the case started on 1995.
FACTS: This case was ruled based on the stare decisis on the En Banc’s ruling on
A domestic corporation engaged in the development and sale of real G.R. 173425 (see assigned case no. 10)
estate acquired real estate under the old Tax Code E.O. 273 which took
effect on January 1, 1988. Goods under E.O. 273 did not include real
estate and hence, transactions involving the latter were not subject to
VAT. However, when R.A. 7716 (The E-VAT law) took effect on January 1,
1996, goods included real estate and transactions involving the latter
were subject to VAT. Consequently, the real estate corporation
registered under the VAT system. The corporation is now claiming under
Sec. 105 a transitional input tax credit for its inventory when it became
VAT-registered.
It was denied by the CIR, CTA and CA on the grounds:
1. The purpose of the transitional input tax was to give
recognition to the sales tax component of inventories which
would qualify as input tax credit had such goods been
acquired during the effectivity of the VAT Law of 1988.
2. there must have been previous payment of sales tax or value-
added before transitional input tax credit may be granted

ISSUE:
Whether or not the real estate corporation is entitled to transitional input
tax.

RULING:
Yes, the real estate corporation is entitled to transitional input tax.

On the first point raised by the CIR, CTA and CA, E.O. 273 provided for
two types of transitional input tax, to wit: (1) one in Sec. 25 for
presumptive input tax on inventory as of December 31, 1987 the tax on
which has not been taken up or claimed as deferred sales tax credit and
(2) one in Sec. 105 for presumptive input tax on inventory of persons who
become liable for VAT or who elect to be VAT-registered. These sections
were unaltered by the amendments to the Tax Code. The transitional
input tax in Sec. 25 is sufficient to cover the recognition of sales tax.
Hence, it would have been unnecessary to provide for another one in
Sec. 105 if that was the purpose. But rather the legislators intended
only as a requisite for entitlement under Sec. 105 that the taxpayer in
question has become liable to VAT or has elected to be a VAT-
registered person.

On the second point raised by the CIR, CTA and CA, if indeed the
transitional input tax credit is premised on the previous payment of VAT,
then it does not make sense to afford the taxpayer the benefit of such
credit based on "8% of the value of such inventory" should the same
prove higher than the actual VAT paid higher" because the actual VAT
(now 12%) paid on the goods, materials, and supplies would always be
higher than the 8% (now 2%) of the beginning inventory which would
have to exclude all goods, materials, and supplies where no taxes were
paid. Clearly, limiting the value of the beginning inventory only to goods,
materials, and supplies, where prior taxes were paid, was not the
intention of the law. Otherwise, it would have specifically stated that the
beginning inventory excludes goods, materials, and supplies where no
taxes were paid.Therefore, prior payment of taxes is not required for a
taxpayer to avail of the 8% transitional input tax credit provided in
Section 105 of the old NIRC

Hence, even if the real estate corporation did not pay any sales tax nor
input tax on the acquisition of the real estate to be sold that are subject
to VAT, it is entitled to a transitional input tax based on all of its beginning
inventory when it registered under the VAT system.

Other important Rulings:

- Tax credit is not synonymous to tax refund. Tax refund is
defined as the money that a taxpayer overpaid and is thus
returned by the taxing authority. Tax credit, on the other

8
 CASE DIGESTS ON VALUE-ADDED TAX
7. CIR vs. Team Sual Corporation (Formerly Mirant Sual Corporation),
G.R. No. 194105.
February 5, 2014
Facts
Team Sual Corporation (TSC), a VAT-registered corporation, is
principally engaged in the business of power generation and the
subsequent sale thereof solely to National Power Corporation (NPC). The
Commissioner of Internal Revenue (CIR) granted TSC's application for
zero-rating arising from its sale of power generation services to NPC for
the taxable year 2000. TSC filed its VAT returns for the first, second,
third, and fourth quarters of such year.
On March 11, 2002, TSC filed with the BIR an administrative claim for
refund, claiming that it is entitled to the unutilized input VAT in the
amount of more than P179m arising from its zero-rated sales to NPC for
the taxable year 2000. On April 1, 2002, without awaiting the CIR's
resolution of its administrative claim for refund/tax credit, TSC filed a
petition for review with the CTA seeking the refund or the issuance of a
tax credit certificate for the amount stated.
Issue
Should TSC’s claim for tax credit/refund be granted.
Ruling
No. The claim should not be granted for failure to comply with the
statutory and administrative procedures in claiming for tax credit/refund.
Rationale
Section 112 of the NIRC provides for the rules to be followed in claiming
a refund/tax credit of unutilized input VAT, thus:
Any VAT-registered person, whose sales are
zero-rated xxx 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 xxx.
Xxx the Commissioner shall grant a refund or
issue the tax credit certificate for creditable
input taxes within one hundred twenty days
from the date of submission of complete
documents in support of the application filed
xxx. 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 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.
A taxpayer-claimant may only file a petition for review with the CTA
within 30 days from either: (1) the receipt of the decision of the CIR
denying, in full or in part, the claim for refund/tax credit; or (2) the lapse
of the 120-day period given to the CIR to decide the claim for refund/tax
credit. The 120-day period that is given to the CIR within which to decide
claims for refund/tax credit of unutilized input VAT
is mandatory and jurisdictional. The taxpayer-claimant must wait for
the 120-day period to lapse, should there be no decision fully or partially
denying the claim, before a petition for review may be filed with the CTA.
Otherwise, the petition would be rendered premature and without a
cause of action. Consequently, the CTA does not have the jurisdiction
to take cognizance of a petition for review filed by the taxpayer-
claimant should there be no decision by the CIR on the claim for
refund/tax credit or the 120-day period had not yet lapsed.
9
That the two-year prescriptive period within which to file a claim for
refund/tax credit of unutilized input VAT is about to lapse is
inconsequential and would not justify the immediate filing of a petition
for review with the CTA sans compliance with the 120-day mandatory
period. The 120-day mandatory period may extend beyond the two-year
prescriptive period for filing a claim for refund/tax credit. Consequently,
the 30-day period given to the taxpayer-claimant likewise need not fall
under the two-year prescriptive period. What matters is that the
administrative claim for refund/tax credit of unutilized input VAT is filed
with the BIR within the two-year prescriptive period.
TSC filed its administrative claim for refund/tax credit with the BIR on
March 11, 2002, which is still within the two-year prescriptive period.
However, without waiting for the CIR decision or the lapse of the 120-day
period from the time it submitted its complete documents in support of
its claim, TSC filed a petition for review with the CTA on April 1, 2002 —
a mere 21 days after it filed its administrative claim with the BIR. Clearly,
TSC's petition for review with the CTA was prematurely filed; the CTA
had no jurisdiction to take cognizance of TSC's petition since there was
no decision as yet by the CIR denying TSC's claim, fully or partially, and
the 120-day period had not yet lapsed.
TSC’s argument:
Nevertheless, TSC submits that the requirement to exhaust the 120-day
period prior to filing the judicial claim with the CTA is a species of the
doctrine of exhaustion of administrative remedies; that the non-
observance of the doctrine merely results in lack of cause of action, which
ground may be waived for failure to timely invoke the same. TSC claims
that the issue of its non-compliance with the 120-day period, as a ground
to deny its claim, was already waived since the CIR did not raise it in the
proceedings before the CTA.
SC held that this argument is untenable. A petition for review
that is filed with the CTA without waiting for the 120-day
mandatory period renders the same void. The Court then
pointed out that a person committing a void act cannot claim
or acquire any right from such void act.
TSC’s argument:
In insisting that the 120-day period is not mandatory, TSC further points
out that the BIR, under BIR Ruling No. DA-489-03 and Revenue
Memorandum Circular No. 49-03, had already laid down the rule that the
taxpayer-claimant need not wait for the lapse of the 120-day period
before it could seek judicial relief with the CTA. As such, the TSC claims,
its failure to comply with the 120-day mandatory period is not cause to
deny its judicial claim for refund/tax credit.
SC held that this assertion is also untenable. As to RMC
No. 49-03, nowhere in the RMS was it stated that a taxpayer-
claimant need not wait for the lapse of the 120-day
mandatory period before it can file its judicial claim with the
CTA. RMC No. 49-03 only authorized the BIR to continue the
processing of a claim for refund/tax credit notwithstanding
that the same had been appealed to the CTA. As to BIR Ruling
No. DA-489-03, it 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. However, taxpayers can only rely on BIR Ruling
No. DA-489-03 from the time of its issuance on December
10, 2003 up to its reversal by this Court in Aichi case on
October 6, 2010, where it was held that the 120-day period
is mandatory and jurisdictional.
TSC filed its judicial claim for refund/tax credit of its
unutilized input VAT with the CTA on April 1, 2002 — more
than a year before the issuance of BIR Ruling No. DA-489-03.
Accordingly, TSC cannot benefit from the declaration laid
down in such BIR Ruling.
 CASE DIGESTS ON VALUE-ADDED TAX

8. CIR v. Toledo, Power, Inc., G.R. No. 183880

January 20, 2014.

FACTS:
A VAT-registered partnership engaged in the zero-rated sale of power
generation services. It is claiming a refund on its input taxes related to
such sale for the third and fourth quarters of 2001. It filed its
administrative claim on September 30, 2003. In order to preserve its right
because the administrative claim has not been acted upon, it filed two
petitions for review with the CTA – one on October 24, 2003 for its claim
for the third quarter of 2001 and another on January 22, 2004 for its claim
for the fourth quarter of 2001.

ISSUE:
Whether or not the CTA acquired jurisdiction over the claims.

RULING:
The CTA acquired jurisdiction only over the claim for the fourth quarter
of 2001 but did not acquire jurisdiction over the claim for the third quarter
of 2001.

The 120+30 day rule is mandatory. An exception to the rule is when the
judicial action is filed within the exemption window period (December 10,
2003 to October 6, 2010).

Both the claims did not abide by the 120+30 day rule but the claim for the
fourth quarter was within the exemption window period. Hence, the CTA
acquired jurisdiction only over the claim for the fourth quarter of 2001 but
did not acquire jurisdiction over the claim for the third quarter of 2001.

Other Important Ruling:

- Although one of the invoicing requirements is that the
receipt/invoices must show the word "zero-rated" imprinted
on the invoice covering zero-rated sales, there is sufficient
compliance if the same was merely stamped and not pre-
printed.
- 2-year period is 760 days.

Note: Like in assigned case 2 above, the rules on the determination of the
prescriptive were enumerated in this case, to wit:
1. An administrative claim must be filed with the CIR within
two years after the close of the taxable quarter when the
zero-rated or effectively zero-rated sales were made.
2. The CIR has 120 days from the date of submission of
complete documents in support of the administrative claim
within which to decide whether to grant a refund or issue a
tax credit certificate. The 120-day period may extend
beyond the two-year period from the filing of the
administrative claim if the claim is filed in the later part of
the two-year period. If the 120-day period expires without
any decision from the CIR, then the administrative claim
may be considered to be denied by inaction.
3. A judicial claim must be filed with the CTA within 30 days
from the receipt of the CIR's decision denying the
administrative claim or from the expiration of the 120-day
period without any action from the CIR.
4. All taxpayers, however, can rely on BIR Ruling No. DA-489-
03 from the time of its issuance on 10 December 2003 up to
its reversal by this Court in Aichi on October 6, 2010, as an
exception to the mandatory and jurisdictional 120+30 day
periods.

10
 CASE DIGESTS ON VALUE-ADDED TAX

9. CBK Power Company Limited vs. CIR, G.R. No. 198729-30
January 15, 2014.
Rule of law: The filing for refund or tax credit certificate must be made
within two (2) years after the close of the taxable quarter when the sales
were made. The Commissioner of BIR must rule on the application for
refund or tax credit certificate within 120 days after the filing of the claim.
In case of denial, the taxpayer should file petition for review with the
court of tax appeals within 30 days from receipt of the adverse decision
or within the same period after the lapse of 120 days period in case of
inaction of the CIR.
Facts:
Petitioner is engaged, among others, in the operation, maintenance, and
management of the Kalayaan II pumped-storage hydroelectric power
plant, the new Caliraya Spillway, Caliraya, Botocan; and the Kalayaan I
hydroelectric power plants and their related facilities located in the
Province of Laguna.6
On 29 December 2004, petitioner filed an Application for VAT Zero-Rate
with the Bureau of Internal Revenue (BIR) in accordance with Section
108(B)(3) of the National Internal Revenue Code (NIRC) of 1997, as
amended. The application was duly approved by the BIR. Thus,
petitioner’s sale of electricity to the NPC from 1 January 2005 to 31
October 2005 was declared to be entitled to the benefit of effectively
zero-rated value added tax (VAT).7
Petitioner filed its administrative claims for the issuance of tax credit
certificates for its alleged unutilized input taxes on its purchase of capital
goods and alleged unutilized input taxes on its local purchases and/or
importation of goods and services, other than capital goods, pursuant to
Sections 112(A) and (B) of the NIRC of 1997, as amended, with BIR
Revenue District Office (RDO) No. 55 of Laguna, as follows:8
Period Covered Date Of Filing
1st quarter of 2005 30-Jun-05
2nd quarter of 2005 15-Sep-05
3rd quarter of 2005 28-Oct-05
Alleging inaction of the Commissioner of Internal Revenue (CIR),
petitioner filed a Petition for Review with the CTA on 18 April 2007.
CTA ruled that petitioner’s judicial claims for the three quarters of 2005
were belatedly filed.
ISSUE:
Whether or not the petitioner timely filed for judicial claim for tax credit
certificate.
Ruling:
No. Petitioner failed to observe the mandatory 120+30 days to file
petition for review with the CTA due to CIR’s inaction of the application
for refund. Refund must be filed within 30 days from receipt of CIR’s
denial of the application or within 30 days after the lapse of 120 days in
which the CIR must decide on the application. Hence, petition is denied.
In this case, the petitioner filed for administrative refund with the BIR on
2005 for the three quarters but it only filed Petition for Review with the
CTA on 18 April 2007 for alleged inaction of the CIR. Evidently, the period
to file for petition for review with the CTA within 30 days after the lapse
of 120 days has not been complied with by the petitioner.
The pertinent provision of the NIRC at the time when petitioner filed its
claim for refund 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.
(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 claim which was not acted upon with the Court of Tax Appeals.
Judicial Claim
Section 112(D) further provides that the CIR has to decide on an
administrative claim within one hundred twenty (120) days from the date
of submission of complete documents in support thereof.
Bearing in mind that the burden to prove entitlement to a tax refund is
on the taxpayer, it is presumed that in order to discharge its burden,
petitioner had attached complete supporting documents necessary to
prove its entitlement to a refund in its application, absent any evidence
to the contrary.
Thereafter, the taxpayer affected by the CIR’s decision or inaction may
appeal to the CTA within 30 days from the receipt of the decision or from
the expiration of the 120-day period within which the claim has not been
acted upon.
Considering further that the 30-day period to appeal to the CTA is
dependent on the 120-day period, compliance with both periods is
jurisdictional. The period of 120 days is a prerequisite for the
commencement of the 30-day period to appeal to the CTA.
It must be emphasized that this is not a case of premature filing of a
judicial claim. Although petitioner did not file its judicial claim with the
CTA prior to the expiration of the 120-day waiting period, it failed to
observe the 30-day prescriptive period to appeal to the CTA counted
from the lapse of the 120-day period.
For failure of petitioner to comply with the 120+30 day mandatory and
jurisdictional period, petitioner lost its right to claim a refund or credit of
its alleged excess input VAT.
WHEREFORE, premises considered, the instant Petition is DENIED.

11
 CASE DIGESTS ON VALUE-ADDED TAX
10. CIR vs. Mindanao II Geothermal Partnership, G.R. No. 191498,
January 15, 2014
Facts
Mindanao II is a partnership registered with the Securities and Exchange
Commission. It is engaged in the business of power generation and sale
of electricity to the National Power Corporation (NAPOCOR) and is
accredited by the Department of Energy.
On 6 October 2005, Mindanao II filed with the Bureau of Internal Revenue
(BIR) an application for the refund or credit of accumulated unutilized
creditable input taxes. In support of the administrative claim for refund
or credit, Mindanao II alleged, among others, that it is registered with the
BIR as a value-added taxpayer and all its sales are zero-rated under the
EPIRA law. It further stated that for the second, third, and fourth quarters
of taxable year 2004, it paid input VAT in the aggregate amount of
P7,167,005.84, which were directly attributable to the zero-rated sales.
The input taxes had not been applied against output tax.
Pursuant to Section 112(D) of the 1997 Tax Code, the Commissioner of
Internal Revenue (CIR) had a period of 120 days, or until 3 February 2006,
to act on the claim. The administrative claim, however, remained
unresolved on 3 February 2006 (more than 120 days).
Under the same provision, Mindanao II could treat the inaction of the CIR
as a denial of its claim, in which case, the former would have 30 days to
file an appeal to the CTA, that is, on 5 March 2006. Mindanao II, however,
did not file an appeal within the 30-day period.
Apparently, Mindanao II believed that a judicial claim must be filed within
the two-year prescriptive period provided under Section 112(A) and that
such time frame was to be reckoned from the filing of its Quarterly VAT
Returns for the 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 prescriptive period was about to
expire, filed a Petition for Review with the CTA docketed as CTA Case No.
6133.
On 12 August 2008, the CTA Second Division rendered a Decision
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.
A Motion for Reconsideration was filed by CIR claiming that the last day
of filing was 5 March 2006.
Meanwhile, on 12 September 2008, this Court promulgated CIR v. Mirant
Pagbilao Corporation (Mirant). 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).
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 actually denies 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.
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.
Held
Mindanao II’s application for refund was FILED ON TIME BUT its judicial
claims were filed out of time.
1. It is untrue that both the admin and judicial claims must be
filed within the two-year prescriptive period.
Both the CTA Second Division and CTA En Banc decisions
held that the phrase "apply for the issuance of 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.
12
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:
“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.”
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.
2. 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.
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).
The two year prescriptive-period is thus summarized in this
timeline, viz –
Before 8 June 2007 After 8 June 2007
Use Sec. 112 (A): Close of taxable quarter Use Atlas case: Date of filing o
when the relevant sales were made payment of tax
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.
Let us summarize the conclusions so far: (1) it is only the
administrative claim (AGAIN, THIS IS THE ONE FILED
BEFORE CIR, NOT THE ONE FILED BEFORE CTA AS AN
APPEAL EITHER BECAUSE OF REJECTION OR INACTION
 CASE DIGESTS ON VALUE-ADDED TAX

WITHIN 120 DAY PERIOD) that must be filed within the two- 2. The 30-day period always applies, whether there is a denial
year prescriptive period; and (2) the two-year prescriptive or inaction on the part of the CIR.
period begins to run from the close of the taxable quarter 3. As a general rule, the 3 0-day period to appeal is both
when the relevant sales were made. mandatory and jurisdictional. (Aichi and San Roque)
--THIS IS THE CRUCIAL PART: Notwithstanding the timely 4. As an exception to the general rule, premature filing is
filing of the administrative claims, we find that the CTA En allowed only if filed between 10 December 2003 and 5
Banc erred in holding that Mindanao II’s judicial claims were October 2010, when BIR Ruling No. DA-489-03 was still in
timely filed. force. (San Roque)
30-Day Period Also Applies to Appeals from Inaction. Thus, if 5. Late filing is absolutely prohibited, even during the time
CIR does not act within 120 days, it shall be considered a when BIR Ruling No. DA-489-03 was in force. (San Roque)
rejection of the claim and the taxpayer has 30 days within
which to file an appeal with the CTA.
Section 112(D) speaks of two periods: the period of 120 days,
which serves as a waiting period to give time for the CIR to
act on the administrative claim for refund or credit, and the
period of 30 days, which refers to the period for interposing
an appeal with the CTA. It is with the 30-day period that there
is an issue in this case.
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 5
March 2006. The judicial claim was therefore filed late.
We sum up the rules established by San Roque on the
mandatory and jurisdictional nature of the 30-day period to
appeal through the following timeline:
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:
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 rule
cannot be properly invoked. The BIR ruling, as discussed
earlier, contemplates premature filing. The situation of
Mindanao II is one of late filing. To repeat, its judicial claim
was filed on 21 July 2006 – long after 5 March 2006, the last
day of the 30-day period for appeal. In fact, it filed its judicial
claim 138 days after the lapse of the 30-day period.
SUMMARY OF THE RULES
SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR CLAIMING
REFUND OR CREDIT OF INPUT VAT

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

A. Two-Year Prescriptive Period
1. It is only the administrative claim that must be filed within
the two-year prescriptive period. (Aichi)
2. The proper reckoning date for the two-year prescriptive
period is the close of the taxable quarter when the relevant
sales were made. (San Roque)
3. The only other rule is the Atlas ruling, which applied only
from 8 June 2007 to 12 September 2008. Atlas states that the
two-year prescriptive period for filing a claim for tax refund
or credit of unutilized input VAT payments should be counted
from the date of filing of the VAT return and payment of the
tax. (San Roque)
B. 120+30 Day Period
1. The taxpayer can file an 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.

13
 CASE DIGESTS ON VALUE-ADDED TAX

11. Team Energy Corporation (formerly Mirant Pagbilao Corp.) vs.

CIR, G.R. No. 190928
January 13, 2014

FACTS:
A domestic corporation is engaged in the sale of electricity to NAPOCOR
is asking for a refund for unutilized input taxes for the first quarter of
2002. It filed its administrative claim on December 22, 2003 and its
judicial claim on April 22, 2004.

The CTA denied the refund because the judicial claim was not filed within
the 2 year period from the close of the taxable quarter or from March 23,
2002.

ISSUE:
Whether or not the domestic corporation complied with the 2 year
period.

RULING:
The domestic corporation complied with the 2 year period.

Well enunciated in the San Roque case that the taxpayer can file his claim
for refund at any time within the two-year period. What is only required
of him is to file his judicial claim within 30-days after denial or after the
expiration of the 120-day period.

In the case at bar, the administrative claim was filed well within the 2-
year period. It does not matter that the judicial claim was filed outside
the 2-year period since it nonetheless complied with the 120+30 day rule.
Thus, the domestic corporation is entitled to a refund.

14
 CASE DIGESTS ON VALUE-ADDED TAX
12. Fort Bonifacio Dev’t. Corporation v. CIR, et. al., G.R. No. 173425
January 22, 2013.
FACTS:
The petition in G.R. No. 180035 "seeks to correct the unauthorized
limitation of the term 'real properties' to 'improvements thereon' by
Revenue Regulations 7-95 and the error of the Court of Tax Appeals and
Court of Appeals in sustaining the aforesaid Regulations."
The parties entered into a Stipulation of Facts, Documents, and
Issue 14 before the CTA for each case. It was established before the CTA
that petitioner is engaged in the development and sale of real property.
It is the owner of, and is developing and selling, parcels of land within a
"newtown" development area known as the Fort Bonifacio Global City.
In May 1996, petitioner commenced developing the Global City, and
since October 1996, had been selling lots to interested buyers. 18 At the
time of acquisition, value-added tax (VAT) was not yet imposed on the
sale of real properties. Republic Act No. 7716 (the Expanded Value-
Added Tax [E-VAT] Law), 19 which took effect on January 1, 1996,
restructured the VAT system by further amending pertinent provisions of
the National Internal Revenue Code (NIRC). Section 100 of the
old NIRC was so amended by including "real properties" in the definition
of the term "goods or properties," thereby subjecting the sale of "real
properties" to VAT.
While prior to Republic Act No. 7716, real estate transactions were
not subject to VAT, they became subject to VAT upon the effectivity
of said law. Thus, the sale of the parcels of land by petitioner became
subject to a 10% VAT, and this was later increased to 12%, pursuant
to Republic Act No. 9337. 20 Petitioner afterwards became a VAT-
registered taxpayer.
On the basis of Section 105 of the NIRC, 22 petitioner claims
a transitional or presumptive input tax credit of 8% to the total value of
the real properties listed in its inventory. 23
ISSUES:
The main issue before us now is whether or not petitioner is entitled
to a refund.
YES. Thus, we find that petitioner is entitled to a refund.
To resolve the issue stated above, it is also necessary to determine:
1. Whether the transitional/presumptive input tax credit under
Section 105 of the NIRC may be claimed only on the "improvements"
on real properties;
On its face, there is nothing in Section 105 of the Old NIRC that prohibits
the inclusion of real properties, together with the improvements
thereon, in the beginning inventory of goods, materials and supplies,
based on which inventory the transitional input tax credit is computed.
Rep. Act No. 7716, which significantly is also known as the Expanded
Value-Added Tax (EVAT) law, expanded the coverage of the VAT by
amending Section 100 of the Old NIRC in several respects, some of which
we will enumerate. First, it made every sale, barter or exchange of "goods
or properties" subject to VAT. Second, it generally defined "goods or
properties" as "all tangible and intangible objects which are capable of
pecuniary estimation." Third, it included a non-exclusive enumeration of
various objects that fall under the class "goods or properties" subject to
VAT, including "[r]eal properties held primarily for sale to customers or
held for lease in the ordinary course of trade or business."
15
Rep. Act No. 7716 clarifies that it is the real properties "held primarily for
sale to customers or held for lease in the ordinary course of trade or
business" that are subject to the VAT, and not when the real estate
transactions are engaged in by persons who do not sell or lease
properties in the ordinary course of trade or business. It is clear that those
regularly engaged in the real estate business are accorded the same
treatment as the merchants of other goods or properties available in the
market. In the same way that a milliner considers hats as his goods and a
rancher considers cattle as his goods, a real estate dealer holds real
property, whether or not it contains improvements, as his goods.
By limiting the definition of goods to "improvements" in Section 4.105-1,
the BIR not only contravened the definition of "goods" as provided in the
Old NIRC, but also the definition which the same revenue regulation
itself has provided.
2. Whether there must have been previous payment of sales tax or
value-added tax by petitioner on its land before it may claim the input
tax credit granted by Section 105 of the NIRC;
If indeed the transitional input tax credit is integrally related to previously
paid sales taxes, the purported causal link between those two would have
been nonetheless extinguished long ago. Yet Congress has reenacted the
transitional input tax credit several times; that fact simply belies the
absence of any relationship between such tax credit and the long-
abolished sales taxes. Obviously then, the purpose behind the
transitional input tax credit is not confined to the transition from sales tax
to VAT.
Section 105 states that the transitional input tax credits become available
either to (1) a person who becomes liable to VAT; or (2) any person who
elects to be VAT-registered. The clear language of the law entitles new
trades or businesses to avail of the tax credit once they become VAT-
registered. The transitional input tax credit, whether under the
Old NIRC or the New NIRC, may be claimed by a newly-VAT registered
person such as when a business as it commences operations.
It is apparent that the transitional input tax credit operates to benefit
newly VAT-registered persons, whether or not they previously paid taxes
in the acquisition of their beginning inventory of foods, materials and
supplies. During that period of transition from non-VAT to VAT status,
the transitional input tax credit serves to alleviate the impact of the VAT
on the taxpayer. At the very beginning, the VAT-registered taxpayer is
obliged to remit a significant portion of the income it derived from its
sales as output VAT. The transitional input tax credit mitigates this initial
diminution of the taxpayer's income by affording the opportunity to
offset the losses incurred through the remittance of the output VAT at a
stage when the person is yet unable to credit input VAT payments.
The Court has thus categorically ruled that prior payment of taxes is not
required for a taxpayer to avail of the 8% transitional input tax credit
provided in Section 105 of the old NIRC and that petitioner is entitled to
it, despite the fact that petitioner acquired the Global City property under
a tax-free transaction.
To require prior payment of taxes . . . is not only tantamount to judicial
legislation but would also render nugatory the provision in Section 105 of
the old NIRC that the transitional input tax credit shall be "8% of the
value of [the beginning] inventory or the actual [VAT] paid on such
goods, materials and supplies, whichever is higher" because the actual
VAT (now 12%) paid on the goods, materials, and supplies would always
be higher than the 8% (now 2%) of the beginning inventory which,
following the view of Justice Carpio, would have to exclude all goods,
materials, and supplies where no taxes were paid. Clearly, limiting the
value of the beginning inventory only to goods, materials, and supplies,
where prior taxes were paid, was not the intention of the law. Otherwise,
 CASE DIGESTS ON VALUE-ADDED TAX

it would have specifically stated that the beginning inventory excludes

goods, materials, and supplies where no taxes were paid.

16
 CASE DIGESTS ON VALUE-ADDED TAX

13. CIR v. San Roque, G.R. No. 187485
February 12, 2013
FACTS:
San Roque incurred excess input tax for taxable year 2001. On March 28,
2003, it filed claims for refund of excess input VAT. On April 10, 2003, it
filed its petition for review.
Taganito incurred excess input tax for taxable year 2005. On November
14, 2006, it filed an application for tax credits/refunds. On February 17,
2007, it filed its petition for review.
Philex incurred excess input tax for taxable year 2005. On March 20,
2006, it filed its claim for refund/tax credit. On October 17, 2007, it filed
its petition for review.
ISSUE:
Whether or not San Roque, Taganito or Philex’s petitions for review were
filed on time.
RULING:
Only Taganito’s petition for review was filed on time. San Roque’s was
filed prematurely while Philex’s was belatedly filed.
The 120 day waiting period (originally fixed at 60 days) and the 30 day
period to appeal is mandatory and jurisdictional. 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. The
reasons being that
Philex, on the other hand, filed its judicial claim only 426 days after the
120-day period. Unlike San Roque’s case, it is not one of premature filing
but late filing. Thus, Philex’s judicial claim will have to be rejected
because of late filing.
Taganito, on the other hand, can claim the benefit of BIR Ruling No. DA-
489-03 since the petition for review was filed within on February 17, 2007
– within December 10, 2003 and October 6, 2010 even though it filed its
judicial claim within the 120+30 day period.
Other Important Ruling in the Decision and Resolution of MR:
- Excess Input tax is not excessively collected input tax because
at the time the input VAT is collected the amount is correct
and proper.
- Any revocation, modification or reversal of any of tax rules
and regulations (including BIR Rulings) shall not be given
retroactive application if the revocation, modification or
reversal will be prejudicial to the taxpayers, subject to certain
exceptions.
- A mere administrative practice, not formalized into a rule or
ruling, will not suffice because such a mere administrative
practice may not be uniformly and consistently applied
- BIR Ruling No. DA-489-03 cannot be repudiated because it
was a mere issuance by a Deputy Commissioner because the
Commissioner may delegate the powers vested in him to any
subordinate officials with the rank equivalent to a division
chief or higher.

1. 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.
2. 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.
3. if the 30-day period, or any part of it, is required to fall within
the two-year prescriptive period (equivalent to 730 days but
see assigned case no. 8, where two-year means 24 calendar
months), 60 then the taxpayer must file his administrative
claim for refund or credit within the first 610 days of the two-
year prescriptive period.

Nothwithstanding the rules above, in accordance with the doctrine of

equitable estoppel, reliance on BIR Ruling No. DA-489-03 can be made.
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." Since it is a
general interpretative rule, 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.
(Note: It was clarified in the resolution to the MR why before BIR Ruling
No. DA-489-03, the 120+30 day rule is mandatory. The doctrine of
operative fact does not apply before BIR Ruling No. DA-489-03 because
there was no administrative practice by the BIR that supported
simultaneous filing of claims.)

In the case at bar, San Roque did not comply with the 120-day waiting
period. It filed after only 13 days and for violating a mandatory provision
of law, it cannot claim any right arising from such void petition. Thus, San
Roque's petition is a mere scrap of paper for being prematurely filed.

17
 CASE DIGESTS ON VALUE-ADDED TAX

14. CIR v. Dash Engineering, G.R. No. 184145 creditable input tax due or paid attributable to
December 11, 2013 such sales, except transitional input tax, to the
extent that such input tax has not been applied
against output tax
Topic: Mandatory compliance with filing period for claims for refund
xxx xxx xxx
(120+30)

Section 112 (D) (now subparagraph C) of the NIRC provides that: Sec.
Dash Engineering (Dash) is a VAT-registered Corporation,
112.Refunds or Tax Credits of Input Tax. —
and listed as an ecozone IT export enterprise in PEZA. It filed its monthly
and quarterly value-added tax (VAT) returns for the period from January xxx xxx xxx
1, 2003 to June 30, 2003. On August 9, 2004, it filed a claim for tax credit (D)Period within which Refund or Tax Credit of
or refund in the amount of P2,149,684.88 representing unutilized input Input Taxes shall be Made. — In proper cases, the
VAT attributable to its zero-rated sales. Since CIR didn’t act on this, Dash Commissioner shall grant a refund or issue the
filed a petition for review with the CTA on May 5, 2005. The CTA partially tax credit certificate for creditable input taxes
granted this in the reduced amount of P1147683.78. within one hundred twenty (120) days from the
date of submission of complete documents in
support of the application filed in accordance
CIR’s Argument: Dash failed to comply with the 30-day period referred
with Subsections (A) and (B) hereof.
to in Sec. 112 (C) of the NIRC. CIR had 120 days from Aug. 9, 2004 (the
day Dash claimed for administrative refund) within which to act on the In case of full or partial denial of the claim for tax
claim (aka, until Dec. 7, 2004). Dash then had only 30 days from the lapse refund or tax credit, or the failure on the part of
of this period (aka, until Jan 6, 2005) to file a petition for review with the the Commissioner to act on the application
CTA. Dash only filed the petition on May 5, 2005. This was jurisdictional, within the period prescribed above, the taxpayer
and failure to comply bars an appeal. affected may, within thirty (30) days from the
receipt of the decision denying the claim or
after the expiration of the one hundred twenty
Issue: day-period, appeal the decision or the unacted
1. WON Dash’s claim for refund was filed within the prescriptive claim with the Court of Tax Appeals. (emphasis
period under the Tax Code. —NEGATIVE supplied)

Held: Dash’s Judicial claim for refund must be denied for having been
filed late.

Ratio:

CIR is correct in its assertion that compliance with the periods

is jurisdictional and mandatory.
Dash’s judicial claim for refund must be denied for having been filed late.
Although Dash filed its administrative claim with the BIR on August 9,
2004 before the expiration of the two-year period in Section 112 (A), it
undoubtedly failed to comply with the 120+30-day period in Section 112
(D) (now subparagraph C) which requires that upon the inaction of the
CIR for 120 days after the submission of the documents in support of the
claim, the taxpayer has to file its judicial claim within 30 days after the
lapse of the said period. The 120 days granted to the CIR to decide the
case ended on December 7, 2004. Thus, Dash had 30 days therefrom, or
until January 6, 2005, to file a petition for review with the CTA.
Unfortunately, DEPI only sought judicial relief on May 5, 2005 when it
belatedly filed its petition to the CTA, despite having had ample time to
file the same, almost four months after the period allowed by law. As a
consequence of DEPI's late filing, the CTA did not properly acquire
jurisdiction over the claim.
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.
=========================================================
=====================

Relevant provisions (as cited in the case):

Section 112 (A) provides for a two-year period for filing a claim for refund,
to wit:
Sec. 112.Refunds or Tax Credits of Input Tax. —
( A ) Zero-rated or Effectively Zero-rated Sales .
— A n y VAT- r e g is t e r e d 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

18
 CASE DIGESTS ON VALUE-ADDED TAX

15. Accenture, Inc. vs. CIR, G.R. No. 190102
July 11, 2012.
Facts:
Accenture, Inc. (Accenture) is a corporation, which is VAT
registered, engaged in the business of providing management
consulting services, business strategies development, and selling
and/or licensing of software. Majority of its clientele are foreign
corporations.
In its VAT Returns for the year 2002, a total of Php 35M of
input VAT remained unapplied or unclaimed. In 2004, therefore,
Accenture filed with the Department of Finance (DOF) an administrative
claim for the refund or the issuance of a Tax Credit Certificate (TCC).
Because of the DOF’s inaction, Accenture filed a Petition for Review with
the Court of Tax Appeals (CTA), praying for the issuance of a TCC in the
amount of Php 35M.
The Commissioner of Internal Revenue (CIR), opposed to the
petition, arguing that Accenture was not entitled to a refund or a TCC,
because the transactions, from which the excess input VAT was
claimed, did not involve buyers who are doing business outside the
Philippines. Hence, the transactions were not subject to 0% VAT, but at
least exempt. Accenture argued that its clients need not be doing
business outside the Philippines since the law applicable should be the
un-amended Tax Code of 1997, not the provisions inserted by RA 9337.
However, even if the latter law is applicable, still Accenture was able to
prove that its clients were doing business outside the Philippines. He
proves that his clients were doing business outside the Philippines by
presenting receipts which purport that the clients were foreign
corporations and that these receipts are zero-rated VAT receipts.
The CTA Division denied the petition, which denial was
affirmed by the CTA En Banc. The motion for reconsideration having
been denied, Accenture filed a Petition for Review with the Supreme
Court (SC), insisting on the same theories.
Issues:
1. Should the clients of Accenture be doing business
outside the Philippines, for it to be able to avail of zero-
rate VAT?
2. If so, are the clients of Accenture doing business
outside the Philippines under the evidence presented?
Later on, RA 9337, which took effect in 2005, inserted in the
second paragraph the requirement that the persons whom a Philippine
corporation transacts with or sells services to must be doing business
outside the Philippines.
Accenture argues that the requirement cannot be made
applicable to these 2002 transactions. Neither can the Burmeister
decision be made applicable to it, because this present case was already
filed at the time when the decision in Burmeister case promulgated. The
Court, however, retorted that the ruling is applicable, being merely an
interpretation of a statute and which expresses the contemporaneous
legislative intent. Thus, the ruling is deemed to have effect as of the time
of the effectivity of the law interpreted, that is, the un-amended 1997 Tax
Code.
Also, the fact that Congress deemed it proper to amend the
Tax Code, by placing specifically in the law that the buyer of the services
or goods must be doing business outside the Philippines, affirms the
Court’s reasoning and interpretation of the un-amended 1997 Tax Code
provision.
2. No, Accenture failed to prove that its clients are doing
business outside the Philippines.
Among the pieces of evidence presented are the receipts
which purport that the clients are foreign corporations, that their clients
have not established any branch in the Philippines as per Securities and
Exchange Commission’s (SEC) records, and which are said to be 0% VAT
receipts. However, the Court concluded that these pieces of evidence, at
most, merely established the fact of the transactions and that these
clients are foreign corporations. Using 0% VAT receipts is not a
conclusive evidence of the fact that the transaction is really zero-rated;
otherwise, the determination which transaction is 0% VAT or not is left
at the discretion of the persons transacting and not anymore on the law.
There is no specific criterion as to what constitutes “doing”
business in the Philippines, at that time. Each case must be decided
according to its peculiar circumstances. Thus, having failed to prove that
their clients are doing business outside the Philippines and having the
burden of proving and establishing that its transactions belong to the
zero-rated ones – it being in same nature of an exemption, which is
construed strictly against the taxpayer or the one claiming exemption –
Accenture’s claim for tax refund for input VAT in 2002 is denied.

Ruling and Discussion:

1. Yes, the clients of Accenture must be doing business
outside the Philippines.
Sec. 102 (B) has two paragraphs. The first provides that the
processing, manufacturing or repacking of goods, which are
subsequently exported, for other persons doing business outside the
Philippines is subject to 0% VAT and that it must be paid in foreign
currency and in accordance with the Bangko Sentral ng Pilipinas (BSP)
rules. The second provides merely provides the latter requirement.

However, the Court ruled in Burmeister case that the clear

and logical import of the Tax Code, prior to its amendment, is that it
requires that services which are not processing, manufacturing or
repacking of goods must also be to persons or entities doing business
outside the Philippines, in addition to the requirement that it be paid in
foreign currency and accounted for in accordance with the BSP rules.
Even though only the first paragraph which states that the buyer should
be doing outside the Philippines, the Court ruled that the second
paragraph would be then rendered ineffective, if the same requirement
is not deemed as imposed in the second paragraph, because then the
forced exaction of taxes would be at the mercy of the contracting parties
who could just stipulate that the contract be paid in foreign currency.

19
 CASE DIGESTS ON VALUE-ADDED TAX
16. Western Mindanao Power Corp. vs. CIR, G.R. No. 181136
June 13, 2012
Facts:
 Petitioner WMPC is a domestic corporation engaged in the
production and sale of electricity. It is registered with the
Bureau of Internal Revenue (BIR) as a VAT taxpayer.
 Petitioner alleges that it sells electricity solely to the National
Power Corporation (NPC), which is in turn exempt from the
payment of all forms of taxes, duties, fees and imposts,
pursuant to Section 13 of RA No. 6395 (An Act Revising the
Charter of the National Power Corporation). In view thereof
and pursuant to Section 108(B) (3) of the NIRC, petitioner’s
power generation services to NPC is zero-rated.
 Under Section 112(A) of the NIRC, a VAT-registered taxpayer
may, within two years after the close of the taxable quarter,
apply for the issuance of a tax credit or refund of creditable
input tax due or paid and attributable to zero-rated or
effectively zero-rated sales.
 WMPC filed with the Commissioner of Internal Revenue (CIR)
applications for a tax credit certificate of its input VAT
covering the taxable 3rd and 4th quarters of 1999 (amounting
to ₱3,675,026.67) and all the taxable quarters of 2000
(amounting to ₱5,649,256.81).
 Noting that the CIR was not acting on its application, and
fearing that its claim would soon be barred by prescription,
WMPC filed with the Court of Tax Appeals (CTA) in Division a
Petition for Review, seeking refund/tax credit certificates for
the total amount of ₱9,324,283.30.
 The CIR filed its Comment on the CTA Petition, arguing that
WMPC was not entitled to the latter’s claim for a tax refund
in view of its failure to comply with the invoicing
requirements under Section 113 of the NIRC in relation to
Section 4.108-1 of RR 7-95, which provides:
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:
xxx
5. the word zero rated imprinted on the invoice
covering zero-rated sales; and
xxx
Only VAT-registered persons are required to print
their TIN followed by the word VAT in their invoice
or receipts and this shall be considered as a VAT
Invoice. All purchases covered by invoices other
than VAT Invoice shall not give rise to any input
tax.
xxx
 WMPC countered that the invoicing and accounting
requirements laid down in RR 7-95 were merely
compliance requirements, which were not
indispensable to establish the claim for refund of
excess and unutilized input VAT. Also, Section 113 of
the NIRC prevailing at the time the sales transactions
were made did not expressly state that failure to
comply with all the invoicing requirements would result
in the disallowance of a tax credit refund. The express
requirement that the term zero-rated sale shall be
written or printed prominently on the VAT invoice or
official receipt for sales subject to zero percent (0%)
VAT appeared in Section 113 of the NIRC only after it
was amended by Section 11 of R.A. 9337. This
amendment cannot be applied retroactively,
20
considering that it took effect long after petitioner filed
its claim for a tax refund, and considering further that
the RR 7-95 is punitive in nature. Further, since there
was no statutory requirement for imprinting the phrase
zero-rated on official receipts prior to the amendment,
the RR 7-95 constituted undue expansion of the scope
of the legislation it sought to implement.
 CTA Second Division dismissed the Petition. It held
that while petitioner submitted in evidence its
Quarterly VAT Returns for the periods applied for,
the same do not reflect any zero-rated or effectively
zero-rated sales allegedly incurred during said
periods. The spaces provided for such amounts were
left blank, which only shows that there existed no zero-
rated or effectively zero-rated sales for the 3rd and
4th quarters of 1999 and the four quarters of
2000. Moreover, it found that petitioners VAT Invoices
and Official Receipts did not contain on their face the
phrase zero-rated, contrary to Section 4.108-1 of RR 7-
95.
 WMPC appealed to the CTA En Banc, which held that
the receipts and evidence presented by petitioner
failed to fully substantiate the existence of the latter’s
effectively zero-rated sales to NPC for the 3rd and
4thquarters of taxable year 1999 and the four quarters
of taxable year 2000. The CTA En Banc noted that
petitioners Official Receipts and VAT Invoices did not
have the word zero-rated imprinted/stamped thereon,
contrary to the clear mandate of Section 4.108-1 of RR
7-95.
Issue: Whether the claim of petitioner for a refund or tax credit on input
tax must be dismissed on the ground that the latter’s Official Receipts do
not contain the phrase zero-rated
Ruling:
 Being a derogation of the sovereign authority, a statute
granting tax exemption is strictly construed against the
person or entity claiming the exemption. When based on
such statute, a claim for tax refund partakes of the nature of
an exemption. Hence, the same rule of strict interpretation
against the taxpayer-claimant applies to the claim.
 A taxpayer engaged in zero-rated or effectively zero-rated
sale may apply for the issuance of a tax credit certificate, or
refund of creditable input tax due or paid, attributable to the
sale.
Section 112. Refunds or Tax Credits of Input Tax.
–
(A) Zero-rated or Effectively Zero-rated Sales. -
any VAT-registered person, whose sales
are zero-rated or effectively zero-rated
may, within two (2) years after the close of
the taxable quarter when the sales were
made, apply for the issuance of a tax credit
certificate or refund of creditable input tax
due or paid attributable to such sales,
except transitional input tax, to the extent
that such input tax has not been applied
against output tax: Provided, however,
That in the case of zero-rated sales under
Section 106(A)(2)(a)(1), (2) and (B) and
Section 108 (B)(1) and (2), the acceptable
foreign currency exchange proceeds
thereof had been duly accounted for in
accordance with the rules and regulations
of the Bangko Sentral ng Pilipinas (BSP):
Provided, further, That where the taxpayer
is engaged in zero-rated or effectively zero-
rated sale and also in taxable or exempt
sale of goods of properties or services, and
 CASE DIGESTS ON VALUE-ADDED TAX

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.
 In a claim for tax refund or tax credit, the applicant must
prove not only entitlement to the grant of the claim under
substantive law. It must also show satisfaction of all the
documentary and evidentiary requirements for an
administrative claim for a refund or tax credit.
 The mere fact that petitioners application for zero-rating has
been approved by the CIR does not, by itself, justify the grant
of a refund or tax credit. The taxpayer claiming the refund
must further comply with the invoicing and accounting
requirements mandated by the NIRC, as well as by revenue
regulations implementing them.
 Under the NIRC, a creditable input tax should be evidenced
by a VAT invoice or official receipt, which may only be
considered as such when it complies with the requirements
of RR 7-95, particularly Section 4.108-1. This section requires,
among others, that (i)f the sale is subject to zero percent (0%)
value-added tax, the term zero-rated sale shall be written or
printed prominently on the invoice or receipt.
 Court has consistently held as fatal the failure to print the
word zero-rated on the VAT invoices or official
receipts in claims for a refund or credit of input VAT on zero-
rated sales, even if the claims were made prior to the
effectivity of R.A. 9337.
 DENIED

21
 CASE DIGESTS ON VALUE-ADDED TAX

17. Silicon Phil., Inc. vs. CIR, G.R. No. 172378

January 17, 2011 – invoicing requirements The term "Capital goods or properties" refers to those goods or
properties with estimated useful life greater that one year and which are
treated as depreciable assets, used directly or indirectly in the production
FACTS:
or sale of taxable goods or services. Based on this definition, the Court
Petitioner Silicon Philippines, Inc. is engaged in the business of finds that the items reflected in petitioner's Summary of Importation of
designing, developing, manufacturing and exporting advance and Goods are not capital goods.
largescale integrated circuit components or "IC's." It is registered with the
BIR as a VAT taxpayer. It filed with CIR, an application for credit/refund
of unutilized input VAT. Because of Respondent’s inaction, Petitioner
filed a Petition for Review with the Court of Tax Appeals Division. It
alleged that it generated and recorded zero-rated export sales paid to it
in acceptable foreign currency and accounted for in accordance with the
rules and regulations of the BSP.

The CTA Division partially granted Silicon's claim for refund of unutilized
input VAT on capital goods but did not allow the deductions for training
materials, office supplies, and other similar items as they were not
considered as capital goods. With regard to the claim for credit/refund of
input VAT attributable to its zero-rated export sales, the CTA Division
denied the same because Silicon failed to present an Authority to Print
(ATP) from the BIR; neither did it print on its export sales invoices the ATP
and the word "zero-rated." Petitioner elevated the case to the CTA En
Banc which denied the Petition for lack of merit.

ISSUE:
1. WON there a need to show that Silicon secured an ATP from
the BIR and to indicate the same in its export sales invoices;
and to print the word "zero-rated" in its export sales
invoices. -YES
2. WON the supplies (i.e. training materials, office supplies,
etc.) are classified as capital goods. – NO.

HELD:
1. In a claim for credit/refund of input VAT attributable to zero-
rated sales, Section 112 (A) of the NIRC lays down four
requisites: (a) the taxpayer must be VAT-registered; (b) the
taxpayer must be engaged in sales which are zero-rated or
effectively zero-rated; (c) the claim must be filed within two
years after the close of the taxable quarter when such sales
were made; and (d) 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.

. To prove that the claimant is engaged in sales which are zero-rated or

effectively zero-rated, duly registered invoices or receipts evidencing
zero-rated sales must be presented. However, since the ATP is not
indicated in the invoices or receipts, the only way to verify whether the
invoices or receipts are duly registered is by requiring the claimant to
present its ATP from the BIR. Without this proof, the invoices or receipts
would have no probative value for the purpose of refund. Similarly,
failure to print the word "zero-rated" on the sales invoices or receipts
covering zero-rated sales is fatal to a claim for credit/refund of input
VAT on zero-rated sales.

In this case, petitioner failed to present its ATP and to print the word
"zero-rated" on its export sales invoices.

2. To claim a refund of input VAT on capital goods, Section 112

(B) 56 of the NIRC requires that: (a) the claimant must be a
VAT registered person; (b) the input taxes claimed must have
been paid on capital goods; (c) the input taxes must not have
been applied against any output tax liability; and (d) the
administrative claim for refund must have been filed within
two (2) years after the close of the taxable quarter when the
importation or purchase was made.

22
 CASE DIGESTS ON VALUE-ADDED TAX
18. Renato V. Diaz, et al. vs. Secretary of Finance, et al., G.R. No.
193007
July 19, 2011 – sale of services, VATability of Tolls
FACTS:
BIR attempted during the administration of President Gloria
Macapagal-Arroyo to impose VAT on toll fees. This was temporary
suspended. Upon President Benigno C. Aquino III's assumption of office
in 2010, the BIR revived the idea and would impose the challenged tax
on toll fees beginning August 16, 2010 unless judicially enjoined.
Petitioner Diaz’s contention:
 when it enacted the NIRC, Congress did not intend to
include toll fees within the meaning of "sale of services" that
are subject to VAT;
 that a toll fee is a "user's tax," not a sale of services;
 amount to a tax on public service; and
 VAT was never factored into the formula for computing toll
fees, its imposition would violate the non-impairment clause
of the constitution.
Respondent through OSG’s answer:
 NIRC imposes VAT on all kinds of services of franchise
grantees, including tollway operations.
 petitioners have no right to invoke the non-impairment of
contracts clause since they clearly have no personal interest
in existing toll operating agreements (TOAs) between the
government and tollway operators
 the non-inclusion of VAT in the parametric formula for
computing toll rates cannot exempt tollway operators from
VAT.
 it cannot be claimed that the rights of tollway operators to
a reasonable rate of return will be impaired by the VAT since
this is imposed on top of the toll rate.
Petitioners’ reply:
 tollway operators cannot be regarded as franchise grantees
under the NIRC since they do not hold legislative franchises.
 the BIR intends to collect the VAT by rounding off the toll rate
and putting any excess collection in an escrow account. But
this would be illegal since only the Congress can modify
VAT rates and authorize its disbursement.
 BIR Revenue Memorandum Circular 63-2010 (BIR RMC 63-
2010), which directs toll companies to record an accumulated
input VAT of zero balance in their books as of August 16,
2010, contravenes Section 111 of the NIRC which grants
entities that first become liable to VAT a transitional input
tax credit of 2% on beginning inventory. For this reason, the
VAT on toll fees cannot be implemented.
ISSUES:
23
1.Whether or not the government is unlawfully expanding VAT coverage
by including tollway operators and tollway operations in the terms
"franchise grantees" and "sale of services" under Section 108 of the Code;
and
2.Whether or not the imposition of VAT on tollway operators
a) amounts to a tax on tax and not a tax on services;
b) will impair the tollway operators' right to a reasonable return
of investment under their TOAs; and
c) is not administratively feasible and cannot be implemented.
RULING:
1. NO. Tollway operations is included as “franchise grantees” and as “sale
of service”
Not only do tollway operators come under the broad term "all
kinds of services," they also come under the specific class described in
Section 108 as "all other franchise grantees" who are subject to VAT,
"except those under Section 119 of this Code."
Tollway operators are franchise grantees and they do not
belong to exceptions (the low-income radio and/or television
broadcasting companies with gross annual incomes of less than P10
million and gas and water utilities) that Section 119 spares from the
payment of VAT.
The word "franchise" broadly covers government grants of
a special right to do an act or series of acts of public concern. Nothing
in Section 108 indicates that the "franchise grantees" it speaks of are
those who hold legislative franchises. It has been broadly construed as
referring, not only to authorizations that Congress directly issues in
the form of a special law, but also to those granted by administrative
agencies to which the power to grant franchises has been delegated by
Congress.
APPLICABLE LAW:
VAT is levied, assessed, and collected, according to Section 108, on the
gross receipts derived from the sale or exchange of services as well as
from the use or lease of properties. The third paragraph of Section 108
defines "sale or exchange of services" as follows:
The phrase 'sale or exchange of services'
means the performance of all kinds of services
in the Philippines for others for a fee,
remuneration or consideration, including
xxx
; services of franchise grantees of electric
utilities, telephone and telegraph, radio and
television broadcasting and all other
franchise grantees except those under
Section 119 of this Code and xxx
2.
a. Not a tax on tax
VAT on tollway operations cannot be deemed a tax on tax
due to the nature of VAT as an indirect tax.
In indirect taxation, a distinction is made between the liability
for the tax and burden of the tax. The seller who is liable for the VAT may
shift or pass on the amount of VAT it paid on goods, properties or services
to the buyer. In such a case, what is transferred is not the seller's liability
but merely the burden of the VAT.
 CASE DIGESTS ON VALUE-ADDED TAX

VAT on tollway operations is not really a tax on the tollway
user, but on the tollway operator. Under Section 105 of the Code, VAT
is imposed on any person who, in the course of trade or business, sells
or renders services for a fee. In other words, the seller of services, who
in this case is the tollway operator, is the person liable for VAT. The
latter merely shifts the burden of VAT to the tollway user as part of the
toll fees.
Nor toll fees were deemed as a "user's tax." VAT is assessed
against the tollway operator's gross receipts and not necessarily on
the toll fees. Although the tollway operator may shift the VAT burden to
the tollway user, it will not make the latter directly liable for the VAT. The
shifted VAT burden simply becomes part of the toll fees that one has
to pay in order to use the tollways.
What the government seeks to tax here are fees collected
from tollways that are constructed, maintained, and operated by
private tollway operators at their own expense under the build,
operate, and transfer scheme that the government has adopted for
expressways.
A tax is imposed under the taxing power of the government
principally for the purpose of raising revenues to fund public
expenditures. Toll fees, on the other hand, are collected by private
tollway operators as reimbursement for the costs and expenses incurred
in the construction, maintenance and operation of the tollways, as well
as to assure them a reasonable margin of income.
b. Not necessarily impair tollway’s reasonable rate of
recovery
 CIR did not usurp legislative prerogative or expand the
VAT law's coverage when she sought to impose VAT on
tollway operations. Section 108 (A) of the Code clearly states
that services of all other franchise grantees are subject to
VAT, except as may be provided under Section 119 of the
Code. Tollway operators are not among the franchise
grantees subject to franchise tax under the latter
provision. Neither are their services among the VAT-exempt
transactions under Section 109 of the Code.
 Tax exemptions must be justified by clear statutory grant
and based on language in the law too plain to be
mistaken. But as the law is written, no such exemption
obtains for tollway operators. The Court is thus duty-bound
to simply apply the law as it is found.
 Lastly, the grant of tax exemption is a matter of legislative
policy that is within the exclusive prerogative of Congress.
The Court's role is to merely uphold this legislative policy, as
reflected first and foremost in the language of the tax
statute.
 Congress has given the term "services" an all-encompassing
meaning. The listing of specific services are intended to
illustrate how pervasive and broad is the VAT's reach rather
than establish concrete limits to its application. Thus, every
activity that can be imagined as a form of "service" rendered
for a fee should be deemed included unless some provision of
law especially excludes it.

This is purely speculative. Equally presumptuous is her assertion that a
stipulation in the TOAs known as the Material Adverse Grantor Action
will be activated if VAT is thus imposed. The Court cannot rule on
matters that are manifestly conjectural. Neither can it prohibit the
State from exercising its sovereign taxing power based on uncertain,
prophetic grounds.
 Section 108 subjects to VAT "all kinds of services" rendered
for a fee "regardless of whether or not the performance
thereof calls for the exercise or use of the physical or
mental faculties."

c. Cannot rule upon the matter

The Court cannot preempt the BIR's discretion on the matter, absent any
clear violation of law or the Constitution.

The Court cannot prematurely declare as illegal, BIR RMC 63-2010 which
directs toll companies to record an accumulated input VAT of zero
balance in their books as of August 16, 2010, the date when the VAT
imposition was supposed to take effect.

The tollway operators agreed to waive the 2% transitional input VAT,

in exchange for cancellation of their past due VAT liabilities. Notably, the
right to claim the 2% transitional input VAT belongs to the tollway
operators who have not questioned the circular's validity.

Any declaration by the Court that the manner of its implementation is

illegal or unconstitutional would be premature. Besides, any concern
about how the VAT on tollway operations will be enforced must first
be addressed to the BIR on whom the task of implementing tax laws
primarily and exclusively rests.

Administrative feasibility is one of the canons of a sound tax system. It

simply means that the tax system should be capable of being
effectively administered and enforced with the least inconvenience to
the taxpayer.

TO SUM UP PRINCIPLES APPLIED:

24
 CASE DIGESTS ON VALUE-ADDED TAX

19. KEPCO Phils. V. CIR, G.R. No. 179961, 31 January 2011 – invoicing
requirements
FACTS
KEPCO is a domestic corporation and is a valud added tax registered
taxpayer engaged int he production and sale of electricity as an
independent power producer. Kepco filed with the CIR an applicaiton for
effective zero-rating of its sales of electricity to the NPC.
KEPCO cites the Intel case to support its claim for refund. In the Intel
case, the claim for tax refund or issuance of a tax credit certificate was
denied due to the taxpayer's failure to reflect or indicate in the sales
invoices the BIR authority to print. The Court held that the BIR authority
to print was not one of the items required by law or BIR regulation to be
indicated or reflected in the invoices or receipts, hence, the BIR erred in
denying the claim for refund. In the present case, however, the principal
ground for the denial was the absence of the word "zero-rated" on the
invoices, in clear violation of the invoicing requirements.

Kepco alleged that for the year 1999, it incurred input VAT of P10, 527,
202. 54 on its domestic purchases of goods and services that were used
in its production and sale of electricity to NPC for the same period.
Thereafter, Kepco filed a petition for review before the CTA. The CTA
rendered a decision denying Kepco’s claim for refund for failure to
properly substantiate its effectively zero-rated sales for the taxable year
1999. Kepco filed an appeal via petition for review before the CTA En
banc which dismissed the petition for failure of Kepco to imprint the
words “zero-rated” on its official receipts which results in non-
entitlement to the benefit of VAT zero-rating and dneial of its claim for
refund of input tax. Hence, the petition.
Regarding Kepco's contention, that non-compliance with the
requirement of invoicing would only subject the non-complying taxpayer
to penalties of fine and imprisonment and not to the outright denial of
the claim for tax refund or credit, must likewise fail. Section 264
categorically provides for penalties in case of "Failure or Refusal to Issue
Receipts or Sales or Commercial Invoices, Violations related to the
Printing of such Receipts or Invoices and Other Violations," but not to
penalties for failure to comply with the requirement of invoicing.
Actions for tax refund, as in this case, are in the nature of a claim for
exemption and the law is construed in strictissimi juris against the
taxpayer.

ISSUE
whether or not the failure of KEPCO to imprint the words “zero-rated” on
its vat official receipts justifies an outright denial of its claim for refund of
untutilized input tax credits

DECISION
No.

There is no doubt that NPC is an entity with a special charter and exempt
from payment of all forms of taxes, including VAT. As such, services
rendered by any VAT-registered person/entity, like Kepco, to NPC are
effectively subject to zero percent (0%) rate.

For the effective zero rating of such services, however, the VAT-
registered taxpayer must comply with invoicing requirements under the
NIRC

Section 4.108-1.Invoicing Requirements. — All VAT-registered persons

shall, for every sale or lease of goods or properties or services, issue duly
registered receipts or sales or commercial invoices which must show:
1.The name, TIN and address of seller; 2.Date of transaction;
3.Quantity, unit cost and description of merchandise or nature of service;
4.The name, TIN, business style, if any, and address of the VAT-
registered purchaser, customer or client;
5.The word "zero-rated" imprinted on the invoice covering zero-rated
sales;
6.The invoice value or consideration.
Indeed, it is the duty of Kepco to comply with the requirements, including
the imprinting of the words "zero-rated" in its VAT official receipts and
invoices in order for its sales of electricity to NPC to qualify for zero-
rating. It must be emphasized that the requirement of imprinting the
word "zero-rated" on the invoices or receipts is mandatory.

The appearance of the word "zero-rated" on the face of invoices covering

zero-rated sales prevents buyers from falsely claiming input VAT from
their purchases when no VAT was actually paid. If, absent such word, a
successful claim for input VAT is made, the government would be
refunding money it did not collect. Further, the printing of the word
"zero-rated" on the invoice helps segregate sales that are subject to 10%
(now 12%) VAT from those sales that are zero-rated so that the BIR may
properly implement and enforce the provision of the NIRC on VAT.

25
 CASE DIGESTS ON VALUE-ADDED TAX

20. CIR v. Aichi Forging, G.R. No. 184823 days, and the Administrative Code of 1987, which states that a year is
October 6, 2010 – procedure for input tax credit composed of 12 calendar months, it is the latter that must prevail being
the more recent law, following the legal maxim, Lex posteriori derogat
priori.
Facts:

Thus, applying this to the present case, the two-year period to file a claim
Respondent Aichi Forging Company of Asia, Inc., a VAT registered entity, for tax refund/credit for the period July 1, 2002 to September 30, 2002
is engaged in the manufacturing, producing, and processing of steel and expired on September 30, 2004. Hence, respondent’s administrative
its by-products. claim was timely filed.

On September 30, 2004, respondent filed a claim for refund/credit of
input VAT in relation to its zero-rated sales for the period of July 1, 2002
to September 30, 2002 in the total amount of P3,891,123.82 with the
petitioner CIR, through the Department of Finance (DOF) One-Stop
Shop.
On even date, respondent filed a Petition for Review 7 with the CTA for
the refund/credit of the same input VAT. The CTA 2nd Division partially
granted respondent’s claim for refund/credit.
Petitioner filed a Motion for Partial Reconsideration, 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. He
cited as basis Article 13 of the Civil Code, which provides that when the
law speaks of a year, it is equivalent to 365 days. In addition, petitioner
argued that the simultaneous filing of the administrative and the judicial
claims contravenes Sections 112 and 229 of the NIRC. According to the
petitioner, a prior filing of an administrative claim is a “condition
precedent” before a judicial claim can be filed.
The CTA denied the MPR thus the case was elevated to the CTA En Banc
for review. The decision was affirmed. Thus the case was elevated to the
Supreme Court.
2. Yes. We find the filing of the judicial claim with the CTA 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.
Subsection (A) of Section 112 of the NIRC 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.
.
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.

Respondent 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. In support thereof, respondent cited
Commissioner of Internal Revenue v. Victorias Milling Co., Inc. [130 Phil
12 (1968)] where it was ruled that “if the CIR takes time in deciding the
claim, and the period of two years is about to end, the suit or proceeding
must be started in the CTA before the end of the two-year period without
awaiting the decision of the CIR.”

Issues:

1. Whether or not the claim for refund was filed within the prescribed
period.
2. Whether or not 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, and violates the doctrine of
exhaustion of administrative remedies.

Ruling:

1. Yes. As ruled in the case of Commissioner of Internal Revenue v. Mirant

Pagbilao Corporation (G.R. No. 172129, September 12, 2008), the two-
year period should be reckoned from the close of the taxable quarter
when the sales were made.

In Commissioner of Internal Revenue v. Primetown Property Group, Inc

(G.R. No. 162155, August 28, 2007, 531 SCRA 436), we said that as
between the Civil Code, which provides that a year is equivalent to 365

26
 CASE DIGESTS ON VALUE-ADDED TAX
21. Commissioner of Internal Revenue vs. Sony Phil., Inc., G.R. No.
178697, November 17, 2010 – in the course of trade or business
Principle: There must be a sale, barter or exchange of goods or
properties before any VAT may be levied. Mere dole out is not considered
as a sale, barter or exchange. So, no VAT can be levied.
Facts:
CIR issued LOA authorizing certain revenue officers to
examine Sony’s books of accounts and other accounting records
regarding revenue taxes for the period 1997 and unverified prior years.
A preliminary assessment for 1997 deficiency taxes and
penalties was issued by the CIR which Sony protested. The CIR issued
final assessment notices, the formal letter of demand and the details of
discrepancies; these contain the deficiency taxes and penalties for late
remittance of internal revenue taxes.
It sought re-evaluation from the assessment, but after the
lapse of the period; it, then, filed a petition for review to CTA.
CTA ruled that the deficiency VAT assessment is disallowed
because the subsidized advertising expense paid by Sony which was duly
covered by a VAT invoice resulted in an input VAT credit.
CIR contended that Sony’s advertising expense could not be
considered as an input VAT credit because the same was eventually
reimbursed by Sony International Singapore (SIS). Since Sony’s
advertising expense was reimbursed by SIS, the former never incurred
any advertising expense. As a result, Sony is not entitled to a tax credit.
Issue:
a.) Whether or not the subsidy made by Sony Singapore in favor of Sony
Philippines is a sale, barter, exchange of goods or properties subject to
VAT?
b.) Whether or not the advertising expense incurred by Sony Philippines
is a legitimate business expense that would result into an input VAT
credit?
Ruling:
a.) No, it is not subject to VAT. It is because there was no such
sale, barter or exchange in the subsidy given by Sony Singapore to Sony
Philippines. It was but a dole out by Sony Singapore and not in payment
for goods or properties sold, bartered or exchanged by Sony Philippines.
b.) Yes, it is because an advertising expense duly covered by a
VAT invoice is a legitimate business expense that would result into an
input VAT credit.
22. Panasonic Communications Imaging Corp. of the Phil. vs. CIR, G.R.
No. 178090, February 8, 2010 -- invoicing requirements
FACTS:
 Panasonic Communications Imaging Corporation of the
Philippines is a registered value-added tax enterprise.
 From April 1 to September 30, 1998 and from October 1, 1998
to March 31, 1999, Panasonic generated export sales
amounting to a total of US$24,678,964.93.
 Believing that these export sales were zero-rated for VAT
under Section 106(A)(2)(a)(1) of the 1997 National Internal
Revenue Code, Panasonic paid input VAT attributable to its
zero-rated sales.
 Claiming that the input VAT it paid remained unutilized or
unapplied, on March 12, 1999 and July 20, 1999 petitioner
Panasonic filed with the Bureau of Internal Revenue two
separate applications for refund or tax credit of what it paid.
BIR did not act on it so Panasonic filed a petition for review in
the CTA.
CTA:
 While petitioner Panasonics export sales were subject to 0%
VAT under Section 106(A)(2)(a)(1) of the 1997 NIRC, the
same did not qualify for zero-rating because the word zero-
27
rated was not printed on Panasonics export invoices. This
omission violates the invoicing requirement.
ISSUE:
 Whether or not the CTA correctly denied petitioner’s claim
for refund of the VAT it paid as a zero-rated taxpayer on the
ground that its sales invoices did not state on their faces that
its sales were zero-rated.
HELD:
 The VAT is a tax on consumption, an indirect tax that the
provider of goods or services may pass on to his customers.
Under the VAT method of taxation, which is invoice-based,
an entity can subtract from the VAT charged on its sales or
outputs the VAT it paid on its purchases, inputs and imports.
The difference in tax shown on invoices passed and invoices
received is the tax paid to the government. In case the tax on
invoices received exceeds that on invoices passed, a tax
refund may be claimed.
 Under the 1997 NIRC, if at the end of a taxable quarter the
seller charges output taxes equal to the input taxes that his
suppliers passed on to him, no payment is required of him. It
is when his output taxes exceed his input taxes that he has to
pay the excess to the BIR. If the input taxes exceed the output
taxes, however, the excess payment 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.
 Zero-rated transactions generally refer to the export sale of
goods and services. The tax rate in this case is set at zero.
When applied to the tax base or the selling price of the goods
or services sold such zero rate results in no tax chargeable
against the foreign buyer or customer. But, although the
seller in such transactions charges no output tax, he can claim
a refund of the VAT that his suppliers charged him. The seller
thus enjoys automatic zero rating, which allows him to
recover the input taxes he paid relating to the export sales,
making him internationally competitive.
 For the effective zero rating of such transactions, the
taxpayer has to be VAT-registered and must comply with
invoicing requirements.
 CIR ruled under Revenue Memorandum Circular (RMC) 42-
2003 that the taxpayer’s failure to comply with invoicing
requirements will result in the disallowance of his claim for
refund.
 When R.A. 9337 amended the 1997 NIRC on November 1,
2005, it made this particular revenue regulation a part of the
tax code. This conversion from regulation to law did not
diminish the binding force of such regulation with respect to
acts committed prior to the enactment of that law.
 The printing of the word zero-rated on the invoice helps
segregate sales that are subject to 10% (now 12%) VAT from
those sales that are zero-rated.
 Unable to submit the proper invoices, petitioner Panasonic
has been unable to substantiate its claim for refund.
 CASE DIGESTS ON VALUE-ADDED TAX

23. CIR v. SM Prime Holdings, Inc., G.R. No. 183505

February 26, 2010 – VATability of cinema tickets

FACTS:
The Bureau of Internal Revenue both sent Preliminary Assessment
Notices (PAN) to SM Prime Holdings and First Asia, corporations both
engaged in the business of operating cinema houses, for non-payment of
VAT. The CIR in particular sent four PANs to First Asia for non-payment
of VAT for four taxable years. Both corporation filed a letter-protest
before the BIR but was subsequently denied, forcing them to file a
Petition for Review before the CTA where the sole issue was whether
gross receipts derived from admission tickets by cinema/theater
operators or proprietors are subject to VAT.

CTA First Division ruled for SM Prime holdings and First Asia, declaring
that the activity of showing cinematographic films is not a service
covered by VAT under the NIRC of 1997. The CTA First Division held that
the House of Representatives resolved that there should only be one
business tax applicable to theaters and movie houses, which is the 30%
amusement tax imposed by cities and provinces under the LGC of 1991.

CIR appealed to the CTA En Banc but the latter dismissed the appeal and
reiterated that the exhibition or showing of motion pictures, films, or
movies is instead subject to amusement tax under the LGC of 1991 and
not VAT.

CIR challenged the case before the SC.

ISSUE:
WON the gross receipts derived by operators or proprietors of
cinema/theater houses from admission tickets are subject to VAT.

Held:
No. 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. Prior to the Local
Tax Code, all forms of amusement tax were imposed by the national
government. When the Local Tax Code was enacted, amusement tax on
admission tickets from theaters, cinematographs, concert halls, circuses
and other places of amusements were transferred to the local
government. Under the NIRC of 1977, the national government imposed
amusement tax only on proprietors, lessees or operators of cabarets, day
and night clubs, Jai-Alai and race tracks. The VAT law was enacted to
replace the tax on original and subsequent sales tax and percentage tax
on certain services. When the VAT law was implemented, it exempted
persons subject to amusement tax under the NIRC from the coverage of
VAT. When the Local Tax Code was repealed by the LGC of 1991, the local
government continued to impose amusement tax on admission tickets
from theaters, cinematographs, concert halls, circuses and other places
of amusements. Amendments to the VAT law have been consistent in
exempting persons subject to amusement tax under the NIRC from the
coverage of VAT. Only lessors or distributors of cinematographic films
are included in the coverage of VAT.

28
 CASE DIGESTS ON VALUE-ADDED TAX
24. Tambunting Pawnshop, Inc. v. CIR, G.R. No. 179085, 21 January
2010 – VATability of Pawnshops
FACTS
Respondent Commissioner of Internal Revenue assessed petitioner
Tambunting Pawnshop for deficiency Value-Added Tax for the taxable
year 1999. Petitioner questioned such assessment and argued that
pawnshops are not subject to Value Added Tax pursuant to Section 108
of the National Internal Revenue Code.
ISSUE
Whether pawnshops are in involved in "sale or exchange of services"
under the general provision therefore subjecting it to VAT and justifying
the assessments made for the taxable year 1999.
RULING OF THE SUPREME COURT
The petition is IN PART meritorious.
WHY PARTLY MERITORIOUS
(1) Pawnshops were once treated as non-VATable non-bank
financial intermediaries. Subsequently, they were made
VATable and subject to 10% VAT. Ultimately (AT PRESENT),
they are back to being non-VATable non-bank financial
intermediaries.
(2) HOWEVER, even during the period when they were
considered VATable, the levy, assessment and collection of
such VAT were deferred until December 31, 2002.
 REMEMBER: The assessments in question
pertain to the taxable year 1999.
DISCUSSION OF THE COURT
Historical background of how pawnshops are treated in relation to VAT:
(1) In 1977, pawnshops were considered as non-bank financial
intermediaries subject to 5% tax on gross receipts.
(2) In 1994, with the passage of the Expanded Value-Added Tax
Law, pawnshops were made subject to the 10% VAT imposed
on banks and non-bank financial intermediaries and financial
institutions under Section 102 of the Tax Code of 1977 (now
Section 108 of the Tax Code of 1997) BUT the levy, collection
and assessment of the 10% VAT were made effective January
1, 1998.
(3) R.A. No. 8424 or the Tax Reform Act of 1997 likewise
imposed a 10% VAT under Section 108 BUT the levy,
collection and assessment thereof were again DEFERRED
until December 31, 1999.
(4) The levy, collection and assessment of the 10% VAT was
FURTHER DEFERRED by R.A. No. 8761 until December 31,
2000, and by R.A. No. 9010, until December 31, 2002.
(5) With no further deferments given by law, THE LEVY,
COLLECTION AND ASSESSMENT OF THE 10% VAT on
banks, non-bank financial intermediaries, finance
companies, and other financial intermediaries not
performing quasi-banking functions WERE FINALLY MADE
EFFECTIVE BEGINNING JANUARY 1, 2003.
Finally, with the enactment of R.A. No. 9238 in 2004, the services of
banks, non- bank financial intermediaries, finance companies, and other
financial intermediaries not performing quasi-banking functions were
specifically exempted from VAT, and the 0% to 5% percentage tax on
gross receipts on other non-bank financial intermediaries was re-
imposed under Section 122 of the Tax Code of 1997.
IN RELATION TO THE QUESTIONED ASSESSMENTS
29
▪ At the time of the disputed assessment, that is, for the year
2000, pawnshops were not subject to 10% VAT under the
general provision on "sale or exchange of services" as defined
under Section 108 (A) of the Tax Code of 1997, which states:
"'sale or exchange of services' means the performance of all
kinds of services in the Philippines for others for a fee,
remuneration or consideration..."
 INSTEAD, due to the specific nature of its
business, PAWNSHOPS WERE THEN SUBJECT
TO 10% VAT UNDER THE CATEGORY OF
NON-BANK FINANCIAL INTERMEDIARIES.
▪ Since petitioner is a non-bank financial intermediary, it is
subject to 10% VAT for the tax years 1996 to 2002;
HOWEVER, with the levy, assessment and collection of VAT
from non-bank financial intermediaries BEING
SPECIFICALLY DEFERRED by law, then petitioner is not
liable for VAT during these tax years.
▪ But with the full implementation of the VAT system on non-
bank financial intermediaries starting January 1, 2003,
petitioner is liable for 10% VAT for said tax year.
▪ Beginning 2004 up to the present, by virtue of R.A. No. 9238,
petitioner is no longer liable for VAT but it is subject to
percentage tax on gross receipts from 0% to 5%, as the case
may be.
In light of the foregoing ruling, since the imposition of VAT on
pawnshops, which are non-bank financial intermediaries, was deferred
for the tax years 1996 to 2002, petitioner is not liable for VAT for the tax
year 1999.
25. CIR vs. Burmeister and Wain Scandinavian Contractor Mindanao,
Inc., G.R. No. 153205
January 22, 2007 – Zero-rating of services, Destination Principle
To be exempt from the destination principle under Section 102(b)(1) and
(2), the services must be (a) performed in the Philippines; (b) for a person
doing business outside the Philippines; and (c) paid in acceptable foreign
currency accounted for in accordance with BSP rules.
Facts:
A foreign consortium
composed of Burmeister and Wain Scandinavian Contractor A/S (BWSC-
Denmark), Mitsui Engineering and Shipbuilding, Ltd., and Mitsui and Co.,
Ltd. entered into a contract with the National Power Corporation
(NAPOCOR) for the operation and maintenance of NAPOCORs two
power barges. The Consortium appointed BWSC-Denmark as its
coordination manager. BWSC-Denmark, in turn established BWSCM
which subcontracted the actual operation and maintenance
of NAPOCORs two power barges as well as the performance of other
duties and acts which necessarily have to be done in the Philippines.
NAPOCOR paid capacity and energy fees to the Consortium
in a mixture of currencies (Mark, Yen, and Peso). The freely convertible
non-Peso component is deposited directly to the Consortiums bank
accounts in Denmark and Japan, while the Peso-denominated
component is deposited in a separate and special designated bank
account in the Philippines. On the other hand, the Consortium pays
BWSCMI in foreign currency inwardly remitted to
the Philippines through the banking system.
BWSCMI then ascertained its tax liability by asking a BIR
Ruling. BIR declared that if BWSCMI chooses to register as a VAT person
and the consideration for its services is paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations
 CASE DIGESTS ON VALUE-ADDED TAX

of the Bangko Sentral ng Pilipinas (BSP), the aforesaid services shall be Consortium, operates and maintains NAPOCORs power barges in the
subject to VAT at zero-rate. Thus BWSCMI registered as a VAT payer and Philippines. NAPOCOR pays the Consortium, through its non-resident
seasonably filed its quarterly VAT-Returns with a total zero-rated sales partners, partly in foreign currency outwardly remitted. In turn, the
of P147,317,189.62 with VAT input taxes ofP3,361,174.14. Consortium pays respondent also in foreign currency inwardly remitted
and accounted for in accordance with BSP rules. This payment scheme
does not entitle respondent to 0% VAT. In this case, the recipient of the
In 1997, BWSCMI availed of the Voluntary Assessment
services is the Consortium, which is doing business not outside, but
Program (VAP) of the BIR. It allegedly misinterpreted a Revenue
within the Philippines because it has a 15-year contract to operate and
Regulation, which states that as services by a resident to a non-resident
maintain NAPOCORs two 100-megawatt power barges in Mindanao.
foreign client such as project studies, information services, engineering and
architectural designs and other similar services, that subjected its sale of
services to the Consortium to the 10% VAT. Thus BWSCMI filed an Further, the Output VAT paid must be refunded to BWSCMI
amended 1996 VAT Return subjecting its services to 10% VAT and as it had relied on a BIR Ruling and a VAT Ruling. As provided for under
claiming thereto input Tax. However, the VAT Review Committee, Section 246 of the Tax Code: any revocation of a ruling by the CIR shall
through a VAT Ruling, reconfirmed the prior BIR Ruling subjecting the not be given retroactive application if the revocation will prejudice the
services it rendered to 0%. Thus, it filed a claim for the issuance of a tax taxpayer. Further, there is no showing of the existence of any of the
credit certificate in 1999. exceptions enumerated in Section 246 of the Tax Code for the retroactive
application of such revocation.
CIR contends that the services rendered by BWSCMI is Thus, the Output VAT paid by BWSCMI must be credited
subject to 10% VAT claiming that the services must be destined for back to it.
consumption abroad to enjoy the VAT zero-rated. BWSCMI, however,
claims that it complied with the requirements of the Tax Code for zero
rating under the Section 102(b) par. 2; it asserts that: (1) the payment of
its service fees was in acceptable foreign currency, (2) there was inward
remittance of the foreign currency into the Philippines, and (3)
accounting of such remittance was in accordance with BSP rules. As such,
BWSCMI’s services need not be destined to be consumed abroad in order
to be VAT zero-rated. CTA granted. CA affirmed.

Issue:
WON BWSCMI is entitled to the Output VAT it had paid.

Held:
Yes, it is entitled to the Output VAT on the basis of the fact
that a revocation of a ruling by the CIR should not be given retroactive
application as such will prejudice the taxpayer. However, BWSCMI’s
contention is without merit as the services it renders is for the
consortium, a recipient DOING BUSINESS IN the PHILIPPINES.

For one to avail of the zero-rated VAT under Sec. 102 (b)(2)
of the Tax Code, it is required that: 1) the services be other than
processing, manufacturing or repacking of goods; 2) that payment for
such services be in acceptable foreign currency accounted for in
accordance with BSP rules; AND 3) that the recipient of such services is
doing business outside the Philippines.

While this requirement is not expressly stated in the second

paragraph of Section 102(b), this is clearly provided in the first paragraph
of Section 102(b) where the listed services must be for other persons
doing business outside the Philippines. The phrase for other persons
doing business outside the Philippines not only refers to the services
enumerated in the first paragraph of Section 102(b), but also pertains to
the general term services appearing in the second paragraph of Section
102(b). In short, services other than processing, manufacturing, or
repacking of goods must likewise be performed for persons doing
business outside the Philippines.

Further, when the provider and recipient of services

are both doing business in the Philippines, their transaction falls squarely
under Section 102(a) governing domestic sale or exchange of
services. Indeed, this is a purely local sale or exchange of services subject
to the regular VAT, unless of course the transaction falls under the other
provisions of Section 102(b).

Therefore, BWSCMI’s services to the Consortium, not

being supplied to a person doing business outside the Philippines,
cannot legally qualify for 0% VAT. BWSCMI, as subcontractor of the

30
 CASE DIGESTS ON VALUE-ADDED TAX

26. CIR v. American Express International, Inc., G.R. No. 152609 foreign currency and accounted for in accordance with the rules and
June 29, 2005– Zero-rating of services, Destination Principle regulations of the [BSP]

Facts: The law is very clear. Under the last paragraph quoted above, services
performed by VAT-registered persons in the Philippines (other than the
Respondent American Express (Amex) is a Philippine branch of American
processing, manufacturing or repacking of goods for persons doing
Express International, Inc. It is a servicing unit of American Express
business outside the Philippines), when paid in acceptable foreign
International, Inc. - Hongkong Branch (Amex-HK) and is engaged
currency and accounted for in accordance with the rules and regulations
primarily to facilitate the collections of Amex-HK receivables from card
of the BSP, are zero-rated.
members situated in the Philippines and payment to service
establishments in the Philippines.
Respondent is a VAT-registered person that facilitates the collection and
payment of receivables belonging to its non-resident foreign client, for
Amex Philippines registered itself with the Bureau of Internal Revenue
which it gets paid in acceptable foreign currency inwardly remitted and
(BIR) as a value-added tax (VAT) taxpayer. For the period January 1, 1997
accounted for in conformity with BSP rules and regulations. Certainly,
to December 31, 1997, it filed with the BIR its quarterly VAT returns. On
the service it renders in the Philippines is not in the same category as
April 13, 1999, it filed with the BIR a letter-request for the refund of its
"processing, manufacturing or repacking of goods" and should,
1997 excess input taxes in the amount of P3,751,067.04, which amount
therefore, be zero-rated. In reply to a query of respondent, the BIR
was arrived at after deducting from its total input VAT paid
opined in VAT Ruling No. 080-89 that the income respondent earned
ofP3,763,060.43 its applied output VAT liabilities only for the third and
from its parent company’s regional operating centers (ROCs) was
fourth quarters of 1997 amounting toP5,193.66 and P6,799.43,
automatically zero-rated effective January 1, 1988.
respectively. Amex cites as basis therefore, Section 110 (B) of the 1997
Tax Code which refers to excess output or input tax, to state:
The VAT is a tax on consumption "expressed as a percentage of the value
added to goods or services" purchased by the producer or taxpayer. As
(B) Excess Output or Input Tax. - If at the end of any taxable quarter the
an indirect tax on services, its main object is the transaction itself or,
output tax exceeds the input tax, the excess shall be paid by the VAT-
more concretely, the performance of all kinds of services conducted in
registered person. If the input tax exceeds the output tax, the excess shall
the course of trade or business in the Philippines. These services must be
be carried over to the succeeding quarter or quarters. Any input tax
regularly conducted in this country; undertaken in "pursuit of a
attributable to the purchase of capital goods or to zero-rated sales by a
commercial or an economic activity;" for a valuable consideration; and
VAT-registered person may at his option be refunded or credited against
not exempt under the Tax Code, other special laws, or any international
other internal revenue taxes, subject to the provisions of Section 112.’
agreement.

In arguing that the services rendered by Amex is a zero-rated transaction,

it cited Section 108 (B) (cited and to be explained below). Petitioner, on
the other hand, claimed by way of Special and Affirmative Defenses that:
the claim for refund is subject to investigation by the Bureau of Internal
Revenue; taxes paid and collected are presumed to have been made in
accordance with laws and regulations, hence, not refundable; claims for
tax refund are construed strictly against the claimant as they partake of
the nature of tax exemption; and that Amex must prove that it has
complied with the governing rules with reference to tax recovery or
refund, which are found in Sections 204(c) and 229 of the Tax Code.
The CTA and CA decided in favor of Amex.
Issue:
Whether or not Amex is engaged in a zero-rated transaction entitling it
to a tax refund in the amount of P3,352,406.59 allegedly representing
excess input VAT for the year 1997."10
Without doubt, the transactions respondent entered into with its Hong
Kong-based client meet all these requirements.
First, respondent regularly renders in the Philippines the service of
facilitating the collection and payment of receivables belonging to a
foreign company that is a clearly separate and distinct entity.
Second, such service is commercial in nature; carried on over a sustained
period of time; on a significant scale; with a reasonable degree of
frequency; and not at random, fortuitous or attenuated.
The consumption contemplated by law, contrary to petitioner’s
administrative interpretation,52 does not imply that the service be done
abroad in order to be zero-rated.
Third, for this service, respondent definitely receives consideration in
foreign currency that is accounted for in conformity with law.
Finally, respondent is not an entity exempt under any of our laws or
international agreements.

Principle Applied:
Ruling:
General rule: The value-added tax (VAT) system uses the destination
Yes, Amex is engaged in a zero-rated transaction, hence, entitled to a tax
principle. (Where the goods/services are destined for consumption is
refund.
where the VAT should be imposed.)
Exception: The destination principle does not apply when the supply of
Sec 108 (B) of the Tax Code provides: service is zero-rated.
Transactions subject to zero percent (0%) rate. – The following services
performed in the Philippines by VAT-registered persons shall be subject
The supply of service is zero-rated when the following requirements are
to zero percent (0%) rate:
met:
(1) the service is performed in the Philippines;
(1) Processing, manufacturing or repacking goods for other persons
(2) the service falls under any of the categories provided in Section 102(b)
doing business outside the Philippines which goods are subsequently
of the Tax Code; and
exported, where the services are paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the (3) it is paid for in acceptable foreign currency that is accounted for in
Bangko Sentral ng Pilipinas (BSP) accordance with the regulations of the Bangko Sentral ng Pilipinas.

(2) Services other than those mentioned in the preceding Since respondent’s services meet these requirements, they are zero-
subparagraph, the consideration for which is paid for in acceptable rated.

31
CASE DIGESTS ON VALUE-ADDED TAX

32
 CASE DIGESTS ON VALUE-ADDED TAX

27. Philippine Phosphate Fertilizer v. CIR by a CPA. It is not a mandatory requirement. Since petitioner did not
G.R. No. 141973, 28 June 2005 – Rules of procedure present invoices, on the assumption that such were not necessary, then
it also did not present a certification because there was nothing to certify.
As to the procedural matter, Philphos can ask for new trial not on the
FACTS:
basis of “newly discovered evidence” but on “mistake” or “excusable
 Philphos is a domestic corporation engaged in the negligence” because it was acting in prudence when it did not present the
manufacture of fertilizers for domestic and international invoices, as it also did not and was, in fact, not required to submit such
distribution. documents in its previous similar cases.
 It is registered with the Export Processing Zone Authority “Since it is not disputed that petitioner is entitled to tax exemption,
(EPZA) and is exempted from the payment of excise taxes. it should not be precluded from presenting evidence to substantiate
 In the process of manufacturing fertilizers, Philphos uses oil the amount of refund it is claiming on mere technicality especially in
and petroleum products that it procures from Petron. this case, where the failure to present invoices at the first instance
 Petron initially pays the BIR the taxes and duties imposed and was adequately explained by petioner (Philphos).”
is then reimbursed by Philphos when it the latter buys the
petroleum products.
 For the reimbursement it made to Petron in the payment of
taxes and duties and by virtue of incentives it is supposed to
enjoy as an EPZA registered company, Philphos sought a
refund in the amount of P 602,349.00
 No action was taken by the BIR and since the two-year period
to file a case for tax refund before the Court of Tax Appeals
was about to expire, Philphos instituted a petition for review
before the CTA against the Commissioner of Internal
Revenue.
 To further its claim, Philphos submitted the following:
a. copies of Petron’s Authority to Accept
Payment of Excise Taxes showing the millions of pesos of
excise tax paid by Petron
b. schedule of petroleum products sold and
delivered by Petron to Philphos
c. certification issued by Petron stating that the
duties imposed on the pretroleum products delivered to
Philphos have also been paid for by Philphos through Petron
 The CTA ruled that while Philphos was exempt from the
payment of excise taxes, “it failed to sufficiently prove that it
is entitled to refund…since it did not submit invoices to
support the summary of petroleum products sold and
delivered to it by Petron.”
 In its motion for reconsideration, Philphos claims that in
previous cases of the same nature, it was not required to
submit invoices; hence, it prayed for it to be allowed to
present such required invoices.
 The CTA denied the motion for the reason that in the
previous cases, CTA Circular 1-95 was not yet in effect. This
circular requires that for voluminous documents to be
presented as evidence, the petitioner must submit a
summary of the dates and amounts covered by invoices and
receipts and this should be duly certified by a Certified Public
Accountant. It argued that to grant Philphos motion to
present evidence would be to grant a new trial of the case.

ISSUE:
Whether or not the CTA erred in denying Philphos’ claim for refund due
to its failure to present invoices and receipts.

RULING:
The case was remanded to the CTA for reception of the invoices
supporting the schedule of petroleum products sold and delivered to
Philphos, for the proper and immediate determination of the amount to
be refunded to it.

RATIO:
The Circular used by the CTA to justify its ruling, does not require invoices
to be presented in claiming refunds. It merely states that parties who
desire to introduce it as evidence should submit a summary duly certified

33
 CASE DIGESTS ON VALUE-ADDED TAX
28. CIR v. Cebu Toyo Corporation, G.R. No. 149073
February 17 2005 – zero-rating vs exempt
Parties:
1) Cebu Toyo Corporation :
- domestic corporation engaged in the manufacture of lenses
and various optical components used in television sets,
cameras, compact discs and other similar devices
- office at Mactan Export Processing Zone (MEPZ)
- a subsidiary of Toyo Lens Corporation
- zone export enterprise regsitered with the PEZA and the BIR
as a VAT taxpayer
2) Tokyo Lens Corporation
- a non-resident corporation organized under the laws of Japan
FACTS: CTC as an export enterprise, respondent sells 80% of its products
to its mother corporation, Toyo Lens Corporation, pursuant to an
Agreement of Offsetting. The rest are sold to various enterprises doing
business in the MEPZ. Inasmuch as both sales are considered export sales
subject to Value-Added Tax (VAT) at 0% rate under Section
106(A)(2)(a)6 of the National Internal Revenue Code, as amended,
respondent filed its quarterly VAT returns from April 1, 1996 to December
31, 1997 showing a total input VAT of P4,462,412.63.
On March 30, 1998, CTC filed an application for tax credit/refund of VAT
paid amounting to P4,439,827.21 representing excess VAT input
payments.To toll the running of the 2 year prescriptive period, they filed
a Petition for Review with the CTA maintaining that as an exporter of
goods, it is subject to VAT at the 0% rate on its export sales that do not
result in any outpux tax, hence the unutilized VAT input taxes on its
purchases of goods are available as tax credit.
CTA: Respondent was a VAT-registered entity and the transactions were
export sales subject to VAT but nonetheless for failure to present
documentary evidence to show that there were foreign currecny
exchange proceeds from its export sales, and failure to submit the
Agreement of Offsetting to the BSP, it was not entitled to tax credit.
On Motion for Recon, Ruling:
- No need for BSP approval of the Agreement of Offsetting
since the same may be categorized as an inter-company
open account offset arrangement
- But they must prove that there was an actual offsetting of
accounts to prove that constructive foreign currency
exchange proceeds were inwardly remitted as required under
Section 106(A)(2)(a).
- only the amount of Y274,043,858.00 covering respondent’s
sales to Toyo Lens Corporation and purchases from said
mother company were actually offset against respondent’s
related accounts receivable and accounts payable as shown
by the Agreement for Offsetting
Commissioner’s Motion for Recon, grounds:
- respondent was not entitled to a refund because as a PEZA-
registered enterprise, it was not subject to VAT pursuant to
Section 24 of Republic Act No. 7916, as amended by Rep. Act
No. 8748.
- Not being subject to VAT, the capital goods it purchased
must be deemed not used in VAT taxable business and
therefore it was not entitled to refund
Court of Tax Appeals, Ruling:
- Denief Motion: grounds relied upon were only raised for the
first time and that Section 24 of Rep. Act No. 7916 was not
34
applicable since respondent has availed of the income tax
holiday incentive under Executive Order No. 226 or the
Omnibus Investment Code of 1987 pursuant to Section
2318 of Rep. Act No. 7916.
- E.O. No. 226 granted PEZA-registered enterprises an
exemption from payment of income taxes for 4 or 6 years
depending on whether the registration was as a pioneer or as
a non-pioneer enterprise, but subject to other national taxes
including VAT.
ISSUE: WON the CTA erred in granting the refund in the amount
of P2,158,714.46 representing unutilized input VAT on goods and
services ?
Contentions:
CIR and OSG: Cebu Toyo Corporation is not entitled to any refund or
credit on input taxes it previously paid notwithstanding its registration as
a VAT taxpayer. The registration was erroneous and did not confer upon
the respondent any right to claim recognition of the input tax credit.
Cebu Toyo Corporation: It availed of the income tax holiday under E.O.
No. 226 for four years making it exempt from income tax but not from
other taxes such as VAT. Its export sales are not exempt from VAT,
contrary to petitioner’s claim, but its export sales is subject to 0% VAT.
RULING:
1) Determine if engaged in taxable transaction:
The fiscal incentives granted in Section 23 of Rep. Act No. 7916 allows
respondents 2 options in regards to the tax burden:
A)avail of an income tax holiday pursuant to provisions of E.O. No. 226
(exempt it from income taxes for a number of years but not from other
internal revenue taxes such as VAT) or;
B) 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.
Respondent availed of the income tax holiday for four (4) years and
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.
Taxable transactions - transactions subject to VAT either at the rate of
ten percent (10%) or zero percent (0%); the seller shall be entitled to tax
credit for the value-added tax paid on purchases and leases of goods,
properties or services.
Exemption - the sale of goods, properties or services and the use or lease
of properties is not subject to VAT (output tax) and the seller is not
allowed any tax credit on VAT (input tax) previously paid. Here, the
person making the exempt sale shall not bill any output tax to his
customers because the said transaction is not subject to VAT. Thus, a
VAT-registered purchaser of goods, properties or services that are VAT-
exempt, is not entitled to any input tax on such purchases despite the
issuance of a VAT invoice or receipt.24
Respondent is engaged in taxable transactions subject to VAT.
2. Determine whether 10% (12%) or 0 % rate of VAT.
Sale of goods and supply of services performed in the Philippines are
taxable at the rate of 10%. However, export sales, or sales outside the
Philippines, shall be subject to value-added tax at 0% if made by a VAT-
registered person.
A zero-rated sale by a VAT-registered person, which is a taxable
transaction for VAT purposes, shall not result in any output tax. However,
 CASE DIGESTS ON VALUE-ADDED TAX

the input tax on his purchase of goods, properties or services related to

such zero-rated sale shall be available as tax credit or refund. awphi1.nét
Purpose:
- to exempt the transaction completely from VAT previously
collected on inputs
- to ensure that goods are provided free of VAT

Difference between zero rating and exemption:

Zero Rating Exemption

- taxable - exempted
transaction but transactions
does not result not subject to
in an output the output tax
tax - seller is not
- input VAT on entitled to any
the purchase input tax on his
of a VAT purchases
registered despite the
person with 0 issuance of a
rate sales may VAT invoice
be allowed tax - registration is
credits/ refund option for VAT
- persons exempt
engaged in persons
such
transactions
are required to
register

In the case at bar: respondent is engaged in the export business and is

registered as a VAT taxpayer per Certificate of Registration of the BIR. It
is subject to VAT as it availed of the income tax holiday under E.O. No.
226. Perforce, respondent is subject to VAT at 0% rate and is entitled to
a refund or credit of the unutilized input taxes, which the Court of Tax
Appeals computed atP2,158,714.46, but which we find—after
recomputation—should be P2,158,714.52.

35
 CASE DIGESTS ON VALUE-ADDED TAX

29. Contex Corp. vs. CIR, G.R. No. 151135 national and local internal revenue taxes, including VAT and Section
July 2, 2004 – zero-rating vs exempt 4(A)(a) of BIR Revenue Regulations No. 1-95.
On this point, petitioner rightly claims that it is indeed VAT-Exempt and
this fact is not controverted by the respondent. In fact, petitioner is
FACTS:
registered as a NON-VAT taxpayer per Certificate of Registration issued
by the BIR. As such, it is exempt from VAT on all its sales and importations
Petitioner is a domestic corporation engaged in the business of of goods and services.
manufacturing hospital textiles and garments and other hospital supplies Petitioner's claim, however, for exemption from VAT for its purchases of
for export. Its place of business is at the Subic Bay Freeport Zone (SBFZ). supplies and raw materials is incongruous with its claim that it is VAT-
It is duly registered with the Subic Bay Metropolitan Authority (SBMA) as Exempt, for only VAT-Registered entities can claim Input VAT
a Subic Bay Freeport Enterprise, pursuant to the provisions of Republic Credit/Refund.
Act No. 7227.As an SBMA-registered firm, petitioner is exempt from all
The point of contention here is whether or not the petitioner may claim
local and national internal revenue taxes except for the preferential tax
a refund on the Input VAT erroneously passed on to it by its suppliers.
provided for in Section 12(c) 5 of Rep. Act No. 7227. Petitioner also
registered with the Bureau of Internal Revenue (BIR) as a non-VAT While it is true that the petitioner should not have been liable for the VAT
taxpayer under Certificate of Registration RDO Control No. 95-180- inadvertently passed on to it by its supplier since such is a zero-rated sale
000133. on the part of the supplier, the petitioner is not the proper party to claim
such VAT refund. Cc
Section 4.100-2 of BIR's Revenue Regulations 7-95, as amended, or the
From January 1, 1997 to December 31, 1998, petitioner purchased various
"Consolidated Value-Added Tax Regulations" provide:
supplies and materials necessary in the conduct of its manufacturing
business. The suppliers of these goods shifted unto petitioner the 10% VAT Sec. 4.100-2. Zero-rated Sales. — A zero-rated
on the purchased items, which led the petitioner to pay input taxes in the sale by a VAT-registered person, which is a
amounts of P539,411.88 and P504,057.49 for 1997 and 1998, taxable transaction for VAT purposes, shall
respectively. Acting on the belief that it was exempt from all national and not result in any output tax. However, the
local taxes, including VAT, pursuant to Rep. Act No. 7227, petitioner filed input tax on his purchases of goods, properties
two applications for tax refund or tax credit of the VAT it paid but were or services related to such zero-rated sale shall
denied. be available as tax credit or refund in
accordance with these regulations.
The following sales by VAT-registered persons
CTA granted a partial refund on the ground that it applies only to those
shall be subject to 0%:
entities registered as VAT taxpayers whose sales are zero-rated.
Nonetheless, the CTA held that the petitioner is exempt from the (a) Export Sales
imposition of input VAT on its purchases of supplies and materials but is "Export Sales" shall mean
required to pay as a SBFZ-registered enterprise a 5% preferential tax. xxx xxx xxx
CTA also disallowed all refunds of input VAT paid by the petitioner prior
(5) Those considered export sales
to June 29, 1997 for being barred by the two-year prescriptive period
under Articles 23 and
under Section 229 of the Tax Code
77 of Executive Order
No. 226, otherwise
In reversing the CTA, the Court of Appeals held that the exemption from known as
duties and taxes on the importation of raw materials, capital, and the Omnibus
equipment of SBFZ-registered enterprises under Rep. Act No. 7227 and Investments Code of
its implementing rules covers only "the VAT imposable under Section 107 1987, and other
of the [Tax Code], which is a direct liability of the importer, and in no way special
includes the value-added tax of the seller-exporter the burden of which laws, e.g. Republic Act
was passed on to the importer as an additional costs of the goods." No. 7227, otherwise
known as the Bases
Conversion and
Petitioner timely moved for reconsideration of the Court of Appeals
Development Act of
decision, but the motion was denied. Hence, the instant petition
1992.
xxx xxx xxx
ISSUES:
(c) Sales to persons or entities whose
exemption under special
I. WHETHER OR NOT THE EXEMPTION FROM ALL LOCAL AND laws, e.g. R.A. No. 7227 duly
NATIONAL INTERNAL REVENUE TAXES PROVIDED IN REPUBLIC ACT registered and accredited
NO. 7227 COVERS THE VALUE ADDED TAX PAID BY PETITIONER, A enterprises with Subic Bay
SUBIC BAY FREEPORT ENTERPRISE ON ITS PURCHASES OF SUPPLIES Metropolitan Authority (SBMA)
AND MATERIALS. and Clark Development Authority
(CDA), R.A. No. 7916, Philippine
II. WHETHER OR NOT THE COURT OF TAX APPEALS CORRECTLY Economic Zone Authority (PEZA),
HELD THAT PETITIONER IS ENTITLED TO A TAX CREDIT OR REFUND or international agreements, e.g.
OF THE VAT PAID ON ITS PURCHASES OF SUPPLIES AND RAW Asian Development Bank (ADB),
MATERIALS FOR THE YEARS 1997 AND 1998. International Rice Research
Institute (IRRI), etc. to which the
Philippines is a signatory
HELD: effectively subject such sales to
zero-rate."
I. The petitioner's claim to VAT exemption in the instant case for its Since the transaction is deemed a zero-rated sale, petitioner's supplier
purchases of supplies and raw materials is founded mainly on Section may claim an Input VAT credit with no corresponding Output VAT
12(b) and (c) of Rep. Act No. 7227, which basically exempts them from all liability. Congruently, no Output VAT may be passed on to the petitioner.

36
 CASE DIGESTS ON VALUE-ADDED TAX

II. As an exempt VAT taxpayer, it is not allowed any tax credit on VAT
(input tax) previously paid. In fine, even if we are to assume that
exemption from the burden of VAT on petitioner's purchases did exist,
petitioner is still not entitled to any tax credit or refund on the input tax
previously paid as petitioner is an exempt VAT taxpayer.
Rather, it is the petitioner's suppliers who are the proper parties to claim
the tax credit and accordingly refund the petitioner of the VAT
erroneously passed on to the latter.
Accordingly, we find that the Court of Appeals did not commit any
reversible error of law in holding that petitioner's VAT exemption
under Rep. Act No. 7227 is limited to the VAT on which it is directly liable
as a seller and hence, it cannot claim any refund or exemption for any
input VAT it paid, if any, on its purchases of raw materials and supplies.
Dispositive Portion: WHEREFORE, the petition is DENIED for lack of
merit. The Decision dated September 3, 2001, of the Court of Appeals in
CA-G.R. SP No. 62823, as well as its Resolution of December 19, 2001 are
AFFIRMED. No pronouncement as to costs.

37
 CASE DIGESTS ON VALUE-ADDED TAX
30. CIR vs. CA, et al., G.R. No. 125355
March 30, 2000 – in the course of trade or business vis-à-vis engaged
in business
FACTS:
SYNOPSIS: Commonwealth Management and Services Corporation
(COMASERCO, for brevity), is a corporation duly organized and existing
under the laws of the Philippines. It is an affiliate of Philippine American
Life Insurance Co. (PhilamLife), organized by the letter to perform
collection, consultative and other technical services, including
functioning as an integral auditor, of Philamlife and its other affiliates.
On January 24, 1992, the BIR issued an assessment to private respondent
COMASERCO for deficiency value-added tax (VAT) amounting to
P351,851.01, for taxable year 1988.
COMASERCO’s annual corporate income tax return ending December
31, 1988 indicated a net loss in its operation in the amount of P6,077.00
On February 10, 1992, COMASERCO filed with the BIR, a letter-protest
objecting to the latter’s finding of deficiency VAT. On August 20, 1992,
the Commissioner of Internal Revenue sent a collection letter to
COMASERCO demanding payment of the deficiency VAT
On September 29, 1992, COMASERCO filed with the Court of Tax
Appeals a petition for review contesting the Commissioner’s assessment.
COMASERCO asserted that the services it rendered to Philamlife and its
affiliates, relating to collection, consultative and other technical
assistance, including functioning as an internal auditor, were on a “no-
profit, reimbursement-of-cost-only” basis. It averred that it was not
engaged in the business of providing services to Philamlife and its
affiliates. COMASERCO was established to ensure operational
orderliness and administrative efficiency of Philamlife and its affiliates,
and not in the sales of service. COMASERCO stressed that it was not
profit-motivated, thus not engaged in business. In fact, it did not
generate profit but suffered a net loss in taxable year 1988. COMASERCO
averred that since it was not engaged in business, it was not liable to pay
VAT.
On June 22, 1995, the CTA rendered decision in favor of the CIR.
On July 26, 1995, respondent filed with the Court of Appeals, petition for
review of the decision of the Court of Appeals.
After due proceedings, on May 13, 1996, the Court of Appeals rendered
decision reversing that of the Court of Tax Appeals.
The CA anchored its decision on the ratiocination in another tax case
involving the same parties, where it was held that COMASERCO was not
liable to pay fixed and contractor’s tax for services rendered to Philamlife
and its affiliates. The CA, in that case, reasoned that COMASERCO was
not engaged in business of providing services to Philamlife and its
affiliates. In the same manner, the Court of Appeals held that
COMASERCO was not liable to pay VAT for it was not engaged in the
business of selling service.
On July 16, 1996, the Commissioner of Internal Revenue filed with this
Court a petition for review on certiorari assailing the decision of the Court
of Appeals.
Petitioner Commissioner on Internal Revenue aver that to “engage in
business” and to “engage in the sale of services” are two different things.
Petitioner maintains that the services rendered by COMASERCO to
Philamlife and its affiliates, for a fee or consideration, are subject to VAT.
VAT is a tax on value added by the performance of the service. It is
immaterial whether profit is derived from rendering the service.
38
ISSUE: Whether COMASERCO was engaged in the sale of services, and
thus liable to pay VAT thereon.
DISPOSITION: The Court GRANTS the petition and REVERSES the
decision of the Court of Appeals in CA-G.R. SP No. 37930
RULING: (1) Contrary to COMASERCO’s contention, R.A. 7716, the
Expanded VAT Law (EVAT) clarifies that even a non-stock, non-profit,
organization or government entity, is liable to pay VAT on the sale of goods
or service. – On May 28, 1994, Congress enacted RA 7716, the Expanded
VAT Law (EVAT), amending among other sections Section 99 of the Tax
Code. On January 1, 1998, Republic Act 8424, the National Internal
Revenue Code of 1997, took effect. The amended law provides that:
“SEC. 105. Persons Liable. – Any person who, in the course of
trade or business, sells, barters. Exchanges, leases goods or properties,
renders services, and nay person who imports goods shall be subject to
the value-added tax (VAT) imposed in Sections 106 and 108 of this Code.
“The value-added tax is an indirect tar and the amount of tax
may be shifted or passed on to the buyer, transferee or lessee of the
good, properties or services. This rule shall likewise apply to existing sale
or lease of goods, properties or services at the time of the effectivity of
Republic Act No. 7716.
“The phrase “in the course of trade or business” means the
regular conduct or pursuit of a commercial or an economic activity,
including transactions incidental thereto, by any person regardless of
whether or not the person engaged there in is a nonstock. Nonprofit
organization (irrespective of the disposition of its net income andw
whether or not it sells exclusively to members of their guests), or
government entity.
“The rule on regularity, to the contrary notwithstanding,
services as defined in this Code rendered in the Philippines by
nonresident foreign persons shall be considered as being rendered in the
course of trade or business.”
Contrary to COMASERCO’s contention the above provision clarifies that
even a non-stock, non-profit, organization or government entity, is liable
to pay VAT on the sale of goods or services. VAT is a tax on transactions,
imposed at every stage of the distribution process on the sale, barter,
exchange of goods, or property, and on the performance of services”,
even in the absence of profit attributable thereto. The term “in the course
of business” requires the regular conduct or pursuit of a commercial or an
activity, regardless of whether or not the entity is profit-oriented.
(2) “In the course of Trade or Business,” defined. – The definition of the
term “in the course of trade or business” incorporated in the present laws
applies to all transactions even to those made prior to its enactment.
Executive Order No. 273 stated that any person who, in the course of
trade or business, sells, barters or exchanges goods or services, was
already liable to pay VAT. The present law merely stresses that even a
nonstock, nonprofit organization or government entity is liable to pay
VAT for the sale of goods and services.
(3) “Sales of Services,” defined. – Section 108 of the NIRC of 1997 defines
the phrase “sale of services” as the “performance of all kinds of services
for others for a fee, remuneration or consideration.” It includes “the
supply of technical advice, assistance or services rendered in connection
with technical management or administration of any scientific, industrial
or commercial undertaking or project.”
(4) A domestic corporation that provided technical, research,
management and technical assistance to its affiliated companies and
received payments on a reimbursement-of-cost basis, without any
intention of realizing profit, was subject to VAT on services rendered. –
On February 5, 1998, the Commissioner of Internal Revenue issued BIR
 CASE DIGESTS ON VALUE-ADDED TAX

Ruling No. 010-9812 emphasizing that a domestic corporation that

provided technical, research, management and technical assistance to its
affiliated companies and received payments on a reimbursement-of-cost
basis, without any intention of realizing profit, was subject to VAT on
services rendered. In fact, even if such corporation was organized
without any intention of realizing profit, any income or profit
generated by the entity in the conduct of its activities was subject to
income tax.
Hence, it is immaterial whether the primary purpose of a
corporation indicates that it receives payments for services rendered to
its affiliates on a reimbursement-on-cost basis only, without realizing
profit, for purposes of determining liability of VAT on services rendered.
As long as the entity provides service for a fee, remuneration or
consideration, then the service rendered is subject to VAT.

39
 CASE DIGESTS ON VALUE-ADDED TAX

31. Atlas Consolidated Mining v. CIR, G.R. No. 134467

November 17, 1999 – export sales to export-oriented enterprises

Zero-rating of sales to an export-oriented enterprise does not apply only in

proportion to its actual exports, but to the entirety of the sale made to it.

FACTS:
Petitioner Atlas Consolidated and Mining Corp. was engaged
in the business of mining, production and sale of various mineral
products. It is duly registered with the Bureau of Internal Revenue (BIR)
as a Value Added Tax (VAT) enterprise. The BIR also approved
petitioner's application for VAT zero-rating for the sales of gold to the
Central Bank, copper concentrates to the Philippine Smelting and
Refining Corp. (PASAR) and pyrite to Philippine Phosphate, Inc.
(PHILPHOS). PASAR and PHILPHOS are both Board of Investments
(BOI) and Export Processing Zone Authority (EPZA) registered as export-
oriented enterprises located in an EPZA Zone. On July 24, 1990,
petitioner filed with respondent Commissioner of Internal Revenue a
refund/credit of VAT input taxes on its purchases of goods and services
for the first quarter of 1990 in the total amount of P35,522,056.58, as
amended. The respondent resolved petitioner's claim for VAT
refund/credit by allowing only P12,101,569.11 as refundable/creditable
tax. On appeal, the Court of Appeals upheld VAT Ruling No. 008-92
regarding the schedule of taxes to be imposed on VAT-registered
entities, explaining that the zero-percent rating of BOI registered
enterprises shall be set in proportion to the amount of its actual exports.
And that EPZA and BOI registration were by themselves not enough for
zero-rating to apply.

ISSUE:
Whether or not Atlas Mining can claim for tax refund/credit

RULING:
Yes. The SC ruled that an examination of Section 4.100.2 of Revenue
Regulation 7-95 in relation to Section 102 (b) of the Tax Code shows that
sales to an export-oriented enterprise whose export sales exceed 70
percent of its annual production are to be zero-rated, provided the seller
complies with other requirements, like registration with the BOI and the
EPZA. The said Regulation does not even hint, much less expressly
mention, that only a percentage of the sales would be zero-rated. The
internal revenue commissioner cannot, by administrative fiat, amend the
law, by making compliance therewith more burdensome.
Thus, it is the totality of petitioner's sales to Philphos and PASAR that
must be taken into account, not merely the proportion of such sales to
the actual exports of the said enterprises.

40