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FIRST DIVISION

G.R. No. 166018

June 4, 2014

THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITEDPHILIPPINE BRANCHES, Petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent;
x-----------------------x
G.R. No. 167728
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITEDPHILIPPINE BRANCHES, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
These petitions for review on certiorari1 assail the Decision2 and Resolution dated July 8, 2004
and October 25, 2004, respectively, of the Court of Appeals in CA-G.R. SP No. 77580, as well as
the Decision3 and Resolution dated September 2, 2004 and April 4, 2005, respectively, of the
Court of Appeals in CA-G.R. SP No. 70814. The respective Decisions in the said cases similarly
reversed and set aside the decisions of the Court of Tax Appeals (CTA) in CTA Case Nos.
59514 and 6009,5 respectively, and dismissed the petitions of petitioner Hongkong and Shanghai
Banking Corporation Limited-Philippine Branches (HSBC). The corresponding Resolutions, on
the other hand, denied the respective motions for reconsideration of the said Decisions.
HSBC performs, among others, custodial services on behalf of its investor-clients, corporate and
individual, resident or non-resident of the Philippines, with respect to their passive investments
in the Philippines, particularly investments in shares of stocks in domestic corporations. As a
custodian bank, HSBC serves as the collection/payment agent with respect to dividends and
other income derived from its investor-clients passive investments.6
HSBCs investor-clients maintain Philippine peso and/or foreign currency accounts, which are
managed by HSBC through instructions given through electronic messages. The said instructions
are standard forms known in the banking industry as SWIFT, or "Society for Worldwide
Interbank Financial Telecommunication." In purchasing shares of stock and other investment in
securities, the investor-clients would send electronic messages from abroad instructing HSBC to
debit their local or foreign currency accounts and to pay the purchase price therefor upon receipt
of the securities.7
Pursuant to the electronic messages of its investor-clients, HSBC purchased and paid
Documentary Stamp Tax (DST) from September to December 1997 and also from January to
December 1998 amounting to P19,572,992.10 and P32,904,437.30, respectively, broken down as
follows:
A. September to December 1997
September 1997

P 6,981,447.90

October 1997

6,209,316.60

November 1997

3,978,510.30

December 1997

2,403,717.30

Total

P19,572,992.10

B. January to December 1998


January 1998

P 3,328,305.60

February 1998

4,566,924.90

March 1998

5,371,797.30

April 1998

4,197,235.50

May 1998

2,519,587.20

June 1998

2,301,333.00

July 1998

1,586,404.50

August 1998

1,787,359.50

September 1998

1,231,828.20

October 1998

1,303,184.40

November 1998

2,026,379.70

December 1998

2,684,097.50

Total

P32,904,437.30

On August 23, 1999, the Bureau of Internal Revenue (BIR), thru its then Commissioner,
Beethoven Rualo, issued BIR Ruling No. 132-99 to the effect that instructions or advises from
abroad on the management of funds located in the Philippines which do not involve transfer of
funds from abroad are not subject to DST. BIR Ruling No. 132-99 reads:
Date: August 23, 1999
FERRY TOLEDO VICTORINO GONZAGA
& ASSOCIATES
G/F AFC Building, Alfaro St.
Salcedo Village, Makati
Metro Manila
Attn: Atty. Tomas C. Toledo
Tax Counsel
Gentlemen:
This refers to your letter dated July 26, 1999 requesting on behalf of your clients, the CITIBANK
& STANDARD CHARTERED BANK, for a ruling as to whether or not the electronic
instructions involving the following transactions of residents and non-residents of the Philippines
with respect to their local or foreign currency accounts are subject to documentary stamp tax
under Section 181 of the 1997 Tax Code, viz:
A. Investment purchase transactions:
An overseas client sends instruction to its bank in the Philippines to either:

(i) debit its local or foreign currency account and to pay a named recipient in the
Philippines; or
(ii) receive funds from another bank in the Philippines for deposit into its account
and to pay a named recipient in the Philippines."
The foregoing transactions are carried out under instruction from abroad and [do] not involve
actual fund transfer since the funds are already in the Philippine accounts. The instructions are in
the form of electronic messages (i.e., SWIFT MT100 or MT 202 and/or MT 521). In both cases,
the payment is against the delivery of investments purchased. The purchase of investments and
the payment comprise one single transaction. DST has already been paid under Section 176 for
the investment purchase.
B. Other transactions:
An overseas client sends an instruction to its bank in the Philippines to either:
(i) debit its local or foreign currency account and to pay a named recipient, who
may be another bank, a corporate entity or an individual in the Philippines; or
(ii) receive funds from another bank in the Philippines for deposit to its account
and to pay a named recipient, who may be another bank, a corporate entity or an
individual in the Philippines."
The above instruction is in the form of an electronic message (i.e., SWIFT MT 100 or MT 202)
or tested cable, and may not refer to any particular transaction.
The opening and maintenance by a non-resident of local or foreign currency accounts with a
bank in the Philippines is permitted by the Bangko Sentral ng Pilipinas, subject to certain
conditions.
In reply, please be informed that pursuant to Section 181 of the 1997 Tax Code, which provides
that
SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others. Upon any acceptance
or payment of any bill of exchange or order for the payment of money purporting to be drawn in
a foreign country but payable in the Philippines, there shall be collected a documentary stamp tax
of Thirty centavos (P0.30) on each Two hundred pesos (P200), or fractional part thereof, of the
face value of any such bill of exchange, or order, or Philippine equivalent of such value, if
expressed in foreign currency. (Underscoring supplied.)
a documentary stamp tax shall be imposed on any bill of exchange or order for payment
purporting to be drawn in a foreign country but payable in the Philippines.
Under the foregoing provision, the documentary stamp tax shall be levied on the instrument, i.e.,
a bill of exchange or order for the payment of money, which purports to draw money from a
foreign country but payable in the Philippines. In the instant case, however, while the payor is
residing outside the Philippines, he maintains a local and foreign currency account in the
Philippines from where he will draw the money intended to pay a named recipient. The
instruction or order to pay shall be made through an electronic message, i.e., SWIFT MT 100 or
MT 202 and/or MT 521. Consequently, there is no negotiable instrument to be made, signed or
issued by the payee. In the meantime, such electronic instructions by the non-resident payor
cannot be considered as a transaction per se considering that the same do not involve any transfer
of funds from abroad or from the place where the instruction originates. Insofar as the local bank
is concerned, such instruction could be considered only as a memorandum and shall be entered
as such in its books of accounts. The actual debiting of the payors account, local or foreign

currency account in the Philippines, is the actual transaction that should be properly entered as
such.
Under the Documentary Stamp Tax Law, the mere withdrawal of money from a bank deposit,
local or foreign currency account, is not subject to DST, unless the account so maintained is a
current or checking account, in which case, the issuance of the check or bank drafts is subject to
the documentary stamp tax imposed under Section 179 of the 1997 Tax Code. In the instant case,
and subject to the physical impossibility on the part of the payor to be present and prepare and
sign an instrument purporting to pay a certain obligation, the withdrawal and payment shall be
made in cash. In this light, the withdrawal shall not be subject to documentary stamp tax. The
case is parallel to an automatic bank transfer of local funds from a savings account to a checking
account maintained by a depositor in one bank.
Likewise, the receipt of funds from another bank in the Philippines for deposit to the payees
account and thereafter upon instruction of the non-resident depositor-payor, through an electronic
message, the depository bank to debit his account and pay a named recipient shall not be subject
to documentary stamp tax.
It should be noted that the receipt of funds from another local bank in the Philippines by a local
depository bank for the account of its client residing abroad is part of its regular banking
transaction which is not subject to documentary stamp tax. Neither does the receipt of funds
makes the recipient subject to the documentary stamp tax. The funds are deemed to be part of the
deposits of the client once credited to his account, and which, thereafter can be disposed in the
manner he wants. The payor-clients further instruction to debit his account and pay a named
recipient in the Philippines does not involve transfer of funds from abroad. Likewise, as stated
earlier, such debit of local or foreign currency account in the Philippines is not subject to the
documentary stamp tax under the aforementioned Section 181 of the Tax Code.
In the light of the foregoing, this Office hereby holds that the instruction made through an
electronic message by non-resident payor-client to debit his local or foreign currency account
maintained in the Philippines and to pay a certain named recipient also residing in the
Philippines is not the transaction contemplated under Section 181 of the 1997 Tax Code. Such
being the case, such electronic instruction purporting to draw funds from a local account
intended to be paid to a named recipient in the Philippines is not subject to documentary stamp
tax imposed under the foregoing Section.
This ruling is being issued on the basis of the foregoing facts as represented. However, if upon
investigation it shall be disclosed that the facts are different, this ruling shall be considered null
and void.
Very truly yours,
(Sgd.) BEETHOVEN L. RUALO
Commissioner of Internal Revenue8
With the above BIR Ruling as its basis, HSBC filed on October 8, 1999 an administrative claim
for the refund of the amount of P19,572,992.10 allegedly representing erroneously paid DST to
the BIR for the period covering September to December 1997.
Subsequently, on January 31, 2000, HSBC filed another administrative claim for the refund of
the amount ofP32,904,437.30 allegedly representing erroneously paid DST to the BIR for the
period covering January to December 1998.
As its claims for refund were not acted upon by the BIR, HSBC subsequently brought the matter
to the CTA as CTA Case Nos. 5951 and 6009, respectively, in order to suspend the running of the
two-year prescriptive period.

The CTA Decisions dated May 2, 2002 in CTA Case No. 6009 and dated December 18, 2002 in
CTA Case No. 5951 favored HSBC. Respondent Commissioner of Internal Revenue was ordered
to refund or issue a tax credit certificate in favor of HSBC in the reduced amounts
of P30,360,570.75 in CTA Case No. 6009 andP16,436,395.83 in CTA Case No. 5951,
representing erroneously paid DST that have been sufficiently substantiated with documentary
evidence. The CTA ruled that HSBC is entitled to a tax refund or tax credit because Sections 180
and 181 of the 1997 Tax Code do not apply to electronic message instructions transmitted by
HSBCs non-resident investor-clients:
The instruction made through an electronic message by a nonresident investor-client, which is to
debit his local or foreign currency account in the Philippines and pay a certain named recipient
also residing in the Philippines is not the transaction contemplated in Section 181 of the Code. In
this case, the withdrawal and payment shall be made in cash. It is parallel to an automatic bank
transfer of local funds from a savings account to a checking account maintained by a depositor in
one bank. The act of debiting the account is not subject to the documentary stamp tax under
Section 181. Neither is the transaction subject to the documentary stamp tax under Section 180
of the same Code. These electronic message instructions cannot be considered negotiable
instruments as they lack the feature of negotiability, which, is the ability to be transferred (Words
and Phrases).
These instructions are considered as mere memoranda and entered as such in the books of
account of the local bank, and the actual debiting of the payors local or foreign currency account
in the Philippines is the actual transaction that should be properly entered as such.9
The respective dispositive portions of the Decisions dated May 2, 2002 in CTA Case No. 6009
and dated December 18, 2002 in CTA Case No. 5951 read:
II. CTA Case No. 6009
WHEREFORE, in the light of all the foregoing, the instant Petition for Review is PARTIALLY
GRANTED. Respondent is hereby ORDERED to REFUND or ISSUE A TAX CREDIT
CERTIFICATE in favor of Petitioner the amount of P30,360,570.75 representing erroneous
payment of documentary stamp tax for the taxable year 1998.10
II. CTA Case No. 5951
WHEREFORE, in the light of the foregoing, the instant petition is hereby partially granted.
Accordingly, respondent is hereby ORDERED to REFUND, or in the alternative, ISSUE A TAX
CREDIT CERTIFICATE in favor of the petitioner in the reduced amount of P16,436,395.83
representing erroneously paid documentary stamp tax for the months of September 1997 to
December 1997.11
However, the Court of Appeals reversed both decisions of the CTA and ruled that the electronic
messages of HSBCs investor-clients are subject to DST. The Court of Appeals explained:
At bar, [HSBC] performs custodial services in behalf of its investor-clients as regards their
passive investments in the Philippines mainly involving shares of stocks in domestic
corporations. These investor-clients maintain Philippine peso and/or foreign currency accounts
with [HSBC]. Should they desire to purchase shares of stock and other investments securities in
the Philippines, the investor-clients send their instructions and advises via electronic messages
from abroad to [HSBC] in the form of SWIFT MT 100, MT 202, or MT 521 directing the latter
to debit their local or foreign currency account and to pay the purchase price upon receipt of the
securities (CTA Decision, pp. 1-2; Rollo, pp. 41-42). Pursuant to Section 181 of the NIRC,
[HSBC] was thus required to pay [DST] based on its acceptance of these electronic messages
which, as [HSBC] readily admits in its petition filed before the [CTA], were essentially orders to
pay the purchases of securities made by its client-investors (Rollo, p. 60).

Appositely, the BIR correctly and legally assessed and collected the [DST] from [HSBC]
considering that the said tax was levied against the acceptances and payments by [HSBC] of the
subject electronic messages/orders for payment. The issue of whether such electronic messages
may be equated as a written document and thus be subject to tax is beside the point. As We have
already stressed, Section 181 of the law cited earlier imposes the [DST] not on the bill of
exchange or order for payment of money but on the acceptance or payment of the said bill or
order. The acceptance of a bill or order is the signification by the drawee of its assent to the order
of the drawer to pay a given sum of money while payment implies not only the assent to the said
order of the drawer and a recognition of the drawers obligation to pay such aforesaid sum, but
also a compliance with such obligation (Philippine National Bank vs. Court of Appeals, 25
SCRA 693 [1968]; Prudential Bank vs. Intermediate Appellate Court, 216 SCRA 257 [1992]).
What is vital to the valid imposition of the [DST] under Section 181 is the existence of the
requirement of acceptance or payment by the drawee (in this case, [HSBC]) of the order for
payment of money from its investor-clients and that the said order was drawn from a foreign
country and payable in the Philippines. These requisites are surely present here.
It would serve the parties well to understand the nature of the tax being imposed in the case at
bar. In Philippine Home Assurance Corporation vs. Court of Appeals (301 SCRA 443 [1999]),
the Supreme Court ruled that [DST is] levied on the exercise by persons of certain privileges
conferred by law for the creation, revision, or termination of specific legal relationships through
the execution of specific instruments, independently of the legal status of the transactions giving
rise thereto. In the same case, the High Court also declared citing Du Pont vs. United States
(300 U.S. 150, 153 [1936])
The tax is not upon the business transacted but is an excise upon the privilege, opportunity, or
facility offered at exchanges for the transaction of the business. It is an excise upon the facilities
used in the transaction of the business separate and apart from the business itself. x x x.
To reiterate, the subject [DST] was levied on the acceptance and payment made by [HSBC]
pursuant to the order made by its client-investors as embodied in the cited electronic messages,
through which the herein parties privilege and opportunity to transact business respectively as
drawee and drawers was exercised, separate and apart from the circumstances and conditions
related to such acceptance and subsequent payment of the sum of money authorized by the
concerned drawers. Stated another way, the [DST] was exacted on [HSBCs] exercise of its
privilege under its drawee-drawer relationship with its client-investor through the execution of a
specific instrument which, in the case at bar, is the acceptance of the order for payment of
money. The acceptance of a bill or order for payment may be done in writing by the drawee in
the bill or order itself, or in a separate instrument (Prudential Bank vs. Intermediate Appellate
Court, supra.)Here, [HSBC]s acceptance of the orders for the payment of money was veritably
done in writing in a separate instrument each time it debited the local or foreign currency
accounts of its client-investors pursuant to the latters instructions and advises sent by electronic
messages to [HSBC]. The [DST] therefore must be paid upon the execution of the specified
instruments or facilities covered by the tax in this case, the acceptance by [HSBC] of the order
for payment of money sent by the client-investors through electronic messages. x x x.12
Hence, these petitions.
HSBC asserts that the Court of Appeals committed grave error when it disregarded the factual
and legal conclusions of the CTA. According to HSBC, in the absence of abuse or improvident
exercise of authority, the CTAs ruling should not have been disturbed as the CTA is a highly
specialized court which performs judicial functions, particularly for the review of tax cases.
HSBC further argues that the Commissioner of Internal Revenue had already settled the issue on
the taxability of electronic messages involved in these cases in BIR Ruling No. 132-99 and
reiterated in BIR Ruling No. DA-280-2004.13
The Commissioner of Internal Revenue, on the other hand, claims that Section 181 of the 1997
Tax Code imposes DST on the acceptance or payment of a bill of exchange or order for the

payment of money. The DST under Section 18 of the 1997 Tax Code is levied on HSBCs
exercise of a privilege which is specifically taxed by law. BIR Ruling No. 132-99 is inconsistent
with prevailing law and long standing administrative practice, respondent is not barred from
questioning his own revenue ruling. Tax refunds like tax exemptions are strictly construed
against the taxpayer.14
The Court finds for HSBC.
The Court agrees with the CTA that the DST under Section 181 of the Tax Code is levied on the
acceptance or payment of "a bill of exchange purporting to be drawn in a foreign country but
payable in the Philippines" and that "a bill of exchange is an unconditional order in writing
addressed by one person to another, signed by the person giving it, requiring the person to whom
it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money
to order or to bearer." A bill of exchange is one of two general forms of negotiable instruments
under the Negotiable Instruments Law.15
The Court further agrees with the CTA that the electronic messages of HSBCs investor-clients
containing instructions to debit their respective local or foreign currency accounts in the
Philippines and pay a certain named recipient also residing in the Philippines is not the
transaction contemplated under Section 181 of the Tax Code as such instructions are "parallel to
an automatic bank transfer of local funds from a savings account to a checking account
maintained by a depositor in one bank." The Court favorably adopts the finding of the CTA that
the electronic messages "cannot be considered negotiable instruments as they lack the feature of
negotiability, which, is the ability to be transferred" and that the said electronic messages are
"mere memoranda" of the transaction consisting of the "actual debiting of the [investor-clientpayors] local or foreign currency account in the Philippines" and "entered as such in the books
of account of the local bank," HSBC.16
More fundamentally, the instructions given through electronic messages that are subjected to
DST in these cases are not negotiable instruments as they do not comply with the requisites of
negotiability under Section 1 of the Negotiable Instruments Law, which provides:
Sec. 1. Form of negotiable instruments. An instrument to be negotiable must conform to the
following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
The electronic messages are not signed by the investor-clients as supposed drawers of a bill of
exchange; they do not contain an unconditional order to pay a sum certain in money as the
payment is supposed to come from a specific fund or account of the investor-clients; and, they
are not payable to order or bearer but to a specifically designated third party. Thus, the electronic
messages are not bills of exchange. As there was no bill of exchange or order for the payment
drawn abroad and made payable here in the Philippines, there could have been no acceptance or
payment that will trigger the imposition of the DST under Section 181 of the Tax Code.
Section 181 of the 1997 Tax Code, which governs HSBCs claim for tax refund for taxable year
1998 subject of G.R. No. 167728, provides:

SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others. Upon any acceptance
or payment of any bill of exchange or order for the payment of money purporting to be drawn in
a foreign country but payable in the Philippines, there shall be collected a documentary stamp tax
of Thirty centavos (P0.30) on each Two hundred pesos (P200), or fractional part thereof, of the
face value of any such bill of exchange, or order, or the Philippine equivalent of such value, if
expressed in foreign currency. (Emphasis supplied.)
Section 230 of the 1977 Tax Code, as amended, which governs HSBCs claim for tax refund for
DST paid during the period September to December 1997 and subject of G.R. No. 166018, is
worded exactly the same as its counterpart provision in the 1997 Tax Code quoted above.
The origin of the above provision is Section 117 of the Tax Code of 1904, 17 which provided:
SECTION 117. The acceptor or acceptors of any bill of exchange or order for the payment of any
sum of money drawn or purporting to be drawn in any foreign country but payable in the
Philippine Islands, shall, before paying or accepting the same, place thereupon a stamp in
payment of the tax upon such document in the same manner as is required in this Act for the
stamping of inland bills of exchange or promissory notes, and no bill of exchange shall be paid
nor negotiated until such stamp shall have been affixed thereto.18 (Emphasis supplied.)
It then became Section 30(h) of the 1914 Tax Code19:
SEC. 30. Stamp tax upon documents and papers. Upon documents, instruments, and papers,
and upon acceptances, assignments, sales, and transfers of the obligation, right, or property
incident thereto documentary taxes for and in respect of the transaction so had or accomplished
shall be paid as hereinafter prescribed, by the persons making, signing, issuing, accepting, or
transferring the same, and at the time such act is done or transaction had:
xxxx
(h) Upon any acceptance or payment upon acceptance of any bill of exchange or order for the
payment of money purporting to be drawn in a foreign country but payable in the Philippine
Islands, on each two hundred pesos, or fractional part thereof, of the face value of any such bill
of exchange or order, or the Philippine equivalent of such value, if expressed in foreign currency,
two centavos[.] (Emphasis supplied.)
It was implemented by Section 46 in relation to Section 39 of Revenue Regulations No. 26, 20 as
amended:
SEC. 39. A Bill of Exchange is one that "denotes checks, drafts, and all other kinds of orders for
the payment of money, payable at sight or on demand, or after a specific period after sight or
from a stated date."
SEC. 46. Bill of Exchange, etc. When any bill of exchange or order for the payment of money
drawn in a foreign country but payable in this country whether at sight or on demand or after a
specified period after sight or from a stated date, is presented for acceptance or payment, there
must be affixed upon acceptance or payment of documentary stamp equal to P0.02 for each P200
or fractional part thereof. (Emphasis supplied.)
It took its present form in Section 218 of the Tax Code of 1939,21 which provided:
SEC. 218. Stamp Tax Upon Acceptance of Bills of Exchange and Others. Upon any acceptance
or payment of any bill of exchange or order for the payment of money purporting to be drawn in
a foreign country but payable in the Philippines, there shall be collected a documentary stamp tax
of four centavos on each two hundred pesos, or fractional part thereof, of the face value of any
such bill of exchange or order, or the Philippine equivalent of such value, if expressed in foreign
currency. (Emphasis supplied.)

It then became Section 230 of the 1977 Tax Code,22 as amended by Presidential Decree Nos.
1457 and 1959,which, as stated earlier, was worded exactly as Section 181 of the current Tax
Code:
SEC. 230. Stamp tax upon acceptance of bills of exchange and others. Upon any acceptance or
payment of any bill of exchange or order for the payment of money purporting to be drawn in a
foreign country but payable in the Philippines, there shall be collected a documentary stamp tax
of thirty centavos on each two hundred pesos, or fractional part thereof, of the face value of any
such bill of exchange, or order, or the Philippine equivalent of such value, if expressed in foreign
currency. (Emphasis supplied.)
The pertinent provision of the present Tax Code has therefore remained substantially the same
for the past one hundred years.1wphi1 The identical text and common history of Section 230 of
the 1977 Tax Code, as amended, and the 1997 Tax Code, as amended, show that the law imposes
DST on either (a) the acceptance or (b) the payment of a foreign bill of exchange or order for the
payment of money that was drawn abroad but payable in the Philippines.
DST is an excise tax on the exercise of a right or privilege to transfer obligations, rights or
properties incident thereto.23 Under Section 173 of the 1997 Tax Code, the persons primarily
liable for the payment of the DST are those (1) making, (2) signing, (3) issuing, (4) accepting, or
(5) transferring the taxable documents, instruments or papers.24
In general, DST is levied on the exercise by persons of certain privileges conferred by law for the
creation, revision, or termination of specific legal relationships through the execution of specific
instruments. Examples of such privileges, the exercise of which, as effected through the issuance
of particular documents, are subject to the payment of DST are leases of lands, mortgages,
pledges and trusts, and conveyances of real property.25
As stated above, Section 230 of the 1977 Tax Code, as amended, now Section 181 of the 1997
Tax Code, levies DST on either (a) the acceptance or (b) the payment of a foreign bill of
exchange or order for the payment of money that was drawn abroad but payable in the
Philippines. In other words, it levies DST as an excise tax on the privilege of the drawee to
accept or pay a bill of exchange or order for the payment of money, which has been drawn
abroad but payable in the Philippines, and on the corresponding privilege of the drawer to have
acceptance of or payment for the bill of exchange or order for the payment of money which it has
drawn abroad but payable in the Philippines.
Acceptance applies only to bills of exchange. 26 Acceptance of a bill of exchange has a very
definite meaning in law.27 In particular, Section 132 of the Negotiable Instruments Law provides:
Sec. 132. Acceptance; how made, by and so forth. The acceptance of a bill [of exchange 28] is
the signification by the drawee of his assent to the order of the drawer. The acceptance must be in
writing and signed by the drawee. It must not express that the drawee will perform his promise
by any other means than the payment of money.
Under the law, therefore, what is accepted is a bill of exchange, and the acceptance of a bill of
exchange is both the manifestation of the drawees consent to the drawers order to pay money
and the expression of the drawees promise to pay. It is "the act by which the drawee manifests
his consent to comply with the request contained in the bill of exchange directed to him and it
contemplates an engagement or promise to pay."29 Once the drawee accepts, he becomes an
acceptor.30 As acceptor, he engages to pay the bill of exchange according to the tenor of his
acceptance.31
Acceptance is made upon presentment of the bill of exchange, or within 24 hours after such
presentment.32Presentment for acceptance is the production or exhibition of the bill of exchange
to the drawee for the purpose of obtaining his acceptance.33

Presentment for acceptance is necessary only in the instances where the law requires it. 34 In the
instances where presentment for acceptance is not necessary, the holder of the bill of exchange
can proceed directly to presentment for payment.
Presentment for payment is the presentation of the instrument to the person primarily liable for
the purpose of demanding and obtaining payment thereof.35
Thus, whether it be presentment for acceptance or presentment for payment, the negotiable
instrument has to be produced and shown to the drawee for acceptance or to the acceptor for
payment.
Revenue Regulations No. 26 recognizes that the acceptance or payment (of bills of exchange or
orders for the payment of money that have been drawn abroad but payable in the Philippines)
that is subjected to DST under Section 181 of the 1997 Tax Code is done after presentment for
acceptance or presentment for payment, respectively. In other words, the acceptance or payment
of the subject bill of exchange or order for the payment of money is done when there is
presentment either for acceptance or for payment of the bill of exchange or order for the payment
of money.
Applying the above concepts to the matter subjected to DST in these cases, the electronic
messages received by HSBC from its investor-clients abroad instructing the former to debit the
latter's local and foreign currency accounts and to pay the purchase price of shares of stock or
investment in securities do not properly qualify as either presentment for acceptance or
presentment for payment. There being neither presentment for acceptance nor presentment for
payment, then there was no acceptance or payment that could have been subjected to DST to
speak of.
Indeed, there had been no acceptance of a bill of exchange or order for the payment of money on
the part of HSBC. To reiterate, there was no bill of exchange or order for the payment drawn
abroad and made payable here in the Philippines. Thus, there was no acceptance as the electronic
messages did not constitute the written and signed manifestation of HSBC to a drawer's order to
pay money. As HSBC could not have been an acceptor, then it could not have made any payment
of a bill of exchange or order for the payment of money drawn abroad but payable here in the
Philippines. In other words, HSBC could not have been held liable for DST under Section 230 of
the 1977 Tax Code, as amended, and Section 181 of the 1997 Tax Code as it is not "a person
making, signing, issuing, accepting, or, transferring" the taxable instruments under the said
provision. Thus, HSBC erroneously paid DST on the said electronic messages for which it is
entitled to a tax refund.
WHEREFORE, the petitions are hereby GRANTED and the Decisions dated May 2, 2002 in
CTA Case No. 6009 and dated December 18, 2002 in CT A Case No. 5951 of the Court of Tax
Appeals are REINSTATED.
SO ORDERED.
TERESITA J. LEONARDO-DE CASTRO
Associate Justice

Dianne C. Vale
Taxation Law Review Monday Class

THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITEDPHILIPPINE BRANCHES


vs.
COMMISSIONER OF INTERNAL REVENUE

FACTS:
These petitions for review on certiorari assailing the decision and resolution of the Court
of Appeals. The respective decisions in the said cases similarly reversed and set aside the
decisions of the Court of Tax Appeals and dismissed the petitions of petitioner Hongkong and
Shanghai Banking Corporation Limited-Philippine Branches (HSBC).
HSBC performs, among others, custodial services on behalf of its investor-clients,
corporate and individual, resident or non-resident of the Philippines, with respect to their passive
investments in the Philippines, particularly investments in shares of stocks in domestic
corporations. As a custodian bank, HSBC serves as the collection/payment agent with respect to
dividends and other income derived from its investor-clients passive investments.
HSBCs investor-clients maintain Philippine peso and/or foreign currency accounts,
which are managed by HSBC through instructions given through electronic messages. The said
instructions are standard forms known in the banking industry as SWIFT, or "Society for
Worldwide Interbank Financial Telecommunication." In purchasing shares of stock and other
investment in securities, the investor-clients would send electronic messages from abroad
instructing HSBC to debit their local or foreign currency accounts and to pay the purchase price
therefor upon receipt of the securities.
Pursuant to the electronic messages of its investor-clients, HSBC purchased and paid
Documentary Stamp Tax (DST) from September to December 1997 and also from January to
December 1998 amounting to P19,572,992.10 and P32,904,437.30, respectively.
Subsequently, the Bureau of Internal Revenue (BIR), thru its then Commissioner, issued
BIR Ruling No. 132-99 to the effect that instructions or advises from abroad on the management
of funds located in the Philippines which do not involve transfer of funds from abroad are not
subject to DST.With the said BIR Ruling as its basis, HSBC filed an administrative claim for the
refund of the amount allegedly representing erroneously paid DST for the period covering
September to December 1997 and January to December 1998.
As its claims for refund were not acted upon by the BIR, HSBC subsequently brought the
matter to the CTA which decided the claim in its favor. The CTA ruled that HSBC is entitled to a
tax refund or tax credit because Sections 180 and 181 of the 1997 Tax Code do not apply to
electronic message instructions transmitted by HSBCs non-resident investor-clients.
However, on appeal, the Court of Appeals reversed both decisions of the CTA and ruled
that the electronic messages of HSBCs investor-clients are subject to DST.

Hence, this present petition.

ISSUE:
1.) Whether or not the electronic messages received by HSBC from its investor-clients
abroad instructing the former to debit the latter's local and foreign currency accounts
and to pay the purchase price of shares of stock or investment in securities properly
qualify as a bill of exchange which needs either presentment for acceptance or
presentment for payment?
2.) Whether or not HSBC is entitled to the tax refund/credit for its allegedly erroneous
payment of documentary stamp tax?
HELD:
The Court ruled that HSBC is entitled for the refund of the documentary stamp tax
previously paid.
The Court agrees with the CTA that the DST under Section 181 of the Tax Code is levied
on the acceptance or payment of "a bill of exchange purporting to be drawn in a foreign country
but payable in the Philippines" and that "a bill of exchange is an unconditional order in writing
addressed by one person to another, signed by the person giving it, requiring the person to whom
it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money
to order or to bearer." A bill of exchange is one of two general forms of negotiable instruments
under the Negotiable Instruments Law.
The Court further agrees with the CTA that the electronic messages of HSBCs investorclients containing instructions to debit their respective local or foreign currency accounts in the
Philippines and pay a certain named recipient also residing in the Philippines is not the
transaction contemplated under Section 181 of the Tax Code as such instructions are "parallel to
an automatic bank transfer of local funds from a savings account to a checking account
maintained by a depositor in one bank." The Court favorably adopts the finding of the CTA that
the electronic messages "cannot be considered negotiable instruments as they lack the feature of
negotiability, which, is the ability to be transferred" and that the said electronic messages are
"mere memoranda" of the transaction consisting of the "actual debiting of the [investor-clientpayors] local or foreign currency account in the Philippines" and "entered as such in the books
of account of the local bank," HSBC.
More fundamentally, the instructions given through electronic messages that are
subjected to DST in these cases are not negotiable instruments as they do not comply with the
requisites of negotiability under Section 1 of the Negotiable Instruments Law, which provides:
Sec. 1. Form of negotiable instruments. An instrument to be negotiable must conform to
the following requirements:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.

The electronic messages are not signed by the investor-clients as supposed drawers of a
bill of exchange; they do not contain an unconditional order to pay a sum certain in money as the
payment is supposed to come from a specific fund or account of the investor-clients; and, they
are not payable to order or bearer but to a specifically designated third party. Thus, the electronic
messages are not bills of exchange. As there was no bill of exchange or order for the payment
drawn abroad and made payable here in the Philippines, there could have been no acceptance or
payment that will trigger the imposition of the DST under Section 181 of the Tax Code.
xxxx Section 230 of the 1977 Tax Code, as amended, now Section 181 of the 1997 Tax
Code, levies DST on either (a) the acceptance or (b) the payment of a foreign bill of exchange or
order for the payment of money that was drawn abroad but payable in the Philippines. In other
words, it levies DST as an excise tax on the privilege of the drawee to accept or pay a bill of
exchange or order for the payment of money, which has been drawn abroad but payable in the
Philippines, and on the corresponding privilege of the drawer to have acceptance of or payment
for the bill of exchange or order for the payment of money which it has drawn abroad but
payable in the Philippines.
Acceptance applies only to bills of exchange. Acceptance of a bill of exchange has a very
definite meaning in law. In particular, Section 132 of the Negotiable Instruments Law provides:
Sec. 132. Acceptance; how made, by and so forth. The acceptance of a bill [of
exchange28] is the signification by the drawee of his assent to the order of the drawer. The
acceptance must be in writing and signed by the drawee. It must not express that the drawee will
perform his promise by any other means than the payment of money.
Under the law, therefore, what is accepted is a bill of exchange, and the acceptance of a
bill of exchange is both the manifestation of the drawees consent to the drawers order to pay
money and the expression of the drawees promise to pay. It is "the act by which the drawee
manifests his consent to comply with the request contained in the bill of exchange directed to
him and it contemplates an engagement or promise to pay." Once the drawee accepts, he
becomes an acceptor. As acceptor, he engages to pay the bill of exchange according to the tenor
of his acceptance.
Revenue Regulations No. 26 recognizes that the acceptance or payment (of bills of
exchange or orders for the payment of money that have been drawn abroad but payable in the
Philippines) that is subjected to DST under Section 181 of the 1997 Tax Code is done after
presentment for acceptance or presentment for payment, respectively. In other words, the
acceptance or payment of the subject bill of exchange or order for the payment of money is done
when there is presentment either for acceptance or for payment of the bill of exchange or order
for the payment of money.
Applying the above concepts to the matter subjected to DST in these cases, the electronic
messages received by HSBC from its investor-clients abroad instructing the former to debit the
latter's local and foreign currency accounts and to pay the purchase price of shares of stock or
investment in securities do not properly qualify as either presentment for acceptance or
presentment for payment. There being neither presentment for acceptance nor presentment for
payment, then there was no acceptance or payment that could have been subjected to DST to
speak of.
Indeed, there had been no acceptance of a bill of exchange or order for the payment of
money on the part of HSBC. To reiterate, there was no bill of exchange or order for the payment
drawn abroad and made payable here in the Philippines. Thus, there was no acceptance as the
electronic messages did not constitute the written and signed manifestation of HSBC to a
drawer's order to pay money. As HSBC could not have been an acceptor, then it could not have
made any payment of a bill of exchange or order for the payment of money drawn abroad but
payable here in the Philippines. In other words, HSBC could not have been held liable for DST
under Section 230 of the 1977 Tax Code, as amended, and Section 181 of the 1997 Tax Code as

it is not "a person making, signing, issuing, accepting, or, transferring" the taxable instruments
under the said provision. Thus, HSBC erroneously paid DST on the said electronic messages for
which it is entitled to a tax refund.
FIRST DIVISION
G.R. No. 205543

June 30, 2014

SAN ROQUE POWER CORPORATION, Petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a Petition for Review on Certiorari under Rule 16, Section 1 of A.M. No. 0511-07-CTA, otherwise known as the Revised Rules of the Court of Tax Appeals, in relation to
Rule 45 of the Rules of Court, filed by San Roque Power Corporation (San Roque), seeking the
reversal of the Decision1 dated June 4, 2012 and Resolution2 dated January 21, 2013 of the Court
of Tax Appeals (CTA) en bane in C.T.A. EB No. 789. The CTA en bane, in its assailed Decision,
affirmed the Decision3 dated January 10, 2011 of the CTA First Division in C.T.A. Case Nos.
7744 & 7802, which dismissed the judicial claims of San Roque for the refund or tax credit of its
excess/unutilized creditable input taxes for the four quarters of 2006; and in its assailed
Resolution, denied the Motion for Reconsideration of San Roque.
San Roque is a domestic corporation principally engaged in the power-generation business. It is
registered with the Board of Investments on a preferred pioneer status for the construction and
operation of hydroelectric power-generating plants, as well as with the Bureau of Internal
Revenue (BIR) as a Value-Added Tax (VAT) taxpayer.
On October 11, 1997, San Roque entered into a Power Purchase Agreement (PPA) with the
National Power Corporation (NPC) to develop the San Roque hydroelectric facilities located at
Lower Agno River in San Miguel, Pangasinan (Project) on a build-operate-transfer basis. During
the co-operation period of 25 years, commencing from the completion date of the power station,
all the electricity generated by the Project would be sold to and purchased exclusively by NPC.
San Roque commenced commercial operations in May 2003.
San Roque alleged that in 2006, it incurred creditable input taxes from its purchase of capital
goods, importation of goods other than capital goods, and payment for the services of nonresidents. San Roque subsequently filed with the BIR separate claims for refund or tax credit of
its creditable input taxes for all four quarters of 2006. San Roque averred that it did not have any
output taxes to which it could have applied said creditable input taxes because: (a) the sale by
San Roque of electricity, generated through hydropower, a renewable source of energy, is subject
to 0% VAT under Section 108(B)(7) of the National Internal Revenue Code (NIRC) of 1997, as
amended; and (b) NPC is exempted from all taxes, direct and indirect, under Republic Act No.
6395, otherwise known as the NPC Charter, so the sale by San Roque of electricity exclusively
to NPC, under the PPA dated October 11, 1997, is effectively zero-rated under Section 108(B)(3)
of the NIRC of 1997, as amended.4 When the Commissioner of Internal Revenue (CIR) failed to
take action on its administrative claims, San Roque filed two separate Petitions for Review
before the CTA, particularly, C.T.A. Case No. 7744 (covering the first, third, and fourth quarters
of 2006) and C.T.A. Case No. 7802 (covering the second quarter of 2006). The two cases were
consolidated before the CTA First Division.
The details concerning the administrative and judicial claims of San Roque for refund or tax
credit of its creditable input taxes for the four quarters of 2006 are summarized in table form
below:

Tax Period 2006


First Quarter

VAT Return

Administrative Claim

Judicial Claim

Filed: April 21, 2006


Amended: November 7,
2006

Filed: April 11, 2007


Amount: P2,857,174.95

Filed: March 28, 2008


CTA Case No. 7744
Amount: P12,114,877.34
(for 1st, 3rd, and 4th
Quarters
of 2006)

Amended: March 10, 2008


Amount: P3,128,290.74

Second Quarter

Third Quarter

Filed: July 15, 2006


Amended: November 8,
2006
Amended: February 5,
2007

Filed: July 10, 2007


Amount: P15,044,030.82

Filed: October 19, 2006


Amended: February 5,
2007

Filed: August 31, 2007


Amount: P4,122,741.54

Amended: March 10, 2008


Amount: P15,548,630.55

Amended: September 21,


2007
Amount: P3,675,574.21
Fourth Quarter

Filed: January 22, 2007


Amended: May 12, 2007

Filed: June 27, 2008


CTA Case No. 7802
Amount: P15,548,630.55

Filed: August 31, 2007


Amount: P6,223,682.61
Amended: September 21,
2007
Amount: P5,311,012.39

Filed: March 28, 2008


CTA Case No. 7744
Amount: P12,114,877.34
(for 1st, 3rd, and 4th
Quarters
of 2006)
Filed: March 28, 2008
CTA Case No. 7744
Amount: P12,114,877.34
(for 1st, 3rd, and 4th
Quarters
of 2006)

On January 10, 2011, the CTA First Division rendered a Decision on the consolidated judicial
claims of San Roque, with the following findings:
As to [San Roques] original applications for refund is concerned, the Commissioner of Internal
Revenue has one hundred twenty days or until August 9, 2007, November 7, 2007 and December
29, 2007 within which to make decision. After the lapse of the one hundred twenty[-]day period,
[San Roque] should have elevated its claim with the Court within thirty (30) days starting from
August 10, 2007 to September 8, 2007 for its first quarter claim, November 8, 2007 to December
7, 2007 for its second quarter claim, and December 30, 2007 to January 28, 2008 for its third and
fourth quarters claims pursuant to Section 112(D) of the NIRC in relation to Section 11 of
[Republic Act No.] 1125, as amended by Section 9 of [Republic Act No.] 9282. Unfortunately,
the Petitions for Review on March 28, 2008 for the first, third and fourth quarters claims and on
June 27, 2008 for the second quarter claim, were filed beyond the 30-day period set by law and
therefore, the Court has no jurisdiction to entertain the subject matter of the case considering that
the 30-day appeal period provided under Section 11 of [RepublicAct No.] 1125 is a jurisdictional
requirement as held in the case of Ker & Co., Ltd. vs. Court of Tax Appeals, x x x:
xxxx
Likewise, if we reckoned the one hundred twenty[-]day period from the date of the amended
applications for refund on March 10, 2008 for the first and second quarters claims and September
21, 2007 for the third and fourth quarters claims, both Petitions for Review would still be denied.
With respect to the amended application for refund of input tax for the first and second quarters
of 2006 on March 10, 2008, the Commissioner of Internal Revenue has one hundred twenty days
or until July 8, 2008 within which to make a decision. After the lapse of the said 120-day period,
[San Roque] had thirty days or until August 7, 2008 within which to appeal to this Court.[San
Roque], however, appealed via Petitions for Review on March 28, 2008 for its first quarter claim

and on June 27, 2008 for its second quarter claim, which are clearly before the lapse of the 120day period. This violates the rule on exhaustion of administrative remedies.
xxxx
The premature invocation of the courts intervention, like the instant Petitions for Review, is fatal
to ones cause of action; and the case is susceptible of dismissal for failure to state a cause of
action. Moreover, such premature appeal will also warrant the dismissal of the Petitions for
Review inasmuch as no jurisdiction was acquired by the Court in line with the recent
pronouncement made by the Supreme Court in the case of Commissioner of Internal Revenue vs.
Aichi Forging Company of Asia, Inc.
As far as the amended application for refund covering the third and fourth quarter[s] filed on
September 21, 2007 is concerned, the Commissioner of Internal Revenue has one hundred
twenty days or until January 19, 2008 within which to make a decision. After the lapse of the
said one hundred twenty day[-]period, [San Roque] should have elevated its claim with the Court
within thirty (30) days starting from January 20, 2008 to February 18, 2008. Unfortunately, the
Petition for Review covering said third and fourth quarter[s] was filed March 28, 2008 beyond
the 30-day period set by law and therefore, the Court has no jurisdiction to entertain the subject
matter of the case.
Other issues raised now become moot and academic.5
The dispositive portion of the foregoing Decision of the CTA First Division reads:
WHEREFORE, these consolidated Petitions for Review, CTA Case Nos. 7744 covering the first,
third and fourth quarter[s] and 7802 covering [the] second quarter are hereby DISMISSED since
the Court has no jurisdiction thereof.6
San Roque filed a Motion for Reconsideration but it was denied by the CTA First Division in a
Resolution7 dated May 31, 2011.
San Roque filed a Petition for Review before the CTA en banc, protesting against the retroactive
application of Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. 8 In
Aichi, promulgated on October 6, 2010, the Supreme Court strictly required compliance with the
120+30 day periods under Section 112 of the NIRC of 1997, as amended.
In its Decision dated June 4, 2012, the CTA en banc upheld the application of Aichi and
explained that there was no retroactive application of the same. The 120+30 day periods had
already been provided in the NIRC of 1997, as amended, evenbefore the promulgation of Aichi.
Aichi merely interpreted the provisions of Section 112 of the NIRC of 1997, as amended.
The CTA en banc applied the 120+30 day periods and found, same as the CTA First Division,
that while San Roque timely filed its administrative claims for refund or tax credit of creditable
input taxes for the four quarters of 2006, it filed its judicial claims beyond the 30-day
prescriptive period, reckoned from the lapse of the 120-day period for the CIR to act on the
original administrative claims. The CTA en banc stressed that the 30-day period within which to
appeal with the CTA is jurisdictional and failure to comply therewith would bar the appeal and
deprive the CTA of its jurisdiction.9
The CTA en banc further stated in its Decision that even if it counted the 120-day period from
the filing of the amended administrative claims for refund on March 10, 2008 for the first and
second quarter claims, and on September 21, 2007 for the third and fourth quarter claims, the
CTA still did not acquire jurisdiction over C.T.A.Case Nos. 7744 and 7802. Following the
120+30 day periods, the judicial claims of San Roque for the first and second quarters were
prematurely filed,while the judicial claims for the third and fourth quarters were filed late.

Lastly, the CTA en banc adjudged that San Roque cannot rely on San Roque Power Corporation
v. Commissioner of Internal Revenue, promulgated on November 25, 2009 [San Roque
(2009)],10 which granted the claims for refund or tax credit of the creditable input taxes of San
Roque for the four quarters of 2002, on the following grounds: (a) The main issue in San Roque
(2009)was whether or not San Roque had zero-rated or effectively zero-rated sales in 2002, to
which the creditable input taxes could be attributed, while the pivotal issue in the instant case is
whether or not San Roque complied with the prescriptive periods under Section 112 of the NIRC
of 1997, as amended, when it filed its administrative and judicial claims for refund or tax credit
of its creditable input taxes for the four quarters of 2006; (b) The claims for refund or tax credit
in San Roque (2009) involved the four quarters of 2002,when sales of electric power by
generation companies to the NPC were explicitly VAT zero-rated under Section 6 of Republic
Act No. 9136, otherwise known as the Electric Power Industry Reform Act (EPIRA) of 2001.
Eventually, Republic Act No. 9337, otherwise known as the Extended VAT Law (EVAT Law),
took effect on November 1, 2005, and Section 24 of said law already expressly repealed Section
6 of the EPIRA; and (3) In San Roque (2009), San Roque failed to comply with Section
112(A)11 of the NIRC of 1997, as amended, and prematurely filed its administrative claim for the
third quarter of 2002 on October 25, 2002, when its zero-rated sales of electric power to NPC
were made only in the fourth quarter of 2002, which closed on December 31. 2002. In the instant
case, San Roque did not comply with the 120+30 day periods under Section 112(C) of the NIRC,
as amended, thus, the CTA did not acquire jurisdiction over the judicial claims.
In the end, the CTA en banc decreed:
Finding no reversible error, we affirm the assailed Decision dated January 10, 2011 and
Resolution dated May 31, 2011 rendered by the First Division in C.T.A. Case Nos. 7744 and
7802.
WHEREFORE, premises considered, the present Petition for Review is hereby DENIED, and
accordingly DISMISSED for lack of merit.12
In its Resolution dated January 21, 2013, the CTA en banc denied the Motion for
Reconsideration of San Roque.
Hence, San Roque filed the Petition at bar assigning six reversible errors on the part of the CTA
en banc, viz:
I.
THE HONORABLE CTA EN BANCCOMMITTED REVERSIBLE ERROR IN DISMISSING
[SAN ROQUES] PETITIONS FOR REVIEW AND APPLYING RETROACTIVELY THE
AICHI RULING IN THAT AT THE TIME IT FILED ITS PETITIONS FOR REVIEW, [SAN
ROQUE] ACTED IN GOOD FAITH IN ACCORDANCE WITH THE THEN PREVAILING
RULE AND JURISPRUDENCE CONSISTENTLY UPHELD FOR ALMOST A DECADE BY
THE HONORABLE CTA IN THE ABSENCE THEN OF A RULING FROM THIS
HONORABLE COURT.
II.
THE HONORABLE CTA EN BANCCOMMITTED REVERSIBLE ERROR IN APPLYING
THE AICHI RULING TO [SAN ROQUES] CLAIM FILED YEARS BEFORE ITS
PROMULGATION IN THAT THE AICHI RULING, WHICH LAID DOWN A NEW RULE OF
PROCEDURE WHICH AFFECTS SUSBSTANTIVE RIGHTS, SHOULD BE APPLIED
PROSPECTIVELY IN LIGHT OF THE LAW AND SETTLED JURISPRUDENCE
UPHOLDING THE PRINCIPLE OF PROSPECTIVITY.
III.

THE HONORABLE CTA EN BANCCOMMITTED REVERSIBLE ERROR IN APPLYING


RETROACTIVELY THE AICHI RULING IN THAT ITS RETROACTIVE APPLICATION TO
[SAN ROQUES] PENDING CLAIM WILL BE UNJUST AND UNFAIR AND WILL
CERTAINLY PRODUCE SUBSTANTIAL INEQUITABLE RESULTS AND GRAVE
INJUSTICE TO [SAN ROQUE] AND MANY TAXPAYERS WHO RELIED IN GOOD FAITH
ON ITS THEN CONSISTENT RULINGS FOR ALMOST A DECADE.
IV.
THE HONORABLE CTA EN BANCCOMMITTED REVERSIBLE ERROR IN APPLYING
RETROACTIVELY THE AICHI RULING IN THAT ITS RETROACTIVE APPLICATION
GOES AGAINST THE BASIC POLICIES AND THE SPIRIT OF THE EPIRA LAW.
V.
[SAN ROQUE] SHOULD BE GIVEN THE SAME TREATMENT AS THOSE DECIDED IN
PRECEDENT CASES PROMULGATED PRIOR TO THE PROMULGATION OF THE AICHI
RULING IN ACCORDANCE WITH THE EQUAL PROTECTION CLAUSE OF THE
CONSTITUTION AND THE DOCTRINEOF EQUITABLE ESTOPPEL.
VI.
RECENTLY, THIS HONORABLE COURT EN BANCHAS CATEGORICALLY RULED
THAT THE AICHI RULING SHALL BE APPLIED PROSPECTIVELY.13
There is no merit in the instant Petition.
At the crux of the controversy are the prescriptive periods for the filing of administrative and
judicial claims for refund or tax credit of creditable input taxes under Section 112 of the NIRC of
1997, as amended, which provide:
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-Rated or Effectively Zero-Rated Sales. Any VAT registered person, whose
sales are zero-rated or effectively zero-rated may, within two (2) years after the close of
the taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales, except
transitional input tax, to the extent that such input tax has not been applied against output
tax: x x x
xxxx
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for
creditable input taxes within one hundred twenty (120) days from the date of submission
of complete documents in support of the application filed in accordance with Subsection
(A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part
of the Commissioner to act on the application within the period prescribed above, the taxpayer
affected may, within thirty (30) days from the receipt of the decision denying the claim or after
the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim
with the Court of Tax Appeal. (Emphases supplied.)
Contrary to the assertion of San Roque, it was only in Aichi that the issue of the prescriptive
periods under Section 112 of the NIRC of 1997, as amended, was first squarely raised before and
addressed by the Court. The Court significantly ruled in Aichi that: (a) Section 112 of the NIRC

of 1997, as amended, particularly governs claims for refund or tax credit of creditable input
taxes, which is distinct from Sections 204(C) and 229 of the same statute which concern
erroneously or illegally collected taxes; (b) The two year prescriptive period under Section
112(A) of the NIRC of 1997, as amended, pertains only to administrative claims for refund or tax
credit of creditable input taxes, and not to judicial claims for the same; (c) Following
Commissioner of Internal Revenue v. Mirant Pagbilao Corporation,14 the two-year prescriptive
period under Section 112(A) of the NIRC of 1997, as amended, is reckoned from the close of the
taxable quarter when the sales were made; (d) In determining the end of the two-year
prescriptive period under Section 112(A) of the NIRC of 1997, as amended, the Administrative
Code of 1987 prevails over the Civil Code, so that a year is composed of 12 calendar months;
and (e) The 120-day period, under what is presently Section 112(C) of the NIRC of 1997, as
amended, is crucial in filing an appeal with the CTA, for whether the CIR issues a decision on
the administrative claim before the lapse of the 120-day period or the CIR made no decision on
the administrative claim after the 120-day period, the taxpayer has 30 days within which to file
an appeal with the CTA.
The Court en banc had the opportunity to further expound on the prescriptive periods under
Section 112 of the NIRC of 1997, as amended, in its Decision in the consolidated cases of
Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito Mining
Corporation v. Commissioner of Internal Revenue, and Philex Mining Corporation v.
Commissioner of Internal Revenue, promulgated in 2013 [San Roque (2013)].15
According to the Court in San Roque (2013), the prescriptive periods under Section 112 of the
NIRC of 1997, as amended, shall be interpreted as follows:
Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal
language. The taxpayer can file his administrative claim for refund or credit at anytime within
the two-year prescriptive period. If he files his claim on the last day of the two-year prescriptive
period, his claim is still filed on time. The Commissioner will have 120 days from such filing to
decide the claim. If the Commissioner decides the claim on the 120th day, or does not decide it
on that day, the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only
the plain meaning but also the only logical interpretation of Section 112(A) and (C). 16 (Emphasis
deleted.)
The Court emphasized in San Roque (2013) that a claim for refund or tax credit, like a claim for
tax exemption, is construed strictly against the taxpayer. It cited Aichi and pointed out that one of
the conditions for a judicial claim for refund or tax credit under the VAT system is compliance
with the 120+30 day mandatory and jurisdictional periods under Section 112(C) of the NIRC of
1997, as amended.17
Guided by the aforementioned law and jurisprudence, the Court now determines whether or not
San Roque complied in the instant case with the prescriptive periods under Section 112 of the
NIRC of 1997, as amended.
As the following tables will show, San Roque filed its administrative claims for refund or tax
credit of its creditable input taxes for the four quarters of 2006 within the two-year prescriptive
period under Section 112(A) of the NIRC of 1997, as amended, whether reckoned from the close
of the taxable quarter when the relevant zero-rated or effectively zero-rated sales were made, in
accordance with Mirant and Aichi; or from the date of filing of the quarterly VAT return and
payment of the tax due 20 days after the close of the taxable quarter, following Atlas
Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue18:

According to Mirant and Aichi

Tax
2006

Period Close
of
Quarter End of the Two-Year Date of Filing of
When Relevant Sales Prescriptive Period
Administrative
were Made
Claim

First Quarter

March 31, 2006

March 31, 2008

April 11, 2007

Second Quarter

June 30, 2006

June 30, 2008

July 10, 2007

Third Quarter

September 30, 2006

September 30, 2008

August 31, 2007

Fourth Quarter

December 31, 2006

December 31, 2008

August 31, 2007

According to Atlas
Tax
2006

Period Filing of Returns and End of the Two-Year Date of Filing of


Payment of Taxes 20 Prescriptive Period
Administrative
Days after the Close
Claim
of Taxable Quarter

First Quarter

April 20, 2006

April 20, 2008

April 11, 2007

Second Quarter

July 20, 2006

July 20, 2008

July 10, 2007

Third Quarter

October 20, 2006

October 20, 2008

August 31, 2007

Fourth Quarter

January 21, 200619

January 21, 2009

August 31, 2007

San Roque, however, failed to comply with the 120+30 day periods for the filing of its judicial
claims, as can be gleaned from the table below:
Tax
Date
of End of 120-Day
Period Filing
of Period
for
2006
Administrative CIR to Decide
Claim

End of 30day
Period
to
File
Appeal with
CTA

Date
of No.
of
Actual
Days:
Filing
of End of 120Judicial
day
Claim
Period
to
Filing
of Judicial
Claim

First
April 11, 2007
Quarter

August 9, 2007

September
8,
200720

March
2008

Second July 10, 2007


Quarter

November
2007

28, 232 days

7, December 7, June
2007
2008

27, 233 days

Third
August
Quarter 2007

31, December
2007

29, January 28, March


2008
2008

28, 90 days

Fourth August
Quarter 2007

31, December
2007

29, January 28, March


2008
2008

28, 90 days

Because San Roque filed C.T.A. Case Nos. 7744 and 7802 beyond the 30-day mandatory period
under Section 112(C) of the NIRC of 1997, as amended, the CTA First Division did not acquire
jurisdiction over said cases and correctly dismissed the same.
San Roque in the present case is in exactly the same position as Philex Mining Corporation
(Philex) in San Roque (2013). Hence, the ruling of the Court on the judicial claim of Philex in
San Roque (2013) is worth reproducing hereunder:
Philex timely filed its administrative claim on 20 March 2006, within the two-year prescriptive
period. Even if the two-year prescriptive period is computed from the date of payment of the
output VAT under Section 229, Philex still filed its administrative claim on time. Thus, the Atlas
doctrine is immaterial in this case.The Commissioner had until 17 July 2006, the last day ofthe
120-day period, to decide Philexs claim. Since the Commissioner did not act on Philexs claim
on or before 17 July 2006, Philex had until 17 August 2006, the last day of the 30-day period, to
file its judicial claim. The CTA EB held that 17 August 2006 was indeed the last day for Philex
to file its judicial claim. However, Philex filed its Petition for Review with the CTA only on 17
October 2007, or four hundred twenty-six (426) days after the last day of filing. In short, Philex
was late by one year and 61 days in filing its judicial claim. As the CTA EB correctly found:
Evidently, the Petition for Review in C.T.A. Case No. 7687 was filed 426 days late. Thus, the
Petition for Review in C.T.A. Case No. 7687 should have been dismissed on the ground that the
Petition for Review was filed way beyond the 30-day prescribed period; thus, no jurisdiction was
acquired by the CTA Division; x x x.
Unlike San Roque and Taganito, Philexs case is not one of premature filing but of late filing.
Philex did not file any petition with the CTA within the 120-day period. Philex did not also file
any petition with the CTA within 30 days after the expiration of the 120-day period. Philex filed
its judicial claim long after the expiration of the 120-day period, in fact 426 days after the lapse
of the 120-day period. In any event, whether governed by jurisprudence before, during, or after
the Atlas case, Philexs judicial claim will have to be rejected because of late filing. Whether the
two-year prescriptive period is counted from the date of payment of the output VAT following
the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to the input
VAT were made following the Mirant and Aichi doctrines, Philexs judicial claim was
indisputably filed late.
The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the
Commissioner on Philexs claim during the 120-day period is, by express provision of law,
"deemed a denial" of Philexs claim. Philex had 30 days from the expiration of the 120-day
period to file its judicial claim with the CTA. Philexs failure to do so rendered the "deemed a
denial" decision of the Commissioner final and inappealable. The right to appeal to the CTA
from a decision or "deemed a denial" decision of the Commissioner is merely a statutory
privilege, not a constitutional right. The exercise of such statutory privilege requires strict
compliance with the conditions attached by the statute for its exercise. Philex failed to comply
with the statutory conditions and must thus bear the consequences.21 (Citations omitted.)
Both the CTA First Division and CTA en bancwent a step further and also computed the 120+30
day periods from the date of filing by San Roque of its amended administrative claimson March
10, 2008 for the first and second quarters of 2006, and on September 21, 2007 for the third and
fourth quarters of 2006. According to the CTA First Division and CTA en banc, if the 120-day
period was reckoned from the dates of filing of the amended administrative claims, the judicial
claims for the first and second quarters were premature, while the judicial claims for the third
and fourth quarters were late.
For the Court, there is no more point in considering the amended administrative claims for the
first and second quarters of 2006. The amended administrative claims were filed on March 10,
2008after the 120+30 day periods for filing the judicial claims, counting from the date of filing
of the original administrative claims for the first and second quarters of 2006, had already
expired on September 8, 2007and December 7, 2007, respectively. Taking cognizance of the

amended administrative claims in such a situation would result in the revival of judicial claims
that had already prescribed.
Meanwhile, San Roque filed its amended administrative claims for the third and fourth quarters
of 2006 on September 21, 2007, before the end of the 120-day period for the CIR to decide on
the original administrative claims for the same taxable quarters. Nonetheless, even if the Court
counts the 120+30 day periods from the date of filing of said amended administrative claims, the
judicial claims of San Roque would still be belatedly filed:

Tax
Date
of End of 120-Day
Period Filing
of Period
for
2006
Administrativ CIR to Decide
e
Claim

End of 30- Date


of No. of Days:
day
Actual
End of 120Period to Filing
of day
File
Judicial
Period
to
Appeal
Claim
Filing
with
of Judicial
CTA
Claim

Third
September 21, January
Quarter 2007
2008

19, February
18,
2008

March
2008

28, 69 days

Fourth September 21, January


Quarter 2007
2008

19, February
18,
2008

March
2008

28, 69 days

Unable to contest the belated filing of its judicial claims, San Roque argues against the
supposedly retroactive application of Aichi and the strict observance of the 120+30 day periods.
As the CTA en banc held, Aichi was not applied retroactively to San Roque in the instant case.
The 120+30 day periods have already been prescribed under Section 112(C) of the NIRC of
1997, as amended, when San Roque filed its administrative and judicial claims for refund or tax
credit of its creditable input taxes for the four quarters of 2006. The Court highlights the
pronouncement in San Roque (2013) that strict compliance with the 120+30 day periods is
necessary for the judicial claim to prosper, except for the period from the issuance of BIR Ruling
No. DA-489-03 on December 10, 2003 to October 6, 2010when Aichi was promulgated, which
again reinstated the 120+30day periods as mandatory and jurisdictional.22
It is still necessary for the Court to explain herein how BIR Ruling No. DA-489-03 is an
exception to the strict observance of the 120+30 day periods for judicial claims. BIR Ruling No.
DA-489-03 affected only the 120-day period as the BIR held therein that "a 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. Neither is it required that the Commissioner should first act on
the claim of a particular taxpayer before the CTA may acquire jurisdiction, particularly if the
claim is about to prescribe." Consequently, BIR Ruling No. DA-489-03 may only be invoked by
taxpayers who relied on the same and prematurely filed their judicial claims before the expiration
of the 120-day period for the CIR to act on their administrative claims, provided that the
taxpayers filed such judicial claims from December 10, 2003 to October 6,2010. BIR Ruling No.
DA-489-03 did not touch upon the 30-day prescriptive period for filing an appeal with the CTA
and cannot be cited by taxpayers, such as San Roque, who belatedly filed their judicial claims
more than 30 days after receipt of the adverse decision of the CIR on their administrative claims

or the lapse of 120 days without the CIR acting on their administrative claims. Pertaining to the
similarly situated Philex, the Court ruled in San Roque (2013) that:
Philexs situation is not a case of premature filing of its judicial claim but of late filing, indeed
very late filing. BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim, which
means non exhaustion of the 120-day period for the Commissioner to act on an administrative
claim. Philex cannot claim the benefit of BIR Ruling No. DA-489-03 because Philex did not file
its judicial claim prematurely but filed it long after the lapse of the 30-day period following the
expiration of the 120-day period. In fact, Philex filed its judicial claim 426 days after the lapse of
the 30-day period.23
San Roque harps that the Court itself categorically declared in the following paragraph in San
Roque (2013) that Aichi shall be applied prospectively:
Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner,
particularly on a difficult question of law. The abandonment of the Atlas doctrine by Mirant and
Aichi is proof that the reckoning of the prescriptive periods for input VAT tax refund or credit is
a difficult question of law. The abandonment of the Atlas doctrine did not result in Atlas, or other
taxpayers similarly situated, being made to return the tax refund or credit they received or could
have received under Atlas prior to its abandonment. This Court is applying Mirant and Aichi
prospectively. Absent fraud, bad faith or misrepresentation, the reversal by this Court of a
general interpretative rule issued by the Commissioner, like the reversal of a specific BIR ruling
under Section 246, should also apply prospectively.x x x.24 (Emphases included.)
The Court is not persuaded. The aforequoted paragraph should be understood in the context of
the entire San Roque (2013). The statement of the Court on applying Mirant and Aichi
prospectively should be understood relative to, and never apart from, Atlasand BIR Ruling No.
DA-489-03.
The Court explained in San Roque (2013), under the heading "Effectivity and Scope of the Atlas,
Mirant and Aichi Doctrines," that:
The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with
the two-year prescriptive period under Section 229, should be effective only from its
promulgation on 8 June 2007 until its abandonment on 12 September 2008 in Mirant. The Atlas
doctrine was limited to the reckoning of the two-year prescriptive period from the date of
payment of the output VAT. Prior to the Atlas doctrine, the two-year prescriptive period for
claiming refund or credit of input VAT should be governed by Section 112(A) following the
verba legis rule. The Mirant ruling, which abandoned the Atlas doctrine, adopted the verba legis
rule, thus applying Section 112(A) in computing the two-year prescriptive period in claiming
refund or credit of input VAT.
The Atlas doctrine has no relevance to the 120+30 day periods under Section 112(C) because the
application of the 120+30 day periods was not in issue in Atlas. The application of the 120+30
day periods was first raised in Aichi, which adopted the verba legis rule in holding that the
120+30 day periods are mandatory and jurisdictional. x x x.
xxxx
To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly
against the taxpayer. One of the conditions for a judicial claim of refund or credit under the VAT
System is compliance with the 120+30 day mandatory and jurisdictional periods. Thus, strict
compliance with the 120+30 day periods is necessary for such a claim to prosper, whether
before, during, or after the effectivity of the Atlas doctrine, except for the period from the
issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010 when the Aichi
doctrine was adopted, which again reinstated the 120+30 day periods as mandatory and
jurisdictional.25 (Emphases supplied.)

As for BIR Ruling No. DA-489-03, the Court clarified its period of effectivity, thus:
There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA
does not acquire jurisdiction over a judicial claim that is filed before the expiration of the 120day period. There are, however, two exceptions to this rule. The first exception is if the
Commissioner, through a specific ruling, misleads a particular taxpayer to prematurely file a
judicial claim with the CTA. Such specific ruling is applicable only to such particular taxpayer.
The second exception is where the Commissioner, through a general interpretative rule issued
under Section 4 of the Tax Code, misleads all taxpayers into filing prematurely judicial claims
with the CTA. In these cases, the Commissioner cannot be allowed to later on question the CTAs
assumption of jurisdiction over such claim since equitable estoppel has set in as expressly
authorized under Section 246 of the Tax Code.
xxxx
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query
made, not by a particular taxpayer, but by a government agency tasked with processing tax
refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of
the Department of Finance. This government agency is also the addressee, or the entity
responded to, in BIR Ruling No. DA-489-03. Thus, while this government agency mentions in
its query to the Commissioner the administrative claim of Lazi Bay Resources Development,
Inc., the agency was in fact asking the Commissioner what to do in cases like the tax claim of
Lazi Bay Resources Development, Inc., where the taxpayer did not wait for the lapse of the 120day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely
on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its
reversal by this Court in Aichi on 6 October 2010, where this Court held that the 120+30 day
periods are mandatory and jurisdictional.26 (Emphasis supplied.)
Based on the foregoing, "prospective application" of Aichi and Mirant, in the context of San
Roque (2013), only meant that the rulings in said cases would not retroactively affect taxpayers
who relied on Atlas and/or DA-489-03 when they filed their administrative and judicial claims
for refund or tax credit of creditable input taxes during the period when Atlas and DA-489-03
were still in effect. Aichi and Mirant can still be applied to cases involving administrative and
judicial claims filed prior to the promulgation of said cases and outside the period of effectivity
of Atlas and DA-489-03, such as the instant case.
WHEREFORE, premises considered, the instant Petition for Review is DENIED and the
Decision dated June 4, 2012 and Resolution dated January 21, 2013 of the Court of Tax Appeals
en bane in C.T.A. EB No. 789 are AFFIRMED.
No costs.
SO ORDERED.
TERESITA J. LEONARDO-DE CASTRO
Associate Justice

Dianne C. Vale
Taxation Law Review Monday Class

WER CORPORATION
vs.
COMMISSIONER OF INTERNAL REVENUE

FACTS:
Before the Court is a Petition for Review on Certiorari filed by San Roque Power
Corporation (San Roque), seeking the reversal of the decision of the Court of Tax Appeals (CTA)
en banc. The CTA en banc, in its assailed decision, affirmed the decision of the CTA First
Division, which dismissed the judicial claims of San Roque for the refund or tax credit of its
excess/unutilized creditable input taxes for the four quarters of 2006.
San Roque is a domestic corporation principally engaged in the power-generation
business. It is registered with the Board of Investments on a preferred pioneer status for the
construction and operation of hydroelectric power-generating plants, as well as with the Bureau
of Internal Revenue (BIR) as a Value-Added Tax (VAT) taxpayer. It entered into a Power
Purchase Agreement (PPA) with the National Power Corporation (NPC) to develop the San
Roque hydroelectric facilities located at Lower Agno River in San Miguel, Pangasinan (Project)
on a build-operate-transfer basis. During the co-operation period of 25 years, commencing from
the completion date of the power station, all the electricity generated by the Project would be
sold to and purchased exclusively by NPC.
San Roque alleged that in 2006, it incurred creditable input taxes from its purchase of
capital goods, importation of goods other than capital goods, and payment for the services of
non-residents. San Roque subsequently filed with the BIR separate claims for refund or tax credit
of its creditable input taxes for all four quarters of 2006. San Roque averred that it did not have
any output taxes to which it could have applied said creditable input taxes because: (a) the sale
by San Roque of electricity, generated through hydropower, a renewable source of energy, is
subject to 0% VAT; and (b) NPC is exempted from all taxes under the NPC Charter.
The Commissioner of Internal Revenue (CIR) failed to take action on its administrative
claims, so, San Roque filed the present Petition for Review before the CTA.

The details concerning the administrative and judicial claims of San Roque for refund or
tax credit of its creditable input taxes for the four quarters of 2006 are summarized in table form
below:
Tax Period 2006
First Quarter

VAT Return

Administrative Claim

Judicial Claim

Filed: April 21, 2006


Amended: November 7,
2006

Filed: April 11, 2007


Amount: P2,857,174.95

Filed: March 28, 2008


CTA Case No. 7744
Amount: P12,114,877.34
(for 1st, 3rd, and 4th
Quarters
of 2006)

Amended: March 10, 2008


Amount: P3,128,290.74

Second Quarter

Third Quarter

Filed: July 15, 2006


Amended: November 8,
2006
Amended: February 5,
2007

Filed: July 10, 2007


Amount: P15,044,030.82

Filed: October 19, 2006


Amended: February 5,
2007

Filed: August 31, 2007


Amount: P4,122,741.54

Amended: March 10, 2008


Amount: P15,548,630.55

Amended: September 21,


2007
Amount: P3,675,574.21
Fourth Quarter

Filed: January 22, 2007


Amended: May 12, 2007

Filed: June 27, 2008


CTA Case No. 7802
Amount: P15,548,630.55

Filed: August 31, 2007


Amount: P6,223,682.61
Amended: September 21,
2007
Amount: P5,311,012.39

Filed: March 28, 2008


CTA Case No. 7744
Amount: P12,114,877.34
(for 1st, 3rd, and 4th
Quarters
of 2006)
Filed: March 28, 2008
CTA Case No. 7744
Amount: P12,114,877.34
(for 1st, 3rd, and 4th
Quarters
of 2006)

The CTA First Division ruled that the first and second quarter claims are clearly before
the lapse of the 120-day period, thus, violates the rule on exhaustion of administrative remedies.
With regard to the Petition for Review covering said third and fourth quarter, it is beyond the 30day period set by law and therefore, the Court has no jurisdiction to entertain the subject matter
of the case. San Roque filed a Petition for Review before the CTA en banc which affirmed the
decision of the CTA first division and dismissed the case.
Hence, this present petition.
ISSUE:
Whether or not San Roque filed his administrative and judicial claims for refund or tax
credit of creditable input tax within the prescriptive period under Sec. 112 of NIRC?
HELD:
There is no merit in the instant Petition because San Roque filed its judicial claim beyond
the prescriptive period.
xxx SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-Rated or Effectively Zero-Rated Sales. Any VAT registered person, whose
sales are zero-rated or effectively zero-rated may, within two (2) years after the close of
the taxable quarter when the sales were made, apply for the issuance of a tax credit

certificate or refund of creditable input tax due or paid attributable to such sales, except
transitional input tax, to the extent that such input tax has not been applied against output
tax: x x x
xxxx
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for
creditable input taxes within one hundred twenty (120) days from the date of submission
of complete documents in support of the application filed in accordance with Subsection
(A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on
the part of the Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim
or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted
claim with the Court of Tax Appeal.
xxx
San Roque, however, failed to comply with the 120+30 day periods for the filing of its
judicial claims, as can be gleaned from the table below:
Tax
Date
of End of 120-Day
Period Filing
of Period
for
2006
Administrative CIR to Decide
Claim

End of 30day
Period
to
File
Appeal with
CTA

Date
of No.
of
Actual
Days:
Filing
of End of 120Judicial
day
Claim
Period
to
Filing
of Judicial
Claim

First
April 11, 2007
Quarter

August 9, 2007

September
8,
200720

March
2008

Second July 10, 2007


Quarter

November
2007

28, 232 days

7, December 7, June
2007
2008

27, 233 days

Third
August
Quarter 2007

31, December
2007

29, January 28, March


2008
2008

28, 90 days

Fourth August
Quarter 2007

31, December
2007

29, January 28, March


2008
2008

28, 90 days

Because San Roque filed C.T.A. Case Nos. 7744 and 7802 beyond the 30-day mandatory
period under Section 112(C) of the NIRC of 1997, as amended, the CTA First Division did not
acquire jurisdiction over said cases and correctly dismissed the same.
xxx Meanwhile, San Roque filed its amended administrative claims for the third and
fourth quarters of 2006 on September 21, 2007, before the end of the 120-day period for the CIR
to decide on the original administrative claims for the same taxable quarters. Nonetheless, even if
the Court counts the 120+30 day periods from the date of filing of said amended administrative
claims, the judicial claims of San Roque would still be belatedly filed:

Tax
Date
of End of 120-Day
Period Filing
of Period
for
2006
Administrativ CIR to Decide
e
Claim

End of 30- Date


of No. of Days:
day
Actual
End of 120Period to Filing
of day
File
Judicial
Period
to
Appeal
Claim
Filing
with
of Judicial
CTA
Claim

Third
September 21, January
Quarter 2007
2008

19, February
18,
2008

March
2008

28, 69 days

Fourth September 21, January


Quarter 2007
2008

19, February
18,
2008

March
2008

28, 69 days

xxxx
To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed
strictly against the taxpayer. One of the conditions for a judicial claim of refund or credit under
the VAT System is compliance with the 120+30 day mandatory and jurisdictional periods. Thus,
strict compliance with the 120+30 day periods is necessary for such a claim to prosper.

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