1

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS and

COMMONWEALTH MANAGEMENT AND SERVICES
CORPORATION, respondents. Court
DECISION
PARDO, J.:
What is before the Court is a petition for review on certiorari of the decision of the Court of
Appeals,[1] reversing that of the Court of Tax Appeals,[2] which affirmed with modification the
decision of the Commissioner of Internal Revenue ruling that Commonwealth Management
and Services Corporation, is liable for value added tax for services to clients during taxable
year 1988.
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 internal
auditor, of Philamlife and its other affiliates.
On January 24, 1992, the Bureau of Internal Revenue (BIR) issued an assessment to
private respondent COMASERCO for deficiency value-added tax (VAT) amounting to
P351,851.01, for taxable year 1988, computed as follows:
"Taxable sale/receipt P1,679,155.00
10% tax due thereon 167,915.50
25% surcharge 41,978.88
20% interest per annum 125,936.63

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[4] a petition for
review contesting the Commissioner's assessment. COMASERCO asserted that the
services it rendered to Philamlife and its affiliates, relating to collections, 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 id 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 sale of services. 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 Court of Tax Appeals rendered decision in favor of the Commissioner
of Internal Revenue, the dispositive portion of which reads:
"WHEREFORE, the decision of the Commissioner of Internal Revenue
assessing petitioner deficiency value-added tax for the taxable year 1988
is AFFIRMED with slight modifications. Accordingly, petitioner is ordered
to pay respondent Commissioner of Internal Revenue the amount of
P335,831.01 inclusive of the 25% surcharge and interest plus 20%
interest from January 24, 1992 until fully paid pursuant to Section 248 and
249 of the Tax Code.
"The compromise penalty of P16,000.00 imposed by the respondent in
her assessment letter shall not be included in the payment as there was
no compromise agreement entered into between petitioner and
respondent with respect to the value-added tax deficiency."[5]
On July 26, 1995, respondent filed with the Court of Appeals, petition for review of the
decision of the Court of Appeals.

Compromise penalty for late payment 16,000.00

TOTAL AMOUNT DUE AND COLLECTIBLE P 351,831.01"[3]
COMASERCO's annual corporate income tax return ending December 31, 1988 indicated
a net loss in its operations in the amount of P6,077.00. J lexj
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

After due proceedings, on May 13, 1996, the Court of Appeals rendered decision reversing
that of the Court of Tax Appeals, the dispositive portion of which reads: Lexj uris
"WHEREFORE, in view of the foregoing, judgment is hereby rendered
REVERSING and SETTING ASIDE the questioned Decision promulgated
on 22 June 1995. The assessment for deficiency value-added tax for the
taxable year 1988 inclusive of surcharge, interest and penalty charges are
ordered CANCELLED for lack of legal and factual basis."[6]

2
The Court of Appeals anchored its decision on the ratiocination in another tax case involving
the same parties,[7] 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 Court of Appeals, 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
services.
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.
On August 7, 1996, we required respondent COMASERCO to file comment on the petition,
and on September 26, 1996, COMASERCO complied with the resolution.[8]

profit motive is material in ascertaining who to tax for purposes of determining liability for
VAT.
We disagree.
On May 28, 1994, Congress enacted Republic Act No. 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 any person who imports goods shall be subject to the valueadded tax (VAT) imposed in Sections 106 and 108 of this Code.

We give due course to the petition.

At issue in this case is whether COMASERCO was engaged in the sale of services, and
thus liable to pay VAT thereon.
Petitioner avers 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 the
value added by the performance of the service. It is immaterial whether profit is derived from
rendering the service. Juri smis
We agree with the Commissioner.
Section 99 of the National Internal Revenue Code of 1986, as amended by Executive Order
(E.O.) No. 273 in 1988, provides that:
"Section 99. Persons liable. - Any person who, in the course of trade or
business, sells, barters or exchanges goods, renders services, or
engages in similar transactions and any person who imports goods shall
be subject to the value-added tax (VAT) imposed in Sections 100 to 102
of this Code."[9]
COMASERCO contends that the term "in the course of trade or business" requires that the
"business" is carried on with a view to profit or livelihood. It avers that the activities of the
entity must be profit- oriented. COMASERCO submits that it is not motivated by profit, as
defined by its primary purpose in the articles of incorporation, stating that it is operating
"only on reimbursement-of-cost basis, without any profit." Private respondent argues that

"The value-added tax is an indirect tax and the amount of tax may be
shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services. This rule shall likewise apply to existing 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 therein is a nonstock, nonprofit organization
(irrespective of the disposition of its net income and whether or not it sells
exclusively to members of their guests), or government entity. Jjj uris
"The rule of 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 trade or business"
requires the regular conduct or pursuit of a commercial or an economic activity, regardless
of whether or not the entity is profit-oriented.
The definition of the term "in the course of trade or business" incorporated in the present
law applies to all transactions even to those made prior to its enactment. Executive Order

3
No. 273 stated that any person who, in the course of trade or business, sells, barters or
exchanges goods and 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.
Section 108 of the National Internal Revenue Code of 1997[10] 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."[11]
On February 5, 1998, the Commissioner of Internal Revenue issued BIR Ruling No. 01098[12] 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. lex
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 for 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.
At any rate, it is a rule that because taxes are the lifeblood of the nation, statutes that allow
exemptions are construed strictly against the grantee and liberally in favor of the
government. Otherwise stated, any exemption from the payment of a tax must be clearly
stated in the language of the law; it cannot be merely implied therefrom.[13] In the case of
VAT, Section 109, Republic Act 8424 clearly enumerates the transactions exempted from
VAT. The services rendered by COMASERCO do not fall within the exemptions.
Both the Commissioner of Internal Revenue and the Court of Tax Appeals correctly ruled
that the services rendered by COMASERCO to Philamlife and its affiliates are subject to
VAT. As pointed out by the Commissioner, the performance of all kinds of services for others
for a fee, remuneration or consideration is considered as sale of services subject to VAT. As
the government agency charged with the enforcement of the law, the opinion of the
Commissioner of Internal Revenue, in the absence of any showing that it is plainly wrong, is
entitled to great weight.[14] Also, it has been the long standing policy and practice of this
Court to respect the conclusions of quasi-judicial agencies, such as the Court of Tax
Appeals which, by the nature of its functions, is dedicated exclusively to the study and
consideration of tax cases and has necessarily developed an expertise on the subject,
unless there has been an abuse or improvident exercise of its authority.[15]

There is no merit to respondent's contention that the Court of Appeals' decision in CA-G. R.
No. 34042, declaring the COMASERCO as not engaged in business and not liable for the
payment of fixed and percentage taxes, binds petitioner. The issue in CA-G. R. No. 34042 is
different from the present case, which involves COMASERCO's liability for VAT. As
heretofore stated, every person who sells, barters, or exchanges goods and services, in the
course of trade or business, as defined by law, is subject to VAT. Jksm
WHEREFORE, the Court GRANTS the petition and REVERSES the decision of the Court of
Appeals in CA-G. R. SP No. 37930. The Court hereby REINSTATES the decision of the
Court of Tax Appeals in C. T. A. Case No. 4853.
No costs.
SO ORDERED.

4
[G.R. No. 151135. July 2, 2004]
CONTEX CORPORATION, petitioner, vs. HON. COMMISSIONER OF INTERNAL
REVENUE, respondent.
DECISION
QUISUMBING, J.:
For review is the Decision[1] dated September 3, 2001, of the Court of Appeals, in CAG.R. SP No. 62823, which reversed and set aside the decision [2] dated October 13, 2000, of
the Court of Tax Appeals (CTA). The CTA had ordered the Commissioner of Internal
Revenue (CIR) to refund the sum of P683,061.90 to petitioner as erroneously paid input
value-added tax (VAT) or in the alternative, to issue a tax credit certificate for said
amount. Petitioner also assails the appellate courts Resolution,[3] dated December 19, 2001,
denying the motion for reconsideration.
Petitioner is a domestic corporation engaged in the business of manufacturing hospital
textiles and garments and other hospital supplies for export. Petitioners place of business is
at the Subic Bay Freeport Zone (SBFZ). It is duly registered with the Subic Bay Metropolitan
Authority (SBMA) as a Subic Bay Freeport Enterprise, pursuant to the provisions of
Republic Act No. 7227.[4] As an SBMA-registered firm, petitioner is exempt from all local and
national internal revenue taxes except for the preferential tax 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 taxpayer under Certificate of Registration RDO Control No. 95-180-000133.
From January 1, 1997 to December 31, 1998, petitioner purchased various supplies
and materials necessary in the conduct of its manufacturing business. The suppliers of
these goods shifted unto petitioner the 10% VAT on the purchased items, which led the
petitioner to pay input taxes in the amounts of P539,411.88 and P504,057.49 for 1997 and
1998, respectively.[6]
Acting on the belief that it was exempt from all national and local taxes, including VAT,
pursuant to Rep. Act No. 7227, petitioner filed two applications for tax refund or tax credit of
the VAT it paid. Mr. Edilberto Carlos, revenue district officer of BIR RDO No. 19, denied the
first application letter, dated December 29, 1998.
Unfazed by the denial, petitioner on May 4, 1999, filed another application for tax
refund/credit, this time directly with Atty. Alberto Pagabao, the regional director of BIR
Revenue Region No. 4. The second letter sought a refund or issuance of a tax credit
certificate in the amount of P1,108,307.72, representing erroneously paid input VAT for the
period January 1, 1997 to November 30, 1998.

When no response was forthcoming from the BIR Regional Director, petitioner then
elevated the matter to the Court of Tax Appeals, in a petition for review docketed
as CTACase No. 5895. Petitioner stressed that Section 112(A)[7] if read in relation to Section
106(A)(2)(a)[8] of the National Internal Revenue Code, as amended and Section 12(b)[9] and
(c) of Rep. Act No. 7227 would show that it was not liable in any way for any value-added
tax.
In opposing the claim for tax refund or tax credit, the BIR asked the CTA to apply the
rule that claims for refund are strictly construed against the taxpayer. Since petitioner failed
to establish both its right to a tax refund or tax credit and its compliance with the rules on tax
refund as provided for in Sections 204[10] and 229[11] of the Tax Code, its claim should be
denied, according to the BIR.
On October 13, 2000, the CTA decided CTA Case No. 5895 as follows:
WHEREFORE, in view of the foregoing, the Petition for Review is hereby PARTIALLY
GRANTED. Respondent is hereby ORDERED to REFUND or in the alternative to ISSUE A
TAX CREDIT CERTIFICATE in favor of Petitioner the sum of P683,061.90, representing
erroneously paid input VAT.
SO ORDERED.[12]
In granting a partial refund, the CTA ruled that petitioner misread Sections 106(A)(2)(a)
and 112(A) of the Tax Code. The tax court stressed that these provisions apply only to those
entities registered as VAT taxpayers whose sales are zero-rated. Petitioner does not fall
under this category, since it is a non-VAT taxpayer as evidenced by the Certificate of
Registration RDO Control No. 95-180-000133 issued by RDO Rosemarie Ragasa of
BIR RDO No. 18 of the Subic Bay Freeport Zone and thus it is exempt from VAT, pursuant
to Rep. Act No. 7227, said the CTA.
Nonetheless, the CTA held that the petitioner is exempt from the imposition of input
VAT on its purchases of supplies and materials. It pointed out that under Section 12(c) of
Rep. Act No. 7227 and the Implementing Rules and Regulations of the Bases Conversion
and Development Act of 1992, all that petitioner is required to pay as a SBFZ-registered
enterprise is a 5% preferential tax.
The CTA also disallowed all refunds of input VAT paid by the petitioner prior to June
29, 1997 for being barred by the two-year prescriptive period under Section 229 of the Tax
Code. The tax court also limited the refund only to the input VAT paid by the petitioner on
the supplies and materials directly used by the petitioner in the manufacture of its goods. It
struck down all claims for input VAT paid on maintenance, office supplies, freight charges,

5
and
all
materials
and
supplies
petitioners Makati and PasayCity offices.

shipped

or

delivered

to

the

Respondent CIR then filed a petition, docketed as CA-G.R. SP No. 62823, for review
of the CTA decision by the Court of Appeals. Respondent maintained that the exemption
ofContex Corp. under Rep. Act No. 7227 was limited only to direct taxes and not to indirect
taxes such as the input component of the VAT. The Commissioner pointed out that from its
very nature, the value-added tax is a burden passed on by a VAT registered person to the
end users; hence, the direct liability for the tax lies with the suppliers and not Contex.
Finding merit in the CIRs arguments, the appellate court decided CA-G.R. SP No.
62823 in his favor, thus:
WHEREFORE, premises considered, the appealed decision is hereby REVERSED AND
SET ASIDE. Contexs claim for refund of erroneously paid taxes is DENIED accordingly.
SO ORDERED.[13]
In reversing the CTA, the Court of Appeals held that the exemption from duties and
taxes on the importation of raw materials, capital, and equipment of SBFZ-registered
enterprises under Rep. Act No. 7227 and its implementing rules covers only the VAT
imposable under Section 107 of the [Tax Code], which is a direct liability of the importer, and
in no way includes the value-added tax of the seller-exporter the burden of which was
passed on to the importer as an additional costs of the goods. [14] This was because the
exemption granted by Rep. Act No. 7227 relates to the act of importation and Section
107[15] of the Tax Code specifically imposes the VAT on importations. The appellate court
applied the principle that tax exemptions are strictly construed against the taxpayer. The
Court of Appeals pointed out that under the implementing rules of Rep. Act No. 7227, the
exemption ofSBFZ-registered enterprises from internal revenue taxes is qualified as
pertaining only to those for which they may be directly liable. It then stated that apparently,
the legislative intent behind Rep. Act No. 7227 was to grant exemptions only to direct taxes,
which SBFZ-registered enterprise may be liable for and only in connection with their
importation of raw materials, capital, and equipment as well as the sale of their goods and
services.
Petitioner timely moved for reconsideration of the Court of Appeals decision, but the
motion was denied.
Hence, the instant petition raising as issues for our resolution the following:
A. WHETHER OR NOT THE EXEMPTION FROM ALL LOCAL AND NATIONAL
INTERNAL REVENUE TAXES PROVIDED IN REPUBLIC ACT

NO. 7227 COVERS THE VALUE ADDED TAX PAID BY PETITIONER,

A SUBIC BAY FREEPORT ENTERPRISE ON ITS PURCHASES OF
SUPPLIES AND MATERIALS.
B. WHETHER OR NOT THE COURT OF TAX APPEALS CORRECTLY HELD
THAT PETITIONER IS ENTITLED TO A TAX CREDIT OR REFUND OF
THE VAT PAID ON ITS PURCHASES OF SUPPLIES AND RAW
MATERIALS FOR THE YEARS 1997 AND 1998.[16]
Simply stated, we shall resolve now the issues concerning: (1) the correctness of the
finding of the Court of Appeals that the VAT exemption embodied in Rep. Act No. 7227 does
not apply to petitioner as a purchaser; and (2) the entitlement of the petitioner to a tax
refund on its purchases of supplies and raw materials for 1997 and 1998.
On the first issue, petitioner argues that the appellate courts restrictive interpretation of
petitioners VAT exemption as limited to those covered by Section 107 of the Tax Code is
erroneous and devoid of legal basis. It contends that the provisions of Rep. Act No. 7227
clearly and unambiguously mandate that no local and national taxes shall be
imposed uponSBFZ-registered firms and hence, said law should govern the case. Petitioner
calls our attention to regulations issued by both the SBMA and BIR clearly and categorically
providing that the tax exemption provided for by Rep. Act No. 7227 includes exemption from
the imposition of VAT on purchases of supplies and materials.
The respondent takes the diametrically opposite view that while Rep. Act No. 7227
does grant tax exemptions, such grant is not all-encompassing but is limited only to those
taxes for which a SBFZ-registered business may be directly liable. Hence, SBFZ locators
are not relieved from the indirect taxes that may be shifted to them by a VAT-registered
seller.
At this juncture, it must be stressed that the VAT is an indirect tax. As such, the
amount of tax paid on the goods, properties or services bought, transferred, or leased may
be shifted or passed on by the seller, transferor, or lessor to the buyer, transferee or lessee.
[17]
Unlike a direct tax, such as the income tax, which primarily taxes an individuals ability to
pay based on his income or net wealth, an indirect tax, such as the VAT, is a tax on
consumption of goods, services, or certain transactions involving the same. The VAT, thus,
forms a substantial portion of consumer expenditures.
Further, in indirect taxation, there is a need to distinguish between the liability for the
tax and the burden of the tax. As earlier pointed out, the amount of tax paid may be shifted
or passed on by the seller to the buyer. What is transferred in such instances is not the
liability for the tax, but the tax burden. In adding or including the VAT due to the selling price,
the seller remains the person primarily and legally liable for the payment of the tax. What is
shifted only to the intermediate buyer and ultimately to the final purchaser is the burden of

6
the tax.[18] Stated differently, a seller who is directly and legally liable for payment of an
indirect tax, such as the VAT on goods or services is not necessarily the person who
ultimately bears the burden of the same tax. It is the final purchaser or consumer of such
goods or services who, although not directly and legally liable for the payment thereof,
ultimately bears the burden of the tax.[19]
Exemptions from VAT are granted by express provision of the Tax Code or special
laws. Under VAT, the transaction can have preferential treatment in the following ways:
(a) VAT Exemption. An exemption means that the sale of goods or properties and/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.[20] This is a case wherein the
VAT is removed at the exempt stage (i.e., at the point of the sale, barter or exchange of the
goods or properties).
The person making the exempt sale of goods, properties or services shall not bill any output
tax to his customers because the said transaction is not subject to VAT. On the other hand,
a VAT-registered purchaser of VAT-exempt goods/properties or services which are exempt
from VAT is not entitled to any input tax on such purchase despite the issuance of a VAT
invoice or receipt.[21]
(b) Zero-rated Sales. These are sales by VAT-registered persons which are subject to 0%
rate, meaning the tax burden is not passed on to the purchaser. A zero-rated sale by a VATregistered person, which is a taxable transaction for VAT purposes, shall not result in any
output tax. However, the input tax on his purchases of goods, properties or services related
to such zero-rated sale shall be available as tax credit or refund in accordance with these
regulations.[22]
Under Zero-rating, all VAT is removed from the zero-rated goods, activity or firm. In
contrast, exemption only removes the VAT at the exempt stage, and it will actually increase,
rather than reduce the total taxes paid by the exempt firms business or non-retail
customers. It is for this reason that a sharp distinction must be made between zero-rating
and exemption in designating a value-added tax.[23]
Apropos, the petitioners claim to VAT exemption in the instant case for its purchases of
supplies and raw materials is founded mainly on Section 12 (b) and (c) of Rep. Act No.
7227, which basically exempts them from all national and local internal revenue taxes,
including VAT and Section 4 (A)(a) of BIR Revenue Regulations No. 1-95.[24]
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 registered as a NON-VAT taxpayer per

Certificate of Registration[25] issued by the BIR. As such, it is exempt from VAT on all its
sales and importations of goods and services.
Petitioners claim, however, for exemption from VAT for its purchases of supplies and
raw materials is incongruous with its claim that it is VAT-Exempt, for only VAT-Registered
entities can claim Input VAT Credit/Refund.
The point of contention here is whether or not the petitioner may claim a refund on the
Input VAT erroneously passed on to it by its suppliers.
While it is true that the petitioner should not have been liable for the VAT inadvertently
passed on to it by its supplier since such is a zero-rated sale on the part of the supplier, the
petitioner is not the proper party to claim such VAT refund.
Section 4.100-2 of BIRs Revenue Regulations 7-95, as amended, or the Consolidated
Value-Added Tax Regulations provide:
Sec. 4.100-2. Zero-rated Sales. 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, the input
tax on his purchases of goods, properties or services related to such zero-rated sale shall
be available as tax credit or refund in accordance with these regulations.
The following sales by VAT-registered persons shall be subject to 0%:
(a) Export Sales
Export Sales shall mean
...
(5) Those considered export sales under Articles 23 and 77 of Executive Order
No. 226, otherwise known as the Omnibus Investments Code of 1987,
and other special laws, e.g. Republic Act No. 7227, otherwise known as
the Bases Conversion and Development Act of 1992.
...
(c) Sales to persons or entities whose exemption under special laws, e.g. R.A. No.
7227 duly registered and accredited enterprises with Subic Bay Metropolitan
Authority (SBMA) and Clark Development Authority (CDA), R. A. No. 7916,
Philippine Economic Zone Authority (PEZA), or international agreements, e.g.

7
Asian Development Bank (ADB), International Rice Research Institute (IRRI), etc.
to which the Philippines is a signatory effectively subject such sales to zero-rate.
Since the transaction is deemed a zero-rated sale, petitioners supplier may claim an
Input VAT credit with no corresponding Output VAT liability. Congruently, no Output VAT may
be passed on to the petitioner.
On the second issue, it may not be amiss to re-emphasize that the petitioner is
registered as a NON-VAT taxpayer and thus, is exempt from VAT. As an exempt VAT
taxpayer, itis 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 petitioners 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 petitioners 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 petitioners 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.
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 ofDecember 19, 2001 are AFFIRMED. No pronouncement as to costs.
SO ORDERED.

G.R. No. 146984

July 28, 2006

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
MAGSAYSAY LINES, INC., BALIWAG NAVIGATION, INC., FIM LIMITED OF THE
MARDEN GROUP (HK) and NATIONAL DEVELOPMENT COMPANY, respondents.
DECISION
TINGA, J.:
The issue in this present petition is whether the sale by the National Development Company
(NDC) of five (5) of its vessels to the private respondents is subject to value-added tax
(VAT) under the National Internal Revenue Code of 1986 (Tax Code) then prevailing at the
time of the sale. The Court of Tax Appeals (CTA) and the Court of Appeals commonly ruled
that the sale is not subject to VAT. We affirm, though on a more unequivocal rationale than
that utilized by the rulings under review. The fact that the sale was not in the course of the
trade or business of NDC is sufficient in itself to declare the sale as outside the coverage of
VAT.
The facts are culled primarily from the ruling of the CTA.
Pursuant to a government program of privatization, NDC decided to sell to private enterprise
all of its shares in its wholly-owned subsidiary the National Marine Corporation (NMC). The
NDC decided to sell in one lot its NMC shares and five (5) of its ships, which are 3,700 DWT
Tween-Decker, "Kloeckner" type vessels.1 The vessels were constructed for the NDC
between 1981 and 1984, then initially leased to Luzon Stevedoring Company, also its
wholly-owned subsidiary. Subsequently, the vessels were transferred and leased, on a
bareboat basis, to the NMC.2
The NMC shares and the vessels were offered for public bidding. Among the stipulated
terms and conditions for the public auction was that the winning bidder was to pay "a value
added tax of 10% on the value of the vessels."3On 3 June 1988, private respondent
Magsaysay Lines, Inc. (Magsaysay Lines) offered to buy the shares and the vessels

8
for P168,000,000.00. The bid was made by Magsaysay Lines, purportedly for a new
company still to be formed composed of itself, Baliwag Navigation, Inc., and FIM Limited of
the Marden Group based in Hongkong (collectively, private respondents).4 The bid was
approved by the Committee on Privatization, and a Notice of Award dated 1 July 1988 was
issued to Magsaysay Lines.
On 28 September 1988, the implementing Contract of Sale was executed between NDC, on
one hand, and Magsaysay Lines, Baliwag Navigation, and FIM Limited, on the other.
Paragraph 11.02 of the contract stipulated that "[v]alue-added tax, if any, shall be for the
account of the PURCHASER."5 Per arrangement, an irrevocable confirmed Letter of Credit
previously filed as bidders bond was accepted by NDC as security for the payment of VAT, if
any. By this time, a formal request for a ruling on whether or not the sale of the vessels was
subject to VAT had already been filed with the Bureau of Internal Revenue (BIR) by the law
firm of Sycip Salazar Hernandez & Gatmaitan, presumably in behalf of private respondents.
Thus, the parties agreed that should no favorable ruling be received from the BIR, NDC was
authorized to draw on the Letter of Credit upon written demand the amount needed for the
payment of the VAT on the stipulated due date, 20 December 1988.6

argued that the sale of the vessels were among those transactions "deemed sale," as
enumerated in Section 4 of R.R. No. 5-87. It seems that the CIR particularly emphasized
Section 4(E)(i) of the Regulation, which classified "change of ownership of business" as a
circumstance that gave rise to a transaction "deemed sale."
In a Decision dated 27 April 1992, the CTA rejected the CIRs arguments and granted the
petition.9 The CTA ruled that the sale of a vessel was an "isolated transaction," not done in
the ordinary course of NDCs business, and was thus not subject to VAT, which under
Section 99 of the Tax Code, was applied only to sales in the course of trade or business.
The CTA further held that the sale of the vessels could not be "deemed sale," and thus
subject to VAT, as the transaction did not fall under the enumeration of transactions deemed
sale as listed either in Section 100(b) of the Tax Code, or Section 4 of R.R. No. 5-87. Finally,
the CTA ruled that any case of doubt should be resolved in favor of private respondents
since Section 99 of the Tax Code which implemented VAT is not an exemption provision, but
a classification provision which warranted the resolution of doubts in favor of the taxpayer.

In January of 1989, private respondents through counsel received VAT Ruling No. 568-88
dated 14 December 1988 from the BIR, holding that the sale of the vessels was subject to
the 10% VAT. The ruling cited the fact that NDC was a VAT-registered enterprise, and thus
its "transactions incident to its normal VAT registered activity of leasing out personal
property including sale of its own assets that are movable, tangible objects which are
appropriable or transferable are subject to the 10% [VAT]."7

The CIR appealed the CTA Decision to the Court of Appeals,10 which on 11 March 1997,
rendered a Decision reversing the CTA.11 While the appellate court agreed that the sale was
an isolated transaction, not made in the course of NDCs regular trade or business, it
nonetheless found that the transaction fell within the classification of those "deemed sale"
under R.R. No. 5-87, since the sale of the vessels together with the NMC shares brought
about a change of ownership in NMC. The Court of Appeals also applied the principle
governing tax exemptions that such should be strictly construed against the taxpayer, and
liberally in favor of the government.12

Private respondents moved for the reconsideration of VAT Ruling No. 568-88, as well as
VAT Ruling No. 395-88 (dated 18 August 1988), which made a similar ruling on the sale of
the same vessels in response to an inquiry from the Chairman of the Senate Blue Ribbon
Committee. Their motion was denied when the BIR issued VAT Ruling Nos. 007-89 dated
24 February 1989, reiterating the earlier VAT rulings. At this point, NDC drew on the Letter
of Credit to pay for the VAT, and the amount of P15,120,000.00 in taxes was paid on 16
March 1989.

However, the Court of Appeals reversed itself upon reconsidering the case, through a
Resolution dated 5 February 2001.13 This time, the appellate court ruled that the "change of
ownership of business" as contemplated in R.R. No. 5-87 must be a consequence of the
"retirement from or cessation of business" by the owner of the goods, as provided for in
Section 100 of the Tax Code. The Court of Appeals also agreed with the CTA that the
classification of transactions "deemed sale" was a classification statute, and not an
exemption statute, thus warranting the resolution of any doubt in favor of the taxpayer.14

On 10 April 1989, private respondents filed an Appeal and Petition for Refund with the CTA,
followed by a Supplemental Petition for Review on 14 July 1989. They prayed for the
reversal of VAT Rulings No. 395-88, 568-88 and 007-89, as well as the refund of the VAT
payment made amounting to P15,120,000.00.8 The Commissioner of Internal Revenue
(CIR) opposed the petition, first arguing that private respondents were not the real parties in
interest as they were not the transferors or sellers as contemplated in Sections 99 and 100
of the then Tax Code. The CIR also squarely defended the VAT rulings holding the sale of
the vessels liable for VAT, especially citing Section 3 of Revenue Regulation No. 5-87 (R.R.
No. 5-87), which provided that "[VAT] is imposed on any sale or transactions deemed sale
of taxable goods (including capital goods, irrespective of the date of acquisition)." The CIR

To the mind of the Court, the arguments raised in the present petition have already been
adequately discussed and refuted in the rulings assailed before us. Evidently, the petition
should be denied. Yet the Court finds that Section 99 of the Tax Code is sufficient reason for
upholding the refund of VAT payments, and the subsequent disquisitions by the lower courts
on the applicability of Section 100 of the Tax Code and Section 4 of R.R. No. 5-87 are
ultimately irrelevant.
A brief reiteration of the basic principles governing VAT is in order. VAT is ultimately a tax on
consumption, even though it is assessed on many levels of transactions on the basis of a
fixed percentage.15 It is the end user of consumer goods or services which ultimately

9
shoulders the tax, as the liability therefrom is passed on to the end users by the providers of
these goods or services16 who in turn may credit their own VAT liability (or input VAT) from
the VAT payments they receive from the final consumer (or output VAT).17 The final
purchase by the end consumer represents the final link in a production chain that itself
involves several transactions and several acts of consumption. The VAT system assures
fiscal adequacy through the collection of taxes on every level of consumption,18 yet
assuages the manufacturers or providers of goods and services by enabling them to pass
on their respective VAT liabilities to the next link of the chain until finally the end consumer
shoulders the entire tax liability.
Yet VAT is not a singular-minded tax on every transactional level. Its assessment bears
direct relevance to the taxpayers role or link in the production chain. Hence, as affirmed by
Section 99 of the Tax Code and its subsequent incarnations,19 the tax is levied only on the
sale, barter or exchange of goods or services by persons who engage in such activities, in
the course of trade or business. These transactions outside the course of trade or
business may invariably contribute to the production chain, but they do so only as a matter
of accident or incident. As the sales of goods or services do not occur within the course of
trade or business, the providers of such goods or services would hardly, if at all, have the
opportunity to appropriately credit any VAT liability as against their own accumulated VAT
collections since the accumulation of output VAT arises in the first place only through the
ordinary course of trade or business.

repeated or carried on with regularity. It should be emphasized that the normal

VAT-registered activity of NDC is leasing personal property.21
This finding is confirmed by the Revised Charter22 of the NDC which bears no indication that
the NDC was created for the primary purpose of selling real property.23
The conclusion that the sale was not in the course of trade or business, which the CIR does
not dispute before this Court,24 should have definitively settled the matter. Any sale, barter or
exchange of goods or services not in the course of trade or business is not subject to
VAT.
Section 100 of the Tax Code, which is implemented by Section 4(E)(i) of R.R. No. 5-87 now
relied upon by the CIR, is captioned "Value-added tax on sale of goods," and it expressly
states that "[t]here shall be levied, assessed and collected on every sale, barter or
exchange of goods, a value added tax x x x." Section 100 should be read in light of Section
99, which lays down the general rule on which persons are liable for VAT in the first place
and on what transaction if at all. It may even be noted that Section 99 is the very first
provision in Title IV of the Tax Code, the Title that covers VAT in the law. Before any portion
of Section 100, or the rest of the law for that matter, may be applied in order to subject a
transaction to VAT, it must first be satisfied that the taxpayer and transaction involved is
liable for VAT in the first place under Section 99.

That the sale of the vessels was not in the ordinary course of trade or business of NDC was
appreciated by both the CTA and the Court of Appeals, the latter doing so even in its first
decision which it eventually reconsidered.20We cite with approval the CTAs explanation on
this point:

It would have been a different matter if Section 100 purported to define the phrase "in the
course of trade or business" as expressed in Section 99. If that were so, reference to
Section 100 would have been necessary as a means of ascertaining whether the sale of the
vessels was "in the course of trade or business," and thus subject to

In Imperial v. Collector of Internal Revenue, G.R. No. L-7924, September 30,

1955 (97 Phil. 992), the term "carrying on business" does not mean the
performance of a single disconnected act, but means conducting, prosecuting and
continuing business by performing progressively all the acts normally incident
thereof; while "doing business" conveys the idea of business being done, not
from time to time, but all the time. [J. Aranas, UPDATED NATIONAL INTERNAL
REVENUE CODE (WITH ANNOTATIONS), p. 608-9 (1988)]. "Course of
business" is what is usually done in the management of trade or business. [Idmi
v. Weeks & Russel, 99 So. 761, 764, 135 Miss. 65, cited in Words & Phrases, Vol.
10, (1984)].

VAT. But that is not the case. What Section 100 and Section 4(E)(i) of R.R. No. 5-87
elaborate on is not the meaning of "in the course of trade or business," but instead the
identification of the transactions which may be deemed as sale. It would become necessary
to ascertain whether under those two provisions the transaction may be deemed a sale,
only if it is settled that the transaction occurred in the course of trade or business in the first
place. If the transaction transpired outside the course of trade or business, it would be
irrelevant for the purpose of determining VAT liability whether the transaction may be
deemed sale, since it anyway is not subject to VAT.

What is clear therefore, based on the aforecited jurisprudence, is that "course of

business" or "doing business" connotes regularity of activity. In the instant case,
the sale was an isolated transaction. The sale which was involuntary and made
pursuant to the declared policy of Government for privatization could no longer be

Accordingly, the Court rules that given the undisputed finding that the transaction in
question was not made in the course of trade or business of the seller, NDC that is, the sale
is not subject to VAT pursuant to Section 99 of the Tax Code, no matter how the said sale
may hew to those transactions deemed sale as defined under Section 100.

10
In any event, even if Section 100 or Section 4 of R.R. No. 5-87 were to find application in
this case, the Court finds the discussions offered on this point by the CTA and the Court of
Appeals (in its subsequent Resolution) essentially correct. Section 4 (E)(i) of R.R. No. 5-87
does classify as among the transactions deemed sale those involving "change of ownership
of business." However, Section 4(E) of R.R. No. 5-87, reflecting Section 100 of the Tax
Code, clarifies that such "change of ownership" is only an attending circumstance to
"retirement from or cessation of business[, ] with respect to all goods on hand [as] of the
date of such retirement or cessation."25Indeed, Section 4(E) of R.R. No. 5-87 expressly
characterizes the "change of ownership of business" as only a "circumstance" that attends
those transactions "deemed sale," which are otherwise stated in the same section.26
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.

COMMISSIONER OF INTERNAL G.R. No. 164365

REVENUE,
Petitioner,
Present:
QUISUMBING, J.,
- versus - Chairperson,
CARPIO,
CARPIO MORALES,
TINGA, and
PLACER DOME TECHNICAL VELASCO, JR., JJ.
SERVICES (PHILS.), INC.,
Respondent.
Promulgated:

11
June 8, 2007
x---------------------------------------------------------------------------------x
DECISION
TINGA, J.:
Two years ago, the Court in Commissioner of Internal Revenue v. American
Express International, Inc. (Philippine Branch)[1] definitively ruled that under the National
Internal Revenue Code of 1986, as amended,[2] services performed by VAT-registered
persons in the Philippines (other than the processing, manufacturing or repacking of goods
for persons doing business outside the Philippines), when paid in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the [Bangko
Sentral ng Pilipinas], are zero-rated. [3] The grant of the present petition entails the extreme
step of rejecting American Express as precedent, a recourse which the Court is unwilling to
take.
The facts, as culled from the recital in the assailed Decision [4] dated 30 June 2004 of the
Court of Appeals, follow.
On 24 March 1996, at the San Antonio Mines in Marinduque owned by Marcopper Mining
Corporation (Marcopper), mine tailings from the Taipan Pit started to escape through the
Makulapnit Tunnel and Boac Rivers, causing the cessation of mining and milling operations,
and causing potential environmental damage to the rivers and the immediate area. To
contain the damage and prevent the further spread of the tailing leak, Placer Dome, Inc.
(PDI), the owner of 39.9% of Marcopper, undertook to perform the clean-up and
rehabilitation of the Makalupnit and Boac Rivers, through a subsidiary. To accomplish this,
PDI engaged Placer Dome Technical Services Limited (PDTSL), a non-resident foreign
corporation with office in Canada, to carry out the project. In turn, PDTSL engaged the
services of Placer Dome Technical Services (Philippines), Inc. (respondent), a domestic
corporation and registered Value-Added Tax (VAT) entity, to implement the project in
thePhilippines.

PDTSL and respondent thus entered into an Implementation Agreement signed on 15

November 1996. Due to the urgency and potentially significant damage to the environment,
respondent had agreed to immediately implement the project, and the Implementation
Agreement stipulated that all implementation services rendered by respondent even prior to
the agreements signing shall be deemed to have been provided pursuant to the said
Agreement. The Agreement further stipulated that PDTSL was to pay respondent an amount
of money, in U.S. funds, equal to all Costs incurred for Implementation Services performed
under the Agreement,[5] as well as a fee agreed to one percent (1%) of such Costs.[6]
In August of 1998, respondent amended its quarterly VAT returns for the last two quarters of
1996, and for the four quarters of 1997. In the amended returns, respondent declared a total
input VAT payment of P43,015,461.98 for the said quarters, and P42,837,933.60 as its total

excess input VAT for the same period. Then on 11 September 1998, respondent filed an
administrative claim for the refund of its reported total input VAT payments in relation to the
project it had contracted from PDTSL, amounting to P43,015,461.98. In support of this claim
for refund, respondent argued that the revenues it derived from services rendered to
PDTSL, pursuant to the Agreement, qualified as zero-rated sales under Section 102(b)(2) of
the then Tax Code, since it was paid in foreign currency inwardly remitted to the Philippines.
When the Commissioner of Internal Revenue (CIR) did not act on this claim, respondent
duly filed a Petition for Review with the Court of Tax Appeals (CTA), praying for the refund of
its total reported excess input VAT totaling P42,837,933.60. In its Answer to the Petition, the
CIR merely invoked the presumption that taxes are collected in accordance with law, and
that claims for refund of taxes are construed strictly against claimants, as the same was in
the nature of an exemption from taxation.[7]
In its Decision dated 19 March 2002,[8] the CTA supported respondents legal position that its
sale of services to PDTSL constituted a zero-rated transaction under the Tax Code, as these
services were paid for in acceptable foreign currency which had been inwardly remitted to
the Philippines in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP). At the same time, the CTA pointed out that of the US$27,544,707.00 paid
by PDTSL to respondent, only US$14,750,473.00 was inwardly remitted and accounted for
in accordance with the BSP.[9] The CTA also noted that not all the reported total input VAT
payments of respondent were properly supported by VAT invoices and/or official receipts,
[10]
and that not all of the allowable input VAT of the respondent could be directly attributed to
its zero-rated sales.[11] In the end, the CTA found that only the resulting input VAT
of P17,178,373.12 could be refunded the respondent.[12]
The CIR filed a Motion for Reconsideration where he invoked Section 4.102-2(b)(2) of
Revenue Regulation No. 5-96,[13] and especially VAT Ruling No. 040-98 dated 23 November
1998, which had interpreted the aforecited provision.
The CTA remained unpersuaded despite the cited issuances. In fact, the CTA
Resolution[14] dated 20 June 2002, denying the CIRs motion for reconsideration, noted that
petitioners argument was not novel as it had debunked the same when first raised before it,
referring to its decision dated 19 April 2002 in CTA Case No. 6099,American Express
International, Inc. Philippine Branch v. Commissioner of Internal Revenue.[15] The CTA
reiterated its pronouncement in said case, thus: x x x it is very clear that VAT Ruling No.
040-98 not only expands the language of Section (108)(B)(2) but also of Revenue
Regulation No. 5-96 which interprets the said statute. The same cannot be countenanced. It
is a settled rule of legal hermeneutics that the implementing rules and regulations cannot
amend the act of Congress x x x for administrative rules and regulations are intended to
carry out, not supplant or modify, the law.[16]
The rulings of the CTA were elevated by petitioner to the Court of Appeals on Petition for
Review. In a Decision[17] dated 30 June 2004, the appellate court affirmed the CTA rulings.
As a consequence, the present petition is now before us.
Our evaluation of the petition must begin with the statutory scope of the services
performed in the Philippines by VAT-registered persons, [18] referred to in the law applicable
at the time of the subject incidents, the National Internal Revenue Code of 1986, as
amended[19] (1986 NIRC). Section 102(b) of the 1986 NIRC reads:

12
Section 102. Value-Added Tax on Sale of Services and Use or
Lease of Properties.
(a)

xxx

(b)
Transactions Subject to Zero Percent (0%) Rate. The following
services performed in the Philippines by VAT-registered persons shall be
subject to zero percent (0%) rate:
(1) Processing, manufacturing or repacking goods for
other persons doing business outside the Philippines
which goods are subsequently exported, where the
services are paid for in acceptable foreign currency and
accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);

(2) Services other than those mentioned in the

preceding subparagraph, the consideration for which is
paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the
[BSP].
x x x [20]
It is Section 102(b)(2) which finds special relevance to this case. As explicitly provided in
the law, a zero-rated VAT transaction includes services by VAT-registered persons other
than processing, manufacturing or repacking goods for other persons doing business
outside the Philippines, which goods are subsequently exported, the consideration for
which is paid in foreign currency and accounted for in accordance with the rules and
regulations of the BSP.
Still, this provision was interpreted by the Bureau of Internal Revenue through
Revenue Regulation No. 5-96, Section 4.102-2(b)(2) of which states:
Section 4.102(b)(2)- Services other than processing, manufacturing or
repacking for other persons doing business outside the Philippines for
goods which are subsequently exported, as well as services by a resident
to a non-resident foreign client such as project studies, information
services, engineering and architectural designs and other similar
services, the consideration for which is paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations
of the BSP.

Although there is nothing in Section 4.102-2(b)(2) that is expressly fatal to respondents

claim, VAT Ruling No. 040-98 interpreted the provision in such fashion. The relevant portion
of the ruling reads:
The sales of services subject to zero percent (0%) VAT under
Section 108(B)(2), of the Tax Code of 1997, are limited to such sales
which are destined for consumption outside of the Philippines in that such
services are tacked-in as part of the cost of goods exported. The zerorating also extends to project studies, information services, engineering
and architectural designs and other similar services sold by a resident of
the Philippines to a non-resident foreign client because these services are
likewise destined to be consumed abroad. The phrase project studies,
information services, engineering and architectural designs and other
similar services does not include services rendered by travel agents to
foreign tourists in the Philippines following the doctrine of ejusdem
generis, since such services by travel agents are not of the same class or
of the same nature as those enumerated under the aforesaid section.
Considering that the services by your client to foreign tourists are
basically and substantially rendered within the Philippines, it follows that
the onus of taxation of the revenue arising therefrom, for VAT purposes, is
also within the Philippines. For this reason, it is our considered opinion
that the tour package services of your client to foreign tourists in
the Philippines cannot legally qualify for zero-rated (0%) VAT but rather
subject to the regular VAT rate of 10%.
Petitioner argues that following Section 4.102-2(b)(2) of Revenue Regulation No.
5-96, there are only two categories of services that are subject to zero percent VAT, namely:
services other than processing, manufacturing or repacking for other persons doing
business outside the Philippines for goods which are subsequently exported; and services
by a resident to a non-resident foreign client, such as project studies, information services,
engineering and architectural designs and other similar services. [21] Petitioner explains that
the services rendered by respondent were not for goods which were subsequently
exported. Likewise, it is argued that the services rendered by respondent were not similar to
project studies, information services, engineering and architectural designs which were
destined to be consumed abroad by non-resident foreign clients.
These views, petitioner points out, were reiterated in VAT Ruling No. 040-98. It is
clear from that issuance that the location or destination where the services were destined
for consumption was determinative of whether the zero-rating availed when such services
were sold by a resident of the Philippines to a non-resident foreign client. VAT Ruling No.
040-98 expresses that the zero-rating may apply only when the services are destined for
consumption abroad. This view aligns with the theoretical principle that the VAT is ultimately
levied on consumption.[22] If the service were destined for consumption in the Philippines,
the service provider would have the faculty to pass on its VAT liability to the end-user, thus
avoiding having to shoulder the tax itself.

13
goods for persons doing business outside the Philippines), when paid in
acceptable foreign currency and accounted for in accordance with the
rules and regulations of the BSP, are zero-rated.[28]
Unfortunately for petitioner, his arguments are no longer fresh. The Court spurned
them in Commissioner of Internal Revenue v. American Express.[23]
American Express involved transactions invoked as zero-rated by a VATregistered person that facilitates the collection and payment of receivables belonging to its
non-resident foreign client, for which it gets paid in acceptable foreign currency inwardly
remitted and accounted for in conformity with BSP rules and regulations. [24] The CIR in that
case relied extensively on the same VAT Ruling No. 040-98 now cited before us. However,
the Court would conclude in American Express that the opinion therein that the service
must be destined for consumption outside of the Philippines was clearly ultra vires and
invalid.[25]
The discussion of the issues in American Express was comprehensive enough as
to address each issue now presently raised before us.

Since Section 102(b) is, in fact, very clear, the Court declared that any resort to statutory
construction or interpretation was unnecessary.
As mentioned at the outset, Section 102(b)(2) of the Tax Code is
very clear. Therefore, no statutory construction or interpretation is
needed. Neither can conditions or limitations be introduced where none is
provided for. Rewriting the law is a forbidden ground that only Congress
may tread upon.
The Court may not construe a statute that is free from doubt.
"[W]here the law speaks in clear and categorical language, there is no
room for interpretation. There is only room for application." The Court has
no choice but to "see to it that its mandate is obeyed."[29]

American Express explained the nature of VAT imposed on services in this

manner:
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 an indirect tax on services, its main object is the transaction
itself or, more concretely, the performance of all kinds of services
conducted in the course of trade or business in the Philippines. These
services must be regularly conducted in this country; undertaken in
"pursuit of a commercial or an economic activity;" for a valuable
consideration; and not exempt under the Tax Code, other special laws, or
any international agreement.[26]
Yet even as services may be subject to VAT, our tax laws extend the benefit of
zero-rating the VAT due on certain services. The aforementioned Section 102(b) of the 1986
NIRC activates such zero-rating on two categories of transactions: (1) Processing,
manufacturing or repacking goods for other persons doing business outside the Philippines
which goods are subsequently exported, where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the
BSP; and (2) services other than those mentioned in the preceding subparagraph, the
consideration for which is paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP.[27]
Obviously, it is the second category that begs for further explication, owing to its
apparently broad scope, covering as it does services other than those mentioned in the
preceding subparagraph. Yet, as found by the Court in American Express, such broad
scope did not mean that Section 102(b) is vague, thus:
The law is very clear. Under the last paragraph [of Section
102(b)],
services
performed
by
VAT-registered
persons
in
the Philippines (other than the processing, manufacturing or repacking of

It was from the awareness that Section 102(b) is free from ambiguity in providing so broad
an extension of the zero-rated benefit on VAT-registered persons performing services that
the Court in American Express proceeded to consider the same Section 4.102-2(b)(2) of
Revenue Regulation No. 5-96 now cited by petitioner. The Court in American
Express explained that Revenue Regulation No. 5-96 had amended Revenue Regulation
No. 7-95, Section 4.102-2 of which had retained the broad language of Section 102(b) in
defining transactions subject to zero-rate, adding only, by way of specific example, the
phrase those [services] rendered by hotels and other service establishments. [30] However,
the amendatory Revenue Regulation No. 5-96 opted for a more specific approach,
providing, by way of example, an enumeration of those services contemplated as zerorated.[31] In the present case, it is because of such enumeration that petitioner now argues
that respondents services likewise do not fall under the second category mentioned in
Section 4.102-2(b)(2) [as amended by Revenue Regulation No. 5-96], because they are not
similar to project studies, information services, engineering and architectural designs which
are destined to be consumed abroad by non-resident foreign clients.[32]
However, the Court in American Express clearly rebuffed a similar contention.

14
Aside from the already scopious coverage of services in Section
4.102-2(b)(2) of RR 7-95, the amendment introduced by RR 5-96 further
enumerates specific services entitled to zero rating. Although superfluous,
these sample services are meant to be merely illustrative. In this
provision, the use of the term "as well as" is not restrictive. As a
prepositional phrase with an adverbial relation to some other word,
it simply means "in addition to, besides, also or too."
Neither the law nor any of the implementing revenue
regulations aforequoted categorically defines or limits the services
that may be sold or exchanged for a fee, remuneration or
consideration. Rather, both merely enumerate the items of service that
fall under the term "sale or exchange of services."
xxxx
The canon of statutory construction known as ejusdem generis or "of the
same kind or specie" does not apply to Section 4.102-2(b)(2) of RR 7-95
as amended by RR 5-96.
First, although the regulatory provision contains an
enumeration of particular or specific words, followed by the general
phrase "and other similar services," such words do not constitute a
readily discernible class and are patently not of the same
kind. Project studies involve investments or marketing; information
services focus on data technology; engineering and architectural designs
require creativity. Aside from calling for the exercise or use of mental
faculties or perhaps producing written technical outputs, no common
denominator to the exclusion of all others characterizes these three
services. Nothing sets them apart from other and similar general services
that may involve advertising, computers, consultancy, health care,
management, messengerial work to name only a few.
Second, there is the regulatory intent to give the general phrase
"and other similar services" a broader meaning. Clearly, the preceding
phrase "as well as" is not meant to limit the effect of "and other
similar services."
Third, and most important, the statutory provision upon
which this regulation is based is by itself not restrictive. The scope
of the word "services" in Section 102(b)(2) of the [1986 NIRC] is
broad; it is not susceptible of narrow interpretation. (Emphasis
supplied)[33]
The Court in American Express recognized the existence of the contrary holding in
VAT Ruling No. 040-98, now relied upon by petitioner especially as he states that the zerorating applied only when the services are destined for consumption abroad. American
Express minced no words in criticizing said ruling.

VAT Ruling No. 040-98 relied upon by petitioner is a less general

interpretation at the administrative level, rendered by the BIR
commissioner upon request of a taxpayer to clarify certain provisions of
the VAT law. As correctly held by the CA, when this ruling states that
the service must be "destined for consumption outside of
the Philippines" in order to qualify for zero rating, it contravenes
both the law and the regulations issued pursuant to it. This portion
of VAT Ruling No. 040-98 is clearly ultra vires and invalid.
Although "[i]t is widely accepted that the interpretation
placed upon a statute by the executive officers, whose duty is to
enforce it, is entitled to great respect by the courts," this
interpretation is not conclusive and will have to be "ignored if
judicially found to be erroneous" and "clearly absurd x x x or
improper." An administrative issuance that overrides the law it
merely seeks to interpret, instead of remaining consistent and in
harmony with it, will not be countenanced by this Court.(Emphasis
supplied)[34]
Petitioner presently invokes the destination principle, citing that [r]espondents
services, while rendered to a non-resident foreign corporation, are not destined to be
consumed abroad. Hence, the onus of taxation of the revenue arising therefrom, for VAT
purposes, is also within the Philippines. Yet the Court in American Express debunked this
argument when it rebutted the theoretical underpinnings of VAT Ruling No. 040-98,
particularly its reliance on the destination principle in taxation:
As a general rule, the VAT system uses the destination
principle as a basis for the jurisdictional reach of the tax. Goods and
services are taxed only in the country where they are consumed. Thus,
exports are zero-rated, while imports are taxed.
Confusion in zero rating arises because petitioner equates
the performance of a particular type of service with the consumption
of its output abroad. In the present case, the facilitation of the collection
of receivables is different from the utilization or consumption of the
outcome of such service. While the facilitation is done in the Philippines,
the consumption is not. Respondent renders assistance to its foreign
clients the ROCs outside the country by receiving the bills of service
establishments located here in the country and forwarding them to the
ROCs abroad. The consumption contemplated by law, contrary to
petitioner's administrative interpretation, does not imply that the
service be done abroad in order to be zero-rated.
Consumption is "the use of a thing in a way that thereby
exhausts it." Applied to services, the term means the performance or
"successful completion of a contractual duty, usually resulting in the
performer's release from any past or future liability x x x" The
services rendered by respondent are performed or successfully
completed upon its sending to its foreign client the drafts and bills it has
gathered from service establishments here. Its services, having been

15
performed in the Philippines, are therefore also consumed in the
Philippines.
Unlike goods, services cannot be physically used in or
bound for a specific place when their destination is determined.
Instead, there can only be a "predetermined end of a course" when
determining the service "location or position x x x for legal
purposes." Respondent's facilitation service has no physical existence,
yet takes place upon rendition, and therefore upon consumption, in
the Philippines. Under the destination principle, as petitioner asserts, such
service is subject to VAT at the rate of 10 percent.
xxxx

place of payment is immaterial; much less is the place where the

output of the service will be further or ultimately used.[37]
Finally, the Court in American Express found support from the legislative record that
revealed that consumption abroad is not a pertinent factor to imbue the zero-rating on
services by VAT-registered persons performed in the Philippines.

Interpellations on the subject in the halls of the Senate also reveal a clear
intent on the part of the legislators not to impose the condition of being
"consumed abroad" in order for services performed in the Philippines by a
VAT-registered person to be zero-rated. We quote the relevant portions of
the proceedings:

However, the law clearly provides for an exception to the

destination principle; that is, for a zero percent VAT rate for services
that are performed in the Philippines, "paid for in acceptable foreign
currency and accounted for in accordance with the rules and
regulations of the [BSP]." Thus, for the supply of service to be zerorated as an exception, the law merely requires that first, the service be
performed in the Philippines; second, the service fall under any of the
categories in Section 102(b) of the Tax Code; and, third, it be paid in
acceptable foreign currency accounted for in accordance with BSP rules
and regulations. (Emphasis supplied)[35]

"Senator Maceda: Going back to Section 102

just for the moment. Will the Gentleman kindly explain
to me I am referring to the lower part of the first
paragraph with the 'Provided'. Section 102. 'Provided
that
the
following
services
performed
in
the Philippines by VAT registered persons shall be
subject to zero percent.' There are three here. What is
the difference between the three here which is subject
to zero percent and Section 103 which is exempt
transactions, to being with?

xxxx

"Senator Herrera: Mr. President, in the case of

processing and manufacturing or repacking goods for
persons doing business outside the Philippines which
are subsequently exported, and where the services are
paid for in acceptable foreign currencies inwardly
remitted, this is considered as subject to 0%. But if
these conditions are not complied with, they are subject
to the VAT.

Again, contrary to petitioner's stand, for the cost of respondent's

service to be zero-rated, it need not be tacked in as part of the cost
of goods exported. The law neither imposes such requirement nor
associates services with exported goods. It simply states that the
services performed by VAT-registered persons in the Philippines
services other than the processing, manufacturing or repacking of
goods for persons doing business outside this country if paid in
acceptable foreign currency and accounted for in accordance with
the rules and regulations of the BSP, are zero-rated. The service
rendered by respondent is clearly different from the product that
arises from the rendition of such service. The activity that creates the
income must not be confused with the main business in the course of
which that income is realized. (Emphasis supplied)[36]
xxxx
The law neither makes a qualification nor adds a condition in
determining the tax situs of a zero-rated service. Under this criterion, the
place where the service is rendered determines the jurisdiction to impose
the VAT. Performed in the Philippines, such service is necessarily
subject to its jurisdiction, for the State necessarily has to have "a
substantial connection" to it, in order to enforce a zero rate. The

"In the case of No. 2, again, as the Gentleman

pointed out, these three are zero-rated and the other
one that he indicated are exempted from the very
beginning. These three enumerations under Section
102 are zero-rated provided that these conditions
indicated in these three paragraphs are also complied
with. If they are not complied with, then they are not
entitled to the zero ratings. Just like in the export of
minerals, if these are not exported, then they cannot
qualify under this provision of zero rating.
"Senator Maceda: Mr. President, just one
small item so we can leave this. Under the proviso, it is
required that the following services be performed in
the Philippines.

16
"Under No. 2, services other than those
mentioned above includes, let us say, manufacturing
computers and computer chips or repacking goods for
persons doing business outside the Philippines.
Meaning to say, we ship the goods to them in Chicago
or Washington and they send the payment inwardly to
the Philippines in foreign currency, and that is, of
course, zero-rated.

Senator Maceda: So, the services by Filipino

citizens outside the Philippines are subject to VAT, and I
am talking of all services. Do big contractual engineers
in Saudi Arabia pay VAT?

"Now, when we say 'services other than those

mentioned in the preceding subsection[,'] may I have
some examples of these?

"Senator Herrera: This provision applies to a

VAT-registered person. When he performs services in
the Philippines, that is zero-rated.

"Senator Herrera:
Gentleman referring to?

Which

portion

is

"Senator Maceda: I am referring to the second

paragraph, in the same Section 102. The first
paragraph is when one manufactures or packages
something here and he sends it abroad and they pay
him, that is covered. That is clear to me. The second
paragraph says 'Services other than those mentioned in
the preceding subparagraph, the consideration of which
is paid for in acceptable foreign currency. . . .'
"One example I could immediately think ofI do
not know why this comes to my mind tonightis for
tourism or escort services. For example, the services of
the tour operator or tour escortjust a good name for all
kinds of activitiesis made here at the Midtown Ramada
Hotel or at the Philippine Plaza, but the payment is
made from outside and remitted into the country.
"Senator Herrera: What is important here is
that these services are paid in acceptable foreign
currency remitted inwardly to the Philippines.
"Senator Maceda: Yes, Mr. President. Like
those Japanese tours which include $50 for the
services of a woman or a tourist guide, it is zero-rated
when it is remitted here.
"Senator Herrera: I guess it can be interpreted
that way, although this tourist guide should also be
considered as among the professionals. If they earn
more thanP200,000, they should be covered.
xxxx

"Senator Maceda: That is right."[38]

the

It is indubitable that petitioners arguments cannot withstand the Courts ruling in American
Express, a precedent warranting stare decisis application and one which, in any event, we
are disinclined to revisit at this juncture.
WHEREFORE, the petition is DENIED. No pronouncement as to costs.
SO ORDERED.

17
SAN ROQUE POWER CORPORATION,
Petitioner,

- versus -

COMMISSIONER OF INTERNAL REVENUE,

Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 180345

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
Present:
applied against output tax: Provided, however, That in the case of zerorated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)
CORONA, J.,
(1) and (2), the acceptable foreign currency exchange proceeds thereof
Chairperson,
had been duly accounted for in accordance with the rules and regulations
CHICO-NAZARIO,
of the Bangko Sentral ng Pilipinas (BSP):Provided, further, That where
VELASCO, JR.,
the taxpayer is engaged in zero-rated or effectively zero-rated sale and
NACHURA, and
also in taxable or exempt sale of goods or properties or services, and the
PERALTA,July
JJ. 24, Tax Due for the
amount of creditable input tax due
2nd Quarter
P blank
or paid cannot be directly and
2002
Quarter (Box 13C)
entirely attributed to any one of the
(AprilPromulgated:
1,
Input Tax carried over from 237,950,763.19
transactions, it shall be allocated
2002 to
previous qtr (22B)
proportionately on the basis of the
Input VAT on Domestic
25, 2009 Purchases for the Qtr
volume of sales.
June November
30,
2002)
(22D)
65,206,499.83

DECISION
CHICO-NAZARIO, J.:

Input VAT on Importation of

Goods for the Qtr
(22F)
Total Available Input
tax (23)
VAT Refund/TCC
Claimed (24A)
Net Creditable Input
Tax (25)
VAT payable (Excess Input Tax)
(26)
Tax Payable (overpayment) (28)

In this Petition for Review on Certiorari, under

Rule 45 of the Revised Rules of Court, petitioner San
Roque Power Corporation assails the Decision[1] of
the Court of Tax Appeals (CTA) En Banc dated 20
September 2007 in CTA EB No. 248, affirming the
Decision[2] dated 23 March 2006 of the CTA Second
Division in CTA Case No. 6916, which dismissed the claim of petitioner for the refund and/or
issuance of a tax credit certificate in the amount of Two Hundred Forty-Nine Million Three
Hundred Ninety-Seven Thousand Six Hundred Twenty Pesos and 18/100
(P249,397,620.18) allegedly representing unutilized input Value Added Tax (VAT) for the
period covering January to December 2002.
Respondent, as the Commissioner of the Bureau of Internal Revenue (BIR), is
responsible for the assessment and collection of all national internal revenue taxes, fees,
and charges, including the Value Added Tax (VAT), imposed by Section 108 [3] of the National
Internal Revenue Code (NIRC) of 1997. Moreover, it is empowered to grant refunds or
issue tax credit certificates in accordance with Section 112 of the NIRC of 1997 for
unutilized input VAT paid on zero-rated or effectively zero-rated sales and purchases of
capital goods, to wit:
SEC. 112. Refunds or Tax Credits of Input Tax. (A) Zero-rated or Effectively Zero-rated SalesAny VATregistered 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

18,485,758.00
321,643,021.02
237,950,763.19
83,692,257.83
(83,692,257.83)
(83,692,257.83)

(B) Capital GoodsA VAT-registered person may apply for the

issuance of a tax credit certificate or refund of input taxes paid on capital
goods imported or locally purchased, to the extent the such input taxes
have not been applied against output taxes. The application may be
made only within two (2) years after the close of the taxable quarter when
the importation or purchase was made.
On the other hand, petitioner is a domestic corporation organized under the
corporate laws of the Republic of the Philippines. On 14 October 1997, it was incorporated
for the sole purpose of building and operating the San Roque Multipurpose Project in San
Manuel, Pangasinan, which is an indivisible project consisting of the power station, the dam,
spillway, and other related facilities.[4] It is registered with the Board of Investments (BOI) on
a preferred pioneer status to engage in the design, construction, erection, assembly, as well
as own, commission, and operate electric power-generating plants and related activities, for

18
which it was issued the Certificate of Registration No. 97-356 dated 11 February 1998.[5] As
a seller of services, petitioner is registered with the BIR as a VAT taxpayer under Certificate
of Registration No. OCN-98-006-007394.[6]
On 11 October 1997, petitioner entered into a Power Purchase Agreement (PPA)
with the National Power Corporation (NPC) to develop the hydro potential of
the Lower Agno River, and to be able to generate additional power and energy for the Luzon
Power Grid, by developing and operating the San Roque Multipurpose Project. The PPA
provides that petitioner shall be responsible for the design, construction, installation,
completion and testing and commissioning of the Power Station and it shall operate and
maintain the same, subject to the instructions of the NPC. During the cooperation period of
25 years commencing from the completion date of the Power Station, the NPC shall
purchase all the electricity generated by the Power Plant.[7]
Because of the exclusive nature of the PPA between petitioner and the NPC,
petitioner applied for and was granted five Certificates of Zero Rate by the BIR, through the
Chief Regulatory Operations Monitoring Division, now the Audit Information, Tax Exemption
& Incentive Division. Based on these certificates, the zero-rated status of petitioner
commenced on 27 September 1998 and continued throughout the year 2002.[8]
For the period January to December 2002, petitioner filed with the respondent its
Monthly VAT Declarations and Quarterly VAT Returns. Its Quarterly VAT Returns showed
excess input VAT payments on account of its importation and domestic purchases of goods
and services, as follows[9]:
Period Covered Date
Filed
1st Quarter
April
20,
(January 1,
2002
2002 to
March 31, 2002)

3rd Quarter

Particulars
Tax Due for the Quarter
(Box 13C)
Input Tax carried over from
previous qtr (22B)
Input VAT on Domestic
Purchases for the Qtr
(22D)
Input VAT on Importation of
Goods for the Qtr
(22F)
Total Available Input
tax (23)
VAT Refund/TCC
Claimed (24A)
Net Creditable Input
Tax (25)
VAT payable (Excess Input Tax)
(26)
Tax Payable (overpayment) (28)

October 25, Tax Due for the Quarter

Amount
P

26,247.27
296,124,429.21

95,003,348.91

20,758,668.00
411,886,446.12
173,909,435.66
237,977,010.46
(237,950,763.19)
(237,950,763.19)

P blank

2002
(July 1, 2002 to
September 30,
2002)

4th Quarter
(October 1,
2002 to
December 31,
2002)

(Box 13C)
Input Tax carried over from previous qtr
(22B)
Input VAT on Domestic Purchases for the
Qtr
(22D)
Input VAT on Importation of Goods for the
Qtr
(22F)
Total Available Input tax (23)
VAT Refund/TCC Claimed (24A)
Net Creditable Input Tax (25)
VAT payable (Excess Input Tax) (26)
Tax Payable (overpayment) (28)

January 23, Tax Due for the Quarter

2003
(Box 13C)
Input Tax carried over from previous qtr
(22B)
Input VAT on Domestic Purchases for the
Qtr
(22D)
Input VAT on Importation of Goods for the
Qtr
(22F)
Total Available Input tax (23)
VAT Refund/TCC Claimed (24A)
Net Creditable Input Tax (25)
VAT payable (Excess Input Tax) (26)
Tax Payable (overpayment) (28)

199,428,027.47

28,924,020.79

1,465,875.00
229,817,923.26
Blank
229,817,923.26
(229,817,923.26)
(229,817,923.26)
P 34,996.36
114,082,153.62

18,166,330.54

2,308,837.00
134,557,321.16
83,692,257.83
50,865,063.33
(50,830,066.97)
(50,830,066.97)

On 19 June 2002, 25 October 2002, 27 February 2003, and 29 May 2003,

petitioner filed with the BIR four separate administrative claims for refund of Unutilized Input
VAT paid for the period January to March 2002, April to June 2002, July to September 2002,
and October to December 2002, respectively. In these letters addressed to the BIR, Carlos
Echevarria (Echevarria), the Vice President and Director of Finance of petitioner, explained
that petitioners sale of power to NPC are subject to VAT at zero percent rate, in accordance
with Section 108(B)(3) of the NIRC. [10] Petitioner sought to recover the total amount
of P250,258,094.25, representing its unutilized excess VAT on its importation of capital and
other taxable goods and services for the year 2002, broken down as follows[11]:
Qtr
Involved Output Tax

(A)

Input Tax
Domestic
Purchases
(B)

Importations
(C)

Excess Input Tax

(D) = (B) + (C) (A)

19
1st
2nd
3rd
4th

P 26,247.2 P95,003,348.91
7
65,206,499.83
28,924,020.79
34,996.36
18,166,330.54
P61,243.63 P207,300,200.07

P20,758,668.0
0
18,485,758.00
1,465,875.00
2,308,837.00
P43,019,138.0
0

P115,735,769.84
83,692,257.83
30,389,895.79
20,440,171.18
P250,258,094.44
3rd Quarter

Petitioner amended its Quarterly VAT Returns, particularly the items on (1) Input
VAT on Domestic Purchases during the first quarter of 2002; (2) Input VAT on Domestic
Purchases for the fourth quarter of 2002; and (3) Input VAT on Importation of Goods for the
fourth quarter of 2002. The amendments read as follows[12]:
Period
Covered
1st Quarter
(January 1,
2002 to
March 31,
2002)

Date
Particulars
Filed
April Tax Due for the Quarter
24, (Box 13C)
2003 Input Tax carried over from
previous qtr (22B)
Input VAT on Domestic
Purchases for the Qtr
(22D)
(22F)
Total Available Input
tax (23)
VAT Refund/TCC
Claimed (24A)
Net Creditable Input
Tax (25)
VAT payable (Excess Input
Tax) (26)
Tax Payable (overpayment)
(28)

2nd Quarter
(April 1,
2002 to
June 30,
2002)

VAT Refund/TCC Claimed

(24A)
Net Creditable Input Tax (25)
VAT payable (Excess Input Tax) (26)
Tax Payable (overpayment) (28)
October
2002

(July 1,
2002 to
September 30,
2002)

Amount
P

26,247.27
297,719,296.25

95,126,981.69
4th Quarter

20,758,668.00
413,604,945.94

(October 1,
2002 to

175,544,002.27

December 31,
2002)

175,544,002.27
(238,060,943.67)
(238,034,696.40)

April 24, 2003 Tax Due for the Quarter

(Box 13C)
Input Tax carried over from previous
qtr (22B)
Input VAT on Domestic Purchases for
the Qtr
(22D)
Input VAT on Importation of Goods for
the Qtr
(22F)
Total Available Input tax (23)

P blank
238,034,696.40

65,206,499.83

18,485,758.00
321,643,021.02

January
2003

25, Tax Due for the Quarter

(Box 13C)
Input Tax carried over from previous
qtr (22B)
Input VAT on Domestic Purchases for
the Qtr
(22D)
Input VAT on Importation of Goods for
the Qtr
(22F)
Total Available Input tax (23)
VAT Refund/TCC Claimed
(24A)
Net Creditable Input Tax (25)
VAT payable (Excess Input Tax) (26)
Tax Payable (overpayment) (28)

237,950,763.19
83,692,257.83
(83,692,257.83)
(83,692,257.83)
P blank
83,692,257.83

28,924,020.79

1,465,875.00
114,082,153.62
Blank
114,082,153.62
(114,082,153.62)
(114,082,153.62)

23, Tax Due for the Quarter

P 34,996.36
(Box 13C)
Input Tax carried over from previous qtr
114,082,153.62
(22B)
Input VAT on Domestic Purchases for the
Qtr
(22D)
17,918,056.50
Input VAT on Importation of Goods for the
Qtr
(22F)
1,573,004.00
Total Available Input tax (23)
133,573,214.12
VAT Refund/TCC Claimed
83,692,257.83
(24A)
Net Creditable Input Tax (25)
49,880,956.29
VAT payable (Excess Input Tax) (26)
(49,845,959.93)
Tax Payable (overpayment) (28)
(49,845,959.93)

On 30 May 2003 and 31 July 2003, petitioner filed two letters with the BIR to
amend its claims for tax refund or credit for the first and fourth quarter of 2002,
respectively. Petitioner sought to recover a total amount of P249,397,620.18 representing
its unutilized excess VAT on its importation and domestic purchases of goods and services
for the year 2002, broken down as follows[13]:
Qtr
Involved Date Filed Output Tax
Input Tax

20

(A)
1st

30-May-03

P 26,247.2
7
25-Oct-02
27-Feb-03
31-Jul-03
34,996.36
P61,243.63

2nd
3rd
4th

Domestic
Purchases
(B)

Importations

Excess Input Tax

(C)

(D) = (B) + (C)

(A)
P95,126,981.69 P20,758,668.00 P115,859,402.42

65,206,499.83 18,185,758.00
28,924,920.79
1,465,875,00
17,918,056.50
1,573,004.00
P207,175,558.81 P42,283,305.00

83,692,257.83
30,389,895.79
19,456,064.14
P249,397,620.18

Respondent failed to act on the request for tax refund or credit of petitioner, which
prompted the latter to file on 5 April 2004, with the CTA in Division, a Petition for Review,
docketed as CTA Case No. 6916 before it could be barred by the two-year prescriptive
period within which to file its claim. Petitioner sought the refund of the amount
of P249,397,620.18 representing its unutilized excess VAT on its importation and local
purchases of various goods and services for the year 2002.[14]
During the proceedings before the CTA Second Division, petitioner presented the
following documents, among other pieces of evidence: (1) Petitioners Amended Quarterly
VAT return for the 4th Quarter of 2002 marked as Exhibit A, showing the amount
of P42,500,000.00 paid by NTC to petitioner for all the electricity produced during test runs;
(2) the special audit report, prepared by the CPA firm of Punongbayan and Araullo through a
partner, Angel A. Aguilar (Aguilar), and the attached schedules, marked as Exhibits J-2 to
J-21; (3) Sales Invoices and Official Receipts and related documents issued to petitioner
for the year 2002, marked as Exhibits J-4-A1 to J-4-L265; (4) Audited Financial
Statements of Petitioner for the year 2002, with comparative figures for 2001, marked as
Exhibit K; and (5) the Affidavit of Echevarria dated 9 February 2005, marked as Exhibit L.
[15]

During the hearings, the parties jointly stipulated on the issues involved:
1.

Whether or not petitioners sales are subject to value-added taxes

at effectively zero percent (0%) rate;

2.

Whether or not petitioner incurred input taxes which are

attributable to its effectively zero-rated transactions;

3.

Whether or not petitioners importation and purchases of capital

goods and related services are within the scope and meaning of
capital goods under Revenue Regulations No. 7-95;

4.

Whether or not petitioners input taxes are

substantiated with VAT invoices or official receipts;

5.

Whether or not the VAT input taxes being claimed for refund/tax
credit by petitioner (had) been credited or utilized against any
output taxes or (had) been carried forward to the succeeding
quarter or quarters; and

sufficiently

6.

Whether or not petitioner is entitled to a refund of VAT input taxes

it paid from January 1, 2002 to December 31, 2002 in the total
amount of Two Hundred Forty Nine Million Three Hundred Ninety
Seven Thousand Six Hundred Twenty and 18/100 Pesos
(P249,397,620.18).

Simply put, the issue is: whether or not petitioner is entitled to refund or tax credit in
the amount of P249,397,620.18 representing its unutilized input VAT paid on importation
and purchases of capital and other taxable goods and services from January 1 to December
31, 2002.
After a hearing on the merits, the CTA Second Division rendered a
Decision[16] dated 23 March 2006 denying petitioners claim for tax refund or credit. The CTA
noted that petitioner based its claim on creditable input VAT paid, which is attributable to (1)
zero-rated or effectively zero-rated sale, as provided under Section 112(A) of the NIRC, and
(2) purchases of capital goods, in accordance with Section 112(B) of the NIRC. The court
ruled that in order for petitioner to be entitled to the refund or issuance of a tax credit
certificate on the basis of Section 112(A) of the NIRC, it must establish that it had incurred
zero-rated sales or effectively zero-rated sales for the taxable year 2002. Since records
show that petitioner did not make any zero-rated or effectively-zero rated sales for the
taxable year 2002, the CTA reasoned that petitioners claim must be
denied. Parenthetically, the court declared that the claim for tax refund or credit based on
Section 112(B) of the NIRC requires petitioner to prove that it paid input VAT on capital
goods purchased, based on the definition of capital goods provided under Section 4.1121(b) of Revenue Regulations No. 7-95i.e., goods or properties which have an estimated
useful life of greater than one year, are treated as depreciable assets under Section 34(F) of
the NIRC, and are used directly or indirectly in the production or sale of taxable goods and
services. The CTA found that the evidence offered by petitionerthe suppliers invoices
and official receipts and Import Entries and Internal Revenue Declarations and the audit
report of the Court-commissioned Independent Certified Public Accountant (CPA) are
insufficient to prove that the importations and domestic purchases were classified as capital
goods and properties entered as part of the Property, Plant and Equipment account of the
petitioner. The dispositive part of the said Decision reads:
WHEREFORE, the instant Petition for Review is DENIED for
lack of merit.[17]
Not satisfied with the foregoing Decision dated 23 March 2006, petitioner filed a
Motion for Reconsideration which was denied by the CTA Second Division in a Resolution
dated 4 January 2007.[18]
Petitioner filed an appeal with the CTA En Banc, docketed as CTA EB No.
248. The CTA En Banc promulgated its Decision[19] on 20 September 2007denying
petitioners appeal. The CTA En Banc reiterated the ruling of the Division that petitioners
claim based on Section 112(A) of the NIRC should be denied since it did not present any
records of any zero-rated or effectively zero-rated transactions. It clarified that since
petitioner failed to prove that any sale of its electricity had transpired, petitioner may base its
claim only on Section 112(B) of the NIRC, the provision governing the purchase of capital
goods. The court noted that the report of the Court-commissioned auditing firm,
Punongbayan & Araullo, dealt specifically with the unutilized input taxes paid or incurred by

21
petitioner on its local and foreign purchases of goods and services attributable to its zerorated sales, and not to purchases of capital goods. It decided that petitioner failed to prove
that the purchases evidenced by the invoices and receipts, which petitioner presented, were
classified as capital goods which formed part of its Property, Plant and Equipment,
especially since petitioner failed to present its books of account. The dispositive part of the
said Decision reads:

misapprehension of facts, or when the appellate court failed to notice certain relevant facts
which if considered would justify a different conclusion.[23]
After reviewing the records, this Court finds that petitioners claim for refund or
credit is justified under Section 112(A) of the NIRC which states that:
SEC. 112. Refunds or Tax Credits of Input Tax.

WHEREFORE, premises considered, the instant petition is

hereby DISMISSED. Accordingly, the assailed Decision and Resolution
are hereby AFFIRMED.[20]
The CTA En Banc denied petitioners Motion for Reconsideration in a Resolution
dated 22 October 2007.[21]
Hence, the present Petition for Review where the petitioner raises the following
errors allegedly committed by the CTA En banc:
I
THE COURT OF TAX APPEALS EN BANC COMMITTED SERIOUS
ERROR AND ACTED WITH GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION IN FAILING
OR REFUSING TO APPRECIATE THE OVERWHELMING AND
UNCONTROVERTED EVIDENCE SUBMITTED BY THE PETITIONER,
THUS DEPRIVING PETITIONER OF ITS PROPERTY WITHOUT DUE
PROCESS; AND
II
THE COURT OF TAX APPEALS COMMITTED SERIOUS ERROR AND
ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OR EXCESS OF JURISDICTION IN RULING THAT THE ABSENCE OF
ZERO-RATED SALES BY PETITIONER DURING THE YEAR COVERED
BY THE CLAIM FOR REFUND DOES NOT ENTITLE PETITIONER TO A
REFUND OF ITS EXCESS VAT INPUT TAXES ATTRIBUTABLE TO
ZERO-RATED SALES, CONTRARY TO PROVISIONS OF LAW.[22]
The present Petition is meritorious.
The main issue in this case is whether or not petitioner may claim a tax refund or
credit in the amount of P249,397,620.18 for creditable input tax attributable to zero-rated or
effectively zero-rated sales pursuant to Section 112(A) of the NIRC or for input taxes paid
on capital goods as provided under Section 112(B) of the NIRC.
To resolve the issue, this Court must re-examine the facts and the evidence offered
by the parties. It is an accepted doctrine that this Court is not a trier of facts. It is not its
function to review, examine and evaluate or weigh the probative value of the evidence
presented. However, this rule does not apply where the judgment is premised on a

(A) Zero-rated or Effectively Zero-rated SalesAny VATregistered 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 zerorated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108(B)
(1) and (2), the acceptable foreign currency exchange proceeds thereof
had been duly accounted for in accordance with the rules and regulations
of the Bangko Sentral ng Pilipinas (BSP):Provided, further, That where
the taxpayer is engaged in zero-rated or effectively zero-rated sale and
also in taxable or exempt sale of goods or properties or services, and the
amount of creditable input tax due or paid cannot be directly and entirely
attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales.
To claim refund or tax credit under Section 112(A), petitioner must comply with the
following criteria: (1) the taxpayer is VAT registered; (2) the taxpayer is engaged in zerorated or effectively zero-rated sales; (3) the input taxes are due or paid; (4) the input taxes
are not transitional input taxes; (5) the input taxes have not been applied against output
taxes during and in the succeeding quarters; (6) the input taxes claimed are attributable to
zero-rated or effectively zero-rated sales; (7) for zero-rated sales under Section 106(A)(2)(1)
and (2); 106(B); and 108(B)(1) and (2), the acceptable foreign currency exchange proceeds
have been duly accounted for in accordance with BSP rules and regulations; (8) where
there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and
the input taxes cannot be directly and entirely attributable to any of these sales, the input
taxes shall be proportionately allocated on the basis of sales volume; and (9) the claim is
filed within two years after the close of the taxable quarter when such sales were made.[24]
Based on the evidence presented, petitioner complied with the abovementioned
requirements. Firstly, petitioner had adequately proved that it is a VAT registered taxpayer
when it presented Certificate of Registration No. OCN-98-006-007394, which it attached to
its Petition for Review dated 29 March 2004 filed before the CTA in Division. Secondly, it is
unquestioned that petitioner is engaged in providing electricity for NPC, an activity which is
subject to zero rate, under Section 108(B)(3) of the NIRC. Thirdly, petitioner offered as
evidence suppliers VAT invoices or official receipts, as well as Import Entries and Internal
Revenue Declarations (Exhibits J-4-A1 to J-4-L265), which were examined in the audit
conducted by Aguilar, the Court-commissioned Independent CPA. Significantly, Aguilar
noted in his audit report (Exhibit J-2) that of the P249,397,620.18 claimed by petitioner, he
identified items with incomplete documentation and errors in computation with a total
amount of P3,266,009.78. Based on these findings, the remaining input VAT

22
of P246,131,610.40 was properly documented and recorded in the books. The said report
reads:
In performing the procedures referred under the Procedures Performed
section of this report, no matters came to our attention that cause us to
believe that the amount of input VAT applied for as tax credit
certificate/refund of P249,397,620.18 for the period January 1, 2002 to
December 31, 2002 should be adjusted except for input VAT claimed with
incomplete documentation, those with various and other exceptions on
the supporting documents and those with errors in computation totaling
P3,266,009.78, as discussed in the Findings and Results of the AgreedUpon Audit Procedures Performed sections of this report. We have also
ascertained that the input VAT claimed are properly recorded in the books
and, except as specifically identified in the Findings and Results of the
Agreed-Upon Audit Procedures Performed sections of this report, are
properly supported by original and appropriate suppliers VAT invoices
and/or official receipts.[25]
Fourthly, the input taxes claimed, which consisted of local purchases and importations made
in 2002, are not transitional input taxes, which Section 111 of the NIRC defines as input
taxes allowed on the beginning inventory of goods, materials and supplies. [26] Fifthly, the
audit report of Aguilar affirms that the input VAT being claimed for tax refund or credit is net
of the input VAT that was already offset against output VAT amounting to P26,247.27 for the
first quarter of 2002 andP34,996.36 for the fourth quarter of 2002,[27] as reflected in the
Quarterly VAT Returns.[28]
The main dispute in this case is whether or not petitioners claim complied with the
sixth requirementthe existence of zero-rated or effectively zero-rated sales, to which
creditable input taxes may be attributed. The CTA in Division and en banc denied
petitioners claim solely on this ground. The tax courts based this conclusion on the audited
report, marked as Exhibit J-2, stating that petitioner made no sale of electricity to NPC in
2002.[29] Moreover, the affidavit of Echevarria (Exhibit L), petitioners Vice President and
Director for Finance, contained an admission that no commercial sale of electricity had been
made in favor of NPC in 2002 since the project was still under construction at that time.[30]
However, upon closer examination of the records, it appears that on 2002,
petitioner carried out a sale of electricity to NPC. The fourth quarter return for the year
2002, which petitioner filed, reported a zero-rated sale in the amount of P42,500,000.00.
[31]
In the Affidavit of Echevarria dated 9 February 2005 (Exhibit L), which was
uncontroverted by respondent, the affiant stated that although no commercial sale was
made in 2002, petitioner produced and transferred electricity to NPC during the testing
period in exchange for the amount of P42,500,000.00, to wit:[32]
A: San Roque Power Corporation has had no sale yet during
2002. The P42,500,000.00 which was paid to us by Napocor was
something similar to a more cost recovery scheme. The pre-agreed
amount would be about equal to our costs for producing the electricity
during the testing period and we just reflected this in our 4 th quarter return
as a zero-rated sale. x x x.

The Court is not unmindful of the fact that the transaction described hereinabove
was not a commercial sale. In granting the tax benefit to VAT-registered zero-rated
or effectively zero-rated taxpayers, Section 112(A) of the NIRC does not limit the
definition of sale to commercial transactions in the normal course of
business. Conspicuously, Section 106(B) of the NIRC, which deals with the
imposition of the VAT, does not limit the term sale to commercial sales, rather it
extends the term to transactions that are deemed sale, which are thus
enumerated:
SEC 106. Value-Added Tax on Sale of Goods or Properties.
xxxx
(B)
Transactions Deemed Sale.The following transactions shall be
deemed sale:
(1) Transfer, use or consumption not in the course of
business of goods or properties originally intended for sale
or for use in the course of business;
(2) Distribution or transfer to:
(a) Shareholders or investors as share
in the profits of the VAT-registered
persons; or
(b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made
within sixty (60) days following the date such goods were
consigned; and
(4) Retirement from or cessation of business, with
respect to inventories of taxable goods existing as of such
retirement or cessation. (Our emphasis.)
After carefully examining this provision, this Court finds it an equitable construction
of the law that when the term sale is made to include certain transactions for the
purpose of imposing a tax, these same transactions should be included in the term
sale when considering the availability of an exemption or tax benefit from the
same revenue measures. It is undisputed that during the fourth quarter of 2002,
petitioner transferred to NPC all the electricity that was produced during the trial
period. The fact that it was not transferred through a commercial sale or in the
normal course of business does not deflect from the fact that such transaction is
deemed as a sale under the law.
The seventh requirement regarding foreign currency exchange proceeds is
inapplicable where petitioners zero-rated sale of electricity to NPC did not involve foreign
exchange and consisted only of a single transaction wherein NPC paid
petitioner P42,500,000.00 in exchange for the electricity transferred to it by

23
petitioner. Similarly, the eighth requirement is inapplicable to this case, where the only sale
transaction consisted of an effectively zero-rated sale and there are no exempt or taxable
sales that transpired, which will require the proportionate allocation of the creditable input
tax paid.
The last requirement determines that the claim should be filed within two years
after the close of the taxable quarter when such sales were made. The sale of electricity to
NPC was reported at the fourth quarter of 2002, which closed on 31 December
2002. Petitioner had until 30 December 2004 to file its claim for refund or credit. For the
period January to March 2002, petitioner filed an amended request for refund or tax credit
on 30 May 2003; for the period July 2002 to September 2002, on 27 February 2003; and for
the period October 2002 to December 2002, on 31 July 2003.[33] In these three quarters,
petitioners seasonably filed its requests for refund and tax credit. However, for the period
April 2002 to May 2002, the claim was filed prematurely on 25 October 2002, before the last
quarter had closed on 31 December 2002.[34]

exempted from paying VAT on its purchases to relieve NPC of the burden of additional costs
that petitioner may shift to NPC by adding to the cost of the electricity sold to the latter.[36]
Section 13 of Republic Act No. 6395, otherwise known as the NPC Charter, further
clarifies that it is the lawmakers intention that NPC be made completely exempt from all
taxes, both direct and indirect:
Sec. 13. Non-profit Character of the Corporation; Exemption from
all Taxes, Duties, Fees, Imposts and Other Charges by Government and
Governmental Instrumentalities. - The corporation shall be non-profit and
shall devote all its returns from its capital investment, as well as excess
revenues from its operation, for expansion. To enable the corporation to
pay its indebtedness and obligations and in furtherance and effective
implementation of the policy enunciated in Section 1 of this Act, the
corporation is hereby declared exempt:

Despite this lapse in procedure, this Court notes that petitioner was able to
positively show that it was able to accumulate excess input taxes on various importations
and local purchases in the amount of P246,131,610.40, which were attributable to a transfer
of electricity in favor of NPC. The fact that it had filed its claim for refund or credit during the
quarter when the transfer of electricity had taken place, instead of at the close of the said
quarter does not make petitioner any less entitled to its claim. Given the special
circumstances of this case, wherein petitioner was incorporated for the sole purpose of
constructing or operating a power plant that will transfer all the electricity it generates to
NPC, there is no danger that petitioner would try to fraudulently claim input tax paid on
purchases that will be attributed to sale transactions that are not zero-rated. Substantial
justice, equity and fair play are on the side of the petitioner. Technicalities and legalisms,
however, exalted, should not be misused by the government to keep money not belonging
to it, thereby enriching itself at the expense of its law abiding citizens.

(a)
From the payment of all taxes, duties, fees, imposts,
charges, costs and service fees in any court or administrative
proceedings in which it may be a party, restrictions and duties to the
Republic of the Philippines, its provinces, cities, municipalities, and other
government agencies and instrumentalities;

Substantial justice, equity and fair play are on the side of

petitioner. Technicalities and legalisms, however exalted, should not be
misused by the government to keep money not belonging to it, thereby
enriching itself at the expense of its law-abiding citizens. Under the
principle of solutio indebiti provided in Art. 2154, Civil Code, the BIR
received something when there [was] no right to demand it, and thus, it
has the obligation to return it. Heavily militating against respondent
Commissioner is the ancient principle that no one, not even the State,
shall enrich oneself at the expense of another. Indeed, simple justice
requires the speedy refund of the wrongly held taxes.[35]

(d)
From all taxes, duties, fees, imposts, and all other charges
imposed by the Republic of the Philippines, its provinces, cities,
municipalities and other government agencies and instrumentalities, on all
petroleum products used by the corporation in the generation,
transmission, utilization, and sale of electric power.

It bears emphasis that effective zero-rating is not intended as a benefit to the

person legally liable to pay the tax, such as petitioner, but to relieve certain exempt entities,
such as the NPC, from the burden of indirect tax so as to encourage the development of
particular industries. Before, as well as after, the adoption of the VAT, certain special laws
were enacted for the benefit of various entities and international agreements were entered
into by the Philippines with foreign governments and institutions exempting sale of goods or
supply of services from indirect taxes at the level of their suppliers. Effective zero-rating
was intended to relieve the exempt entity from being burdened with the indirect tax which is
or which will be shifted to it had there been no exemption. In this case, petitioner is being

(b)
From all income taxes, franchise taxes, and realty taxes to
be paid to the National Government, its provinces, cities, municipalities
and other government agencies and instrumentalities;
(c)
From all import duties, compensating taxes and advanced
sales tax and wharfage fees on import of foreign goods, required for its
operations and projects; and

To limit the exemption granted to the NPC to direct taxes, notwithstanding the
general and broad language of the statute will be to thwart the legislative intention in giving
exemption from all forms of taxes and impositions, without distinguishing between those that
are direct and those that are not.[37]
Congress granted NPC a comprehensive tax exemption because of the significant
public interest involved. This is enunciated in Section 1 of Republic Act No. 6395:
Section 1. Declaration of Policy. Congress hereby declares that
(1) the comprehensive development, utilization and conservation of
Philippine water resources for all beneficial uses, including power
generation, and (2) the total electrification of the Philippines through the
development of power from all sources to meet the needs of industrial
development and dispersal and the needs of rural electrification are

24
primary objectives of the nation which shall be pursued coordinately and
supported by all instrumentalities and agencies of government, including
its financial institutions.
The ability of the NPC to provide sufficient and affordable electricity throughout the
country greatly affects our industrial and rural development. Erroneously and unjustly
depriving industries that generate electrical power of tax benefits that the law clearly grants
will have an immediate effect on consumers of electricity and long term effects on our
economy.
In the same breath, we cannot lose sight of the fact that it is the declared policy of the
State, expressed in Section 2 of Republic Act No. 9136, otherwise known as the EPIRA
Law, to ensure and accelerate the total electrification of the country; to enhance the inflow
of private capital and broaden the ownership base of the power generation, transmission
and distribution sectors; and to promote the utilization of indigenous and new and
renewable energy resources in power generation in order to reduce dependence on
imported energy. Further, Section 6 provides that pursuant to the objective of lowering
electricity rates to end-users, sales of generated power by generation companies shall be
value-added tax zero-rated.
Section 75 of said law succinctly declares that this Act shall, unless the context
indicates otherwise, be construed in favor of the establishment, promotion, preservation of
competition and power empowerment so that the widest participation of the people, whether
directly or indirectly is ensured.
The objectives as set forth in the EPIRA Law can only be achieved if government
were to allow petitioner and others similarly situated to obtain the input tax credits available
under the law. Denying petitioner such credits would go against the declared policies of the
EPIRA Law.
The legislative grant of tax relief (whether in the EPIRA Law or the Tax Code)
constitutes a sovereign commitment of Government to taxpayers that the latter can avail
themselves of certain tax reliefs and incentives in the course of their business activities
here. Such a commitment is particularly vital to foreign investors who have been enticed to
invest heavily in our countrys infrastructure, and who have done so on the firm assurance
that certain tax reliefs and incentives can be availed of in order to enable them to achieve
their projected returns on these very long-term and heavily funded investments. While the
governments ability to keep its commitment is put in doubt, credit rating turns to worse; the
costs of borrowing becomes higher and the harder it will be to attract foreign investors. The
countrys earnest efforts to move forward will all be put to naught.
Having decided that petitioner is entitled to claim refund or tax credit under Section
112(A) of the NIRC or on the basis of effectively zero-rated sales in the amount
of P246,131,610.40, there is no more need to establish its right to make the same claim
under Section 112(B) of the NIRC or on the basis of purchase of capital goods.
Finally, respondent contends that according to well-established doctrine, a tax
refund, which is in the nature of a tax exemption, should be construed strictissimi
juris against the taxpayer.[38] However, when the claim for refund has clear legal basis and

is sufficiently supported by evidence, as in the present case, then the Court shall not
hesitate to grant the same.[39]
WHEREFORE, the instant Petition for Review is GRANTED. The Decision of the
Court of Tax Appeals En Banc dated 20 September 2007 in CTA EB Case No. 248, affirming
the Decision dated 23 March 2006 of the CTA Second Division in CTA Case No. 6916,
is REVERSED. Respondent Commissioner of Internal Revenue is ordered to refund, or in
the alternative, to issue a tax credit certificate to petitioner San Roque Power Corporation in
the amount of Two Hundred Forty-Six Million One Hundred Thirty-One Thousand Six
Hundred Ten Pesos and 40/100 (P246,131,610.40), representing unutilized input VAT for
the period 1 January 2002 to 31 December 2002. No costs.
SO ORDERED.

25
COMMISSIONER OF INTERNAL G.R. No. 180042
REVENUE,

of P15,242,271.43, and 6% creditable VAT of P11,027,758.51, withheld and remitted by its

clients. These amounts were deductible from Ironcons total output VAT liability
of P20,073,422.63. Consequently, by the end of 2000 Ironcons actual excess creditable VAT
was P9,332,597.99 only as against its claim for refund of P18,053,715.64.

Petitioner, Present:
Carpio, J., Chairperson,
- versus - Brion,
Del Castillo,
Abad, and
Perez, JJ.
IRONCON BUILDERS AND
DEVELOPMENT CORPORATION, Promulgated:
Respondent.
February 8, 2010
x ---------------------------------------------------------------------------------------- x
DECISION
ABAD, J.:
This addresses the question of whether or not creditable value-added tax (VAT)
withheld from a taxpayer in excess of its output VAT liability may be the subject of a tax
refund in place of a tax credit.
The Facts and the Case
On May 10, 2001 respondent Ironcon Builders and Development Corporation
(Ironcon) sought the refund by the Bureau of Internal Revenue (BIR) of its income tax
overpayment and excess creditable VAT. When petitioner Commissioner of Internal
Revenue (CIR) continued not to act on its claims, on July 1, 2002 Ironcon filed a petition for
review with the Court of Tax Appeals (CTA) in CTA Case 6502, which was raffled to its
Second Division.
After hearing, the Second Division held that in regard to the claim for overpaid
income taxes, taxpayers have the option to either carry over the excess credit or ask for a
refund. Here, respondent Ironcon filed two income tax returns for the year 2000, an original
and an amended one. In the original return, Ironcon placed an x mark in a box
corresponding to the option To be carried over as tax credit next year/quarter. Although
Ironcons amended return indicated a preference for refund of the overpaid tax, the Second
Division ruled that Ironcons original choice is regarded as irrevocable, pursuant to Section
76 of Republic Act (R.A.) 8424 (the National Internal Revenue Code of 1997 or
NIRC). Further, the Second Division found that Ironcon actually carried over the credit for
overpaid income taxes and applied it to the tax due for the year 2001. It, therefore, denied
Ironcons claim for its refund.
As to the claim for VAT refund, the Second Division found that by the end of 2000,
Ironcon had excess tax credit of P3,135,990.69 carried over from 1999, allowable input tax

The CTA held, however, that input VAT payments should first be applied to the
reported output VAT liability. Only after this deduction has been made will the 6% VAT
withheld be applied to the amount of VAT payable. Thus, the excess of P9,332,597.99
mentioned above represents the excess 6% creditable VAT withheld, not creditable input
VAT.
The CTA further ruled that since Ironcon had no more output VAT against which the
excess creditable VAT withheld may be applied or credited, the VAT withheld had been
excessively paid. Thus, the Court ruled that the excess amount may be refunded under
Section 204(C) in relation to Section 229 of the NIRC. Before a refund may be granted,
however, it must be shown that the claim was not used or carried over to the succeeding
quarters.
Ironcon did not present before the Second Division its VAT returns for the
succeeding quarters of 2001. Without this, the Second Division could not verify whether the
tax credit was applied to output VAT liability in 2001. Thus, the Second Division also denied
Ironcons claim for refund of excess creditable VAT.
Ironcon filed a motion for reconsideration, attaching to it its amended quarterly VAT
returns for 2001. These were marked in open court as Exhibits A-1, B-1, C-1, and D-1. The
CTA promulgated an Amended Decision on July 31, 2006, admitting the exhibits and ruling
that Ironcon sufficiently proved that its excess creditable VAT withheld was not carried over
or applied to any output VAT for 2001. Thus, the Court granted its application for the refund
of unutilized excess creditable VAT of P9,332,597.99.
Petitioner CIR filed a motion for reconsideration of the amended decision, which
the Second Division denied, prompting the CIR to elevate the matter to the CTA En Banc by
way of a petition for review in CTA EB 235. The CTA En Banc denied the petition in a
Decision dated August 9, 2007. It also denied the CIRs motion for reconsideration, hence,
this petition for review.[1]
Issue Presented
Simply put, the only issue the petition raises is whether or not the CTA erred in granting
respondent Ironcons application for refund of its excess creditable VAT withheld.
The Courts Ruling
Respondent Ironcons excess creditable VAT in this case consists of amounts
withheld and remitted to the BIR by Ironcons clients. These clients were government
agencies that applied the 6% withholding rate on their payments to Ironcon pursuant to
Section 114 of the NIRC (prior to its amendment by R.A. 9337).Petitioner CIRs main
contention is that, since these amounts were withheld in accordance with what the law
provides, they cannot be regarded as erroneously or illegally collected as contemplated
in Sections 204(C) and 229 of the NIRC.

26
Petitioner CIR also points out that since the NIRC does not specifically grant
taxpayers the option to refund excess creditable VAT withheld, it follows that such refund
cannot be allowed. Excess creditable VAT withheld is much unlike excess income taxes
withheld. In the latter case, Sections 76 and 58(D) of the NIRC specifically make the option
to seek a refund available to the taxpayer. The CIR submits thus that the only option
available to taxpayers in case of excess creditable VAT withheld is to apply the excess
credits to succeeding quarters.
But the amounts involved in this case are creditable withholding taxes, not final
taxes subject to withholding. As the CTA correctly points out, taxes withheld on certain
payments under the creditable withholding tax system are but intended to approximate the
tax due from the payee.[2] The withheld taxes remitted to the BIR are treated as deposits or
advances on the actual tax liability of the taxpayer, subject to adjustment at the proper time
when the actual tax liability can be fully and finally determined.[3]
For the year 2000, Ironcons actual VAT liability payable may be computed as
follows:
Output taxes P 20,073,422.63
Less: allowable input taxes P 15,242,271.43
P 4,831,151.20
Less: tax credit (1999) P 3,135,990.69
VAT payable P 1,695,160.51
Respondent Ironcons clients had, however, already withheld and
remitted P11,027,758.51 to the BIR in compliance with Section 114. As stated above, this
withheld amount is to be treated as advance payment for Ironcons VAT liability payable and,
therefore, the difference of P9,332,597.99 should be treated as Ironcons overpaid taxes.
The ruling in Citibank N.A. v. Court of Appeals, while dealing with excessive
income taxes withheld, is also applicable to this case: Consequently and clearly, the tax
withheld during the course of the taxable year, while collected legally under the aforesaid
revenue regulation, became untenable and took on the nature of erroneously collected
taxes at the end of the taxable year.[4]
Even if the law does not expressly state that Ironcons excess creditable VAT
withheld is refundable, it may be the subject of a claim for refund as an erroneously
collected tax under Sections 204(C) and 229. It should be clarified that this ruling only refers
to creditable VAT withheld pursuant to Section 114 prior to its amendment. After its
amendment by R.A. 9337, the amount withheld under Section 114 is now treated as a final
VAT, no longer under the creditable withholding tax system.[5]
The rule is that before a refund may be granted, respondent Ironcon must show
that it had not used the creditable amount or carried it over to succeeding taxable
quarters. Originally, the CTAs Second Division said in its January 5, 2006 decision that
Ironcons failure to offer in evidence its quarterly returns for 2001 was fatal to its
claim. Ironcon filed a motion for reconsideration, attaching its 2001 returns, and, at the
hearing of the motion, had these returns marked as Exhibits A-1, B-1, C-1, and D-

1. Petitioner CIR argues that these Exhibits should be deemed inadmissible considering that
they were offered only after trial had ended and should be treated as forgotten evidence.
Citing BPI-Family Savings Bank v. Court of Appeals,[6] the CTA ruled that once a
claim for refund has been clearly established, it may set aside technicalities in the
presentation of evidence. Petitioner CIR points out, however, that the present case is not on
all fours with BPI. The latter case dealt with the refund of creditable income taxes withheld,
for which the NIRC specifically grants taxpayers the option to apply for refund of any
excess.
But, considering the CTAs finding in the present case that Ironcon had excess
creditable VAT withheld for which it was entitled to a refund, it makes no sense to deny
Ironcon the benefit of the BPI ruling that overlooks technicalities in the presentation of
evidence. In BPI, this Court admitted an exhibit attached to the claimants motion for
reconsideration, even if the claimant submitted it only after the trial.
[The claimant] may have failed to strictly comply with the rules of
procedure; it may have even been negligent. These circumstances,
however, should not compel the Court to disregard this cold, undisputed
fact: that [the claimant] x x x could not have applied the amount claimed
as tax credits.[7]
Substantial justice dictates that the government should not keep money that does
not belong to it at the expense of citizens. [8] Since he ought to know the tax records of all
taxpayers, petitioner CIR could have easily disproved the claimants allegations. [9] That he
chose not to amounts to a waiver of that right. [10] Also, the CIR failed in this case to make a
timely objection to or comment on respondent Ironcons offer of the documents in question
despite an opportunity to do so. [11]Taking all these circumstances together, it was sufficiently
proved that Ironcons excess creditable VAT withheld was not carried over to succeeding
taxable quarters.
WHEREFORE, the Court DENIES the petition and AFFIRMS the Court of Tax
Appeals En Bancs decision in CTA EB 235 dated August 9, 2007, its resolution dated
October 11, 2007, as well as the amended decision of the Court of Tax Appeals Second
Division in CTA Case 6502 dated July 31, 2006.
SO ORDERED.

27

G.R. No. 158885

April 2, 2009

FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, REGIONAL DIRECTOR, REVENUE
REGION NO. 8, CHIEF, ASSESSMENT DIVISION, REVENUE REGION NO. 8,
BIR, Respondents.

Sec. 25. Transitory provisions. (a) All VAT-registered persons shall be allowed transitional
input taxes which can be credited against output tax in the same manner as provided in
Sections 104 of the National Internal Revenue Code as follows:
1) The balance of the deferred sales tax credit account as of December 31, 1987
which are accounted for in accordance with regulations prescribed therefor;

x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 170680

There are other measures contained in E.O. No. 273 which were similarly intended to ease
the shift to the VAT system. These measures also took the form of "transitional input taxes
which can be credited against output tax,"3and are found in Section 25 of E.O. No. 273, the
section entitled "Transitory Provisions." Said transitory provisions, which were never
incorporated in the Old NIRC, read:

April 2, 2009

FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE and REVENUE DISTRICT OFFICER,
REVENUE DISTRICT NO. 44, TAGUIG and PATEROS, BUREAU OF INTERNAL
REVENUE, Respondents.
DECISION
TINGA, J.:
The value-added tax (VAT) system was first introduced in the Philippines on 1 January
1988, with the tax imposable on "any person who, in the course of trade or business, sells,
barters or exchanges goods, renders services, or engages in similar transactions and any
person who imports goods."1 The first VAT law is found in Executive Order No. 273 (E.O.
273), which amended several provisions of the then National Internal Revenue Code of
1986 (Old NIRC). E.O. No. 273 likewise accommodated the potential burdens of the shift to
the VAT system by allowing newly liable VAT-registered persons to avail of a transitional
input tax credit, as provided for in Section 105 of the old NIRC, as amended by E.O. No.
273. Said Section 105 is quoted, thus:
SEC. 105. Transitional input tax credits. A person who becomes liable to value-added tax
or any person who elects to be a VAT-registered person shall, subject to the filing of an
inventory as prescribed by regulations, be allowed input tax on his beginning inventory of
goods, materials and supplies equivalent to 8% of the value of such inventory or the actual
value-added tax paid on such goods, materials and supplies, whichever is higher, which
shall be creditable against the output tax.2

2) A presumptive input tax equivalent to 8% of the value of the inventory as of

December 31, 1987 of materials and supplies which are not for sale, the tax on
which was not taken up or claimed as deferred sales tax credit; and
3) A presumptive input tax equivalent to 8% of the value of the inventory as of
December 31, 1987 as goods for sale, the tax on which was not taken up or
claimed as deferred sales tax credit.
Tax credit prescribed in paragraphs (2) and (3) above shall be allowed only to a VATregistered person who files an inventory of the goods referred to in said paragraphs as
provided in regulations.
(b) Any unused tax credit certificate issued prior to January 1, 1988 for excess tax credits
which are applicable against advance sales tax shall be surrendered to, and replaced by the
Commissioner with new tax credit certificates which can be used in payment for valueadded tax liabilities.
(c) Any person already engaged in business whose gross sales or receipts for a 12-month
period from September 1, 1986 to August 1, 1987, exceed the amount of P200,000.00, or
any person who has been in business for less than 12 months as of August 1, 1987 but
expects his gross sales or receipts to exceed P200,000 on or before December 31, 1987,
shall apply for registration on or before October 29, 1987.4
On 1 January 1996, Republic Act (Rep. Act) No. 7716 took effect.5 It amended provisions of
the Old NIRC principally by restructuring the VAT system. It was under Rep. Act No. 7716
that VAT was imposed for the first time on the sale of real properties. This was
accomplished by amending Section 100 of the NIRC to include "real properties" among the
"goods or properties," the sale, barter or exchange of which is made subject to VAT. The
relevant portions of Section 100, as amended by Rep. Act No. 7716, thus read:

28
Sec. 100. Value-added-tax on sale of goods or properties.
(a) Rate and base of tax. There shall be levied, assessed and collected on every sale,
barter or exchange of goods or properties, a value-added tax equivalent to 10% of the gross
selling price or gross value in money of the goods, or properties sold, bartered or
exchanged, such tax to be paid by the seller or transferor.
(1) The term 'goods or properties' shall mean all tangible and intangible objects which are
capable of pecuniary estimation and shall include:
(A) Real properties held primarily for sale to customers or held for lease in the ordinary
course of trade or business; xxx6

As used in this Subsection, the term 'processing' shall mean pasteurization, canning and
activities which through physical or chemical process alter the exterior texture or form or
inner substance of a product in such manner as to prepare it for special use to which it
could not have been put in its original form or condition.
(2) Public works contractors shall be allowed a presumptive input tax equivalent to one and
one-half percent (1 1/2%) of the contract price with respect to government contracts only in
lieu of actual input taxes therefrom.8
What we have explained above are the statutory antecedents that underlie the present
petitions for review. We now turn to the factual antecedents.
I.

The provisions of Section 105 of the NIRC, on the transitional input tax credit, had remained
intact despite the enactment of Rep. Act No. 7716. Said provisions would however be
amended following the passage of the new National Internal Revenue Code of 1997 (New
NIRC), also officially known as Rep Act No. 8424. The section on the transitional input tax
credit was renumbered from Section 105 of the Old NIRC to Section 111(A) of the New
NIRC. The new amendments on the transitional input tax credit are relatively minor, hardly
material to the case at bar. They are highlighted below for easy reference:
Section 111. Transitional/Presumptive Input Tax Credits. -

Petitioner Fort Bonifacio Development Corporation (FBDC) is engaged in the development

and sale of real property. On 8 February 1995, FBDC acquired by way of sale from the
national government, a vast tract of land that formerly formed part of the Fort Bonifacio
military reservation, located in what is now the Fort Bonifacio Global City (Global City) in
Taguig City.9 Since the sale was consummated prior to the enactment of Rep. Act No. 7716,
no VAT was paid thereon. FBDC then proceeded to develop the tract of land, and from
October, 1966 onwards it has been selling lots located in the Global City to interested
buyers.10

(A) Transitional Input Tax Credits. - A person who becomes liable to value-added tax or any
person who elects to be a VAT-registered person shall, subject to the filing of an inventory
according to rules and regulations prescribed by the Secretary of finance, upon
recommendation of the Commissioner, be allowed input tax on his beginning inventory of
goods, materials and supplies equivalent for eight percent (8%) of the value of such
inventory or the actual value-added tax paid on such goods, materials and supplies,
whichever is higher, which shall be creditable against the output tax.7 (Emphasis supplied).

Following the effectivity of Rep. Act No. 7716, real estate transactions such as those
regularly engaged in by FBDC have since been made subject to VAT. As the vendor, FBDC
from thereon has become obliged to remit to the Bureau of Internal Revenue (BIR) output
VAT payments it received from the sale of its properties to the Bureau of Internal Revenue
(BIR). FBDC likewise invoked its right to avail of the transitional input tax credit and
accordingly submitted an inventory list of real properties it owned, with a total book value
ofP71,227,503,200.00.11

Rep. Act No. 8424 also made part of the NIRC, for the first time, the concept of
"presumptive input tax credits," with Section 111(b) of the New NIRC providing as follows:

On 14 October 1996, FBDC executed in favor of Metro Pacific Corporation two (2) contracts
to sell, separately conveying two (2) parcels of land within the Global City in consideration of
the purchase prices atP1,526,298,949.00 and P785,009,018.00, both payable in
installments.12 For the fourth quarter of 1996, FBDC earned a total of P3,498,888,713.60
from the sale of its lots, on which the output VAT payable to the BIR wasP318,080,792.14.
In the context of remitting its output VAT payments to the BIR, FBDC paid a total
ofP269,340,469.45 and utilized (a) P28,413,783.00 representing a portion of its then total
transitional/presumptive input tax credit of P5,698,200,256.00, which petitioner allocated for
the two (2) lots sold to Metro Pacific; and (b) its regular input tax credit of P20,326,539.69
on the purchase of goods and services.13

(B) Presumptive Input Tax Credits. (1) Persons or firms engaged in the processing of sardines, mackerel and milk, and in
manufacturing refined sugar and cooking oil, shall be allowed a presumptive input tax,
creditable against the output tax, equivalent to one and one-half percent (1 1/2%) of the
gross value in money of their purchases of primary agricultural products which are used as
inputs to their production.

29
Between July and October 1997, FBDC sent two (2) letters to the BIR requesting
appropriate action on whether its use of its presumptive input VAT on its land inventory, to
the extent of P28,413,783.00 in partial payment of its output VAT for the fourth quarter of
1996, was in order. After investigating the matter, the BIR recommended that the claimed
presumptive input tax credit be disallowed.14 Consequently, the BIR issued to FBDC a PreAssessment Notice (PAN) dated 23 December 1997 for deficiency VAT for the 4th quarter of
1996. This was followed by a letter of respondent Commissioner of Internal Revenue
(CIR),15 addressed to and received by FBDC on 5 March 1998, disallowing the presumptive
input tax credit arising from the land inventory on the basis of Revenue Regulation 7-95 (RR
7-95) and Revenue Memorandum Circular 3-96 (RMC 3-96). Section 4.105-1 of RR 7-95
provided the basis in main for the CIRs opinion, the section reading, thus:
Sec. 4.105-1. Transitional input tax on beginning inventories. Taxpayers who became VATregistered persons upon effectivity of RA No. 7716 who have exceeded the minimum
turnover of P500,000.00 or who voluntarily register even if their turnover does not
exceed P500,000.00 shall be entitled to a presumptive input tax on the inventory on hand as
of December 31, 1995 on the following: (a) goods purchased for resale in their present
condition; (b) materials purchased for further processing, but which have not yet undergone
processing; (c) goods which have been manufactured by the taxpayer; (d) goods in process
and supplies, all of which are for sale or for use in the course of the taxpayers trade or
business as a VAT-registered person.
However, in the case of real estate dealers, the basis of the presumptive input tax shall be
the improvements, such as buildings, roads, drainage systems, and other similar structures,
constructed on or after the effectivity of EO 273 (January 1, 1988).
The transitional input tax shall be 8% of the value of the inventory or actual VAT paid,
whichever is higher, which amount may be allowed as tax credit against the output tax of the
VAT-registered person.
The CIR likewise cited from the Transitory Provisions of RR 7-95, particularly the following:
(a) Presumptive Input Tax Credits xxx
(iii) For real estate dealers, the presumptive input tax of 8% of the book value of
improvements on or after January 1, 1988 (the effectivity of E.O. 273) shall be allowed.
For purposes of sub-paragraphs (i), (ii) and (iii) above, an inventory as of December 31,
1995 of such goods or properties and improvements showing the quantity, description and
amount filed with the RDO not later than Janaury 31, 1996.

xxx
Consequently, FBDC received an Assessment Notice in the amount of P45,188,708.08,
representing deficiency VAT for the 4th quarter of 1996, including surcharge, interest and
penalty. After respondent Regional Director denied FBDCs motion for
reconsideration/protest, FBDC filed a petition for review with the Court of Tax Appeals
(CTA), docketed as C.T.A. Case No. 5665.16 On 11 August 2000, the CTA rendered a
decision affirming the assessment made by the respondents.17 FBDC assailed the CTA
decision through a petition for review filed with the Court of Appeals, docketed as CA-G.R.
SP No. 60477. On 15 November 2002, the Court of Appeals rendered a decision affirming
the CTA decision, but removing the surcharge, interests and penalties, thus reducing the
amount due to P28,413,783.00.18 From said decision, FBDC filed a petition for review with
this Court, the first of the two petitions now before us, seeking the reversal of the CTA
decision dated 11 August 2000 and a pronouncement that FBDC is entitled to the
transitional/presumptive input tax credit of P28,413,783.00. This petition has been docketed
as G.R. No. 158885.
The second petition, which is docketed as G.R. No. 170680, involves the same parties and
legal issues, but concerns the claim of FBDC that it is entitled to claim a similar
transitional/presumptive input tax credit, this time for the third quarter of 1997. A brief recital
of the anteceding facts underlying this second claim is in order.
For the third quarter of 1997, FBDC derived the total amount of P3,591,726,328.11 from its
sales and lease of lots, on which the output VAT payable to the BIR
was P359,172,632.81.19 Accordingly, FBDC made cash payments totaling P347,741,695.74
and utilized its regular input tax credit of P19,743,565.73 on purchases of goods and
services.20 On 11 May 1999, FBDC filed with the BIR a claim for refund of the amount
ofP347,741,695.74 which it had paid as VAT for the third quarter of 1997.21 No action was
taken on the refund claim, leading FBDC to file a petition for review with the CTA, docketed
as CTA Case No. 5926. Utilizing the same valuation22 of 8% of the total book value of its
beginning inventory of real properties (or P71,227,503,200.00) FBDC argued that its input
tax credit was more than enough to offset the VAT paid by it for the third quarter of 1997.23
On 17 October 2000, the CTA promulgated its decision24 in CTA Case No. 5926, denying the
claim for refund. FBDC then filed a petition for review with the Court of Appeals, docketed
as CA-G.R. SP No. 61517. On 3 October 2003, the Court of Appeals rendered a
decision25 affirming the judgment of the CTA. As a result, FBDC filed its second petition,
docketed as G.R. No. 170680.
II.
The two petitions were duly consolidated26 and called for oral argument on 18 April 2006.
During the oral arguments, the parties were directed to discuss the following issues:

30
1. In determining the 10% value-added tax in Section 100 of the [Old NIRC] on the
sale of real properties by real estate dealers, is the 8% transitional input tax credit
in Section 105 applied only to the improvements on the real property or is it applied
on the value of the entire real property?
2. Are Section 4.105.1 and paragraph (a)(III) of the Transitory Provisions of
Revenue Regulations No. 7-95 valid in limiting the 8% transitional input tax to the
improvements on the real property?
While the two issues are linked, the main issue is evidently whether Section 105 of the Old
NIRC may be interpreted in such a way as to restrict its application in the case of real estate
dealers only to the improvements on the real property belonging to their beginning
inventory, and not the entire real property itself. There would be no controversy before us if
the Old NIRC had itself supplied that limitation, yet the law is tellingly silent in that regard.
RR 7-95, which imposes such restrictions on real estate dealers, is discordant with the Old
NIRC, so it is alleged.
III.
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. It can be conceded that when it was drafted Section 105 could not have possibly
contemplated concerns specific to real properties, as real estate transactions were not
originally subject to VAT. At the same time, when transactions on real properties were finally
made subject to VAT beginning with Rep. Act No. 7716, no corresponding amendment was
adopted as regards Section 105 to provide for a differentiated treatment in the application of
the transitional input tax credit with respect to real properties or real estate dealers.
It was Section 100 of the Old NIRC, as amended by Rep. Act No. 7716, which made real
estate transactions subject to VAT for the first time. Prior to the amendment, Section 100
had imposed the VAT "on every sale, barter or exchange of goods," without however
specifying the kind of properties that fall within or under the generic class "goods" subject to
the tax.
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.27 Second, it generally defined "goods or
properties" as "all tangible and intangible objects which are capable of pecuniary
estimation."28 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."29
From these amendments to Section 100, is there any differentiated VAT treatment on real
properties or real estate dealers that would justify the suggested limitations on the
application of the transitional input tax on them? We see none.
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.
Had Section 100 itself supplied any differentiation between the treatment of real properties
or real estate dealers and the treatment of the transactions involving other commercial
goods, then such differing treatment would have constituted the statutory basis for the CIR
to engage in such differentiation which said respondent did seek to accomplish in this case
through Section 4.105-1 of RR 7-95. Yet the amendments introduced by Rep. Act No. 7716
to Section 100, coupled with the fact that the said law left Section 105 intact, reveal the lack
of any legislative intention to make persons or entities in the real estate business subject to
a VAT treatment different from those engaged in the sale of other goods or properties or in
any other commercial trade or business.
If the plain text of Rep. Act No. 7716 fails to supply any apparent justification for limiting the
beginning inventory of real estate dealers only to the improvements on their properties, how
then were the CIR and the courts a quo able to justify such a view?
IV.
The fact alone that the denial of FBDCs claims is in accord with Section 4.105-1 of RR 7-95
does not, of course, put this inquiry to rest. If Section 4.105-1 is itself incongruent to Rep.
Act No. 7716, the incongruence cannot by itself justify the denial of the claims. We need to
inquire into the rationale behind Section 4.105-1, as well as the question whether the
interpretation of the law embodied therein is validated by the law itself.
The CTA, in its rulings, proceeded from a thesis which is not readily apparent from the texts
of the laws we have cited. The transitional input tax credit is conditioned on the prior
payment of sales taxes or the VAT, so the CTA observed. The introduction of the VAT
through E.O. No. 273 and its subsequent expansion through Rep. Act No. 7716 subjected

31
various persons to the tax for the very first time, leaving them unable to claim the input tax
credit based on their purchases before they became subject to the VAT. Hence, the
transitional input tax credit was designed to alleviate that relatively iniquitous loss. Given
that rationale, according to the CTA, it would be improper to allow FBDC, which had
acquired its properties through a tax-free purchase, to claim the transitional input tax credit.
The CTA added that Section 105.4.1 of RR 7-95 is consonant with its perceived rationale
behind the transitional input tax credit since the materials used for the construction of
improvements would have most likely involved the payment of VAT on their purchase.
Concededly, this theory of the CTA has some sense, extravagantly extrapolated as it is
though from the seeming silence on the part of the provisions of the law. Yet ultimately, the
theory is woefully limited in perspective.
It is correct, as pointed out by the CTA, that upon the shift from sales taxes to VAT in 1987
newly-VAT registered people would have been prejudiced by the inability to credit against
the output VAT their payments by way of sales tax on their existing stocks in trade. Yet that
inequity was precisely addressed by a transitory provision in E.O. No. 273 found in Section
25 thereof. The provision authorized VAT-registered persons to invoke a "presumptive input
tax equivalent to 8% of the value of the inventory as of December 31, 1987 of materials and
supplies which are not for sale, the tax on which was not taken up or claimed as deferred
sales tax credit", and a similar presumptive input tax equivalent to 8% of the value of the
inventory as of December 31, 1987 of goods for sale, the tax on which was not taken up or
claimed as deferred sales tax credit.30
Section 25 of E.O. No. 273 perfectly remedies the problem assumed by the CTA as the
basis for the introduction of transitional input tax credit in 1987. If the core purpose of the tax
credit is only, as hinted by the CTA, to allow for some mode of accreditation of previouslypaid sales taxes, then Section 25 alone would have sufficed. Yet E.O. No. 273 amended the
Old NIRC itself by providing for the transitional input tax credit under Section 105, thereby
assuring that the tax credit would endure long after the last goods made subject to sales tax
have been consumed.
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 longabolished sales taxes. Obviously then, the purpose behind the transitional input tax credit is
not confined to the transition from sales tax to VAT.
There is hardly any constricted definition of "transitional" that will limit its possible meaning
to the shift from the sales tax regime to the VAT regime. Indeed, it could also allude to the
transition one undergoes from not being a VAT-registered person to becoming a VATregistered person. Such transition does not take place merely by operation of law, E.O. No.

273 or Rep. Act No. 7716 in particular. It could also occur when one decides to start a
business. Section 105 states that the transitional input tax credits become available either to
(1) a person who becomes liable to VAT; or (2) any person who elects to be VAT-registered.
The clear language of the law entitles new trades or businesses to avail of the tax credit
once they become VAT-registered. The transitional input tax credit, whether under the Old
NIRC or the New NIRC, may be claimed by a newly-VAT registered person such as when a
business as it commences operations. If we view the matter from the perspective of a
starting entrepreneur, greater clarity emerges on the continued utility of the transitional input
tax credit.
Following the theory of the CTA, the new enterprise should be able to claim the transitional
input tax credit because it has presumably paid taxes, VAT in particular, in the purchase of
the goods, materials and supplies in its beginning inventory. Consequently, as the CTA held
below, if the new enterprise has not paid VAT in its purchases of such goods, materials and
supplies, then it should not be able to claim the tax credit. However, it is not always true that
the acquisition of such goods, materials and supplies entail the payment of taxes on the part
of the new business. In fact, this could occur as a matter of course by virtue of the operation
of various provisions of the NIRC, and not only on account of a specially legislated
exemption.
Let us cite a few examples drawn from the New NIRC. If the goods or properties are not
acquired from a person in the course of trade or business, the transaction would not be
subject to VAT under Section 105.31 The sale would be subject to capital gains taxes under
Section 24(D),32 but since capital gains is a tax on passive income it is the seller, not the
buyer, who generally would shoulder the tax.
If the goods or properties are acquired through donation, the acquisition would not be
subject to VAT but to donors tax under Section 98 instead.33 It is the donor who would be
liable to pay the donors tax,34 and the donation would be exempt if the donors total net gifts
during the calendar year does not exceed P100,000.00.35
If the goods or properties are acquired through testate or intestate succession, the transfer
would not be subject to VAT but liable instead for estate tax under Title III of the New
NIRC.36 If the net estate does not exceedP200,000.00, no estate tax would be assessed.37
The interpretation proffered by the CTA would exclude goods and properties which are
acquired through sale not in the ordinary course of trade or business, donation or through
succession, from the beginning inventory on which the transitional input tax credit is based.
This prospect all but highlights the ultimate absurdity of the respondents' position. Again,
nothing in the Old NIRC (or even the New NIRC) speaks of such a possibility or qualifies the
previous payment of VAT or any other taxes on the goods, materials and supplies as a prerequisite for inclusion in the beginning inventory.

32
It is apparent that the transitional input tax credit operates to benefit newly VAT-registered
persons, whether or not they previously paid taxes in the acquisition of their beginning
inventory of goods, materials and supplies. During that period of transition from non-VAT to
VAT status, the transitional input tax credit serves to alleviate the impact of the VAT on the
taxpayer. At the very beginning, the VAT-registered taxpayer is obliged to remit a significant
portion of the income it derived from its sales as output VAT. The transitional input tax credit
mitigates this initial diminution of the taxpayers income by affording the opportunity to offset
the losses incurred through the remittance of the output VAT at a stage when the person is
yet unable to credit input VAT payments.
There is another point that weighs against the CTAs interpretation. Under Section 105 of
the Old NIRC, the rate of the transitional input tax credit is "8% of the value of such
inventory or the actual value-added tax paid on such goods, materials and supplies,
whichever is higher."38 If indeed the transitional input tax credit is premised on the previous
payment of VAT, then it does not make sense to afford the taxpayer the benefit of such
credit based on "8% of the value of such inventory" should the same prove higher than the
actual VAT paid. This intent that the CTA alluded to could have been implemented with ease
had the legislature shared such intent by providing the actual VAT paid as the sole basis for
the rate of the transitional input tax credit.
The CTA harped on the circumstance that FBDC was excused from paying any tax on the
purchase of its properties from the national government, even claiming that to allow the
transitional input tax credit is "tantamount to giving an undeserved bonus to real estate
dealers similarly situated as [FBDC] which the Government cannot afford to provide." Yet
the tax laws in question, and all tax laws in general, are designed to enforce uniform tax
treatment to persons or classes of persons who share minimum legislated standards. The
common standard for the application of the transitional input tax credit, as enacted by E.O.
No. 273 and all subsequent tax laws which reinforced or reintegrated the tax credit, is
simply that the taxpayer in question has become liable to VAT or has elected to be a VATregistered person. E.O. No. 273 and the subsequent tax laws are all decidedly neutral and
accommodating in ascertaining who should be entitled to the tax credit, and it behooves the
CIR and the CTA to adopt a similarly judicious perspective.
IV.
Given the fatal flaws in the theory offered by the CTA as supposedly underlying the
transitional input tax credit, is there any other basis to justify the limitations imposed by the
CIR through RR 7-95? We discern nothing more. As seen in our discussion, there is no logic
that coheres with either E.O. No. 273 or Rep. Act No. 7716 which supports the restriction
imposed on real estate brokers and their ability to claim the transitional input tax credit
based on the value of their real properties. In addition, the very idea of excluding the real
properties itself from the beginning inventory simply runs counter to what the transitional

input tax credit seeks to accomplish for persons engaged in the sale of goods, whether or
not such "goods" take the form of real properties or more mundane commodities.
Under Section 105, the beginning inventory of "goods" forms part of the valuation of the
transitional input tax credit. Goods, as commonly understood in the business sense, refers
to the product which the VAT-registered person offers for sale to the public. With respect to
real estate dealers, it is the real properties themselves which constitute their "goods." Such
real properties are the operating assets of the real estate dealer.
Section 4.100-1 of RR No. 7-95 itself includes in its enumeration of "goods or properties"
such "real properties held primarily for sale to customers or held for lease in the ordinary
course of trade or business." Said definition was taken from the very statutory language of
Section 100 of the Old NIRC. 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.
The Court of Tax Appeals claimed that under Section 105 of the Old NIRC the basis for the
inventory of goods, materials and supplies upon which the transitional input VAT would be
based "shall be left to regulation by the appropriate administrative authority". This is based
on the phrase "filing of an inventory as prescribed by regulations" found in Section 105.
Nonetheless, Section 105 does include the particular properties to be included in the
inventory, namely goods, materials and supplies. It is questionable whether the CIR has the
power to actually redefine the concept of "goods," as she did when she excluded real
properties from the class of goods which real estate companies in the business of selling
real properties may include in their inventory. The authority to prescribe regulations can
pertain to more technical matters, such as how to appraise the value of the inventory or
what papers need to be filed to properly itemize the contents of such inventory. But such
authority cannot go as far as to amend Section 105 itself, which the Commissioner had
unfortunately accomplished in this case.
It is of course axiomatic that a rule or regulation must bear upon, and be consistent with, the
provisions of the enabling statute if such rule or regulation is to be valid.39 In case of conflict
between a statute and an administrative order, the former must prevail.40 Indeed, the CIR
has no power to limit the meaning and coverage of the term "goods" in Section 105 of the
Old NIRC absent statutory authority or basis to make and justify such limitation. A contrary
conclusion would mean the CIR could very well moot the law or arrogate legislative
authority unto himself by retaining sole discretion to provide the definition and scope of the
term "goods."
V.
At this juncture, we turn to some of the points raised in the dissent of the esteemed Justice
Antonio T. Carpio.

33
The dissent adopts the CTAs thesis that the transitional input tax credit applies only when
taxes were previously paid on the properties in the beginning inventory. Had the dissenting
view won, it would have introduced a new requisite to the application of the transitional input
tax credit and required the taxpayer to supply proof that it had previously paid taxes on the
acquisition of goods, materials and supplies comprising its beginning inventory. We have
sufficiently rebutted this thesis, but the dissent adds a twist to the argument by using the
term "presumptive input tax credit" to imply that the transitional input tax credit involves a
presumption that there was a previous payment of taxes.
Let us clarify the distinction between the presumptive input tax credit and the transitional
input tax credit. As with the transitional input tax credit, the presumptive input tax credit is
creditable against the output VAT. It necessarily has come into existence in our tax structure
only after the introduction of the VAT. As quoted earlier,41 E.O. No. 273 provided for a
"presumptive input tax credit" as one of the transitory measures in the shift from sales taxes
to VAT, but such presumptive input tax credit was never integrated in the NIRC itself. It was
only in 1997, or eleven years after the VAT was first introduced, that the presumptive input
tax credit was first incorporated in the NIRC, more particularly in Section 111(B) of the New
NIRC. As borne out by the text of the provision,42 it is plain that the presumptive input tax
credit is highly limited in application as it may be claimed only by "persons or firms engaged
in the processing of sardines, mackerel and milk, and in manufacturing refined sugar and
cooking oil;"43 and "public works contractors."44
Clearly, for more than a decade now, the term "presumptive input tax credit" has
contemplated a particularly idiosyncratic tax credit far divorced from its original usage in the
transitory provisions of E.O. No. 273. There is utterly no sense then in latching on to the
term as having any significant meaning for the purpose of the cases at bar.
The dissent, in arguing for the effectivity of Section 4.105-1 of RR 7-95, ratiocinates in this
manner: (1) Section 4.105-1 finds basis in Section 105 of the Old NIRC, which provides that
the input tax is allowed on the "beginning inventory of goods, materials and supplies;" (2)
input taxes must have been paid on such goods, materials and supplies; (3) unlike real
property itself, the improvements thereon were already subject to VAT even prior to the
passage of Rep. Act No. 7716; (4) since no VAT was paid on the real property prior to the
passage of Rep. Act No. 7716, it could not form part of the "beginning inventory of goods,
materials and supplies."
This chain of premises have already been debunked. It is apparent that the dissent believes
that only those "goods, materials and supplies" on which input VAT was paid could form the
basis of valuation of the input tax credit. Thus, if the VAT-registered person acquired all the
goods, materials and supplies of the beginning inventory through a sale not in the ordinary
course of trade or business, or through succession or donation, said person would be
unable to receive a transitional input tax credit. Yet even RR 7-95, which imposes the
restriction only on real estate dealers permits such other persons who obtained their

beginning inventory through tax-free means to claim the transitional input tax credit. The
dissent thus betrays a view that is even more radical and more misaligned with the
language of the law than that expressed by the CIR.
VI.
A final observation. Section 4.105.1 of RR No. 7-95, insofar as it disallows real estate
dealers from including the value of their real properties in the beginning inventory of goods,
materials and supplies, has in fact already been repealed. The offending provisions were
deleted with the enactment of Revenue Regulation No. 6-97 (RR 6-97) dated 2 January
1997, which amended RR 7-95.45 The repeal of the basis for the present assessments by
RR 6-97 only highlights the continuing absurdity of the position of the BIR towards FBDC.
FBDC points out that while the transactions involved in G.R. No. 158885 took place during
the effectivity of RR 7-95, the transactions involved in G.R. No. 170680 in fact took place
after RR No. 6-97 had taken effect. Indeed, the assessments subject of G.R. No. 170680
were for the third quarter of 1997, or several months after the effectivity of RR 6-97. That
fact provides additional reason to sustain FBDCs claim for refund of its 1997 Third Quarter
VAT payments. Nevertheless, since the assailed restrictions implemented by RR 7-95 were
not sanctioned by law in the first place there is no longer need to dwell on such fact.
WHEREFORE, the petitions are GRANTED. The assailed decisions of the Court of Tax
Appeals and the Court of Appeals are REVERSED and SET ASIDE. Respondents are
hereby (1) restrained from collecting from petitioner the amount of P28,413,783.00
representing the transitional input tax credit due it for the fourth quarter of 1996; and (2)
directed to refund to petitioner the amount of P347,741,695.74 paid as output VAT for the
third quarter of 1997 in light of the persisting transitional input tax credit available to
petitioner for the said quarter, or to issue a tax credit corresponding to such amount. No
pronouncement as to costs.
SO ORDERED.

34

G.R. No. 187485

February 12, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
SAN ROQUE POWER CORPORATION, Respondent.
X----------------------------X
G.R. No. 196113
TAGANITO MINING CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
x----------------------------x
G.R. No. 197156
PHILEX MINING CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION

35
CARPIO, J.:
The Cases
G.R. No. 187485 is a petitiOn for review1 assailing the Decision2 promulgated on 25 March
2009 as well as the Resolution3 promulgated on 24 April 2009 by the Court of Tax
Appeals En Banc (CTA EB) in CTA EB No. 408. The CTA EB affirmed the 29 November
2007 Amended Decision4 as well as the 11 July 2008 Resolution5 of the Second Division of
the Court of Tax Appeals (CTA Second Division) in CTA Case No. 6647. The CTA Second
Division ordered the Commissioner of Internal Revenue (Commissioner) to refund or issue a
tax credit for P483,797,599.65 to San Roque Power Corporation (San Roque) for unutilized
input value-added tax (VAT) on purchases of capital goods and services for the taxable year
2001.
G.R. No. 196113 is a petition for review6 assailing the Decision7 promulgated on 8
December 2010 as well as the Resolution8 promulgated on 14 March 2011 by the CTA EB in
CTA EB No. 624. In its Decision, the CTA EB reversed the 8 January 2010 Decision9 as well
as the 7 April 2010 Resolution10of the CTA Second Division and granted the CIRs petition
for review in CTA Case No. 7574. The CTA EB dismissed, for having been prematurely filed,
Taganito Mining Corporations (Taganito) judicial claim for P8,365,664.38 tax refund or
credit.
G.R. No. 197156 is a petition for review11 assailing the Decision12promulgated on 3
December 2010 as well as the Resolution13 promulgated on 17 May 2011 by the CTA EB in
CTA EB No. 569. The CTA EB affirmed the 20 July 2009 Decision as well as the 10
November 2009 Resolution of the CTA Second Division in CTA Case No. 7687. The CTA
Second Division denied, due to prescription, Philex Mining Corporations (Philex) judicial
claim for P23,956,732.44 tax refund or credit.
On 3 August 2011, the Second Division of this Court resolved14 to consolidate G.R. No.
197156 with G.R. No. 196113, which were pending in the same Division, and with G.R. No.
187485, which was assigned to the Court En Banc. The Second Division also resolved to
refer G.R. Nos. 197156 and 196113 to the Court En Banc, where G.R. No. 187485, the
lower-numbered case, was assigned.
G.R. No. 187485
CIR v. San Roque Power Corporation

[San Roque] is a domestic corporation duly organized and existing under and by virtue of
the laws of the Philippines with principal office at Barangay San Roque, San Manuel,
Pangasinan. It was incorporated in October 1997 to design, construct, erect, assemble,
own, commission and operate power-generating plants and related facilities pursuant to and
under contract with the Government of the Republic of the Philippines, or any subdivision,
instrumentality or agency thereof, or any governmentowned or controlled corporation, or
other entity engaged in the development, supply, or distribution of energy.
As a seller of services, [San Roque] is duly registered with the BIR with TIN/VAT No. 005017-501. It is likewise registered with the Board of Investments ("BOI") on a preferred
pioneer status, to engage in the design, construction, erection, assembly, as well as to own,
commission, and operate electric power-generating plants and related activities, for which it
was issued Certificate of Registration No. 97-356 on February 11, 1998.
On October 11, 1997, [San Roque] entered into a Power Purchase Agreement ("PPA") with
the National Power Corporation ("NPC") to develop hydro-potential of the Lower Agno River
and generate additional power and energy for the Luzon Power Grid, by building the San
Roque Multi-Purpose Project located in San Manuel, Pangasinan. The PPA provides,
among others, that [San Roque] shall be responsible for the design, construction,
installation, completion, testing and commissioning of the Power Station and shall operate
and maintain the same, subject to NPC instructions. During the cooperation period of
twenty-five (25) years commencing from the completion date of the Power Station, NPC will
take and pay for all electricity available from the Power Station.
On the construction and development of the San Roque Multi- Purpose Project which
comprises of the dam, spillway and power plant, [San Roque] allegedly incurred, excess
input VAT in the amount of 559,709,337.54 for taxable year 2001 which it declared in its
Quarterly VAT Returns filed for the same year. [San Roque] duly filed with the BIR separate
claims for refund, in the total amount of 559,709,337.54, representing unutilized input
taxes as declared in its VAT returns for taxable year 2001.
However, on March 28, 2003, [San Roque] filed amended Quarterly VAT Returns for the
year 2001 since it increased its unutilized input VAT to the amount of 560,200,283.14.
Consequently, [San Roque] filed with the BIR on even date, separate amended claims for
refund in the aggregate amount of 560,200,283.14.
[CIRs] inaction on the subject claims led to the filing by [San Roque] of the Petition for
Review with the Court [of Tax Appeals] in Division on April 10, 2003.

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

Trial of the case ensued and on July 20, 2005, the case was submitted for decision.15
The Court of Tax Appeals Ruling: Division
The CTA Second Division initially denied San Roques claim. In its Decision16 dated 8 March
2006, it cited the following as bases for the denial of San Roques claim: lack of recorded
zero-rated or effectively zero-rated sales; failure to submit documents specifically identifying
the purchased goods/services related to the claimed input VAT which were included in its

36
Property, Plant and Equipment account; and failure to prove that the related construction
costs were capitalized in its books of account and subjected to depreciation.
The CTA Second Division required San Roque to show that it complied with the following
requirements of Section 112(B) of Republic Act No. 8424 (RA 8424)17 to be entitled to a tax
refund or credit of input VAT attributable to capital goods imported or locally purchased: (1) it
is a VAT-registered entity; (2) its input taxes claimed were paid on capital goods duly
supported by VAT invoices and/or official receipts; (3) it did not offset or apply the claimed
input VAT payments on capital goods against any output VAT liability; and (4) its claim for
refund was filed within the two-year prescriptive period both in the administrative and judicial
levels.
The CTA Second Division found that San Roque complied with the first, third, and fourth
requirements, thus:
The fact that [San Roque] is a VAT registered entity is admitted (par. 4, Facts Admitted,
Joint Stipulation of Facts, Records, p. 157). It was also established that the instant claim of
560,200,823.14 is already net of the 11,509.09 output tax declared by [San Roque] in its
amended VAT return for the first quarter of 2001. Moreover, the entire amount of
560,200,823.14 was deducted by [San Roque] from the total available input tax reflected
in its amended VAT returns for the last two quarters of 2001 and first two quarters of 2002
(Exhibits M-6, O-6, OO-1 & QQ-1). This means that the claimed input taxes of
560,200,823.14 did not form part of the excess input taxes of 83,692,257.83, as of the
second quarter of 2002 that was to be carried-over to the succeeding quarters. Further,
[San Roques] claim for refund/tax credit certificate of excess input VAT was filed within the
two-year prescriptive period reckoned from the dates of filing of the corresponding quarterly
VAT returns.
For the first, second, third, and fourth quarters of 2001, [San Roque] filed its VAT returns on
April 25, 2001, July 25, 2001, October 23, 2001 and January 24, 2002, respectively
(Exhibits "H, J, L, and N"). These returns were all subsequently amended on March 28,
2003 (Exhibits "I, K, M, and O"). On the other hand, [San Roque] originally filed its separate
claims for refund on July 10, 2001, October 10, 2001, February 21, 2002, and May 9, 2002
for the first, second, third, and fourth quarters of 2001, respectively, (Exhibits "EE, FF, GG,
and HH") and subsequently filed amended claims for all quarters on March 28, 2003
(Exhibits "II, JJ, KK, and LL"). Moreover, the Petition for Review was filed on April 10, 2003.
Counting from the respective dates when [San Roque] originally filed its VAT returns for the
first, second, third and fourth quarters of 2001, the administrative claims for refund (original
and amended) and the Petition for Review fall within the two-year prescriptive period.18
San Roque filed a Motion for New Trial and/or Reconsideration on 7 April 2006. In its 29
November 2007 Amended Decision,19 the CTA Second Division found legal basis to partially
grant San Roques claim. The CTA Second Division ordered the Commissioner to refund or
issue a tax credit in favor of San Roque in the amount of 483,797,599.65, which
represents San Roques unutilized input VAT on its purchases of capital goods and services
for the taxable year 2001. The CTA based the adjustment in the amount on the findings of
the independent certified public accountant. The following reasons were cited for the
disallowed claims: erroneous computation; failure to ascertain whether the related

purchases are in the nature of capital goods; and the purchases pertain to capital goods.
Moreover, the reduction of claims was based on the following: the difference between San
Roques claim and that appearing on its books; the official receipts covering the claimed
input VAT on purchases of local services are not within the period of the claim; and the
amount of VAT cannot be determined from the submitted official receipts and invoices. The
CTA Second Division denied San Roques claim for refund or tax credit of its unutilized input
VAT attributable to its zero-rated or effectively zero-rated sales because San Roque had no
record of such sales for the four quarters of 2001.
The dispositive portion of the CTA Second Divisions 29 November 2007 Amended Decision
reads:
WHEREFORE, [San Roques] "Motion for New Trial and/or Reconsideration" is hereby
PARTIALLY GRANTED and this Courts Decision promulgated on March 8, 2006 in the
instant case is hereby MODIFIED.
Accordingly, [the CIR] is hereby ORDERED to REFUND or in the alternative, to ISSUE A
TAX CREDIT CERTIFICATE in favor of [San Roque] in the reduced amount of Four
Hundred Eighty Three Million Seven Hundred Ninety Seven Thousand Five Hundred Ninety
Nine Pesos and Sixty Five Centavos (483,797,599.65) representing unutilized input VAT
on purchases of capital goods and services for the taxable year 2001.
SO ORDERED.20
The Commissioner filed a Motion for Partial Reconsideration on 20 December 2007. The
CTA Second Division issued a Resolution dated 11 July 2008 which denied the CIRs motion
for lack of merit.
The Court of Tax Appeals Ruling: En Banc
The Commissioner filed a Petition for Review before the CTA EB praying for the denial of
San Roques claim for refund or tax credit in its entirety as well as for the setting aside of the
29 November 2007 Amended Decision and the 11 July 2008 Resolution in CTA Case No.
6647.
The CTA EB dismissed the CIRs petition for review and affirmed the challenged decision
and resolution.
The CTA EB cited Commissioner of Internal Revenue v. Toledo Power, Inc.21 and Revenue
Memorandum Circular No. 49-03,22 as its bases for ruling that San Roques judicial claim
was not prematurely filed. The pertinent portions of the Decision state:
More importantly, the Court En Banc has squarely and exhaustively ruled on this issue in
this wise:

37
It is true that Section 112(D) of the abovementioned provision applies to the present
case. However, what the petitioner failed to consider is Section 112(A) of the same
provision. The respondent is also covered by the two (2) year prescriptive period. We have
repeatedly held that the claim for refund with the BIR and the subsequent appeal to the
Court of Tax Appeals must be filed within the two-year period.
Accordingly, the Supreme Court held in the case of Atlas Consolidated Mining and
Development Corporation vs. Commissioner of Internal Revenue that the two-year
prescriptive period for filing a claim for input tax is reckoned from the date of the filing of the
quarterly VAT return and payment of the tax due. If the said period is about to expire but
the BIR has not yet acted on the application for refund, the taxpayer may interpose a
petition for review with this Court within the two year period.
In the case of Gibbs vs. Collector, the Supreme Court held that if, however, the Collector
(now Commissioner) takes time in deciding the claim, and the period of two years is about
to end, the suit or proceeding must be started in the Court of Tax Appeals before the end of
the two-year period without awaiting the decision of the Collector.
Furthermore, in the case of Commissioner of Customs and Commissioner of Internal
Revenue vs. The Honorable Court of Tax Appeals and Planters Products, Inc., the
Supreme Court held that the taxpayer need not wait indefinitely for a decision or
ruling which may or may not be forthcoming and which he has no legal right to
expect. It is disheartening enough to a taxpayer to keep him waiting for an indefinite period
of time for a ruling or decision of the Collector (now Commissioner) of Internal Revenue on
his claim for refund. It would make matters more exasperating for the taxpayer if we were to
close the doors of the courts of justice for such a relief until after the Collector (now
Commissioner) of Internal Revenue, would have, at his personal convenience, given his go
signal.
This Court ruled in several cases that once the petition is filed, the Court has already
acquired jurisdiction over the claims and the Court is not bound to wait indefinitely for no
reason for whatever action respondent (herein petitioner) may take. At stake are claims for
refund and unlike disputed assessments, no decision of respondent (herein
petitioner) is required before one can go to this Court. (Emphasis supplied and citations
omitted)
Lastly, it is apparent from the following provisions of Revenue Memorandum Circular No.
49-03 dated August 18, 2003, that [the CIR] knows that claims for VAT refund or tax credit
filed with the Court [of Tax Appeals] can proceed simultaneously with the ones filed with the
BIR and that taxpayers need not wait for the lapse of the subject 120-day period, to wit:
In response to [the] request of selected taxpayers for adoption of procedures in handling
refund cases that are aligned to the statutory requirements that refund cases should be
elevated to the Court of Tax Appeals before the lapse of the period prescribed by law,
certain provisions of RMC No. 42-2003 are hereby amended and new provisions are added
thereto.

In consonance therewith, the following amendments are being introduced to RMC No. 422003, to wit:
I.) A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as follows:
In cases where the taxpayer has filed a "Petition for Review" with the Court of Tax
Appeals involving a claim for refund/TCC that is pending at the administrative agency
(Bureau of Internal Revenue or OSS-DOF), the administrative agency and the tax
court may act on the case separately. While the case is pending in the tax court and at
the same time is still under process by the administrative agency, the litigation lawyer of the
BIR, upon receipt of the summons from the tax court, shall request from the head of the
investigating/processing office for the docket containing certified true copies of all the
documents pertinent to the claim. The docket shall be presented to the court as evidence for
the BIR in its defense on the tax credit/refund case filed by the taxpayer. In the meantime,
the investigating/processing office of the administrative agency shall continue processing
the refund/TCC case until such time that a final decision has been reached by either the
CTA or the administrative agency.
If the CTA is able to release its decision ahead of the evaluation of the administrative
agency, the latter shall cease from processing the claim. On the other hand, if the
administrative agency is able to process the claim of the taxpayer ahead of the CTA and the
taxpayer is amenable to the findings thereof, the concerned taxpayer must file a motion to
withdraw the claim with the CTA.23 (Emphasis supplied)
G.R. No. 196113
Taganito Mining Corporation v. CIR
The Facts
The CTA Second Divisions narration of the pertinent facts is as follows:
Petitioner, Taganito Mining Corporation, is a corporation duly organized and existing under
and by virtue of the laws of the Philippines, with principal office at 4th Floor, Solid Mills
Building, De La Rosa St., Lega[s]pi Village, Makati City. It is duly registered with the
Securities and Exchange Commission with Certificate of Registration No. 138682 issued on
March 4, 1987 with the following primary purpose:
To carry on the business, for itself and for others, of mining lode and/or placer mining,
developing, exploiting, extracting, milling, concentrating, converting, smelting, treating,
refining, preparing for market, manufacturing, buying, selling, exchanging, shipping,
transporting, and otherwise producing and dealing in nickel, chromite, cobalt, gold, silver,
copper, lead, zinc, brass, iron, steel, limestone, and all kinds of ores, metals and their byproducts and which by-products thereof of every kind and description and by whatsoever
process the same can be or may hereafter be produced, and generally and without limit as
to amount, to buy, sell, locate, exchange, lease, acquire and deal in lands, mines, and
mineral rights and claims and to conduct all business appertaining thereto, to purchase,
locate, lease or otherwise acquire, mining claims and rights, timber rights, water rights,

38
concessions and mines, buildings, dwellings, plants machinery, spare parts, tools and other
properties whatsoever which this corporation may from time to time find to be to its
advantage to mine lands, and to explore, work, exercise, develop or turn to account the
same, and to acquire, develop and utilize water rights in such manner as may be authorized
or permitted by law; to purchase, hire, make, construct or otherwise, acquire, provide,
maintain, equip, alter, erect, improve, repair, manage, work and operate private roads,
barges, vessels, aircraft and vehicles, private telegraph and telephone lines, and other
communication media, as may be needed by the corporation for its own purpose, and to
purchase, import, construct, machine, fabricate, or otherwise acquire, and maintain and
operate bridges, piers, wharves, wells, reservoirs, plumes, watercourses, waterworks,
aqueducts, shafts, tunnels, furnaces, cook ovens, crushing works, gasworks, electric lights
and power plants and compressed air plants, chemical works of all kinds, concentrators,
smelters, smelting plants, and refineries, matting plants, warehouses, workshops, factories,
dwelling houses, stores, hotels or other buildings, engines, machinery, spare parts, tools,
implements and other works, conveniences and properties of any description in connection
with or which may be directly or indirectly conducive to any of the objects of the corporation,
and to contribute to, subsidize or otherwise aid or take part in any operations;

V to V-4
Y to Y-4

4th

Z to Z-4

Amended

Electronic

October 18, 2006

Original

Electronic

January 20, 2006

Amended

Electronic

October 18, 2006

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

Zero-Rated
Sales

Input
Input
VAT on
VAT on
Domesti Domesti
c
c
Purchas Purchas
es and
es and
Importati Importati
ons
ons
of Goods
of
and
Capital
Services
Goods

Total
Input
VAT

01/01
/05 03/31
/05

P551,179,87
1.58

P1,491,8 P239,803
80.56
.22

P1,731,6
83.78

04/01
/05 06/30
/05

64,677,530.
78

204,364. 5,811,130
17
.73

6,015,49
4.90

07/01
/05 09/30
/05

480,784,287
.30

144,887.
67

144,887.
67

10/01
/05 12/31
/05

350,212,345
.02

473,598.
03

473,598.
03

TOT
AL

P1,446,854,
034.68

P2,314,7
30.43

P6,050,9
33.95

P8,365,6
64.38

and is a VAT-registered entity, with Certificate of Registration (BIR Form No. 2303) No. OCN
8RC0000017494. Likewise, [Taganito] is registered with the Board of Investments (BOI) as
an exporter of beneficiated nickel silicate and chromite ores, with BOI Certificate of
Registration No. EP-88-306.
Respondent, on the other hand, is the duly appointed Commissioner of Internal Revenue
vested with authority to exercise the functions of the said office, including inter alia, the
power to decide refunds of internal revenue taxes, fees and other charges, penalties
imposed in relation thereto, or other matters arising under the National Internal Revenue
Code (NIRC) or other laws administered by Bureau of Internal Revenue (BIR) under Section
4 of the NIRC. He holds office at the BIR National Office Building, Diliman, Quezon City.
[Taganito] filed all its Monthly VAT Declarations and Quarterly Vat Returns for the period
January 1, 2005 to December 31, 2005. For easy reference, a summary of the filing dates of
the original and amended Quarterly VAT Returns for taxable year 2005 of [Taganito] is as
follows:
Exhibit(s)
L to L-4

Quarter

Mode of filing

Filing Date

Original

Electronic

April 15, 2005

M to M-3

Amended

Electronic

July 20, 2005

N to N-4

Amended

Electronic

October 18, 2006

Original

Electronic

July 20, 2005

Amended

Electronic

October 18, 2006

Original

Electronic

October 19, 2005

Q to Q-3

1st

Nature of
the Return

2nd

R to R-4
U to U-4

3rd

On November 14, 2006, [Taganito] filed with [the CIR], through BIRs Large Taxpayers Audit
and Investigation Division II (LTAID II), a letter dated November 13, 2006 claiming a tax

39
credit/refund of its supposed input VAT amounting to 8,365,664.38 for the period covering
January 1, 2004 to December 31, 2004. On the same date, [Taganito] likewise filed an
Application for Tax Credits/Refunds for the period covering January 1, 2005 to December
31, 2005 for the same amount.
On November 29, 2006, [Taganito] sent again another letter dated November 29, 2004 to
[the CIR], to correct the period of the above claim for tax credit/refund in the said amount of
8,365,664.38 as actually referring to the period covering January 1, 2005 to December 31,
2005.

refund/credit (Asiatic Petroleum Co. vs. Llanes, 49 Phil. 466 cited in Collector
of Internal Revenue vs. Manila Jockey Club, Inc., 98 Phil. 670);
10. Claims for refund are construed strictly against the claimant for the same
partake the nature of exemption from taxation (Commissioner of Internal
Revenue vs. Ledesma, 31 SCRA 95) and as such, they are looked upon with
disfavor (Western Minolco Corp. vs. Commissioner of Internal Revenue, 124
SCRA 1211).
SPECIAL AND AFFIRMATIVE DEFENSES

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

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

In his Answer filed on March 28, 2007, [the CIR] interposes the following defenses:
Section 112. Refunds or Tax Credits of Input Tax.
4. [Taganitos] alleged claim for refund is subject to administrative
investigation/examination by the Bureau of Internal Revenue (BIR);
5. The amount of 8,365,664.38 being claimed by [Taganito] as alleged unutilized
input VAT on domestic purchases of goods and services and on importation of
capital goods for the period January 1, 2005 to December 31, 2005 is not properly
documented;
6. [Taganito] must prove that it has complied with the provisions of Sections 112
(A) and (D) and 229 of the National Internal Revenue Code of 1997 (1997 Tax
Code) on the prescriptive period for claiming tax refund/credit;
7. Proof of compliance with the prescribed checklist of requirements to be
submitted involving claim for VAT refund pursuant to Revenue Memorandum Order
No. 53-98, otherwise there would be no sufficient compliance with the filing
of administrative claim for refund, the administrative claim thereof being
mere proforma, which is a condition sine qua non prior to the filing of
judicial claim in accordance with the provision of Section 229 of the 1997 Tax
Code. Further, Section 112 (D) of the Tax Code, as amended, requires
the submission of complete documents in support of the application
filed with the BIR before the 120-day audit period shall apply, and before the
taxpayer could avail of judicial remedies as provided for in the law. Hence,
[Taganitos] failure to submit proof of compliance with the above-stated
requirements warrants immediate dismissal of the petition for review.
8. [Taganito] must prove that it has complied with the invoicing requirements
mentioned in Sections 110 and 113 of the 1997 Tax Code, as amended, in relation
to provisions of Revenue Regulations No. 7-95.
9. In an action for refund/credit, the burden of proof is on the taxpayer to establish
its right to refund, and failure to sustain the burden is fatal to the claim for

xxx

xxx

xxx

(D) Period within which refund or Tax Credit of Input Taxes shall be Made. In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable
input taxes within one hundred (120) days from the date of submission of complete
documents in support of the application filed in accordance with Subsections (A) and
(B) hereof.
In cases of full or partial denial for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer
affected may, within thirty (30) days from the receipt of the decision denying the claim
or after the expiration of the one hundred twenty dayperiod, appeal the decision or
the unacted claim with the Court of Tax Appeals. (Emphasis supplied.)
12. As stated, [Taganito] filed the administrative claim for refund with the Bureau of Internal
Revenue on November 14, 2006. Subsequently on February 14, 2007, the instant petition
was filed. Obviously the 120 days given to the Commissioner to decide on the claim has not
yet lapsed when the petition was filed. The petition was prematurely filed, hence it must be
dismissed for lack of jurisdiction.
During trial, [Taganito] presented testimonial and documentary evidence primarily aimed at
proving its supposed entitlement to the refund in the amount of 8,365,664.38, representing
input taxes for the period covering January 1, 2005 to December 31, 2005. [The CIR], on
the other hand, opted not to present evidence. Thus, in the Resolution promulgated on
January 22, 2009, this case was submitted for decision as of such date, considering
[Taganitos] "Memorandum" filed on January 19, 2009 and [the CIRs] "Memorandum" filed
on December 19, 2008.24
The Court of Tax Appeals Ruling: Division

40
The CTA Second Division partially granted Taganitos claim. In its Decision25 dated 8
January 2010, the CTA Second Division found that Taganito complied with the requirements
of Section 112(A) of RA 8424, as amended, to be entitled to a tax refund or credit of input
VAT attributable to zero-rated or effectively zero-rated sales.26
The pertinent portions of the CTA Second Divisions Decision read:
Finally, records show that [Taganitos] administrative claim filed on November 14, 2006,
which was amended on November 29, 2006, and the Petition for Review filed with this Court
on February 14, 2007 are well within the two-year prescriptive period, reckoned from March
31, 2005, June 30, 2005, September 30, 2005, and December 31, 2005, respectively, the
close of each taxable quarter covering the period January 1, 2005 to December 31, 2005.
In fine, [Taganito] sufficiently proved that it is entitled to a tax credit certificate in the amount
of 8,249,883.33 representing unutilized input VAT for the four taxable quarters of 2005.
WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY
GRANTED. Accordingly, [the CIR] is hereby ORDERED to REFUND to [Taganito] the
amount of EIGHT MILLION TWO HUNDRED FORTY NINE THOUSAND EIGHT HUNDRED
EIGHTY THREE PESOS AND THIRTY THREE CENTAVOS (P8,249,883.33) representing
its unutilized input taxes attributable to zero-rated sales from January 1, 2005 to December
31, 2005.
SO ORDERED.27
The Commissioner filed a Motion for Partial Reconsideration on 29 January 2010. Taganito,
in turn, filed a Comment/Opposition on the Motion for Partial Reconsideration on 15
February 2010.
In a Resolution28 dated 7 April 2010, the CTA Second Division denied the CIRs motion. The
CTA Second Division ruled that the legislature did not intend that Section 112 (Refunds or
Tax Credits of Input Tax) should be read in isolation from Section 229 (Recovery of Tax
Erroneously or Illegally Collected) or vice versa. The CTA Second Division applied the
mandatory statute of limitations in seeking judicial recourse prescribed under Section 229 to
claims for refund or tax credit under Section 112.
The Court of Tax Appeals Ruling: En Banc
On 29 April 2010, the Commissioner filed a Petition for Review before the CTA EB assailing
the 8 January 2010 Decision and the 7 April 2010 Resolution in CTA Case No. 7574 and
praying that Taganitos entire claim for refund be denied.
In its 8 December 2010 Decision,29 the CTA EB granted the CIRs petition for review and
reversed and set aside the challenged decision and resolution.

The CTA EB declared that Section 112(A) and (B) of the 1997 Tax Code both set forth the
reckoning of the two-year prescriptive period for filing a claim for tax refund or credit over
input VAT to be the close of the taxable quarter when the sales were made. The CTA EB
also relied on this Courts rulings in the cases of Commissioner of Internal Revenue v. Aichi
Forging Company of Asia, Inc. (Aichi)30 and Commisioner of Internal Revenue v. Mirant
Pagbilao Corporation (Mirant).31 Both Aichi and Mirant ruled that the two-year prescriptive
period to file a refund for input VAT arising from zero-rated sales should be reckoned from
the close of the taxable quarter when the sales were made. Aichi further emphasized that
the failure to await the decision of the Commissioner or the lapse of 120-day period
prescribed in Section 112(D) amounts to a premature filing.
The CTA EB found that Taganito filed its administrative claim on 14 November 2006, which
was well within the period prescribed under Section 112(A) and (B) of the 1997 Tax Code.
However, the CTA EB found that Taganitos judicial claim was prematurely filed. Taganito
filed its Petition for Review before the CTA Second Division on 14 February 2007. The
judicial claim was filed after the lapse of only 92 days from the filing of its administrative
claim before the CIR, in violation of the 120-day period prescribed in Section 112(D) of the
1997 Tax Code.
The dispositive portion of the Decision states:
WHEREFORE, the instant Petition for Review is hereby GRANTED. The assailed Decision
dated January 8, 2010 and Resolution dated April 7, 2010 of the Special Second Division of
this Court are hereby REVERSED and SET ASIDE. Another one is hereby entered
DISMISSING the Petition for Review filed in CTA Case No. 7574 for having been
prematurely filed.
SO ORDERED.32
In his dissent,33 Associate Justice Lovell R. Bautista insisted that Taganito timely filed its
claim before the CTA. Justice Bautista read Section 112(C) of the 1997 Tax Code (Period
within which Refund or Tax Credit of Input Taxes shall be Made) in conjunction with Section
229 (Recovery of Tax Erroneously or Illegally Collected). Justice Bautista also relied on this
Courts ruling in Atlas Consolidated Mining and Development Corporation v. Commissioner
of Internal Revenue (Atlas),34 which stated that refundable or creditable input VAT and
illegally or erroneously collected national internal revenue tax are the same, insofar as both
are monetary amounts which are currently in the hands of the government but must
rightfully be returned to the taxpayer. Justice Bautista concluded:
Being merely permissive, a taxpayer claimant has the option of seeking judicial redress for
refund or tax credit of excess or unutilized input tax with this Court, either within 30 days
from receipt of the denial of its claim, or after the lapse of the 120-day period in the event of
inaction by the Commissioner, provided that both administrative and judicial remedies must
be undertaken within the 2-year period.35

41
Taganito filed its Motion for Reconsideration on 29 December 2010. The Commissioner filed
an Opposition on 26 January 2011. The CTA EB denied for lack of merit Taganitos motion in
a Resolution36 dated 14 March 2011. The CTA EB did not see any justifiable reason to
depart from this Courts rulings in Aichi and Mirant.
G.R. No. 197156
Philex Mining Corporation v. CIR
The Facts
The CTA EBs narration of the pertinent facts is as follows:
[Philex] is a corporation duly organized and existing under the laws of the Republic of the
Philippines, which is principally engaged in the mining business, which includes the
exploration and operation of mine properties and commercial production and marketing of
mine products, with office address at 27 Philex Building, Fairlaine St., Kapitolyo, Pasig City.
[The CIR], on the other hand, is the head of the Bureau of Internal Revenue ("BIR"), the
government entity tasked with the duties/functions of assessing and collecting all national
internal revenue taxes, fees, and charges, and enforcement of all forfeitures, penalties and
fines connected therewith, including the execution of judgments in all cases decided in its
favor by [the Court of Tax Appeals] and the ordinary courts, where she can be served with
court processes at the BIR Head Office, BIR Road, Quezon City.
On October 21, 2005, [Philex] filed its Original VAT Return for the third quarter of taxable
year 2005 and Amended VAT Return for the same quarter on December 1, 2005.
On March 20, 2006, [Philex] filed its claim for refund/tax credit of the amount of
23,956,732.44 with the One Stop Shop Center of the Department of Finance. However,
due to [the CIRs] failure to act on such claim, on October 17, 2007, pursuant to Sections
112 and 229 of the NIRC of 1997, as amended, [Philex] filed a Petition for Review, docketed
as C.T.A. Case No. 7687.
In [her] Answer, respondent CIR alleged the following special and affirmative defenses:
4. Claims for refund are strictly construed against the taxpayer as the same
partake the nature of an exemption;
5. The taxpayer has the burden to show that the taxes were erroneously or illegally
paid. Failure on the part of [Philex] to prove the same is fatal to its cause of action;
6. [Philex] should prove its legal basis for claiming for the amount being refunded.37
The Court of Tax Appeals Ruling: Division

The CTA Second Division, in its Decision dated 20 July 2009, denied Philexs claim due to
prescription. The CTA Second Division ruled that the two-year prescriptive period specified
in Section 112(A) of RA 8424, as amended, applies not only to the filing of the administrative
claim with the BIR, but also to the filing of the judicial claim with the CTA. Since Philexs
claim covered the 3rd quarter of 2005, its administrative claim filed on 20 March 2006 was
timely filed, while its judicial claim filed on 17 October 2007 was filed late and therefore
barred by prescription.
On 10 November 2009, the CTA Second Division denied Philexs Motion for
Reconsideration.
The Court of Tax Appeals Ruling: En Banc
Philex filed a Petition for Review before the CTA EB praying for a reversal of the 20 July
2009 Decision and the 10 November 2009 Resolution of the CTA Second Division in CTA
Case No. 7687.
The CTA EB, in its Decision38 dated 3 December 2010, denied Philexs petition and affirmed
the CTA Second Divisions Decision and Resolution.
The pertinent portions of the Decision read:
In this case, while there is no dispute that [Philexs] administrative claim for refund was filed
within the two-year prescriptive period; however, as to its judicial claim for refund/credit,
records show that on March 20, 2006, [Philex] applied the administrative claim for refund of
unutilized input VAT in the amount of 23,956,732.44 with the One Stop Shop Center of the
Department of Finance, per Application No. 52490. From March 20, 2006, which is also
presumably the date [Philex] submitted supporting documents, together with the aforesaid
application for refund, the CIR has 120 days, or until July 18, 2006, within which to decide
the claim. Within 30 days from the lapse of the 120-day period, or from July 19, 2006 until
August 17, 2006, [Philex] should have elevated its claim for refund to the CTA. However,
[Philex] filed its Petition for Review only on October 17, 2007, which is 426 days way
beyond the 30- day period prescribed by law.
Evidently, the Petition for Review in CTA Case No. 7687 was filed 426 days late. Thus, the
Petition for Review in CTA Case No. 7687 should have been dismissed on the ground that
the Petition for Review was filed way beyond the 30-day prescribed period; thus, no
jurisdiction was acquired by the CTA in Division; and not due to prescription.
WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED
DUE COURSE, and accordingly, DISMISSED. The assailed Decision dated July 20, 2009,
dismissing the Petition for Review in CTA Case No. 7687 due to prescription, and
Resolution dated November 10, 2009 denying [Philexs] Motion for Reconsideration are
hereby AFFIRMED, with modification that the dismissal is based on the ground that the
Petition for Review in CTA Case No. 7687 was filed way beyond the 30-day prescribed
period to appeal.

42
SO ORDERED.39

Section 105:

G.R. No. 187485

CIR v. San Roque Power Corporation

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

The Commissioner raised the following grounds in the Petition for Review:
I. The Court of Tax Appeals En Banc erred in holding that [San Roques] claim for
refund was not prematurely filed.
II. The Court of Tax Appeals En Banc erred in affirming the amended decision of
the Court of Tax Appeals (Second Division) granting [San Roques] claim for refund
of alleged unutilized input VAT on its purchases of capital goods and services for
the taxable year 2001 in the amount of P483,797,599.65. 40

The value-added tax is an indirect tax and the amount of tax may be shifted or passed
on to the buyer, transferee or lessee of the goods, properties or services. This rule
shall likewise apply to existing contracts of sale or lease of goods, properties or services at
the time of the effectivity of Republic Act No. 7716.
xxxx
Section 110(B):

G.R. No. 196113

Taganito Mining Corporation v. CIR
Taganito raised the following grounds in its Petition for Review:
I. The Court of Tax Appeals En Banc committed serious error and acted with grave
abuse of discretion tantamount to lack or excess of jurisdiction in erroneously
applying the Aichi doctrine in violation of [Taganitos] right to due process.
II. The Court of Tax Appeals committed serious error and acted with grave abuse of
discretion amounting to lack or excess of jurisdiction in erroneously interpreting the
provisions of Section 112 (D).41
G.R. No. 197156
Philex Mining Corporation v. CIR

Sec. 110. Tax Credits.

(B) Excess Output or Input Tax. If at the end of any taxable quarter the output tax
exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input
tax exceeds the output tax, the excess shall be carried over to the succeeding quarter
or quarters: [Provided, That the input tax inclusive of input VAT carried over from the
previous quarter that may be credited in every quarter shall not exceed seventy percent
(70%) of the output VAT:]43 Provided, however, That any input tax attributable to zerorated sales by a VAT-registered person may at his option be refunded or credited
against other internal revenue taxes, subject to the provisions of Section 112.
Section 112:44
Sec. 112. Refunds or Tax Credits of Input Tax.

Philex raised the following grounds in its Petition for Review:

I. The CTA En Banc erred in denying the petition due to alleged prescription. The
fact is that the petition was filed with the CTA within the period set by prevailing
court rulings at the time it was filed.
II. The CTA En Banc erred in retroactively applying the Aichi ruling in denying the
petition in this instant case.42
The Courts Ruling
For ready reference, the following are the provisions of the Tax Code applicable to the
present cases:

(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.

43
(B) Capital Goods.- A VAT registered person may apply for the issuance of a tax
credit certificate or refund of input taxes paid on capital goods imported or locally
purchased, to the extent that such input taxes have not been applied against
output taxes. The application may be made only within two (2) years after the close
of the taxable quarter when the importation or purchase was made.
(C) Cancellation of VAT Registration. A person whose registration has been
cancelled due to retirement from or cessation of business, or due to changes in or
cessation of status under Section 106(C) of this Code may, within two (2) years
from the date of cancellation, apply for the issuance of a tax credit certificate for
any unused input tax which may be used in payment of his other internal revenue
taxes
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. In
proper cases, the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within one hundred twenty (120) days from
the date of submission of complete documents in support of the application
filed in accordance with Subsection (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure
on the part of the Commissioner to act on the application within the period
prescribed above, the taxpayer affected may,within thirty (30) days from the
receipt of the decision denying the claim or after the expiration of the one
hundred twenty day-period, appeal the decision or the unacted claim with the
Court of Tax Appeals.
(E) Manner of Giving Refund. Refunds shall be made upon warrants drawn by
the Commissioner or by his duly authorized representative without the necessity of
being countersigned by the Chairman, Commission on Audit, the provisions of the
Administrative Code of 1987 to the contrary notwithstanding: Provided, that
refunds under this paragraph shall be subject to post audit by the Commission on
Audit.
Section 229:
Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter
alleged to have been erroneously or illegally assessed or collected, or of any penalty
claimed to have been collected without authority, or of any sum alleged to have
been excessively or in any manner wrongfully collected, until a claim for refund or credit
has been duly filed with the Commissioner; but such suit or proceeding may be maintained,
whether or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years
from the date of payment of the tax or penalty regardless of any supervening cause that
may arise after payment: Provided, however, That the Commissioner may, even without a
written claim therefor, refund or credit any tax, where on the face of the return upon which
payment was made, such payment appears clearly to have been erroneously paid.

(All emphases supplied)

I. Application of the 120+30 Day Periods
a. G.R. No. 187485 - CIR v. San Roque Power Corporation
On 10 April 2003, a mere 13 days after it filed its amended administrative claim with the
Commissioner on 28 March 2003, San Roque filed a Petition for Review with the CTA
docketed as CTA Case No. 6647. From this we gather two crucial facts: first, San Roque did
not wait for the 120-day period to lapse before filing its judicial claim;second, San Roque
filed its judicial claim more than four (4) years before the Atlas45 doctrine, which was
promulgated by the Court on 8 June 2007.
Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly
given by law to the Commissioner to decide whether to grant or deny San Roques
application for tax refund or credit. It is indisputable that compliance with the 120-day
waiting period is mandatory and jurisdictional. The waiting period, originally fixed at 60
days only, was part of the provisions of the first VAT law, Executive Order No. 273, which
took effect on 1 January 1988. The waiting period was extended to 120 days effective 1
January 1998 under RA 8424 or the Tax Reform Act of 1997. Thus, the waiting period has
been in our statute books for more than fifteen (15) years before San Roque filed its
judicial claim.
Failure to comply with the 120-day waiting period violates a mandatory provision of law. It
violates the doctrine of exhaustion of administrative remedies and renders the petition
premature and thus without a cause of action, with the effect that the CTA does not acquire
jurisdiction over the taxpayers petition. Philippine jurisprudence is replete with cases
upholding and reiterating these doctrinal principles.46
The charter of the CTA expressly provides that its jurisdiction is to review on appeal
"decisions of the Commissioner of Internal Revenue in cases involving x x x refunds of
internal revenue taxes."47 When a taxpayer prematurely files a judicial claim for tax refund or
credit with the CTA without waiting for the decision of the Commissioner, there is no
"decision" of the Commissioner to review and thus the CTA as a court of special jurisdiction
has no jurisdiction over the appeal. The charter of the CTA also expressly provides that if
the Commissioner fails to decide within "a specific period" required by law, such "inaction
shall be deemed a denial"48 of the application for tax refund or credit. It is the
Commissioners decision, or inaction "deemed a denial," that the taxpayer can take to the
CTA for review. Without a decision or an "inaction x x x deemed a denial" of the
Commissioner, the CTA has no jurisdiction over a petition for review.49
San Roques failure to comply with the 120-day mandatory period renders its petition for
review with the CTA void. Article 5 of the Civil Code provides, "Acts executed against
provisions of mandatory or prohibitory laws shall be void, except when the law itself
authorizes their validity." San Roques void petition for review cannot be legitimized by the
CTA or this Court because Article 5 of the Civil Code states that such void petition cannot be
legitimized "except when the law itself authorizes [its] validity." There is no law authorizing
the petitions validity.

44
It is hornbook doctrine that a person committing a void act contrary to a mandatory provision
of law cannot claim or acquire any right from his void act. A right cannot spring in favor of a
person from his own void or illegal act. This doctrine is repeated in Article 2254 of the Civil
Code, which states, "No vested or acquired right can arise from acts or omissions which are
against the law or which infringe upon the rights of others."50 For violating a mandatory
provision of law in filing its petition with the CTA, San Roque cannot claim any right arising
from such void petition. Thus, San Roques petition with the CTA is a mere scrap of paper.
This Court cannot brush aside the grave issue of the mandatory and jurisdictional nature of
the 120-day period just because the Commissioner merely asserts that the case was
prematurely filed with the CTA and does not question the entitlement of San Roque to the
refund. The mere fact that a taxpayer has undisputed excess input VAT, or that the tax was
admittedly illegally, erroneously or excessively collected from him, does not entitle him as a
matter of right to a tax refund or credit. Strict compliance with the mandatory and
jurisdictional conditions prescribed by law to claim such tax refund or credit is essential and
necessary for such claim to prosper. Well-settled is the rule that tax refunds or credits,
just like tax exemptions, are strictly construed against the taxpayer.51 The burden is on
the taxpayer to show that he has strictly complied with the conditions for the grant of the tax
refund or credit.
This Court cannot disregard mandatory and jurisdictional conditions mandated by law
simply because the Commissioner chose not to contest the numerical correctness of the
claim for tax refund or credit of the taxpayer. Non-compliance with mandatory periods, nonobservance of prescriptive periods, and non-adherence to exhaustion of administrative
remedies bar a taxpayers claim for tax refund or credit, whether or not the Commissioner
questions the numerical correctness of the claim of the taxpayer. This Court should not
establish the precedent that non-compliance with mandatory and jurisdictional conditions
can be excused if the claim is otherwise meritorious, particularly in claims for tax refunds or
credit. Such precedent will render meaningless compliance with mandatory and
jurisdictional requirements, for then every tax refund case will have to be decided on the
numerical correctness of the amounts claimed, regardless of non-compliance with
mandatory and jurisdictional conditions.
San Roque cannot also claim being misled, misguided or confused by the Atlas doctrine
because San Roque filed its petition for review with the CTA more than four years
before Atlas was promulgated. The Atlasdoctrine did not exist at the time San Roque
failed to comply with the 120- day period. Thus, San Roque cannot invoke the Atlas doctrine
as an excuse for its failure to wait for the 120-day period to lapse. In any event,
the Atlasdoctrine merely stated that the two-year prescriptive period should be counted from
the date of payment of the output VAT, not from the close of the taxable quarter when the
sales involving the input VAT were made. TheAtlas doctrine does not interpret,
expressly or impliedly, the 120+3052 day periods.
In fact, Section 106(b) and (e) of the Tax Code of 1977 as amended, which was the law
cited by the Court in Atlasas the applicable provision of the law did not yet provide for the
30-day period for the taxpayer to appeal to the CTA from the decision or inaction of the
Commissioner.53 Thus, the Atlas doctrine cannot be invoked by anyone to disregard
compliance with the 30-day mandatory and jurisdictional period. Also, the difference
between the Atlas doctrine on one hand, and the Mirant54 doctrine on the other hand, is a

mere 20 days. TheAtlas doctrine counts the two-year prescriptive period from the date of
payment of the output VAT, which means within 20 days after the close of the taxable
quarter. The output VAT at that time must be paid at the time of filing of the quarterly tax
returns, which were to be filed "within 20 days following the end of each quarter."
Thus, in Atlas, the three tax refund claims listed below were deemed timely filed because
the administrative claims filed with the Commissioner, and the petitions for review filed with
the CTA, were all filed within two years from the date of payment of the output VAT, following
Section 229:

Period Covered

Date of Filing Return

& Payment of Tax

Date of Filing
Administrative Claim

Date of Filing
Petition With CTA

2nd Quarter, 1990

Close of Quarter
30 June 1990

20 July 1990

21 August 1990

20 July 1992

3rd Quarter, 1990

Close of Quarter
30 September 1990

18 October 1990

21 November 1990

9 October 1992

4th Quarter, 1990

Close of Quarter
31 December 1990

20 January 1991

19 February 1991

14 January 1993

Atlas paid the output VAT at the time it filed the quarterly tax returns on the 20th, 18th, and
20th day after the close of the taxable quarter. Had the twoyear prescriptive period been
counted from the "close of the taxable quarter" as expressly stated in the law, the tax refund
claims of Atlas would have already prescribed. In contrast, the Mirant doctrine counts the
two-year prescriptive period from the "close of the taxable quarter when the sales were
made" as expressly stated in the law, which means the last day of the taxable quarter. The
20-day difference55 between the Atlas doctrine and the later Mirant doctrine is not
material to San Roques claim for tax refund.
Whether the Atlas doctrine or the Mirant doctrine is applied to San Roque is immaterial
because what is at issue in the present case is San Roques non-compliance with the 120day mandatory and jurisdictional period, which is counted from the date it filed its
administrative claim with the Commissioner. The 120-day period may extend beyond the
two-year prescriptive period, as long as the administrative claim is filed within the two-year
prescriptive period. However, San Roques fatal mistake is that it did not wait for the
Commissioner to decide within the 120-day period, a mandatory period whether the Atlas or
the Mirant doctrine is applied.
At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory
periods were already in the law. Section 112(C)56 expressly grants the Commissioner 120
days within which to decide the taxpayers claim. The law is clear, plain, and unequivocal: "x
x x the Commissioner shall grant a refund or issue the tax credit certificate for creditable
input taxes within one hundred twenty (120) days from the date of submission of

45
complete documents." Following the verba legis doctrine, this law must be applied exactly
as worded since it is clear, plain, and unequivocal. The taxpayer cannot simply file a petition
with the CTA without waiting for the Commissioners decision within the 120-day mandatory
and jurisdictional period. The CTA will have no jurisdiction because there will be no
"decision" or "deemed a denial" decision of the Commissioner for the CTA to review. In San
Roques case, it filed its petition with the CTA a mere 13 days after it filed its administrative
claim with the Commissioner. Indisputably, San Roque knowingly violated the mandatory
120-day period, and it cannot blame anyone but itself.
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the
decision or inaction of the Commissioner, thus:
x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision
denying the claim or after the expiration of the one hundred twenty day-period, appeal
the decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied)
This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this
law should be applied exactly as worded since it is clear, plain, and unequivocal. As this law
states, the taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA
within 30 days from receipt of the Commissioners decision, or if the Commissioner does not
act on the taxpayers claim within the 120-day period, the taxpayer may appeal to the CTA
within 30 days from the expiration of the 120-day period.
b. G.R. No. 196113 - Taganito Mining Corporation v. CIR
Like San Roque, Taganito also filed its petition for review with the CTA without waiting for
the 120-day period to lapse. Also, like San Roque, Taganito filed its judicial claim before the
promulgation of the Atlas doctrine. Taganito filed a Petition for Review on 14 February 2007
with the CTA. This is almost four months before the adoption of the Atlas doctrine on 8 June
2007. Taganito is similarly situated as San Roque - both cannot claim being misled,
misguided, or confused by the Atlas doctrine.
However, Taganito can invoke BIR Ruling No. DA-489-0357 dated 10 December 2003, which
expressly ruled that the "taxpayer-claimant need not wait for the lapse of the 120-day
period before it could seek judicial relief with the CTA by way of Petition for Review."
Taganito filed its judicial claim after the issuance of BIR Ruling No. DA-489-03 but before
the adoption of the Aichi doctrine. Thus, as will be explained later, Taganito is deemed to
have filed its judicial claim with the CTA on time.
c. G.R. No. 197156 Philex Mining Corporation v. CIR
Philex (1) filed on 21 October 2005 its original VAT Return for the third quarter of taxable
year 2005; (2) filed on 20 March 2006 its administrative claim for refund or credit; (3) filed on
17 October 2007 its Petition for Review with the CTA. The close of the third taxable quarter
in 2005 is 30 September 2005, which is the reckoning date in computing the two-year
prescriptive period under Section 112(A).

Philex timely filed its administrative claim on 20 March 2006, within the two-year prescriptive
period. Even if the two-year prescriptive period is computed from the date of payment of the
output VAT under Section 229, Philex still filed its administrative claim on time. Thus,
the Atlas doctrine is immaterial in this case. The Commissioner had until 17 July 2006,
the last day of the 120-day period, to decide 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 x58(Emphasis supplied)
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 120day 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.59 Philex failed
to comply with the statutory conditions and must thus bear the consequences.
II. Prescriptive Periods under Section 112(A) and (C)
There are three compelling reasons why the 30-day period need not necessarily fall within
the two-year prescriptive period, as long as the administrative claim is filed within the twoyear prescriptive period.
First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer
"may, within two (2) years after the close of the taxable quarter when the sales
were made, apply for the issuance of a tax credit certificate or refund of the
creditable input tax due or paid to such sales." In short, the law states that the

46
taxpayer may apply with the Commissioner for a refund or credit "within two (2)
years," which means at anytime within two years. Thus, the application for
refund or credit may be filed by the taxpayer with the Commissioner on the last day
of the two-year prescriptive period and it will still strictly comply with the law. The
twoyear prescriptive period is a grace period in favor of the taxpayer and he can
avail of the full period before his right to apply for a tax refund or credit is barred by
prescription.
Second, Section 112(C) provides that the Commissioner shall decide the
application for refund or credit "within one hundred twenty (120) days from the date
of submission of complete documents in support of the application filed in
accordance with Subsection (A)." The reference in Section 112(C) of the
submission of documents "in support of the application filed in accordance with
Subsection A" means that the application in Section 112(A) is the administrative
claim that the Commissioner must decide within the 120-day period. In short, the
two-year prescriptive period in Section 112(A) refers to the period within which the
taxpayer can file an administrative claim for tax refund or credit. Stated otherwise,
the two-year prescriptive period does not refer to the filing of the judicial
claim with the CTA but to the filing of the administrative claim with the
Commissioner. As held in Aichi, the "phrase within two years x x x apply for the
issuance of a tax credit or refund refers to applications for refund/credit with
the CIR and not to appeals made to the CTA."
Third, if the 30-day period, or any part of it, is required to fall within the two-year
prescriptive period (equivalent to 730 days60), then the taxpayer must file his
administrative claim for refund or credit within the first 610 days of the two-year
prescriptive period. Otherwise, the filing of the administrative claim beyond
the first 610 days will result in the appeal to the CTA being filed beyond the
two-year prescriptive period. Thus, if the taxpayer files his administrative claim
on the 611th day, the Commissioner, with his 120-day period, will have until the
731st day to decide the claim. If the Commissioner decides only on the 731st day,
or does not decide at all, the taxpayer can no longer file his judicial claim with the
CTA because the two-year prescriptive period (equivalent to 730 days) has lapsed.
The 30-day period granted by law to the taxpayer to file an appeal before the CTA
becomes utterly useless, even if the taxpayer complied with the law by filing his
administrative claim within the two-year prescriptive period.
The theory that the 30-day period must fall within the two-year prescriptive period adds a
condition that is not found in the law. It results in truncating 120 days from the 730 days that
the law grants the taxpayer for filing his administrative claim with the Commissioner. This
Court cannot interpret a law to defeat, wholly or even partly, a remedy that the law expressly
grants in clear, plain, and unequivocal language.
Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal
language. The taxpayer can file his administrative claim for refund or credit
at anytime within the two-year prescriptive period. If he files his claim on the last day of the
two-year prescriptive period, his claim is still filed on time. The Commissioner will have 120
days from such filing to decide the claim. If the Commissioner decides the claim on the
120th day, or does not decide it on that day, the taxpayer still has 30 days to file his judicial

claim with the CTA. This is not only the plain meaning but also the only logical interpretation
of Section 112(A) and (C).
III. "Excess" Input VAT and "Excessively" Collected Tax
The input VAT is not "excessively" collected as understood under Section 229 because at
the time the input VAT is collected the amount paid is correct and proper. The input
VAT is a tax liability of, and legally paid by, a VAT-registered seller61 of goods, properties or
services used as input by another VAT-registered person in the sale of his own goods,
properties, or services. This tax liability is true even if the seller passes on the input VAT to
the buyer as part of the purchase price. The second VAT-registered person, who is not
legally liable for the input VAT, is the one who applies the input VAT as credit for his own
output VAT.62 If the input VAT is in fact "excessively" collected as understood under Section
229, then it is the first VAT-registered person - the taxpayer who is legally liable and who is
deemed to have legally paid for the input VAT - who can ask for a tax refund or credit under
Section 229 as an ordinary refund or credit outside of the VAT System. In such event, the
second VAT-registered taxpayer will have no input VAT to offset against his own output VAT.
In a claim for refund or credit of "excess" input VAT under Section 110(B) and Section
112(A), the input VAT is not "excessively" collected as understood under Section 229. At the
time of payment of the input VAT the amount paid is the correct and proper amount. Under
the VAT System, there is no claim or issue that the input VAT is "excessively" collected, that
is, that the input VAT paid is more than what is legally due. The person legally liable for the
input VAT cannot claim that he overpaid the input VAT by the mere existence of an "excess"
input VAT. The term "excess" input VAT simply means that the input VAT available as credit
exceeds the output VAT, not that the input VAT is excessively collected because it is more
than what is legally due. Thus, the taxpayer who legally paid the input VAT cannot claim for
refund or credit of the input VAT as "excessively" collected under Section 229.
Under Section 229, the prescriptive period for filing a judicial claim for refund is two years
from the date of payment of the tax "erroneously, x x x illegally, x x x excessively or in any
manner wrongfully collected." The prescriptive period is reckoned from the date the person
liable for the tax pays the tax. Thus, if the input VAT is in fact "excessively" collected, that is,
the person liable for the tax actually pays more than what is legally due, the taxpayer must
file a judicial claim for refund within two years from his date of payment. Only the person
legally liable to pay the tax can file the judicial claim for refund. The person to whom
the tax is passed on as part of the purchase price has no personality to file the
judicial claim under Section 229.63
Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for
"excess" input VAT is two years from the close of the taxable quarter when the sale was
made by the person legally liable to pay theoutput 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

47
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.

claim a refund or credit for such "excessively" collected tax, and thus there will no longer be
any "excess" input VAT. This will upend the present VAT System as we know it.

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

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

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

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 theverba 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 inAichi, which adopted the verba legis rule in
holding that the 120+30 day periods are mandatory and jurisdictional. The language of
Section 112(C) is plain, clear, and unambiguous. When Section 112(C) states that "the
Commissioner shall grant a refund or issue the tax credit within one hundred twenty (120)
days from the date of submission of complete documents," the law clearly gives the
Commissioner 120 days within which to decide the taxpayers claim. Resort to the courts
prior to the expiration of the 120-day period is a patent violation of the doctrine of
exhaustion of administrative remedies, a ground for dismissing the judicial suit due to
prematurity. Philippine jurisprudence is awash with cases affirming and reiterating the
doctrine of exhaustion of administrative remedies.65 Such doctrine is basic and elementary.

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

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

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

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

48
To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly
against the taxpayer. One of the conditions for a judicial claim of refund or credit under the
VAT System is compliance with the 120+30 day mandatory and jurisdictional periods. Thus,
strict compliance with the 120+30 day periods is necessary for such a claim to prosper,
whether before, during, or after the effectivity of the Atlas doctrine, except for the period
from the issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010
when the Aichi doctrine was adopted, which again reinstated the 120+30 day periods as
mandatory and jurisdictional.
V. Revenue Memorandum Circular No. 49-03 (RMC 49-03) dated 15 April 2003
There is nothing in RMC 49-03 that states, expressly or impliedly, that the taxpayer need not
wait for the 120-day period to expire before filing a judicial claim with the CTA. RMC 49-03
merely authorizes the BIR to continue processing the administrative claim even after the
taxpayer has filed its judicial claim, without saying that the taxpayer can file its judicial claim
before the expiration of the 120-day period. RMC 49-03 states: "In cases where the
taxpayer has filed a Petition for Review with the Court of Tax Appeals involving a claim for
refund/TCC that is pending at the administrative agency (either the Bureau of Internal
Revenue or the One- Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the
Department of Finance), the administrative agency and the court may act on the case
separately." Thus, if the taxpayer files its judicial claim before the expiration of the 120-day
period, the BIR will nevertheless continue to act on the administrative claim because such
premature filing cannot divest the Commissioner of his statutory power and jurisdiction to
decide the administrative claim within the 120-day period.
On the other hand, if the taxpayer files its judicial claim after the 120- day period, the
Commissioner can still continue to evaluate the administrative claim. There is nothing new
in this because even after the expiration of the 120-day period, the Commissioner should
still evaluate internally the administrative claim for purposes of opposing the taxpayers
judicial claim, or even for purposes of determining if the BIR should actually concede to the
taxpayers judicial claim. The internal administrative evaluation of the taxpayers claim
must necessarily continue to enable the BIR to oppose intelligently the judicial claim or, if
the facts and the law warrant otherwise, for the BIR to concede to the judicial claim,
resulting in the termination of the judicial proceedings.
What is important, as far as the present cases are concerned, is that the mere filing
by a taxpayer of a judicial claim with the CTA before the expiration of the 120-day
period cannot operate to divest the Commissioner of his jurisdiction to decide an
administrative claim within the 120-day mandatory period, unless the Commissioner
has clearly given cause for equitable estoppel to apply as expressly recognized in
Section 246 of the Tax Code.67
VI. BIR Ruling No. DA-489-03 dated 10 December 2003
BIR Ruling No. DA-489-03 does provide a valid claim for equitable estoppel under Section
246 of the Tax Code. BIR Ruling No. DA-489-03 expressly states that the "taxpayerclaimant need not wait for the lapse of the 120-day period before it could seek judicial
relief with the CTA by way of Petition for Review." Prior to this ruling, the BIR held, as

shown by its position in the Court of Appeals,68 that the expiration of the 120-day period is
mandatory and jurisdictional before a judicial claim can be filed.
There is no dispute that the 120-day period is mandatory and jurisdictional, and that the
CTA does not acquire jurisdiction over a judicial claim that is filed before the expiration of
the 120-day period. There are, however, two exceptions to this rule. The first exception is if
the Commissioner, through a specific ruling, misleads a particular taxpayer to prematurely
file a judicial claim with the CTA. Such specific ruling is applicable only to such particular
taxpayer. The second exception is where the Commissioner, through a general
interpretative rule issued under Section 4 of the Tax Code, misleads all taxpayers into filing
prematurely judicial claims with the CTA. In these cases, the Commissioner cannot be
allowed to later on question the CTAs assumption of jurisdiction over such claim since
equitable estoppel has set in as expressly authorized under Section 246 of the Tax Code.
Section 4 of the Tax Code, a new provision introduced by RA 8424, expressly grants to the
Commissioner the power to interpret tax laws, thus:
Sec. 4. Power of the Commissioner To Interpret Tax Laws and To Decide Tax Cases. The
power to interpret the provisions of this Code and other tax laws shall be under the
exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of
Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under this Code or
other laws or portions thereof administered by the Bureau of Internal Revenue is vested in
the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax
Appeals.
Since the Commissioner has exclusive and original jurisdiction to interpret tax laws,
taxpayers acting in good faith should not be made to suffer for adhering to general
interpretative rules of the Commissioner interpreting tax laws, should such interpretation
later turn out to be erroneous and be reversed by the Commissioner or this Court. Indeed,
Section 246 of the Tax Code expressly provides that a reversal of a BIR regulation or ruling
cannot adversely prejudice a taxpayer who in good faith relied on the BIR regulation or
ruling prior to its reversal. Section 246 provides as follows:
Sec. 246. Non-Retroactivity of Rulings. Any revocation, modification or reversal of any of
the rules and regulations promulgated in accordance with the preceding Sections or any
of the rulings or circulars promulgated by the Commissioner shall not be given retroactive
application if the revocation, modification or reversal will be prejudicial to the
taxpayers, except in the following cases:
(a) Where the taxpayer deliberately misstates or omits material facts from his
return or any document required of him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are
materially different from the facts on which the ruling is based; or

49
(c) Where the taxpayer acted in bad faith. (Emphasis supplied)
Thus, a general interpretative rule issued by the Commissioner may be relied upon by
taxpayers from the time the rule is issued up to its reversal by the Commissioner or this
Court. Section 246 is not limited to a reversal only by the Commissioner because this
Section expressly states, "Any revocation, modification or reversal" without specifying who
made the revocation, modification or reversal. Hence, a reversal by this Court is covered
under Section 246.
Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner,
particularly on a difficult question of law. The abandonment of the Atlas doctrine
by Mirant and Aichi69 is proof that the reckoning of the prescriptive periods for input VAT tax
refund or credit is a difficult question of law. The abandonment of the Atlasdoctrine did not
result in Atlas, or other taxpayers similarly situated, being made to return the tax refund or
credit they received or could have received under Atlas prior to its abandonment. This Court
is applying Mirant and Aichiprospectively. Absent fraud, bad faith or misrepresentation, the
reversal by this Court of a general interpretative rule issued by the Commissioner, like the
reversal of a specific BIR ruling under Section 246, should also apply prospectively. As held
by this Court in CIR v. Philippine Health Care Providers, Inc.:70
In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this Court held that under Section
246 of the 1997 Tax Code, the Commissioner of Internal Revenue is precluded from
adopting a position contrary to one previously taken where injustice would result to
the taxpayer. Hence, where an assessment for deficiency withholding income taxes was
made, three years after a new BIR Circular reversed a previous one upon which the
taxpayer had relied upon, such an assessment was prejudicial to the taxpayer. To rule
otherwise, opined the Court, would be contrary to the tenets of good faith, equity, and fair
play.
This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting Corp.1wphi1 in
the later cases ofCommissioner of Internal Revenue v. Borroughs, Ltd., Commissioner of
Internal Revenue v. Mega Gen. Mdsg. Corp., Commissioner of Internal Revenue v.
Telefunken Semiconductor (Phils.) Inc., and Commissioner of Internal Revenue v. Court of
Appeals. The rule is that the BIR rulings have no retroactive effect where a grossly
unfair deal would result to the prejudice of the taxpayer, as in this case.
More recently, in Commissioner of Internal Revenue v. Benguet Corporation, wherein the
taxpayer was entitled to tax refunds or credits based on the BIRs own issuances but later
was suddenly saddled with deficiency taxes due to its subsequent ruling changing the
category of the taxpayers transactions for the purpose of paying its VAT, this Court ruled
that applying such ruling retroactively would be prejudicial to the taxpayer. (Emphasis
supplied)

processing tax refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit
and Drawback Center of the Department of Finance. This government agency is also the
addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus, while this
government agency mentions in its query to the Commissioner the administrative claim of
Lazi Bay Resources Development, Inc., the agency was in fact asking the Commissioner
what to do in cases like the tax claim of Lazi Bay Resources Development, Inc., where the
taxpayer did not wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can
rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to
its reversal by this Court in Aichi on 6 October 2010, where this Court held that the 120+30
day periods are mandatory and jurisdictional
However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four
reasons: first, it is admittedly an erroneous interpretation of the law; second, prior to its
issuance, the BIR held that the 120-day period was mandatory and jurisdictional, which is
the correct interpretation of the law; third, prior to its issuance, no taxpayer can claim that it
was misled by the BIR into filing a judicial claim prematurely; and fourth, a claim for tax
refund or credit, like a claim for tax exemption, is strictly construed against the taxpayer.
San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its
judicial claim prematurely on 10 April 2003, before the issuance of BIR Ruling No. DA-48903 on 10 December 2003. To repeat, San Roque cannot claim that it was misled by the BIR
into filing its judicial claim prematurely because BIR Ruling No. DA-489-03 was issued only
after San Roque filed its judicial claim. At the time San Roque filed its judicial claim, the law
as applied and administered by the BIR was that the Commissioner had 120 days to act on
administrative claims. This was in fact the position of the BIR prior to the issuance of BIR
Ruling No. DA-489-03. Indeed, San Roque never claimed the benefit of BIR Ruling No.
DA-489-03 or RMC 49-03, whether in this Court, the CTA, or before the Commissioner.
Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the
issuance of BIR Ruling No. DA-489-03 on 10 December 2003. Truly, Taganito can claim that
in filing its judicial claim prematurely without waiting for the 120-day period to expire, it was
misled by BIR Ruling No. DA-489-03. Thus, Taganito can claim the benefit of BIR Ruling
No. DA-489-03, which shields the filing of its judicial claim from the vice of prematurity.
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.

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

VII. Existing Jurisprudence

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

There is no basis whatsoever to the claim that in five cases this Court had already made a
ruling that the filing dates of the administrative and judicial claims are inconsequential, as

50
long as they are within the two-year prescriptive period. The effect of the claim of the
dissenting opinions is that San Roques failure to wait for the 120-day mandatory period to
lapse is inconsequential, thus allowing San Roque to claim the tax refund or credit.
However, the five cases cited by the dissenting opinions do not support even remotely the
claim that this Court had already made such a ruling. None of these five cases mention,
cite, discuss, rule or even hint that compliance with the 120-day mandatory period is
inconsequential as long as the administrative and judicial claims are filed within the
two-year prescriptive period.

allowed." Thus, this case is solely about whether the taxpayer has the right under the NIRC
to ask for a cash refund of excess creditable VAT withheld. Again, nowhere in this case did
the Court discuss, state, or rule that the filing dates of the administrative and judicial claims
are inconsequential, as long as they are within the two-year prescriptive period.

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

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

In Intel Technology Philippines, Inc. v. CIR,72 the Court stated: "The issues to be resolved in
the instant case are (1) whether the absence of the BIR authority to print or the absence of
the TIN-V in petitioners export sales invoices operates to forfeit its entitlement to a tax
refund/credit of its unutilized input VAT attributable to its zero-rated sales; and (2) whether
petitioners failure to indicate "TIN-V" in its sales invoices automatically invalidates its claim
for a tax credit certification." Again, nowhere in this case did the Court discuss, state, or rule
that the filing dates of the administrative and judicial claims are inconsequential, as long as
they are within the two-year prescriptive period.
In AT&T Communications Services Philippines, Inc. v. CIR,73 the Court stated: "x x x the
CTA First Division, conceding that petitioners transactions fall under the classification of
zero-rated sales, nevertheless denied petitioners claim for lack of substantiation, x x x."
The Court quoted the ruling of the First Division that "valid VAT official receipts, and not
mere sale invoices, should have been submitted" by petitioner to substantiate its claim.
The Court further stated: "x x x the CTA En Banc, x x x affirmed x x x the CTA First Division,"
and "petitioners motion for reconsideration having been denied x x x, the present petition
for review was filed." Clearly, the sole issue in this case is whether petitioner complied with
the substantiation requirements in claiming for tax refund or credit. Again, nowhere in this
case did the Court discuss, state, or rule that the filing dates of the administrative and
judicial claims are inconsequential, as long as they are within the two-year prescriptive
period.
In CIR v. Ironcon Builders and Development Corporation,74 the Court put the issue in this
manner: "Simply put, the sole issue the petition raises is whether or not the CTA erred in
granting respondent Ironcons application for refund of its excess creditable VAT withheld."
The Commissioner argued that "since the NIRC does not specifically grant taxpayers the
option to refund excess creditable VAT withheld, it follows that such refund cannot be

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

The respondent counters that it availed of the income tax holiday under E.O. No. 226 for
four years from August 7, 1995 making it exempt from income tax but not from other taxes
such as VAT. Hence, according to respondent, its export sales are not exempt from
VAT, contrary to petitioners claim, but its export sales is subject to 0% VAT. Moreover,
it argues that it was able to establish through a report certified by an independent Certified
Public Accountant that the input taxes it incurred from April 1, 1996 to December 31, 1997
were directly attributable to its export sales. Since it did not have any output tax against
which said input taxes may be offset, it had the option to file a claim for refund/tax credit of
its unutilized input taxes.
Considering the submission of the parties and the evidence on record, we find the petition
bereft of merit.
Petitioners contention that respondent is not entitled to refund for being exempt
from VAT is untenable. This argument turns a blind eye to the fiscal incentives granted to
PEZA-registered enterprises under Section 23 of Rep. Act No. 7916. Note that under said
statute, the respondent had two options with respect to its tax burden. It could avail of an
income tax holiday pursuant to provisions of E.O. No. 226, thus exempt it from income taxes
for a number of years but not from other internal revenue taxes such as VAT; or it could avail
of the tax exemptions on all taxes, including VAT under P.D. No. 66 and pay only the
preferential tax rate of 5% under Rep. Act No. 7916. Both the Court of Appeals and the
Court of Tax Appeals found that respondent availed of the income tax holiday for four (4)
years starting from August 7, 1995, as clearly reflected in its 1996 and 1997 Annual
Corporate Income Tax Returns, where respondent specified that it was availing of the tax
relief under E.O. No. 226. Hence, respondent is not exempt from VAT and it correctly
registered itself as a VAT taxpayer. In fine, it is engaged in taxable rather than exempt
transactions. (Emphasis supplied)
Clearly, the issue in Cebu Toyo was whether the taxpayer was exempt from VAT or
subject to VAT at 0% tax rate. If subject to 0% VAT rate, the taxpayer could claim a refund

51
or credit of its input VAT. Again, nowhere in this case did the Court discuss, state, or rule
that the filing dates of the administrative and judicial claims are inconsequential, as long as
they are within the two-year prescriptive period.
While this Court stated in the narration of facts in Cebu Toyo that the taxpayer "did not
bother to wait for the Resolution of its (administrative) claim by the CIR" before filing its
judicial claim with the CTA, this issue was not raised before the Court. Certainly, this
statement of the Court is not a binding precedent that the taxpayer need not wait for the
120-day period to lapse.
Any issue, whether raised or not by the parties, but not passed upon by the
Court, does not have any value as precedent. As this Court has explained as early as
1926:
It is contended, however, that the question before us was answered and resolved against
the contention of the appellant in the case of Bautista vs. Fajardo (38 Phil. 624). In that case
no question was raised nor was it even suggested that said section 216 did not apply to a
public officer. That question was not discussed nor referred to by any of the parties
interested in that case. It has been frequently decided that the fact that a statute has been
accepted as valid, and invoked and applied for many years in cases where its validity was
not raised or passed on, does not prevent a court from later passing on its validity, where
that question is squarely and properly raised and presented. Where a question passes the
Court sub silentio, the case in which the question was so passed is not binding on
the Court (McGirr vs. Hamilton and Abreu, 30 Phil. 563), nor should it be considered
as a precedent. (U.S. vs. Noriega and Tobias, 31 Phil. 310; Chicote vs. Acasio, 31 Phil.
401; U.S. vs. More, 3 Cranch [U.S.] 159, 172; U.S. vs. Sanges, 144 U.S. 310, 319; Cross
vs. Burke, 146 U.S. 82.) For the reasons given in the case of McGirr vs. Hamilton and
Abreu, supra, the decision in the case of Bautista vs. Fajardo, supra, can have no binding
force in the interpretation of the question presented here.76 (Emphasis supplied)
In Cebu Toyo, the nature of the 120-day period, whether it is mandatory or optional, was not
even raised as an issue by any of the parties. The Court never passed upon this issue.
Thus, Cebu Toyo does not constitute binding precedent on the nature of the 120-day period.
There is also the claim that there are numerous CTA decisions allegedly supporting the
argument that the filing dates of the administrative and judicial claims are inconsequential,
as long as they are within the two-year prescriptive period. Suffice it to state that CTA
decisions do not constitute precedents, and do not bind this Court or the public. That is why
CTA decisions are appealable to this Court, which may affirm, reverse or modify the CTA
decisions as the facts and the law may warrant. Only decisions of this Court constitute
binding precedents, forming part of the Philippine legal system.77 As held by this Court
in The Philippine Veterans Affairs Office v. Segundo:78
x x x Let it be admonished that decisions of the Supreme Court "applying or interpreting the
laws or the Constitution . . . form part of the legal system of the Philippines," and, as it were,
"laws" by their own right because they interpret what the laws say or mean. Unlike rulings
of the lower courts, which bind the parties to specific cases alone, our judgments are

universal in their scope and application, and equally mandatory in character. Let it be
warned that to defy our decisions is to court contempt. (Emphasis supplied)
The same basic doctrine was reiterated by this Court in De Mesa v. Pepsi Cola Products
Phils., Inc.:79
The principle of stare decisis et non quieta movere is entrenched in Article 8 of the Civil
Code, to wit:
ART. 8. Judicial decisions applying or interpreting the laws or the Constitution shall form a
part of the legal system of the Philippines.
It enjoins adherence to judicial precedents. It requires our courts to follow a rule already
established in a final decision of the Supreme Court. That decision becomes a judicial
precedent to be followed in subsequent cases by all courts in the land. The doctrine of stare
decisis is based on the principle that once a question of law has been examined and
decided, it should be deemed settled and closed to further argument. (Emphasis supplied)
VIII. Revenue Regulations No. 7-95 Effective 1 January 1996
Section 4.106-2(c) of Revenue Regulations No. 7-95, by its own express terms, applies only
if the taxpayer files the judicial claim "after" the lapse of the 60-day period, a period with
which San Roque failed to comply. Under Section 4.106-2(c), the 60-day period is still
mandatory and jurisdictional.
Moreover, it is a hornbook principle that a prior administrative regulation can never prevail
over a later contrary law, more so in this case where the later law was enacted precisely to
amend the prior administrative regulation and the law it implements.
The laws and regulation involved are as follows:
1977 Tax Code, as amended by Republic Act No. 7716 (1994)
Sec. 106. Refunds or tax credits of creditable input tax.
(a) x x x x
(d) Period within which refund or tax credit of input tax shall be made - In proper
cases, the Commissioner shall grant a refund or issue the tax credit for creditable
input taxes within sixty (60) days from the date of submission of complete
documents in support of the application filed in accordance with subparagraphs (a)
and (b) hereof. In case of full or partial denial of the claim for tax refund or tax
credit, or the failure on the part of the Commissioner to act on the application
within the period prescribed above, the taxpayer affected may, within thirty
(30) days from receipt of the decision denying the claim or after the

52
expiration of the sixty-day period, appeal the decision or the unacted claim
with the Court of Tax Appeals.
Revenue Regulations No. 7-95 (1996)
Section 4.106-2. Procedures for claiming refunds or tax credits of input tax (a) x x x
xxxx
(c) Period within which refund or tax credit of input taxes shall be made. In proper cases,
the Commissioner shall grant a tax credit/refund for creditable input taxes within sixty (60)
days from the date of submission of complete documents in support of the application filed
in accordance with subparagraphs (a) and (b) above.
In case of full or partial denial of the claim for tax credit/refund as decided by the
Commissioner of Internal Revenue, the taxpayer may appeal to the Court of Tax Appeals
within thirty (30) days from the receipt of said denial, otherwise the decision will become
final. However, if no action on the claim for tax credit/refund has been taken by the
Commissioner of Internal Revenue after the sixty (60) day period from the date of
submission of the application but before the lapse of the two (2) year period from the
date of filing of the VAT return for the taxable quarter, the taxpayer may appeal to the
Court of Tax Appeals.
xxxx

1997 Tax Code

Section 112. Refunds or Tax Credits of Input Tax
(A) x x x
xxxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be made. In proper
cases, the Commissioner shall grant the refund or issue the tax credit certificate for
creditable input taxes within one hundred twenty (120) days from the date of submission
of complete documents in support of the application filed in accordance with Subsections
(A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure
on the part of the Commissioner to act on the application within the period
prescribed above, the taxpayer affected may, within thirty (30) days from the receipt

of the decision denying the claim or after the expiration of the hundred twenty dayperiod, appeal the decision or the unacted claim with the Court of Tax Appeals.
There can be no dispute that under Section 106(d) of the 1977 Tax Code, as amended by
RA 7716, the Commissioner has a 60-day period to act on the administrative claim. This 60day period is mandatory and jurisdictional.
Did Section 4.106-2(c) of Revenue Regulations No. 7-95 change this, so that the 60-day
period is no longer mandatory and jurisdictional? The obvious answer is no.
Section 4.106-2(c) itself expressly states that if, "after the sixty (60) day period," the
Commissioner fails to act on the administrative claim, the taxpayer may file the judicial claim
even "before the lapse of the two (2) year period."Thus, under Section 4.106-2(c) the 60day period is still mandatory and jurisdictional.
Section 4.106-2(c) did not change Section 106(d) as amended by RA 7716, but merely
implemented it, for two reasons. First, Section 4.106-2(c) still expressly requires
compliance with the 60-day period. This cannot be disputed.1wphi1
Second, under the novel amendment introduced by RA 7716, mere inaction by the
Commissioner during the 60-day period is deemed a denial of the claim. Thus, Section
4.106-2(c) states that "if no action on the claim for tax refund/credit has been taken by the
Commissioner after the sixty (60) day period," the taxpayer "may" already file the judicial
claim even long before the lapse of the two-year prescriptive period. Prior to the amendment
by RA 7716, the taxpayer had to wait until the two-year prescriptive period was about to
expire if the Commissioner did not act on the claim.80 With the amendment by RA 7716, the
taxpayer need not wait until the two-year prescriptive period is about to expire before filing
the judicial claim because mere inaction by the Commissioner during the 60-day period is
deemed a denial of the claim. This is the meaning of the phrase "but before the lapse of
the two (2) year period" in Section 4.106-2(c). As Section 4.106- 2(c) reiterates that the
judicial claim can be filed only "after the sixty (60) day period," this period remains
mandatory and jurisdictional. Clearly, Section 4.106-2(c) did not amend Section 106(d) but
merely faithfully implemented it.
Even assuming, for the sake of argument, that Section 4.106-2(c) of Revenue Regulations
No. 7-95, an administrative issuance, amended Section 106(d) of the Tax Code to make the
period given to the Commissioner non-mandatory, still the 1997 Tax Code, a much later law,
reinstated the original intent and provision of Section 106(d) by extending the 60-day period
to 120 days and re-adopting the original wordings of Section 106(d). Thus, Section
4.106-2(c), a mere administrative issuance, becomes inconsistent with Section 112(D), a
later law. Obviously, the later law prevails over a prior inconsistent administrative issuance.
Section 112(D) of the 1997 Tax Code is clear, unequivocal, and categorical that the
Commissioner has 120 days to act on an administrative claim. The taxpayer can file the
judicial claim (1) only within thirty days after the Commissioner partially or fully denies
the claim within the 120- day period, or (2) only within thirty days from the expiration of
the 120- day period if the Commissioner does not act within the 120-day period.

53
There can be no dispute that upon effectivity of the 1997 Tax Code on 1 January 1998,
or more than five yearsbefore San Roque filed its administrative claim on 28 March
2003, the law has been clear: the 120- day period is mandatory and jurisdictional. San
Roques claim, having been filed administratively on 28 March 2003, is governed by the
1997 Tax Code, not the 1977 Tax Code. Since San Roque filed its judicial claim before the
expiration of the 120-day mandatory and jurisdictional period, San Roques claim cannot
prosper.
San Roque cannot also invoke Section 4.106-2(c), which expressly provides that the
taxpayer can only file the judicial claim "after" the lapse of the 60-day period from the filing
of the administrative claim. San Roque filed its judicial claim just 13 days after filing its
administrative claim. To recall, San Roque filed its judicial claim on 10 April 2003, a mere
13 days after it filed its administrative claim.
Even if, contrary to all principles of statutory construction as well as plain common sense,
we gratuitously apply now Section 4.106-2(c) of Revenue Regulations No. 7-95, still San
Roque cannot recover any refund or credit because San Roque did not wait for the
60-day period to lapse, contrary to the express requirement in Section 4.106-2(c). In
short, San Roque does not even comply with Section 4.106-2(c). A claim for tax refund or
credit is strictly construed against the taxpayer, who must prove that his claim clearly
complies with all the conditions for granting the tax refund or credit. San Roque did not
comply with the express condition for such statutory grant.
A final word. Taxes are the lifeblood of the nation. The Philippines has been struggling to
improve its tax efficiency collection for the longest time with minimal success. Consequently,
the Philippines has suffered the economic adversities arising from poor tax collections,
forcing the government to continue borrowing to fund the budget deficits. This Court cannot
turn a blind eye to this economic malaise by being unduly liberal to taxpayers who do not
comply with statutory requirements for tax refunds or credits. The tax refund claims in the
present cases are not a pittance. Many other companies stand to gain if this Court were to
rule otherwise. The dissenting opinions will turn on its head the well-settled doctrine that tax
refunds are strictly construed against the taxpayer.
WHEREFORE, the Court hereby (1) GRANTS the petition of the Commissioner of Internal
Revenue in G.R. No. 187485 to DENY the P483,797,599.65 tax refund or credit claim of
San Roque Power Corporation; (2) GRANTSthe petition of Taganito Mining Corporation in
G.R. No. 196113 for a tax refund or credit of P8,365,664.38; and (3)DENIES the petition of
Philex Mining Corporation in G.R. No. 197156 for a tax refund or credit of P23,956,732.44.

G.R. No. 191498

January 15, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
MINDANAO II GEOTHERMAL PARTNERSHIP, Respondent.
DECISION
SERENO, CJ:

SO ORDERED.
This Rule 45 Petition1 requires this Court to address the question of timeliness with respect
to petitioner's administrative and judicial claims for refund and credit of accumulated
unutilized input Value Added Tax (VAT) under Section 112(A) and Section 112(D) of the
1997 Tax Code. Petitioner Mindanao II Geothermal Partnership (Mindanao II) assails the
Decision2 and Resolution3 of the Court of Tax Appeals En Banc (CTA En Banc) in CTA En
Banc Case No. 448, affirming the Decision in CTA Case No. 7507 of the CTA Second
Division.4 The latter ordered the refund or issuance of a tax credit certificate in the amount

54
of P6,791,845.24 representing unutilized input VAT incurred for the second, third, and fourth
quarters of taxable year 2004 in favor of herein respondent, Mindanao II.
FACTS
Mindanao II is a partnership registered with the Securities and Exchange Commission.5 It is
engaged in the business of power generation and sale of electricity to the National Power
Corporation (NAPOCOR)6 and is accredited by the Department of Energy.7
Mindanao II filed its Quarterly VAT Returns for the second, third and fourth quarters of
taxable year 2004 on the following dates:8
Date filed
Quarter

Taxable Year

12 July 2005

2nd

2004

22 October 2004

12 July 2005

3rd

2004

25 January 2005

12 July 2005

4th

2004

Original

Amended

26 July 2004

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.9 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 taxpayer10 and all its sales are zero-rated
under the EPIRA law.11 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.
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. 6133.12

On 8 June 2007, while the application for refund or credit of unutilized input VAT of
Mindanao II was pending before the CTA Second Division, this Court promulgated Atlas
Consolidated Mining and Development Corporation v. CIR13 (Atlas). Atlas held that the twoyear prescriptive period for the filing of a claim for an input VAT refund or credit is to be
reckoned from the date of filing of the corresponding quarterly VAT return and payment of
the tax.
On 12 August 2008, the CTA Second Division rendered a Decision14 ordering the CIR to
grant a refund or a tax credit certificate, but only in the reduced amount of P6,791,845.24,
representing unutilized input VAT incurred for the second, third and fourth quarters of
taxable year 2004.15
In support of its ruling, the CTA Second Division held that Mindanao II complied with the
twin requisites for VAT zero-rating under the EPIRA law: first, it is a generation company,
and second, it derived sales from power generation. It also ruled that Mindanao II satisfied
the requirements for the grant of a refund/credit under Section 112 of the Tax Code: (1)
there must be zero-rated or effectively zero-rated sales; (2) input taxes must have been
incurred or paid; (3) the creditable input tax due or paid must be attributable to zero-rated
sales or effectively zero-rated sales; (4) the input VAT payments must not have been
applied against any output liability; and (5) the claim must be filed within the two-year
prescriptive period.16
As to the second requisite, however, the input tax claim to the extent of P375,160.60
corresponding to purchases of services from Mitsubishi Corporation was disallowed, since it
was not substantiated by official receipts.17
As regards to the fifth requirement in section 112 of the Tax Code, the tax court, citing Atlas,
counted from 26 July 2004, 22 October 2004, and 25 January 2005 the dates when
Mindanao II filed its Quarterly VAT Returns for the second, third, and fourth quarters of
taxable year 2004, respectively and determined that both the administrative claim filed on
6 October 2005 and the judicial claim filed on 21 July 2006 fell within the two-year
prescriptive period.18
On 1 September 2008, the CIR filed a Motion for Partial Reconsideration,19 pointing out that
prescription had already set in, since the appeal to the CTA was filed only on 21 July 2006,
which was way beyond the last day to appeal 5 March 2006.20 As legal basis for this
argument, the CIR relied on Section 112(D) of the 1997 Tax Code.21
Meanwhile, on 12 September 2008, this Court promulgated CIR v. Mirant Pagbilao
Corporation (Mirant).22 Mirant fixed the reckoning date of the two-year prescriptive period for
the application for refund or credit of unutilized input VAT at the close of the taxable quarter
when the relevant sales were made , as stated in Section 112(A).23
On 3 December 2008, the CTA Second Division denied the CIRs Motion for Partial
Reconsideration.24 The tax court stood by its reliance on Atlas25 and on its finding that both
the administrative and judicial claims of Mindanao II were timely filed.26

55
On 7 January 2009, the CIR elevated the matter to the CTA En Banc via a Petition for
Review.27 Apart from the contention that the judicial claim of Mindanao II was filed beyond
the 30-day period fixed by Section 112(D) of the 1997 Tax Code,28 the CIR argued that
Mindanao II erroneously fixed 26 July 2004, the date when the return for the second quarter
was filed, as the date from which to reckon the two-year prescriptive period for filing an
application for refund or credit of unutilized input VAT under Section 112(A). As the two-year
prescriptive period ended on 30 June 2006, the Petition for Review of Mindanao II was filed
out of time on 21 July 2006.29 The CIR invoked the recently promulgated Mirant to support
this theory.

We deny Mindanao IIs claim for refund or credit of unutilized input VAT on the ground that
its judicial claims were filed out of time, even as we hold that its application for refund was
filed on time.

On 11 November 2009, the CTA En Banc rendered its Decision denying the CIRs Petition
for Review.30 On the question whether the application for refund was timely filed, it held that
the CTA Second Division correctly applied the Atlas ruling.31 It reasoned that Atlas remained
to be the controlling doctrine. Mirant was a new doctrine and, as such, the latter should not
apply retroactively to Mindanao II who had relied on the old doctrine of Atlas and had acted
on the faith thereof.32

We find no error in the conclusion of the tax courts that the application for refund or credit of
unutilized input VAT was timely filed. The problem lies with their bases for the conclusion as
to: (1) what should be filed within the prescriptive period; and (2) the date from which to
reckon the prescriptive period.

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 taxpayers
claim. But in cases of CIR inaction, the 30-day period is not a mandatory requirement; the
judicial claim is seasonably filed as long as it is filed after the lapse of the 120-day waiting
period but within two years from the date of filing of the return.33
The CIR filed a Motion for Partial Reconsideration34 of the Decision, but it was denied for
lack of merit.35
Dissatisfied, the CIR filed this Rule 45 Petition, raising the following arguments in support of
its appeal:
I.
THE CTA 2ND DIVISION LACKED JURISDICTION TO TAKE COGNIZANCE OF THE
CASE.
II.

I.
MINDANAO IIS APPLICATION FOR
REFUND WAS FILED ON TIME

We thus take a different route to reach the same conclusion, initially focusing our discussion
on what should be filed within the two-year prescriptive period.
A. The Judicial Claim Need Not Be Filed Within the Two-Year Prescriptive Period
Section 112(A) provides:
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero-rated Sales Any VAT-registered person, whose sales
are zero-rated or effectively zero-rated may, within two (2) years after the close of the
taxable quarter when the sales were made, apply for the issuance of a tax credit certificate
or refund of creditable input tax due or paid attributable to such sales, except transitional
input tax, to the extent that such input tax has not been applied against output tax: Provided,
however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and
Section 108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had
been duly accounted for in accordance with the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or exempt sale of goods or properties or
services, and the amount of creditable input tax due or paid cannot be directly and entirely
attributed to any one of the transactions, it shall be allocated proportionately on the basis of
the volume of sales.

THE COURT A QUOS RELIANCE ON THE RULING IN ATLAS IS MISPLACED.36

ISSUES
The resolution of this case hinges on the question of compliance with the following time
requirements for the grant of a claim for refund or credit of unutilized input VAT: (1) the twoyear prescriptive period for filing an application for refund or credit of unutilized input VAT;
and (2) the 120+30 day period for filing an appeal with the CTA.
THE COURTS RULING

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.
In Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (Aichi), we
dispelled the misconception that both the administrative and judicial claims must be filed
within the two-year prescriptive period:37

56
There is nothing in Section 112 of the NIRC to support respondents view. Subsection (A) of
the said provision states that "any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two years after the close of the taxable quarter when the
sales were made, apply for the issuance of a tax credit certificate or refund of creditable
input tax due or paid attributable to such sales." The phrase "within two (2) years x x x apply
for the issuance of a tax credit certificate or refund" refers to applications for refund/credit
filed with the CIR and not to appeals made to the CTA. This is apparent in the first
paragraph of subsection (D) of the same provision, which states that the CIR has "120 days
from the submission of complete documents in support of the application filed in accordance
with Subsections (A) and (B)" within which to decide on the claim.
In fact, applying the two-year period to judicial claims would render nugatory Section 112
(D) of the NIRC, which already provides for a specific period within which a taxpayer should
appeal the decision or inaction of the CIR. The second paragraph of Section 112 (D) of the
NIRC envisions two scenarios: (1) when a decision is issued by the CIR before the lapse of
the 120-day period; and (2) when no decision is made after the 120-day period. In both
instances, the taxpayer has 30 days within which to file an appeal with the CTA. As we see
it then, the 120-day period is crucial in filing an appeal with the CTA. (Emphasis supplied)
The message of Aichi is clear: it is only the administrative claim that must be filed within the
two-year prescriptive period; the judicial claim need not fall within the two-year prescriptive
period.
Having disposed of this question, we proceed to the date for reckoning the prescriptive
period under Section 112(A).
B. Reckoning Date is the Close of the Taxable Quarter When the Relevant Sales Were
Made.
The other flaw in the reasoning of the tax courts is their reliance on the Atlas ruling, which
fixed the reckoning point to the date of filing the return and payment of the tax.
The CIRs Stand
The CIRs stand is that Atlas is not applicable to the case at hand as it involves Section 230
of the 1977 Tax Code, which contemplates recovery of tax payments erroneously or illegally
collected. On the other hand, this case deals with claims for tax refund or credit of unutilized
input VAT for the second, third, and fourth quarters of 2004, which are covered by Section
112 of the 1977 Tax Code.38
The CIR further contends that Mindanao II cannot claim good faith reliance on the Atlas
doctrine since the case was decided only on 8 June 2007, two years after Mindanao II filed
its claim for refund or credit with the CIR and one year after it filed a Petition for Review with
the CTA on 21 July 2006.39
In lieu of Atlas, the CIR proposes that it is the Court's ruling in Mirant that should apply to
this case despite the fact that the latter was promulgated on 12 September 2008, after

Mindanao II had filed its administrative claim in 2005.40 It argues that Mirant can be applied
retroactively to this case, since the decision merely interprets Section 112, a provision that
was already effective when Mindanao II filed its claims for tax refund or credit.
The Taxpayers Defense
On the other hand, Mindanao II counters that Atlas, decided by the Third Division of this
Court, could not have been superseded by Mirant, a Second Division Decision of this Court.
A doctrine laid down by the Supreme Court in a Division may be modified or reversed only
through a decision of the Court sitting en banc.41
Mindanao II further contends that when it filed its Petition for Review, the prevailing rule in
the CTA reckons the two-year prescriptive period from the date of the filing of the VAT
return.42 Finally, after building its case on Atlas, Mindanao II assails the CIRs reliance on the
Mirant doctrine stating that it cannot be applied retroactively to this case, lest it violate the
rock-solid rule that a judicial ruling cannot be given retroactive effect if it will impair vested
rights.43
Section 112(A) is the Applicable Rule
The issue posed is not novel. In the recent case of Commissioner of Internal Revenue v.
San Roque Power Corporation44 (San Roque), this Court resolved the threshold question of
when to reckon the two-year prescriptive period for filing an administrative claim for refund
or credit of unutilized input VAT under the 1997 Tax Code in view of our pronouncements in
Atlas and Mirant. In that case, we delineated the scope and effectivity of the Atlas and
Mirant doctrines as follows:
The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with
the two-year prescriptive period under Section 229, should be effective only from its
promulgation on 8 June 2007 until its abandonment on 12 September 2008 in Mirant. The
Atlas doctrine was limited to the reckoning of the two-year prescriptive period from the date
of payment of the output VAT. Prior to the Atlas doctrine, the two-year prescriptive period for
claiming refund or credit of input VAT should be governed by Section 112(A) following the
verba legis rule. The Mirant ruling, which abandoned the 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. (Emphases supplied)
Furthermore, San Roque distinguished between Section 112 and Section 229 of the 1997
Tax Code:
The input VAT is not "excessively" collected as understood under Section 229 because at
the time the input VAT is collected the amount paid is correct and proper. The input VAT is a
tax liability of, and legally paid by, a VAT-registered seller of goods, properties or services
used as input by another VAT-registered person in the sale of his own goods, properties, or
services. This tax liability is true even if the seller passes on the input VAT to the buyer as
part of the purchase price. The second VAT-registered person, who is not legally liable for
the input VAT, is the one who applies the input VAT as credit for his own output VAT. If the

57
input VAT is in fact "excessively" collected as understood under Section 229, then it is the
first VAT-registered person the taxpayer who is legally liable and who is deemed to have
legally paid for the input VAT who can ask for a tax refund or credit under Section 229 as
an ordinary refund or credit outside of the VAT System. In such event, the second VATregistered taxpayer will have no input VAT to offset against his own output VAT.
In a claim for refund or credit of "excess" input VAT under Section 110(B) and Section
112(A), the input VAT is not "excessively" collected as understood under Section 229. At the
time of payment of the input VAT the amount paid is the correct and proper amount. Under
the VAT System, there is no claim or issue that the input VAT is "excessively" collected, that
is, that the input VAT paid is more than what is legally due. The person legally liable for the
input VAT cannot claim that he overpaid the input VAT by the mere existence of an "excess"
input VAT. The term "excess" input VAT simply means that the input VAT available as credit
exceeds the output VAT, not that the input VAT is excessively collected because it is more
than what is legally due. Thus, the taxpayer who legally paid the input VAT cannot claim for
refund or credit of the input VAT as "excessively" collected under Section 229.
Under Section 229, the prescriptive period for filing a judicial claim for refund is two years
from the date of payment of the tax "erroneously, . . . illegally, . . . excessively or in any
manner wrongfully collected." The prescriptive period is reckoned from the date the person
liable for the tax pays the tax. Thus, if the input VAT is in fact "excessively" collected, that is,
the person liable for the tax actually pays more than what is legally due, the taxpayer must
file a judicial claim for refund within two years from his date of payment. Only the person
legally liable to pay the tax can file the judicial claim for refund. The person to whom the tax
is passed on as part of the purchase price has no personality to file the judicial claim under
Section 229.
Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for
"excess" input VAT is two years from the close of the taxable quarter when the sale was
made by the person legally liable to pay the output VAT. This prescriptive period has no
relation to the date of payment of the "excess" input VAT. The "excess" input VAT may have
been paid for more than two years but this does not bar the filing of a judicial claim for
"excess" VAT under Section 112(A), which has a different reckoning period from Section
229. Moreover, the person claiming the refund or credit of the input VAT is not the person
who legally paid the input VAT. Such person seeking the VAT refund or credit does not claim
that the input VAT was "excessively" collected from him, or that he paid an input VAT that is
more than what is legally due. He is not the taxpayer who legally paid the input VAT.
As its name implies, the Value-Added Tax system is a tax on the value added by the
taxpayer in the chain of transactions. For simplicity and efficiency in tax collection, the VAT
is imposed not just on the value added by the taxpayer, but on the entire selling price of his
goods, properties or services. However, the taxpayer is allowed a refund or credit on the
VAT previously paid by those who sold him the inputs for his goods, properties, or services.
The net effect is that the taxpayer pays the VAT only on the value that he adds to the goods,
properties, or services that he actually sells.
Under Section 110(B), a taxpayer can apply his input VAT only against his output VAT. The
only exception is when the taxpayer is expressly "zero-rated or effectively zero-rated" under

the law, like companies generating power through renewable sources of energy. Thus, a
non zero-rated VAT-registered taxpayer who has no output VAT because he has no sales
cannot claim a tax refund or credit of his unused input VAT under the VAT System. Even if
the taxpayer has sales but his input VAT exceeds his output VAT, he cannot seek a tax
refund or credit of his "excess" input VAT under the VAT System. He can only carry-over and
apply his "excess" input VAT against his future output VAT. If such "excess" input VAT is an
"excessively" collected tax, the taxpayer should be able to seek a refund or credit for such
"excess" input VAT whether or not he has output VAT. The VAT System does not allow such
refund or credit. Such "excess" input VAT is not an "excessively" collected tax under Section
229. The "excess" input VAT is a correctly and properly collected tax. However, such
"excess" input VAT can be applied against the output VAT because the VAT is a tax imposed
only on the value added by the taxpayer. If the input VAT is in fact "excessively" collected
under Section 229, then it is the person legally liable to pay the input VAT, not the person to
whom the tax was passed on as part of the purchase price and claiming credit for the input
VAT under the VAT System, who can file the judicial claim under Section 229.
Any suggestion that the "excess" input VAT under the VAT System is an "excessively"
collected tax under Section 229 may lead taxpayers to file a claim for refund or credit for
such "excess" input VAT under Section 229 as an ordinary tax refund or credit outside of the
VAT System. Under Section 229, mere payment of a tax beyond what is legally due can be
claimed as a refund or credit. There is no requirement under Section 229 for an output VAT
or subsequent sale of goods, properties, or services using materials subject to input VAT.
From the plain text of Section 229, it is clear that what can be refunded or credited is a tax
that is "erroneously . . . illegally, . . . excessively or in any manner wrongfully collected." In
short, there must be a wrongful payment because what is paid, or part of it, is not legally
due. As the Court held in Mirant, Section 229 should "apply only to instances of erroneous
payment or illegal collection of internal revenue taxes." Erroneous or wrongful payment
includes excessive payment because they all refer to payment of taxes not legally due.
Under the VAT System, there is no claim or issue that the "excess" input VAT is "excessively
or in any manner wrongfully collected." In fact, if the "excess" input VAT is an "excessively"
collected tax under Section 229, then the taxpayer claiming to apply such "excessively"
collected input VAT to offset his output VAT may have no legal basis to make such
offsetting. The person legally liable to pay the input VAT can claim a refund or credit for such
"excessively" collected tax, and thus there will no longer be any "excess" input VAT. This will
upend the present VAT System as we know it.45
Two things are clear from the above quoted San Roque disquisitions. First, when it comes
to recovery of unutilized input VAT, Section 112, and not Section 229 of the 1997 Tax Code,
is the governing law. Second, prior to 8 June 2007, the applicable rule is neither Atlas nor
Mirant, but Section 112(A).
We present the rules laid down by San Roque in determining the proper reckoning date of
the two-year prescriptive period through the following timeline:

58

Thus, the task at hand is to determine the applicable period for this case.
In this case, Mindanao II filed its administrative claims for refund or credit for the second,
third and fourth quarters of 2004 on 6 October 2005. The case thus falls within the first
period as indicated in the above timeline. In other words, it is covered by the rule prior to the
advent of either Atlas or Mirant.
Accordingly, the proper reckoning date in this case, as provided by Section 112(A) of the
1997 Tax Code, is the close of the taxable quarter when the relevant sales were made.

Third Quarter
As regards the claim for the third quarter of 2004, the two-year prescriptive period started to
run on 30 September 2004, the close of the taxable quarter. It ended on 30 September
2006, pursuant to Section 112(A) of the 1997 Tax Code. Mindanao II filed its administrative
claim on 6 October 2005. Thus, since the administrative claim was filed well within the twoyear prescriptive period, the administrative claim for the third quarter of 2004 was timely
filed. (See timeline below)

C. The Administrative Claims Were Timely Filed

We sum up our conclusions so far: (1) it is only the administrative claim that must be filed
within the two-year prescriptive period; and (2) the two-year prescriptive period begins to
run from the close of the taxable quarter when the relevant sales were made.
Bearing these in mind, we now proceed to determine whether Mindanao II's administrative
claims for the second, third, and fourth quarters of 2004 were timely filed.
Second Quarter
Since the zero-rated sales were made in the second quarter of 2004, the date of reckoning
the two-year prescriptive period is the close of the second quarter, which is on 30 June
2004. Applying Section 112(A), Mindanao II had two years from 30 June 2004, or until 30
June 2006 to file an administrative claim with the CIR. Mindanao II filed its administrative
claim on 6 October 2005, which is within the two-year prescriptive period. The
administrative claim for the second quarter of 2004 was thus timely filed. For clarity, we
present the rules laid down by San Roque in determining the proper reckoning date of the
two-year prescriptive period through the following timeline:

Fourth Quarter
Here, the two-year prescriptive period is counted starting from the close of the fourth quarter
which is on 31 December 2004. The last day of the prescriptive period for filing an
application for tax refund/credit with the CIR was on 31 December 2006. Mindanao II filed
its administrative claim with the CIR on 6 October 2005. Hence, the claims were filed on
time, pursuant to Section 112(A) of the 1997 Tax Code. (See timeline below)

59
II.
MINDANAO IIS JUDICIAL CLAIMS WERE FILED OUT OF TIME
Notwithstanding the timely filing of the administrative claims, we find that the CTA En Banc
erred in holding that Mindanao IIs judicial claims were timely filed.
A. 30-Day Period Also Applies to Appeals from Inaction
Section 112(D) of the 1997 Tax Code states the time requirements for filing a judicial claim
for refund or tax credit of input VAT:
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable
input taxes within one hundred twenty (120) days from the date of submission of complete
documents in support of the application filed in accordance with Subsection (A) and (B)
hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure
on the part of the Commissioner to act on the application within the period prescribed
above, the taxpayer affected may, within thirty (30) days from the receipt of the decision
denying the claim or after the expiration of the one hundred twenty day-period, appeal the
decision or the unacted claim with the Court of Tax Appeals. (Emphases supplied)
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.

x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision
denying the claim or after the expiration of the one hundred twenty day-period, appeal the
decision or the unacted claim with the Court of Tax Appeals.
This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this
law should be applied exactly as worded since it is clear, plain, and unequivocal. As this law
states, the taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA
within 30 days from receipt of the Commissioner's decision, or if the Commissioner does not
act on the taxpayer's claim within the 120-day period, the taxpayer may appeal to the CTA
within 30 days from the expiration of the 120-day period. (Emphasis supplied)
The San Roque pronouncement is clear. The taxpayer can file the appeal in one of two
ways: (1) file the judicial claim within thirty days after the Commissioner denies the claim
within the 120-day period, or (2) file the judicial claim within thirty days from the expiration of
the 120-day period if the Commissioner does not act within the 120-day period.
B. The Judicial Claim Was Belatedly Filed
In this case, the facts are not up for debate. Mindanao II filed its administrative claim for
refund or credit for the second, third, and fourth quarters of 2004 on 6 October 2005. The
CIR, therefore, had a period of 120 days, or until 3 February 2006, to act on the claim. The
CIR, however, failed to do so. Mindanao II then could treat the inaction as a denial and
appeal it to the CTA within 30 days from 3 February 2006, or until 5 March 2006.
Mindanao II, however, filed a Petition for Review only on 21 July 2006, 138 days after the
lapse of the 30-day period on 5 March 2006. The judicial claim was therefore filed late. (See
timeline below.)

The CTA En Bancs holding is that, since the word "or" a disjunctive term that signifies
dissociation and independence of one thing from another is used in Section 112(D), the
taxpayer is given two options: 1) file an appeal within 30 days from the CIRs denial of the
administrative claim; or 2) file an appeal with the CTA after expiration of the 120-day period,
in which case the 30-day appeal period does not apply. The judicial claim is seasonably filed
so long as it is filed after the lapse of the 120-day waiting period but before the lapse of the
two-year prescriptive period under Section 112(A).46
We do not agree.
The 30-day period applies not only to instances of actual denial by the CIR of the claim for
refund or tax credit, but to cases of inaction by the CIR as well. This is the correct
interpretation of the law, as held in San Roque:47
Section 112(C)48 also expressly grants the taxpayer a 30-day period to appeal to the CTA
the decision or inaction of the Commissioner, thus:

C. The 30-Day Period to Appeal is Mandatory and Jurisdictional

However, what is up for debate is the nature of the 30-day time requirement. The CIR posits
that it is mandatory. Mindanao II contends that the requirement of judicial recourse within 30
days is only directory and permissive, as indicated by the use of the word "may" in Section
112(D).49

60
The answer is found in San Roque. There, we declared that the 30-day period to appeal is
both mandatory and jurisdictional:

Although Mindanao II has not invoked the BIR ruling, we deem it prudent as well as
necessary to dwell on this issue to determine whether this case falls under the exception.

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

For this question, we come back to San Roque, which provides that BIR Ruling No. DA-48903 is a general interpretative rule; thus, taxpayers can rely on it from the time of its issuance
on 10 December 2003 until its reversal by this Court in Aichi on 6 October 2010, when the
120+30 day periods were held to be mandatory and jurisdictional. The Court reasoned as
follows:

x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision
denying the claim or after the expiration of the one hundred twenty day-period, appeal the
decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied)
This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this
law should be applied exactly as worded since it is clear, plain, and unequivocal. As this law
states, the taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA
within 30 days from receipt of the Commissioner's decision, or if the Commissioner does not
act on the taxpayer's claim within the 120-day period, the taxpayer may appeal to the CTA
within 30 days from the expiration of the 120-day period.
xxxx
Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal
language. The taxpayer can file his administrative claim for refund or credit at anytime within
the two-year prescriptive period. If he files his claim on the last day of the two-year
prescriptive period, his claim is still filed on time. The Commissioner will have 120 days from
such filing to decide the claim. If the Commissioner decides the claim on the 120th day, or
does not decide it on that day, the taxpayer still has 30 days to file his judicial claim with the
CTA. This is not only the plain meaning but also the only logical interpretation of Section
112(A) and (C).
xxxx
When Section 112(C) states that "the taxpayer affected may, within thirty (30) days from
receipt of the decision denying the claim or after the expiration of the one hundred twentyday period, appeal the decision or the unacted claim with the Court of Tax Appeals," the law
does not make the 120+30 day periods optional just because the law uses the word " may."
The word "may" simply means that the taxpayer may or may not appeal the decision of the
Commissioner within 30 days from receipt of the decision, or within 30 days from the
expiration of the 120-day period. x x x.50
D. Exception to the mandatory and jurisdictional nature of the 120+30 day period not
applicable
Nevertheless, San Roque provides an exception to the mandatory and jurisdictional nature
of the 120+30 day period BIR Ruling No. DA-489-03 dated 10 December 2003. The BIR
ruling declares that the "taxpayer-claimant need not wait for the lapse of the 120-day period
before it could seek judicial relief with the CTA by way of Petition for Review."

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.
xxxx
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule
applicable to all taxpayers or a specific ruling applicable only to a particular taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a
query made, not by a particular taxpayer, but by a government agency tasked with
processing tax refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit and
Drawback Center of the Department of Finance . This government agency is also the
addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus, while this
government agency mentions in its query to the Commissioner the administrative claim of
Lazi Bay Resources Development, Inc., the agency was in fact asking the Commissioner
what to do in cases like the tax claim of Lazi Bay Resources Development, Inc., where the
taxpayer did not wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can
rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to
its reversal by this Court in Aichi on 6 October 2010, where this Court held that the 120+30
day periods are mandatory and jurisdictional.51
Thus, in San Roque, the Court applied this exception to Taganito Mining Corporation
(Taganito), one of the taxpayers in San Roque. Taganito filed its judicial claim on 14
February 2007, after the BIR ruling took effect on 10 December 2003 and before the
promulgation of Mirant. The Court stated:
Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the
issuance of BIR Ruling No. DA-489-03 on 10 December 2003. Truly, Taganito can claim that
in filing its judicial claim prematurely without waiting for the 120-day period to expire, it was

61
misled by BIR Ruling No. DA-489-03. Thus, Taganito can claim the benefit of BIR Ruling
No. DA-489-03, which shields the filing of its judicial claim from the vice of prematurity.52
San Roque was also careful to point out that the BIR ruling does not retroactively apply to
premature judicial claims filed before the issuance of the BIR ruling:
However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four reasons:
first, it is admittedly an erroneous interpretation of the law; second, prior to its issuance, the
BIR held that the 120-day period was mandatory and jurisdictional, which is the correct
interpretation of the law; third, prior to its issuance, no taxpayer can claim that it was misled
by the BIR into filing a judicial claim prematurely; and fourth, a claim for tax refund or credit,
like a claim for tax exemption, is strictly construed against the taxpayer.53
Thus, San Roque held that taxpayer San Roque Power Corporation, could not seek refuge
in the BIR ruling as it jumped the gun when it filed its judicial claim on 10 April 2003, prior to
the issuance of the BIR ruling on 10 December 2003.1wphi1 The Court stated:
San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its
judicial claim prematurely on 10 April 2003, before the issuance of BIR Ruling No. DA-48903 on 10 December 2003. To repeat, San Roque cannot claim that it was misled by the BIR
into filing its judicial claim prematurely because BIR Ruling No. DA-489-03 was issued only
after San Roque filed its judicial claim. At the time San Roque filed its judicial claim, the law
as applied and administered by the BIR was that the Commissioner had 120 days to act on
administrative claims. This was in fact the position of the BIR prior to the issuance of BIR
Ruling No. DA-489-03. Indeed, San Roque never claimed the benefit of BIR Ruling No. DA489-03 or RMC 49-03, whether in this Court, the CTA, or before the Commissioner.54

Bearing in mind the foregoing rules for the timely filing of a judicial claim for refund or credit
of unutilized input VAT, we rule on the present case of Mindanao II as follows:
We find that Mindanao IIs situation is similar to that of Philex in San Roque.
As mentioned above, Mindanao II filed its judicial claim with the CTA on 21 July 2006. This
was after the issuance of BIR Ruling No. DA-489-03 on 10 December 2003, but before its
reversal on 5 October 2010. However, while the BIR ruling was in effect when Mindanao II
filed its judicial claim, the 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. (See timeline below)

San Roque likewise ruled out the application of the BIR ruling to cases of late filing. The
Court held that the BIR ruling, as an exception to the mandatory and jurisdictional nature of
the 120+30 day periods, is limited to premature filing and does not extend to late filing of a
judicial claim. Thus, the Court found that since Philex Mining Corporation, the other party in
the consolidated case San Roque, filed its claim 426 days after the lapse of the 30-day
period, it could not avail itself of the benefit of the BIR ruling:
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.55
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:

E. Undersigned dissented in San Roque to the retroactive application of the mandatory and
jurisdictional nature of the 120+30 day period.
It is worthy to note that in San Roque, this ponente registered her dissent to the retroactive
application of the mandatory and jurisdictional nature of the 120+30 day period provided
under Section 112(D) of the Tax Code which, in her view, is unfair to taxpayers. It has been
the view of this ponente that the mandatory nature of 120+30 day period must be
completely applied prospectively or, at the earliest, only upon the finality of Aichi in order to
create stability and consistency in our tax laws. Nevertheless, this ponente is mindful of the
fact that judicial precedents cannot be ignored. Hence, the majority view expressed in San
Roque must be applied.
SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR CLAIMING REFUND OR
CREDIT OF INPUT VAT

62
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)

4. As an exception to the general rule, premature filing is allowed only if filed

between 10 December 2003 and 5 October 2010, when BIR Ruling No. DA-489-03
was still in force. (San Roque)
5. Late filing is absolutely prohibited, even during the time when BIR Ruling No.
DA-489-03 was in force. (San Roque)
SUMMARY AND CONCLUSION
In sum, our finding is that the three administrative claims for the refund or credit of unutilized
input VAT were all timely filed, while the corresponding judicial claims were belatedly filed.
The foregoing considered, the CT A lost jurisdiction over Mindanao Ils claims for refund or
credit.1wphi1 The CTA EB erred in granting these claims.

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 120day period if the Commissioner does not act within the 120-day period.

WHEREFORE, we GRANT the Petition. The assailed Court of Tax Appeals En Banc
Decision dated 11 November 2009 and Resolution dated 3 March 2010 of the in CTA EB
Case No. 448 (CTA Case No. 7507) are hereby REVERSED and SET ASIDE. A new ruling
is entered DENYING respondent s claim for a tax refund or credit ofP6,791,845.24.
SO ORDERED.

2. The 30-day period always applies, whether there is a denial or inaction on the
part of the CIR.
3. As a general rule, the 3 0-day period to appeal is both mandatory and
jurisdictional. (Aichi and San Roque)