G.R. No. 115455 October 30, 1995 KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C.

CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE

ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 115525 October 30, 1995
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as Secretary
of Finance; LIWAYWAY VINZONS-CHATO, as Commissioner of Internal Revenue; and their
AUTHORIZED AGENTS OR REPRESENTATIVES, respondents.
G.R. No. 115543 October 30, 1995
RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE
BUREAU OF INTERNAL REVENUE AND BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 October 30, 1995
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN PUBLISHING
CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L.
DIMALANTA, petitioners,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON.
TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary; and HON. ROBERTO B.
DE OCAMPO, in his capacity as Secretary of Finance, respondents.
G.R. No. 115754 October 30, 1995
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V.
VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS FOR
BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. ("MABINI"), FREEDOM FROM
DEBT COALITION, INC., and PHILIPPINE BIBLE SOCIETY, INC. and WIGBERTO
TAÑADA, petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF
INTERNAL REVENUE and THE COMMISSIONER OF CUSTOMS, respondents.
G.R. No. 115852 October 30, 1995
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 115873 October 30, 1995
COOPERATIVE UNION OF THE PHILIPPINES, petitioner,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue,
HON. TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary, and HON.
ROBERTO B. DE OCAMPO, in his capacity as Secretary of Finance, respondents.
G.R. No. 115931 October 30, 1995
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and ASSOCIATION OF
PHILIPPINE BOOK SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V.
CHATO, as the Commissioner of Internal Revenue; and HON. GUILLERMO PARAYNO,
JR., in his capacity as the Commissioner of Customs, respondents.
RESOLUTION

G.R. No. 115781 October 30, 1995

MENDOZA, J.:
These are motions seeking reconsideration of our decision dismissing the petitions
filed in these cases for the declaration of unconstitutionality of R.A. No. 7716,
otherwise known as the Expanded Value-Added Tax Law. The motions, of which there
are 10 in all, have been filed by the several petitioners in these cases, with the
exception of the Philippine Educational Publishers Association, Inc. and the Association
of Philippine Booksellers, petitioners in G.R. No. 115931.
The Solicitor General, representing the respondents, filed a consolidated comment, to
which the Philippine Airlines, Inc., petitioner in G.R. No. 115852, and the Philippine
Press Institute, Inc., petitioner in G.R. No. 115544, and Juan T. David, petitioner in G.R.
No. 115525, each filed a reply. In turn the Solicitor General filed on June 1, 1995 a
rejoinder to the PPI's reply.
On June 27, 1995 the matter was submitted for resolution.
I. Power of the Senate to propose amendments to revenue bills. Some of the petitioners
(Tolentino, Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and Chamber of Real Estate
and Builders Association (CREBA)) reiterate previous claims made by them that R.A.
No. 7716 did not "originate exclusively" in the House of Representatives as required by
Art. VI, §24 of the Constitution. Although they admit that H. No. 11197 was filed in the
House of Representatives where it passed three readings and that afterward it was
sent to the Senate where after first reading it was referred to the Senate Ways and
Means Committee, they complain that the Senate did not pass it on second and third
readings. Instead what the Senate did was to pass its own version (S. No. 1630) which
it approved on May 24, 1994. Petitioner Tolentino adds that what the Senate
committee should have done was to amend H. No. 11197 by striking out the text of the
bill and substituting it with the text of S. No. 1630. That way, it is said, "the bill remains
a House bill and the Senate version just becomes the text (only the text) of the House
bill."
The contention has no merit.
The enactment of S. No. 1630 is not the only instance in which the Senate proposed an
amendment to a House revenue bill by enacting its own version of a revenue bill. On at
least two occasions during the Eighth Congress, the Senate passed its own version of
revenue bills, which, in consolidation with House bills earlier passed, became the
enrolled bills. These were:
R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987 BY
EXTENDING FROM FIVE (5) YEARS TO TEN YEARS THE PERIOD FOR TAX AND DUTY
EXEMPTION AND TAX CREDIT ON CAPITAL EQUIPMENT) which was approved by the
President on April 10, 1992. This Act is actually a consolidation of H. No. 34254, which
was approved by the House on January 29, 1992, and S. No. 1920, which was approved
by the Senate on February 3, 1992.
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER SHALL GIVE
REWARD TO ANY FILIPINO ATHLETE WINNING A MEDAL IN OLYMPIC GAMES) which
was approved by the President on May 22, 1992. This Act is a consolidation of H. No.
22232, which was approved by the House of Representatives on August 2, 1989, and S.
No. 807, which was approved by the Senate on October 21, 1991.
On the other hand, the Ninth Congress passed revenue laws which were also the result
of the consolidation of House and Senate bills. These are the following, with indications
of the dates on which the laws were approved by the President and dates the separate
bills of the two chambers of Congress were respectively passed:
1. R.A. NO. 7642
AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING FOR THIS PURPOSE
THE PERTINENT SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE (December 28,
1992).
House Bill No. 2165, October 5, 1992
Senate Bill No. 32, December 7, 1992
2. R.A. NO. 7643
AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TO REQUIRE THE
PAYMENT OF THE VALUE-ADDED TAX EVERY MONTH AND TO ALLOW LOCAL
GOVERNMENT UNITS TO SHARE IN VAT REVENUE, AMENDING FOR THIS PURPOSE
CERTAIN SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE (December 28, 1992)
House Bill No. 1503, September 3, 1992
Senate Bill No. 968, December 7, 1992
3. R.A. NO. 7646
AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE TO PRESCRIBE THE
PLACE FOR PAYMENT OF INTERNAL REVENUE TAXES BY LARGE TAXPAYERS, AMENDING
FOR THIS PURPOSE CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED (February 24, 1993)
House Bill No. 1470, October 20, 1992
Senate Bill No. 35, November 19, 1992
4. R.A. NO. 7649
AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL SUBDIVISIONS,
INSTRUMENTALITIES OR AGENCIES INCLUDING GOVERNMENT-OWNED OR
CONTROLLED CORPORATIONS (GOCCS) TO DEDUCT AND WITHHOLD THE VALUE-
ADDED TAX DUE AT THE RATE OF THREE PERCENT (3%) ON GROSS PAYMENT FOR THE
PURCHASE OF GOODS AND SIX PERCENT (6%) ON GROSS RECEIPTS FOR SERVICES
RENDERED BY CONTRACTORS (April 6, 1993)
House Bill No. 5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS TO
DECLARE DIVIDENDS UNDER CERTAIN CONDITIONS TO THE NATIONAL GOVERNMENT,
AND FOR OTHER PURPOSES (November 9, 1993)
House Bill No. 11024, November 3, 1993
Senate Bill No. 1168, November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION OF THE
DOCUMENTARY STAMP TAX, AMENDING FOR THE PURPOSE CERTAIN PROVISIONS OF
THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, ALLOCATING FUNDS FOR
SPECIFIC PROGRAMS, AND FOR OTHER PURPOSES (December 23, 1993)
House Bill No. 7789, May 31, 1993
Senate Bill No. 1330, November 18, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES OF STOCK
LISTED AND TRADED THROUGH THE LOCAL STOCK EXCHANGE OR THROUGH INITIAL
PUBLIC OFFERING, AMENDING FOR THE PURPOSE THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, BY INSERTING A NEW SECTION AND REPEALING CERTAIN
SUBSECTIONS THEREOF (May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the
exercise of its power to propose amendments to bills required to originate in the
House, passed its own version of a House revenue measure. It is noteworthy that, in
the particular case of S. No. 1630, petitioners Tolentino and Roco, as members of the
Senate, voted to approve it on second and third readings.
On the other hand, amendment by substitution, in the manner urged by petitioner
Tolentino, concerns a mere matter of form. Petitioner has not shown what substantial
difference it would make if, as the Senate actually did in this case, a separate bill like S.
No. 1630 is instead enacted as a substitute measure, "taking into Consideration . .
. H.B. 11197."
Indeed, so far as pertinent, the Rules of the Senate only provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
§68. Not more than one amendment to the original amendment shall be considered.
No amendment by substitution shall be entertained unless the text thereof is submitted
in writing.
Any of said amendments may be withdrawn before a vote is taken thereon.
§69. No amendment which seeks the inclusion of a legislative provision foreign to the
subject matter of a bill (rider) shall be entertained.
xxx xxx xxx
§70-A. A bill or resolution shall not be amended by substituting it with another which
covers a subject distinct from that proposed in the original bill or resolution. (emphasis
added).
Nor is there merit in petitioners' contention that, with regard to revenue bills, the
Philippine Senate possesses less power than the U.S. Senate because of textual
differences between constitutional provisions giving them the power to propose or
concur with amendments.
Art. I, §7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate in the House of Representatives; but the
Senate may propose or concur with amendments as on other Bills.
Art. VI, §24 of our Constitution reads:
All appropriation, revenue or tariff bills, bills authorizing increase of the public debt,
bills of local application, and private bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with amendments.
The addition of the word "exclusively" in the Philippine Constitution and the decision
to drop the phrase "as on other Bills" in the American version, according to petitioners,
shows the intention of the framers of our Constitution to restrict the Senate's power to
propose amendments to revenue bills. Petitioner Tolentino contends that the word
"exclusively" was inserted to modify "originate" and "the words 'as in any other bills'
(sic) were eliminated so as to show that these bills were not to be like other bills but
must be treated as a special kind."
The history of this provision does not support this contention. The supposed indicia of
constitutional intent are nothing but the relics of an unsuccessful attempt to limit the
power of the Senate. It will be recalled that the 1935 Constitution originally provided
for a unicameral National Assembly. When it was decided in 1939 to change to a
bicameral legislature, it became necessary to provide for the procedure for lawmaking
by the Senate and the House of Representatives. The work of proposing amendments
to the Constitution was done by the National Assembly, acting as a constituent
assembly, some of whose members, jealous of preserving the Assembly's lawmaking
powers, sought to curtail the powers of the proposed Senate. Accordingly they
proposed the following provision:
All bills appropriating public funds, revenue or tariff bills, bills of local application, and
private bills shall originate exclusively in the Assembly, but the Senate may propose or
concur with amendments. In case of disapproval by the Senate of any such bills, the
Assembly may repass the same by a two-thirds vote of all its members, and thereupon,
the bill so repassed shall be deemed enacted and may be submitted to the President
for corresponding action. In the event that the Senate should fail to finally act on any
such bills, the Assembly may, after thirty days from the opening of the next regular
session of the same legislative term, reapprove the same with a vote of two-thirds of
all the members of the Assembly. And upon such reapproval, the bill shall be deemed
enacted and may be submitted to the President for corresponding action.
The special committee on the revision of laws of the Second National Assembly vetoed
the proposal. It deleted everything after the first sentence. As rewritten, the proposal
was approved by the National Assembly and embodied in Resolution No. 38, as
amended by Resolution No. 73. (J. ARUEGO, KNOW YOUR CONSTITUTION 65-66
(1950)). The proposed amendment was submitted to the people and ratified by them
in the elections held on June 18, 1940.
This is the history of Art. VI, §18 (2) of the 1935 Constitution, from which Art. VI, §24 of
the present Constitution was derived. It explains why the word "exclusively" was added
to the American text from which the framers of the Philippine Constitution borrowed
and why the phrase "as on other Bills" was not copied. Considering the defeat of the
proposal, the power of the Senate to propose amendments must be understood to be
full, plenary and complete "as on other Bills." Thus, because revenue bills are required
to originate exclusively in the House of Representatives, the Senate cannot enact
revenue measures of its own without such bills. After a revenue bill is passed and sent
over to it by the House, however, the Senate certainly can pass its own version on the
same subject matter. This follows from the coequality of the two chambers of
Congress.
That this is also the understanding of book authors of the scope of the Senate's power to
concur is clear from the following commentaries:
The power of the Senate to propose or concur with amendments is apparently without
restriction. It would seem that by virtue of this power, the Senate can practically re-write
a bill required to come from the House and leave only a trace of the original bill. For
example, a general revenue bill passed by the lower house of the United States Congress
contained provisions for the imposition of an inheritance tax . This was changed by the
Senate into a corporation tax. The amending authority of the Senate was declared by the
United States Supreme Court to be sufficiently broad to enable it to make the alteration.
[Flint v. Stone Tracy Company, 220 U.S. 107, 55 L. ed. 389].
(L. TAÑADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES 247 (1961))
The above-mentioned bills are supposed to be initiated by the House of Representatives
because it is more numerous in membership and therefore also more representative of
the people. Moreover, its members are presumed to be more familiar with the needs of
the country in regard to the enactment of the legislation involved.
The Senate is, however, allowed much leeway in the exercise of its power to propose or
concur with amendments to the bills initiated by the House of Representatives. Thus, in
one case, a bill introduced in the U.S. House of Representatives was changed by the
Senate to make a proposed inheritance tax a corporation tax. It is also accepted practice
for the Senate to introduce what is known as an amendment by substitution, which may
entirely replace the bill initiated in the House of Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).
In sum, while Art. VI, §24 provides that all appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local application, and private bills must
"originate exclusively in the House of Representatives," it also adds, "but the Senate may
propose or concur with amendments." In the exercise of this power, the Senate may
propose an entirely new bill as a substitute measure. As petitioner Tolentino states in a
high school text, a committee to which a bill is referred may do any of the following:
(1) to endorse the bill without changes; (2) to make changes in the bill omitting or
adding sections or altering its language; (3) to make and endorse an entirely new bill as
a substitute, in which case it will be known as a committee bill; or (4) to make no report
at all.
(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 258 (1950))
To except from this procedure the amendment of bills which are required to originate in
the House by prescribing that the number of the House bill and its other parts up to the
enacting clause must be preserved although the text of the Senate amendment may be
incorporated in place of the original body of the bill is to insist on a mere technicality. At
any rate there is no rule prescribing this form. S. No. 1630, as a substitute measure, is
therefore as much an amendment of H. No. 11197 as any which the Senate could have
made.
II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic error is that they
assume that S. No. 1630 is an independent and distinct bill. Hence their repeated
references to its certification that it was passed by the Senate "in substitution of
S.B. No. 1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197," implying
that there is something substantially different between the reference to S. No. 1129 and
the reference to H. No. 11197. From this premise, they conclude that R.A. No. 7716
originated both in the House and in the Senate and that it is the product of two "half-
baked bills because neither H. No. 11197 nor S. No. 1630 was passed by both houses of
Congress."
In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be
mere amendments of the corresponding provisions of H. No. 11197. The very tabular
comparison of the provisions of H. No. 11197 and S. No. 1630 attached as Supplement A
to the basic petition of petitioner Tolentino, while showing differences between the two
bills, at the same time indicates that the provisions of the Senate bill were precisely
intended to be amendments to the House bill.
Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the
Senate bill was a mere amendment of the House bill, H. No. 11197 in its original form
did not have to pass the Senate on second and three readings. It was enough that after
it was passed on first reading it was referred to the Senate Committee on Ways and
Means. Neither was it required that S. No. 1630 be passed by the House of
Representatives before the two bills could be referred to the Conference Committee.
There is legislative precedent for what was done in the case of H. No. 11197 and S. No.
1630. When the House bill and Senate bill, which became R.A. No. 1405 (Act prohibiting
the disclosure of bank deposits), were referred to a conference committee, the question
was raised whether the two bills could be the subject of such conference, considering
that the bill from one house had not been passed by the other and vice versa. As
Congressman Duran put the question:
MR. DURAN. Therefore, I raise this question of order as to procedure: If a House bill is
passed by the House but not passed by the Senate, and a Senate bill of a similar nature is
passed in the Senate but never passed in the House, can the two bills be the subject of a
conference, and can a law be enacted from these two bills? I understand that the Senate
bill in this particular instance does not refer to investments in government securities,
whereas the bill in the House, which was introduced by the Speaker, covers two subject
matters: not only investigation of deposits in banks but also investigation of investments
in government securities. Now, since the two bills differ in their subject matter, I believe
that no law can be enacted.
Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of the conference committee is in order. It is precisely in cases
like this where a conference should be had. If the House bill had been approved by the
Senate, there would have been no need of a conference; but precisely because the
Senate passed another bill on the same subject matter, the conference committee had to
be created, and we are now considering the report of that committee.
(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added))
III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630
are distinct and unrelated measures also accounts for the petitioners' (Kilosbayan's and
PAL's) contention that because the President separately certified to the need for the
immediate enactment of these measures, his certification was ineffectual and void. The
certification had to be made of the version of the same revenue bill which at the
moment was being considered. Otherwise, to follow petitioners' theory, it would be
necessary for the President to certify as many bills as are presented in a house of
Congress even though the bills are merely versions of the bill he has already certified. It is
enough that he certifies the bill which, at the time he makes the certification, is under
consideration. Since on March 22, 1994 the Senate was considering S. No. 1630, it was
that bill which had to be certified. For that matter on June 1, 1993 the President had
earlier certified H. No. 9210 for immediate enactment because it was the one which at
that time was being considered by the House. This bill was later substituted, together
with other bills, by H. No. 11197.
As to what Presidential certification can accomplish, we have already explained in the
main decision that the phrase "except when the President certifies to the necessity of its
immediate enactment, etc." in Art. VI, §26 (2) qualifies not only the requirement that
"printed copies [of a bill] in its final form [must be] distributed to the members three days
before its passage" but also the requirement that before a bill can become a law it must
have passed "three readings on separate days." There is not only textual support for such
construction but historical basis as well.
Art. VI, §21 (2) of the 1935 Constitution originally provided:
(2) No bill shall be passed by either House unless it shall have been printed and copies
thereof in its final form furnished its Members at least three calendar days prior to its
passage, except when the President shall have certified to the necessity of its immediate
enactment. Upon the last reading of a bill, no amendment thereof shall be allowed and
the question upon its passage shall be taken immediately thereafter, and
the yeas and nays entered on the Journal.
When the 1973 Constitution was adopted, it was provided in Art. VIII, §19 (2):
(2) No bill shall become a law unless it has passed three readings on separate days, and
printed copies thereof in its final form have been distributed to the Members three days
before its passage, except when the Prime Minister certifies to the necessity of its
immediate enactment to meet a public calamity or emergency. Upon the last reading of a
bill, no amendment thereto shall be allowed, and the vote thereon shall be taken
immediately thereafter, and the yeas and nays entered in the Journal.
This provision of the 1973 document, with slight modification, was adopted in Art. VI, §26
(2) of the present Constitution, thus:
(2) No bill passed by either House shall become a law unless it has passed three readings
on separate days, and printed copies thereof in its final form have been distributed to its
Members three days before its passage, except when the President certifies to the
necessity of its immediate enactment to meet a public calamity or emergency. Upon the
last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall
be taken immediately thereafter, and the yeas and nays entered in the Journal.
The exception is based on the prudential consideration that if in all cases three readings
on separate days are required and a bill has to be printed in final form before it can be
passed, the need for a law may be rendered academic by the occurrence of the very
emergency or public calamity which it is meant to address.
Petitioners further contend that a "growing budget deficit" is not an emergency,
especially in a country like the Philippines where budget deficit is a chronic condition.
Even if this were the case, an enormous budget deficit does not make the need for R.A.
No. 7716 any less urgent or the situation calling for its enactment any less an emergency.
Apparently, the members of the Senate (including some of the petitioners in these cases)
believed that there was an urgent need for consideration of S. No. 1630, because they
responded to the call of the President by voting on the bill on second and third readings
on the same day. While the judicial department is not bound by the Senate's acceptance
of the President's certification, the respect due coequal departments of the government
in matters committed to them by the Constitution and the absence of a clear showing of
grave abuse of discretion caution a stay of the judicial hand.
At any rate, we are satisfied that S. No. 1630 received thorough consideration in the
Senate where it was discussed for six days. Only its distribution in advance in its final
printed form was actually dispensed with by holding the voting on second and third
readings on the same day (March 24, 1994). Otherwise, sufficient time between the
submission of the bill on February 8, 1994 on second reading and its approval on March
24, 1994 elapsed before it was finally voted on by the Senate on third reading.
The purpose for which three readings on separate days is required is said to be two-fold:
(1) to inform the members of Congress of what they must vote on and (2) to give them
notice that a measure is progressing through the enacting process, thus enabling them
and others interested in the measure to prepare their positions with reference to it. (1 J.
G. SUTHERLAND, STATUTES AND STATUTORY CONSTRUCTION §10.04, p. 282 (1972)).
These purposes were substantially achieved in the case of R.A. No. 7716.
IV. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and
the Movement of Attorneys for Brotherhood, Integrity and Nationalism, Inc. (MABINI))
that in violation of the constitutional policy of full public disclosure and the people's
right to know (Art. II, §28 and Art. III, §7) the Conference Committee met for two days in
executive session with only the conferees present.
As pointed out in our main decision, even in the United States it was customary to hold
such sessions with only the conferees and their staffs in attendance and it was only in
1975 when a new rule was adopted requiring open sessions. Unlike its American
counterpart, the Philippine Congress has not adopted a rule prescribing open hearings
for conference committees.
It is nevertheless claimed that in the United States, before the adoption of the rule in
1975, at least staff members were present. These were staff members of the Senators
and Congressmen, however, who may be presumed to be their confidential men, not
stenographers as in this case who on the last two days of the conference were excluded.
There is no showing that the conferees themselves did not take notes of their
proceedings so as to give petitioner Kilosbayan basis for claiming that even in secret
diplomatic negotiations involving state interests, conferees keep notes of their
meetings. Above all, the public's right to know was fully served because the Conference
Committee in this case submitted a report showing the changes made on the differing
versions of the House and the Senate.
Petitioners cite the rules of both houses which provide that conference committee
reports must contain "a detailed, sufficiently explicit statement of the changes in or
other amendments." These changes are shown in the bill attached to the Conference
Committee Report. The members of both houses could thus ascertain what changes had
been made in the original bills without the need of a statement detailing the changes.
The same question now presented was raised when the bill which became R.A. No. 1400
(Land Reform Act of 1955) was reported by the Conference Committee. Congressman
Bengzon raised a point of order. He said:
MR. BENGZON. My point of order is that it is out of order to consider the report of the
conference committee regarding House Bill No. 2557 by reason of the provision of
Section 11, Article XII, of the Rules of this House which provides specifically that the
conference report must be accompanied by a detailed statement of the effects of the
amendment on the bill of the House. This conference committee report is not
accompanied by that detailed statement, Mr. Speaker. Therefore it is out of order to
consider it.
Petitioner Tolentino, then the Majority Floor Leader, answered:
MR. TOLENTINO. Mr. Speaker, I should just like to say a few words in connection with the
point of order raised by the gentleman from Pangasinan.
There is no question about the provision of the Rule cited by the gentleman from
Pangasinan, but this provision applies to those cases where only portions of the bill have
been amended. In this case before us an entire bill is presented; therefore, it can be easily
seen from the reading of the bill what the provisions are. Besides, this procedure has been
an established practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr. Speaker, we have to look into the reason for the
provisions of the Rules, and the reason for the requirement in the provision cited by the
gentleman from Pangasinan is when there are only certain words or phrases inserted in
or deleted from the provisions of the bill included in the conference report, and we
cannot understand what those words and phrases mean and their relation to the bill. In
that case, it is necessary to make a detailed statement on how those words and phrases
will affect the bill as a whole; but when the entire bill itself is copied verbatim in the
conference report, that is not necessary. So when the reason for the Rule does not exist,
the Rule does not exist.
(2 CONG. REC. NO. 2, p. 4056. (emphasis added))
Congressman Tolentino was sustained by the chair. The record shows that when the
ruling was appealed, it was upheld by viva voce and when a division of the House was
called, it was sustained by a vote of 48 to 5. (Id.,
p. 4058)
Nor is there any doubt about the power of a conference committee to insert new
provisions as long as these are germane to the subject of the conference. As this Court
held in Philippine Judges Association v. Prado, 227 SCRA 703 (1993), in an opinion
written by then Justice Cruz, the jurisdiction of the conference committee is not limited
to resolving differences between the Senate and the House. It may propose an entirely
new provision. What is important is that its report is subsequently approved by the
respective houses of Congress. This Court ruled that it would not entertain allegations
that, because new provisions had been added by the conference committee, there was
thereby a violation of the constitutional injunction that "upon the last reading of a bill,
no amendment thereto shall be allowed."
Applying these principles, we shall decline to look into the petitioners' charges that an
amendment was made upon the last reading of the bill that eventually became R.A. No.
7354 and that copies thereof in its final form were not distributed among the members
of each House. Both the enrolled bill and the legislative journals certify that the measure
was duly enacted i.e., in accordance with Article VI, Sec. 26 (2) of the Constitution. We
are bound by such official assurances from a coordinate department of the government,
to which we owe, at the very least, a becoming courtesy.
(Id. at 710. (emphasis added))
It is interesting to note the following description of conference committees in the
Philippines in a 1979 study:
Conference committees may be of two types: free or instructed. These committees may
be given instructions by their parent bodies or they may be left without instructions.
Normally the conference committees are without instructions, and this is why they are
often critically referred to as "the little legislatures." Once bills have been sent to them,
the conferees have almost unlimited authority to change the clauses of the bills and in
fact sometimes introduce new measures that were not in the original legislation. No
minutes are kept, and members' activities on conference committees are difficult to
determine. One congressman known for his idealism put it this way: "I killed a bill on
export incentives for my interest group [copra] in the conference committee but I could
not have done so anywhere else." The conference committee submits a report to both
houses, and usually it is accepted. If the report is not accepted, then the committee is
discharged and new members are appointed.
(R. Jackson, Committees in the Philippine Congress, in COMMITTEES AND
LEGISLATURES: A COMPARATIVE ANALYSIS 163 (J. D. LEES AND M. SHAW, eds.)).
In citing this study, we pass no judgment on the methods of conference committees. We
cite it only to say that conference committees here are no different from their
counterparts in the United States whose vast powers we noted in Philippine Judges
Association v. Prado, supra. At all events, under Art. VI, §16(3) each house has the
power "to determine the rules of its proceedings," including those of its committees.
Any meaningful change in the method and procedures of Congress or its committees
must therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates
Art. VI, §26 (1) of the Constitution which provides that "Every bill passed by Congress
shall embrace only one subject which shall be expressed in the title thereof." PAL
contends that the amendment of its franchise by the withdrawal of its exemption from
the VAT is not expressed in the title of the law.
Pursuant to §13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross revenue "in
lieu of all other taxes, duties, royalties, registration, license and other fees and charges of
any kind, nature, or description, imposed, levied, established, assessed or collected by
any municipal, city, provincial or national authority or government agency, now or in the
future."
PAL was exempted from the payment of the VAT along with other entities by §103 of the
National Internal Revenue Code, which provides as follows:
§103. Exempt transactions. — The following shall be exempt from the value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws or international agreements to
which the Philippines is a signatory.
R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by
amending §103, as follows:
§103. Exempt transactions. — The following shall be exempt from the value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws, except those granted under
Presidential Decree Nos. 66, 529, 972, 1491, 1590. . . .
The amendment of §103 is expressed in the title of R.A. No. 7716 which reads:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING ITS TAX
BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING
AND REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, AND FOR OTHER PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-ADDED TAX (VAT)
SYSTEM [BY] WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR
THESE PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED AND FOR OTHER PURPOSES,"
Congress thereby clearly expresses its intention to amend any provision of the NIRC
which stands in the way of accomplishing the purpose of the law.
PAL asserts that the amendment of its franchise must be reflected in the title of the law
by specific reference to P.D. No. 1590. It is unnecessary to do this in order to comply
with the constitutional requirement, since it is already stated in the title that the law
seeks to amend the pertinent provisions of the NIRC, among which is §103(q), in order
to widen the base of the VAT. Actually, it is the bill which becomes a law that is required
to express in its title the subject of legislation. The titles of H. No. 11197 and S. No. 1630
in fact specifically referred to §103 of the NIRC as among the provisions sought to be
amended. We are satisfied that sufficient notice had been given of the pendency of
these bills in Congress before they were enacted into what is now R.A.
No. 7716.
In Philippine Judges Association v. Prado, supra, a similar argument as that now made by
PAL was rejected. R.A. No. 7354 is entitled AN ACT CREATING THE PHILIPPINE POSTAL
CORPORATION, DEFINING ITS POWERS, FUNCTIONS AND RESPONSIBILITIES, PROVIDING
FOR REGULATION OF THE INDUSTRY AND FOR OTHER PURPOSES CONNECTED
THEREWITH. It contained a provision repealing all franking privileges. It was contended
that the withdrawal of franking privileges was not expressed in the title of the law. In
holding that there was sufficient description of the subject of the law in its title,
including the repeal of franking privileges, this Court held:
To require every end and means necessary for the accomplishment of the general
objectives of the statute to be expressed in its title would not only be unreasonable but
would actually render legislation impossible. [Cooley, Constitutional Limitations, 8th Ed.,
p. 297] As has been correctly explained:
The details of a legislative act need not be specifically stated in its title, but matter
germane to the subject as expressed in the title, and adopted to the accomplishment of
the object in view, may properly be included in the act. Thus, it is proper to create in the
same act the machinery by which the act is to be enforced, to prescribe the penalties for
its infraction, and to remove obstacles in the way of its execution. If such matters are
properly connected with the subject as expressed in the title, it is unnecessary that they
should also have special mention in the title. (Southern Pac. Co. v. Bartine, 170 Fed. 725)
(227 SCRA at 707-708)
VI. Claims of press freedom and religious liberty. We have held that, as a general
proposition, the press is not exempt from the taxing power of the State and that what
the constitutional guarantee of free press prohibits are laws which single out the press
or target a group belonging to the press for special treatment or which in any way
discriminate against the press on the basis of the content of the publication, and R.A.
No. 7716 is none of these.
Now it is contended by the PPI that by removing the exemption of the press from the
VAT while maintaining those granted to others, the law discriminates against the press.
At any rate, it is averred, "even nondiscriminatory taxation of constitutionally
guaranteed freedom is unconstitutional."
With respect to the first contention, it would suffice to say that since the law granted
the press a privilege, the law could take back the privilege anytime without offense to
the Constitution. The reason is simple: by granting exemptions, the State does not
forever waive the exercise of its sovereign prerogative.
Indeed, in withdrawing the exemption, the law merely subjects the press to the same
tax burden to which other businesses have long ago been subject. It is thus different
from the tax involved in the cases invoked by the PPI. The license tax in Grosjean
v. American Press Co., 297 U.S. 233, 80 L. Ed. 660 (1936) was found to be discriminatory
because it was laid on the gross advertising receipts only of newspapers whose weekly
circulation was over 20,000, with the result that the tax applied only to 13 out of 124
publishers in Louisiana. These large papers were critical of Senator Huey Long who
controlled the state legislature which enacted the license tax. The censorial motivation
for the law was thus evident.
On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue,
460 U.S. 575, 75 L. Ed. 2d 295 (1983), the tax was found to be discriminatory because
although it could have been made liable for the sales tax or, in lieu thereof, for the use
tax on the privilege of using, storing or consuming tangible goods, the press was not.
Instead, the press was exempted from both taxes. It was, however, later made to pay
a special use tax on the cost of paper and ink which made these items "the only items
subject to the use tax that were component of goods to be sold at retail." The U.S.
Supreme Court held that the differential treatment of the press "suggests that the goal
of regulation is not related to suppression of expression, and such goal is presumptively
unconstitutional." It would therefore appear that even a law that favors the press is
constitutionally suspect. (See the dissent of Rehnquist, J. in that case)
Nor is it true that only two exemptions previously granted by E.O. No. 273 are
withdrawn "absolutely and unqualifiedly" by R.A. No. 7716. Other exemptions from the
VAT, such as those previously granted to PAL, petroleum concessionaires, enterprises
registered with the Export Processing Zone Authority, and many more are likewise
totally withdrawn, in addition to exemptions which are partially withdrawn, in an effort
to broaden the base of the tax.
The PPI says that the discriminatory treatment of the press is highlighted by the fact
that transactions, which are profit oriented, continue to enjoy exemption under R.A. No.
7716. An enumeration of some of these transactions will suffice to show that by and
large this is not so and that the exemptions are granted for a purpose. As the Solicitor
General says, such exemptions are granted, in some cases, to encourage agricultural
production and, in other cases, for the personal benefit of the end-user rather than for
profit. The exempt transactions are:
(a) Goods for consumption or use which are in their original state (agricultural, marine
and forest products, cotton seeds in their original state, fertilizers, seeds, seedlings,
fingerlings, fish, prawn livestock and poultry feeds) and goods or services to enhance
agriculture (milling of palay, corn, sugar cane and raw sugar, livestock, poultry feeds,
fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of
citizens returning to the Philippines) or for professional use, like professional
instruments and implements, by persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and services
rendered under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)
The PPI asserts that it does not really matter that the law does not discriminate against
the press because "even nondiscriminatory taxation on constitutionally guaranteed
freedom is unconstitutional." PPI cites in support of this assertion the following
statement in Murdock v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943):
The fact that the ordinance is "nondiscriminatory" is immaterial. The protection
afforded by the First Amendment is not so restricted. A license tax certainly does not
acquire constitutional validity because it classifies the privileges protected by the First
Amendment along with the wares and merchandise of hucksters and peddlers and
treats them all alike. Such equality in treatment does not save the ordinance. Freedom
of press, freedom of speech, freedom of religion are in preferred position.
The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is
mainly for regulation. Its imposition on the press is unconstitutional because it lays a
prior restraint on the exercise of its right. Hence, although its application to others, such
those selling goods, is valid, its application to the press or to religious groups, such as
the Jehovah's Witnesses, in connection with the latter's sale of religious books and
pamphlets, is unconstitutional. As the U.S. Supreme Court put it, "it is one thing to
impose a tax on income or property of a preacher. It is quite another thing to exact a tax
on him for delivering a sermon."
A similar ruling was made by this Court in American Bible Society v. City of Manila, 101
Phil. 386 (1957) which invalidated a city ordinance requiring a business license fee on
those engaged in the sale of general merchandise. It was held that the tax could not be
imposed on the sale of bibles by the American Bible Society without restraining the free
exercise of its right to propagate.
The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a
privilege, much less a constitutional right. It is imposed on the sale, barter, lease or
exchange of goods or properties or the sale or exchange of services and the lease of
properties purely for revenue purposes. To subject the press to its payment is not to
burden the exercise of its right any more than to make the press pay income tax or
subject it to general regulation is not to violate its freedom under the Constitution.
Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the
proceeds derived from the sales are used to subsidize the cost of printing copies which
are given free to those who cannot afford to pay so that to tax the sales would be to
increase the price, while reducing the volume of sale. Granting that to be the case, the
resulting burden on the exercise of religious freedom is so incidental as to make it
difficult to differentiate it from any other economic imposition that might make the
right to disseminate religious doctrines costly. Otherwise, to follow the petitioner's
argument, to increase the tax on the sale of vestments would be to lay an impermissible
burden on the right of the preacher to make a sermon.
On the other hand the registration fee of P1,000.00 imposed by §107 of the NIRC, as
amended by §7 of R.A. No. 7716, although fixed in amount, is really just to pay for the
expenses of registration and enforcement of provisions such as those relating to
accounting in §108 of the NIRC. That the PBS distributes free bibles and therefore is not
liable to pay the VAT does not excuse it from the payment of this fee because it also
sells some copies. At any rate whether the PBS is liable for the VAT must be decided in
concrete cases, in the event it is assessed this tax by the Commissioner of Internal
Revenue.
VII. Alleged violations of the due process, equal protection and contract clauses and the
rule on taxation. CREBA asserts that R.A. No. 7716 (1) impairs the obligations of
contracts, (2) classifies transactions as covered or exempt without reasonable basis and
(3) violates the rule that taxes should be uniform and equitable and that Congress shall
"evolve a progressive system of taxation."
With respect to the first contention, it is claimed that the application of the tax to
existing contracts of the sale of real property by installment or on deferred payment
basis would result in substantial increases in the monthly amortizations to be paid
because of the 10% VAT. The additional amount, it is pointed out, is something that the
buyer did not anticipate at the time he entered into the contract.
The short answer to this is the one given by this Court in an early case: "Authorities from
numerous sources are cited by the plaintiffs, but none of them show that a lawful tax on
a new subject, or an increased tax on an old one, interferes with a contract or impairs its
obligation, within the meaning of the Constitution. Even though such taxation may
affect particular contracts, as it may increase the debt of one person and lessen the
security of another, or may impose additional burdens upon one class and release the
burdens of another, still the tax must be paid unless prohibited by the Constitution, nor
can it be said that it impairs the obligation of any existing contract in its true legal
sense." (La Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)).
Indeed not only existing laws but also "the reservation of the essential attributes of
sovereignty, is . . . read into contracts as a postulate of the legal order." (Philippine-
American Life Ins. Co. v. Auditor General, 22 SCRA 135, 147 (1968)) Contracts must be
understood as having been made in reference to the possible exercise of the rightful
authority of the government and no obligation of contract can extend to the defeat of
that authority. (Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)).
It is next pointed out that while §4 of R.A. No. 7716 exempts such transactions as the
sale of agricultural products, food items, petroleum, and medical and veterinary
services, it grants no exemption on the sale of real property which is equally essential.
The sale of real property for socialized and low-cost housing is exempted from the tax,
but CREBA claims that real estate transactions of "the less poor," i.e., the middle class,
who are equally homeless, should likewise be exempted.
The sale of food items, petroleum, medical and veterinary services, etc., which are
essential goods and services was already exempt under §103, pars. (b) (d) (1) of the
NIRC before the enactment of R.A. No. 7716. Petitioner is in error in claiming that R.A.
No. 7716 granted exemption to these transactions, while subjecting those of petitioner
to the payment of the VAT. Moreover, there is a difference between the "homeless
poor" and the "homeless less poor" in the example given by petitioner, because the
second group or middle class can afford to rent houses in the meantime that they
cannot yet buy their own homes. The two social classes are thus differently situated in
life. "It is inherent in the power to tax that the State be free to select the subjects of
taxation, and it has been repeatedly held that 'inequalities which result from a singling
out of one particular class for taxation, or exemption infringe no constitutional
limitation.'" (Lutz v. Araneta, 98 Phil. 148, 153 (1955). Accord, City of Baguio v. De Leon,
134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984); Kapatiran ng mga
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).
Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates
Art. VI, §28(1) which provides that "The rule of taxation shall be uniform and equitable.
The Congress shall evolve a progressive system of taxation."
Equality and uniformity of taxation means that all taxable articles or kinds of property of
the same class be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation. To satisfy this
requirement it is enough that the statute or ordinance applies equally to all persons,
forms and corporations placed in similar situation. (City of Baguio v. De Leon, supra;
Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was
enacted. R.A. No. 7716 merely expands the base of the tax. The validity of the original
VAT Law was questioned in Kapatiran ng Naglilingkod sa Pamahalaan ng Pilipinas,
Inc. v. Tan, 163 SCRA 383 (1988) on grounds similar to those made in these cases,
namely, that the law was "oppressive, discriminatory, unjust and regressive in violation
of Art. VI, §28(1) of the Constitution." (At 382) Rejecting the challenge to the law, this
Court held:
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform. . . .
The sales tax adopted in EO 273 is applied similarly on all goods and services sold to the
public, which are not exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods or services
by persons engaged in business with an aggregate gross annual sales exceeding
P200,000.00. Small corner sari-sari stores are consequently exempt from its application.
Likewise exempt from the tax are sales of farm and marine products, so that the costs of
basic food and other necessities, spared as they are from the incidence of the VAT, are
expected to be relatively lower and within the reach of the general public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative
Union of the Philippines, Inc. (CUP), while petitioner Juan T. David argues that the law
contravenes the mandate of Congress to provide for a progressive system of taxation
because the law imposes a flat rate of 10% and thus places the tax burden on all
taxpayers without regard to their ability to pay.
The Constitution does not really prohibit the imposition of indirect taxes which, like the
VAT, are regressive. What it simply provides is that Congress shall "evolve a progressive
system of taxation." The constitutional provision has been interpreted to mean simply
that "direct taxes are . . . to be preferred [and] as much as possible, indirect taxes should
be minimized." (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second ed.
(1977)). Indeed, the mandate to Congress is not to prescribe, but to evolve, a
progressive tax system. Otherwise, sales taxes, which perhaps are the oldest form of
indirect taxes, would have been prohibited with the proclamation of Art. VIII, §17(1) of
the 1973 Constitution from which the present Art. VI, §28(1) was taken. Sales taxes are
also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is
difficult, if not impossible, to avoid them by imposing such taxes according to the
taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects
of this imposition by providing for zero rating of certain transactions (R.A. No. 7716, §3,
amending §102 (b) of the NIRC), while granting exemptions to other transactions. (R.A.
No. 7716, §4, amending §103 of the NIRC).
Thus, the following transactions involving basic and essential goods and services are
exempted from the VAT:
(a) Goods for consumption or use which are in their original state (agricultural, marine
and forest products, cotton seeds in their original state, fertilizers, seeds, seedlings,
fingerlings, fish, prawn livestock and poultry feeds) and goods or services to enhance
agriculture (milling of palay, corn sugar cane and raw sugar, livestock, poultry feeds,
fertilizer, ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal effects of
citizens returning to the Philippines) and or professional use, like professional
instruments and implements, by persons coming to the Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services, and services
rendered under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-60)
On the other hand, the transactions which are subject to the VAT are those which
involve goods and services which are used or availed of mainly by higher income groups.
These include real properties held primarily for sale to customers or for lease in the
ordinary course of trade or business, the right or privilege to use patent, copyright, and
other similar property or right, the right or privilege to use industrial, commercial or
scientific equipment, motion picture films, tapes and discs, radio, television, satellite
transmission and cable television time, hotels, restaurants and similar places, securities,
lending investments, taxicabs, utility cars for rent, tourist buses, and other common
carriers, services of franchise grantees of telephone and telegraph.
The problem with CREBA's petition is that it presents broad claims of constitutional
violations by tendering issues not at retail but at wholesale and in the abstract. There is
no fully developed record which can impart to adjudication the impact of actuality.
There is no factual foundation to show in the concrete the application of the law
to actual contracts and exemplify its effect on property rights. For the fact is that
petitioner's members have not even been assessed the VAT. Petitioner's case is not
made concrete by a series of hypothetical questions asked which are no different from
those dealt with in advisory opinions.
The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere
allegation, as here, does not suffice. There must be a factual foundation of such
unconstitutional taint. Considering that petitioner here would condemn such a provision
as void on its face, he has not made out a case. This is merely to adhere to the
authoritative doctrine that where the due process and equal protection clauses are
invoked, considering that they are not fixed rules but rather broad standards, there is a
need for proof of such persuasive character as would lead to such a conclusion. Absent
such a showing, the presumption of validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the development of a concrete case. It
may be that postponement of adjudication would result in a multiplicity of suits. This
need not be the case, however. Enforcement of the law may give rise to such a case. A
test case, provided it is an actual case and not an abstract or hypothetical one, may thus
be presented.
Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract
issues. Otherwise, adjudication would be no different from the giving of advisory
opinion that does not really settle legal issues.
We are told that it is our duty under Art. VIII, §1, ¶2 to decide whenever a claim is made
that "there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the government." This duty
can only arise if an actual case or controversy is before us. Under Art . VIII, §5 our
jurisdiction is defined in terms of "cases" and all that Art. VIII, §1, ¶2 can plausibly mean
is that in the exercise of that jurisdiction we have the judicial power to determine
questions of grave abuse of discretion by any branch or instrumentality of the
government.
Put in another way, what is granted in Art. VIII, §1, ¶2 is "judicial power," which is "the
power of a court to hear and decide cases pending between parties who have the right
to sue and be sued in the courts of law and equity" (Lamb v. Phipps, 22 Phil. 456, 559
(1912)), as distinguished from legislative and executive power. This power cannot be
directly appropriated until it is apportioned among several courts either by the
Constitution, as in the case of Art. VIII, §5, or by statute, as in the case of the Judiciary
Act of 1948 (R.A. No. 296) and the Judiciary Reorganization Act of 1980 (B.P. Blg. 129).
The power thus apportioned constitutes the court's "jurisdiction," defined as "the
power conferred by law upon a court or judge to take cognizance of a case, to the
exclusion of all others." (United States v. Arceo, 6 Phil. 29 (1906)) Without an actual case
coming within its jurisdiction, this Court cannot inquire into any allegation of grave
abuse of discretion by the other departments of the government.
VIII. Alleged violation of policy towards cooperatives. On the other hand, the
Cooperative Union of the Philippines (CUP), after briefly surveying the course of
legislation, argues that it was to adopt a definite policy of granting tax exemption to
cooperatives that the present Constitution embodies provisions on cooperatives. To
subject cooperatives to the VAT would therefore be to infringe a constitutional policy.
Petitioner claims that in 1973, P.D. No. 175 was promulgated exempting cooperatives
from the payment of income taxes and sales taxes but in 1984, because of the crisis
which menaced the national economy, this exemption was withdrawn by P.D. No. 1955;
that in 1986, P.D. No. 2008 again granted cooperatives exemption from income and
sales taxes until December 31, 1991, but, in the same year, E.O. No. 93 revoked the
exemption; and that finally in 1987 the framers of the Constitution "repudiated the
previous actions of the government adverse to the interests of the cooperatives, that
is, the repeated revocation of the tax exemption to cooperatives and instead upheld the
policy of strengthening the cooperatives by way of the grant of tax exemptions," by
providing the following in Art. XII:
§1. The goals of the national economy are a more equitable distribution of
opportunities, income, and wealth; a sustained increase in the amount of goods and
services produced by the nation for the benefit of the people; and an expanding
productivity as the key to raising the quality of life for all, especially the underprivileged.
The State shall promote industrialization and full employment based on sound
agricultural development and agrarian reform, through industries that make full and
efficient use of human and natural resources, and which are competitive in both
domestic and foreign markets. However, the State shall protect Filipino enterprises
against unfair foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions of the country
shall be given optimum opportunity to develop. Private enterprises, including
corporations, cooperatives, and similar collective organizations, shall be encouraged to
broaden the base of their ownership.
§15. The Congress shall create an agency to promote the viability and growth of
cooperatives as instruments for social justice and economic development.
Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955
singled out cooperatives by withdrawing their exemption from income and sales taxes
under P.D. No. 175, §5. What P.D. No. 1955, §1 did was to withdraw the exemptions and
preferential treatments theretofore granted to private business enterprises in general, in
view of the economic crisis which then beset the nation. It is true that after P.D. No.
2008, §2 had restored the tax exemptions of cooperatives in 1986, the exemption was
again repealed by E.O. No. 93, §1, but then again cooperatives were not the only ones
whose exemptions were withdrawn. The withdrawal of tax incentives applied to all,
including government and private entities. In the second place, the Constitution does
not really require that cooperatives be granted tax exemptions in order to promote
their growth and viability. Hence, there is no basis for petitioner's assertion that the
government's policy toward cooperatives had been one of vacillation, as far as the grant
of tax privileges was concerned, and that it was to put an end to this indecision that the
constitutional provisions cited were adopted. Perhaps as a matter of policy cooperatives
should be granted tax exemptions, but that is left to the discretion of Congress. If
Congress does not grant exemption and there is no discrimination to cooperatives, no
violation of any constitutional policy can be charged.
accountability of legislators, that those who took part in passing the law in question by
voting for it in Congress should later thrust to the courts the burden of reviewing
measures in the flush of enactment. This Court does not sit as a third branch of the
legislature, much less exercise a veto power over legislation.
WHEREFORE, the motions for reconsideration are denied with finality and the
temporary restraining order previously issued is hereby lifted.
SO ORDERED.

Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives
are exempt from taxation. Such theory is contrary to the Constitution under which only
the following are exempt from taxation: charitable institutions, churches and
parsonages, by reason of Art. VI, §28 (3), and non-stock, non-profit educational
institutions by reason of Art. XIV, §4 (3).

CUP's further ground for seeking the invalidation of R.A. No. 7716 is that it denies
cooperatives the equal protection of the law because electric cooperatives are
exempted from the VAT. The classification between electric and other cooperatives
(farmers cooperatives, producers cooperatives, marketing cooperatives, etc.) apparently
rests on a congressional determination that there is greater need to provide cheaper
electric power to as many people as possible, especially those living in the rural areas,
than there is to provide them with other necessities in life. We cannot say that such
classification is unreasonable.

We have carefully read the various arguments raised against the constitutional validity
of R.A. No. 7716. We have in fact taken the extraordinary step of enjoining its
enforcement pending resolution of these cases. We have now come to the conclusion
that the law suffers from none of the infirmities attributed to it by petitioners and that
its enactment by the other branches of the government does not constitute a grave
abuse of discretion. Any question as to its necessity, desirability or expediency must be
addressed to Congress as the body which is electorally responsible, remembering that,
as Justice Holmes has said, "legislators are the ultimate guardians of the liberties and
welfare of the people in quite as great a degree as are the courts." (Missouri, Kansas &
Texas Ry. Co. v. May, 194 U.S. 267, 270, 48 L. Ed. 971, 973 (1904)). It is not right, as
petitioner in G.R. No. 115543 does in arguing that we should enforce the public
[G.R. No. 154028. July 29, 2005] P 8,977,117.26

PHILIPPINE GEOTHERMAL, INC., petitioner, vs. THE COMMISSIONER OF INTERNAL H

REVENUE, respondent.
10/95 to 12/95
DECISION
1/18/96
QUISUMBING, J.:
11,248,194.31
The present petition for review on certiorari assails the September 14, 2001 Decision[1]
and June 14, 2002 Resolution[2] of the Court of Appeals in CA-G.R. SP No. 54730, which M
affirmed the April 21, 1999 Decision[3] of the Court of Tax Appeals in C.T.A. Case No.
11/95
5541.
12/13/95
The facts of the case as found by the Court of Appeals and Court of Tax Appeals are as
follows:
8,243,090.27
Petitioner is a resident foreign corporation licensed by the Securities and Exchange
S
Commission (SEC) to engage in the exploration, development and exploitation of
geothermal energy and resources in the Philippines. In September 1971, it entered into a 1/96
service contract with the National Power Corporation (NPC) to supply steam to the latter.
2/19/96
From September 1995 to February 1996, petitioner billed NPC, Value Added Tax (VAT)
computed at ten percent of the service fee charged on the supply of steam. NPC did not 5,213,400.45
pay the VAT. To avoid any possible tax deficiency, petitioner remitted VAT equivalent to
1/11 of the fees received from NPC or P39,328,775.41, broken down as follows: W

Exhibit 2/96

Period covered 3/18/96

Payment Date 5,646,973.12

VAT Paid P 39,328,775.41

C Petitioner filed an administrative claim for refund with the Bureau of Internal Revenue
on July 10, 1996. According to petitioner, the sale of steam to NPC is a VAT-exempt
7/95 to 9/95 transaction under Sec. 103 of the Tax Code.[4] Petitioner claimed that Fiscal Incentives

10/18/95
Review Board (FIRB) Resolution No. 17-87, approved by President Aquino pursuant to
Executive Order No. 93,[5] expressly exempted NPC from VAT.
Since respondent failed to act on the claim, on July 2, 1997, petitioner filed a petition to
toll the running of the two-year prescriptive period before the Court of Tax Appeals.
Respondent, in his Answer,[6] averred:
...
4. The claim of petitioner Philippine Geothermal Incorporated (PGI for short) for Value-
Added Tax refund has no legal basis.
...
6. Fiscal Incentives Review Board (FIRB) Resolution 17-87 specifically restored the tax and
duty exemption privileges of the NPC, including those pertaining to its domestic
purchases of petroleum and petroleum products granted under the terms and conditions
of Commonwealth Act 120 as amended, effective March 10, 1987.
However, the restoration of the tax and duty exemption privileges does not apply to
importations of fuel oil (crude equivalents) and coal, commercially-funded importations
(i.e. importations which include but are not limited to those foreign-based private
financial institutions, etc.) and interest income derived from any source. Such exemption
also does not include purchases of goods and services. Hence, any contracting services of
NPC is not qualified for zero-rated VAT (VAT Ruling 250-89, October, 1989).
7. It is clear from the aforecited FIRB resolution that the tax exemption privilege granted
to NPC does not include purchases of goods and services, such as the supply of steam to
NPC.
...
10. The subject taxes have been paid and collected in accordance with law and
regulation.
11. In a claim for refund, it is incumbent upon petitioner to show that it is indubitably
entitled thereto. Petitioners failure to establish the same is fatal to its claim for refund.
12. .The present case is no exception to the basic rule that claims for refund are
construed strictly against claimant for the same partake of the nature of exemption
from taxation.
Simply put, the sole issue in this case is whether petitioners supply of steam to NPC is a
VAT-exempt transaction.
FIRB Resolution No. 17-87 dated June 24, 1987, on which petitioner anchors its claim for
tax exemption, provides as follows:
BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty exemption privileges
of the National Power Corporation, including those pertaining to its domestic purchases
of petroleum and petroleum products, granted under the terms and conditions of
Commonwealth Act No. 120 (Creating the National Power Corporation, defining its
powers, objectives and functions, and for other purposes), as amended, are restored
effective March 10, 1987, subject to the following conditions:
1. The restoration of the tax and duty exemption privileges does not apply to the
following:
1.1 Importation of fuel oil (crude equivalent) and coal;
1.2 Commercially-funded importations (i.e., importations which include but are not
limited to those financed by the NPCs own internal funds, domestic borrowings from any
source whatsoever, borrowing from foreign-based private financial institutions, etc.); and
1.3 Interest income derived from any source.[7]
This Supreme Court has confirmed this exemption. In Maceda v. Macaraig, Jr.,[8] this
Court ruled that Republic Act No. 358[9] exempts the NPC from all taxes, duties, fees,
imposts, charges, and restrictions of the Republic of the Philippines, and its provinces,
cities and municipalities. This exemption is broad enough to include both direct and
indirect taxes the NPC may be required to pay. To limit the exemption granted 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.
A chronological review of the NPC laws will show that it has been the lawmakers
intention that the NPC is to be completely tax exempt from all forms of taxes - both direct
and indirect.[10]
The ruling dated March 15, 1996, issued to petitioner by Assistant Commissioner Alicia P.
Clemeno of the Bureau of Internal Revenue, likewise confirms this exemption:
In view of the foregoing, this Office is of the opinion as it hereby holds, that the supply of
steam by your client, Philippine Geothermal, Inc. (PGI) to National Power Corporation
NPC/NAPOCOR to be used in generating electricity is exempt from the value-added tax.
(BIR Ruling No. 078-95 dated April 26, 1995)[11]
On April 21, 1999, the CTA ruled that the supply of steam to NPC by petitioner being a
VAT-exempt transaction, neither petitioner nor NPC is liable to pay VAT. Petitioner,
therefore, may rightfully claim for a refund of the value-added tax paid. The CTA held,
WHEREFORE, in the light of the foregoing, RESPONDENT is hereby ORDERED to REFUND
or in the alternative, ISSUE A TAX CREDIT CERTIFICATE to PETITIONER the sum of
P9,012,310.26 representing erroneously paid value added tax.
SO ORDERED.[12]
According to the CTA, based on the evidence presented by petitioner, out of the refund
claim of P39,328,775.41, only P9,012,310.26[13] or that pertaining to output tax paid
for September 1995 and the interest on late payment on peso cash call, were not paid
by NPC. As to the rest of petitioners claim, it appears that the official receipts petitioner
issued to NPC included the VAT payable shown in the Summary of Payments Received
from NPC for each production period.
Petitioner raised the matter before the Court of Appeals praying that the respondent be
ordered to refund the sum of P39,328,775.41 or issue a tax credit certificate
representing erroneous payments of VAT from September 1995 to February 1996.
The Court of Appeals denied the petition and affirmed the assailed decision of the Court
of Tax Appeals.
Hence this appeal. Petitioner assigns the following errors to the appellate court:
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN AFFIRMING IN TOTO THE
DECISION OF THE COURT OF TAX APPEALS, BECAUSE:
A). THE DECISION OF THE COURT OF TAX APPEALS WAS BASED ON A MISAPPREHENSION
OF FACTS, NAMELY, THAT THE NPC PAID P30,316,465.15 AS VAT;
B). THE PETITIONER HAD ESTABLISHED BY UNDISPUTABLE EVIDENCE THAT IT PAID THE
VAT ON THE SUPPLY OF STEAM TO NPC; ACCORDINGLY, IT IS ENTITLED TO THE
REIMBURSEMENT OF THE FULL AMOUNT OF VAT ERRONEOUSLY PAID.[14]
The CTA Decision stated categorically that the supply of steam to NPC is exempt from
VAT. However, it only granted a partial VAT refund of P9,012,310.26, believing that only
this amount was not reimbursed by NPC. The CTA ruled that petitioner was no longer
entitled to a refund of the remaining balance of P30,316,465.15, since it appears that the
official receipts petitioner issued to NPC included the VAT payable shown in the Summary
of Payments Received from NPC for each production period.
We disagree with the CTA. In this case, the only issue is the amount of refund to be
granted based on the amount of tax erroneously paid. Tax refunds are in the nature of
tax exemptions, and are to be construed strictissimi juris against the entity claiming the
same.[15] Thus, the burden of proof rests upon the taxpayer to establish by sufficient and
competent evidence, its entitlement to a claim for refund. In the Bureau of Internal
Revenues Ruling dated March 15, 1996, that the supply of steam by petitioner to NPC is
exempt from VAT, petitioner has indubitably established its basis for claiming a refund.
That NPC may have reimbursed petitioner the 10% VAT is not a ground for the denial of
the claim for refund. The CTA overlooked the fact that it was petitioner who paid the
VAT out of its own service fee. The erroneous payments of the VAT were only
discontinued when the BIR issued its Ruling No. DA-111-96 in favor of petitioner on
March 15, 1996. By then, petitioner had already remitted a sizeable amount of
P39,328,775.41 to the Government. The only recourse of petitioner is the complete
restitution of the erroneous payments of taxes.
The amount of refund should have been based on the VAT Returns filed by the taxpayer.
Whether NPC had reimbursed petitioner is not the concern of the CTA. It is solely a
matter between petitioner and NPC.[16] For indirect taxes like VAT, the proper party to
question or seek a refund of the tax is the statutory taxpayer, the person on whom the
tax is imposed by law and who paid the same even when he shifts the burden thereof to
another.[17]

Petitioner has the legal personality to apply for a refund since it is the one who made the
erroneous VAT payments and who will suffer financially by paying in good faith what it
had believed to be its potential VAT liability.

Under the principle of solutio indebiti,[18] the government has to restore to petitioner
the sums representing erroneous payments of taxes.[19] It is of no moment whether
NPC had already reimbursed petitioner or not because in this case, there should have
been no VAT paid at all.

The Summary of Payments and Official Receipts issued by a supplier is not a reliable
basis for determining the VAT payments of said supplier. The CTA grossly
misappreciated the evidence and erroneously concluded in this case that NPC paid the
VAT. The CTA should have relied on the VAT Returns filed by the taxpayer to determine
the actual amount remitted to the BIR for the purpose of ascertaining the refund due.
The presentation of the VAT Returns is considered sufficient to ascertain the amount of
the refund. Thus, upon finding that the supply of steam to NPC is exempt from VAT, the
CTA should have ordered respondent to reimburse petitioner the full amount of
P39,328,775.41 as erroneously paid VAT.

WHEREFORE, the petition is hereby GRANTED. Respondent is ORDERED to refund or in

the alternative, issue a Tax Credit Certificate to petitioner in the sum of P39,328,775.41
as erroneously paid VAT.

SO ORDERED.
G.R. No. 173425 September 4, 2012
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
DEL CASTILLO, J.:
Courts cannot limit the application or coverage of a law, nor can it impose conditions not
provided therein. To do so constitutes judicial legislation.
This Petition for Review on Certiorari under Rule 45 of the Rules of Court assails the July
7, 2006 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 61436, the dispositive
portion of which reads.
WHEREFORE, the instant petition is hereby DISMISSED. ACCORDINGLY, the Decision
dated October 12, 2000 of the Court of Tax Appeals in CTA Case No. 5735, denying
petitioner’s claim for refund in the amount of Three Hundred Fifty-Nine Million Six
Hundred Fifty-Two Thousand Nine Pesos and Forty-Seven Centavos (₱ 359,652,009.47), is
hereby AFFIRMED.
SO ORDERED.2
Factual Antecedents
Petitioner Fort Bonifacio Development Corporation (FBDC) is a duly registered domestic
corporation engaged in the development and sale of real property.3 The Bases
Conversion Development Authority (BCDA), a wholly owned government corporation
created under Republic Act (RA) No. 7227,4 owns 45% of petitioner’s issued and
outstanding capital stock; while the Bonifacio Land Corporation, a consortium of private
domestic corporations, owns the remaining 55%.5
On February 8, 1995, by virtue of RA 7227 and Executive Order No. 40,6 dated December
8, 1992, petitioner purchased from the national government a portion of the Fort
Bonifacio reservation, now known as the Fort Bonifacio Global City (Global City).7
On January 1, 1996, RA 77168 restructured the Value-Added Tax (VAT) system by
amending certain provisions of the old National Internal Revenue Code (NIRC). RA 7716
extended the coverage of VAT to real properties held primarily for sale to customers or
held for lease in the ordinary course of trade or business.9
On September 19, 1996, petitioner submitted to the Bureau of Internal Revenue (BIR)
Revenue District No. 44, Taguig and Pateros, an inventory of all its real properties, the
book value of which aggregated ₱ 71,227,503,200.10 Based on this value, petitioner
claimed that it is entitled to a transitional input tax credit of ₱ 5,698,200,256,11 pursuant
to Section 10512 of the old NIRC.
In October 1996, petitioner started selling Global City lots to interested buyers.13
For the first quarter of 1997, petitioner generated a total amount of ₱ 3,685,356,539.50
from its sales and lease of lots, on which the output VAT payable was ₱
368,535,653.95.14 Petitioner paid the output VAT by making cash payments to the BIR
totalling ₱ 359,652,009.47 and crediting its unutilized input tax credit on purchases of
goods and services of ₱ 8,883,644.48.15
Realizing that its transitional input tax credit was not applied in computing its output VAT
for the first quarter of 1997, petitioner on November 17, 1998 filed with the BIR a claim
for refund of the amount of ₱ 359,652,009.47 erroneously paid as output VAT for the said
period.16
Ruling of the Court of Tax Appeals
On February 24, 1999, due to the inaction of the respondent Commissioner of Internal
Revenue (CIR), petitioner elevated the matter to the Court of Tax Appeals (CTA) via a
Petition for Review.17
In opposing the claim for refund, respondents interposed the following special and
affirmative defenses:
xxxx
8. Under Revenue Regulations No. 7-95, implementing Section 105 of the Tax Code as
amended by E.O. 273, the basis of the presumptive input tax, in the case of real estate
dealers, is the improvements, such as buildings, roads, drainage systems, and other
similar structures, constructed on or after January 1, 1988.
9. Petitioner, by submitting its inventory listing of real properties only on September 19,
1996, failed to comply with the aforesaid revenue regulations mandating that for
purposes of availing the presumptive input tax credits under its Transitory Provisions, "an
inventory as of December 31, 1995, of such goods or properties and improvements
showing the quantity, description, and amount should be filed with the RDO no later than
January 31, 1996. x x x"18
On October 12, 2000, the CTA denied petitioner’s claim for refund. According to the CTA,
"the benefit of transitional input tax credit comes with the condition that business taxes
should have been paid first."19 In this case, since petitioner acquired the Global City
property under a VAT-free sale transaction, it cannot avail of the transitional input tax
credit.20 The CTA likewise pointed out that under Revenue Regulations No. (RR) 7-95,
implementing Section 105 of the old NIRC, the 8% transitional input tax credit should be
based on the value of the improvements on land such as buildings, roads, drainage
system and other similar structures, constructed on or after January 1, 1998, and not on
the book value of the real property.21 Thus, the CTA disposed of the case in this manner:
WHEREFORE, in view of all the foregoing, the claim for refund representing alleged
overpaid value-added tax covering the first quarter of 1997 is hereby DENIED for lack of
merit.
SO ORDERED.22
Ruling of the Court of Appeals
Aggrieved, petitioner filed a Petition for Review23 under Rule 43 of the Rules of Court
before the CA.
On July 7, 2006, the CA affirmed the decision of the CTA. The CA agreed that petitioner is
not entitled to the 8% transitional input tax credit since it did not pay any VAT when it
purchased the Global City property.24 The CA opined that transitional input tax credit is
allowed only when business taxes have been paid and passed-on as part of the purchase
price.25 In arriving at this conclusion, the CA relied heavily on the historical background
of transitional input tax credit.26 As to the validity of RR 7-95, which limited the 8%
transitional input tax to the value of the improvements on the land, the CA said that it is
entitled to great weight as it was issued pursuant to Section 24527 of the old NIRC.28
Issues
Hence, the instant petition with the principal issue of whether petitioner is entitled to a
refund of ₱ 359,652,009.47 erroneously paid as output VAT for the first quarter of 1997,
the resolution of which depends on:
3.05.a. Whether Revenue Regulations No. 6-97 effectively repealed or repudiated
Revenue Regulations No. 7-95 insofar as the latter limited the transitional/presumptive
input tax credit which may be claimed under Section 105 of the National Internal
Revenue Code to the "improvements" on real properties.
3.05.b. Whether Revenue Regulations No. 7-95 is a valid implementation of Section 105
of the National Internal Revenue Code.
3.05.c. Whether the issuance of Revenue Regulations No. 7-95 by the Bureau of Internal
Revenue, and declaration of validity of said Regulations by the Court of Tax Appeals and
Court of Appeals, were in violation of the fundamental principle of separation of powers.
3.05.d. Whether there is basis and necessity to interpret and construe the provisions of
Section 105 of the National Internal Revenue Code.
3.05.e. Whether there must have been previous payment of business tax by petitioner on
its land before it may claim the input tax credit granted by Section 105 of the National
Internal Revenue Code.
3.05.f. Whether the Court of Appeals and Court of Tax Appeals merely speculated on the
purpose of the transitional/presumptive input tax provided for in Section 105 of the
National Internal Revenue Code.
3.05.g. Whether the economic and social objectives in the acquisition of the subject
property by petitioner from the Government should be taken into consideration.29
Petitioner’s Arguments
Petitioner claims that it is entitled to recover the amount of ₱ 359,652,009.47
erroneously paid as output VAT for the first quarter of 1997 since its transitional input tax
credit of ₱ 5,698,200,256 is more than sufficient to cover its output VAT liability for the
said period.30
Petitioner assails the pronouncement of the CA that prior payment of taxes is required to
avail of the 8% transitional input tax credit.31 Petitioner contends that there is nothing in
Section 105 of the old NIRC to support such conclusion.32
Petitioner further argues that RR 7-95, which limited the 8% transitional input tax credit
to the value of the improvements on the land, is invalid because it goes against the
express provision of Section 105 of the old NIRC, in relation to Section 10033 of the same
Code, as amended by RA 7716.34
Respondents’ Arguments
Respondents, on the other hand, maintain that petitioner is not entitled to a transitional
input tax credit because no taxes were paid in the acquisition of the Global City
property.35 Respondents assert that prior payment of taxes is inherent in the nature of a
transitional input tax.36 Regarding RR 7-95, respondents insist that it is valid because it
was issued by the Secretary of Finance, who is mandated by law to promulgate all
needful rules and regulations for the implementation of Section 105 of the old NIRC.37
Our Ruling
The petition is meritorious.
The issues before us are no longer new or novel as these have been resolved in the
related case of Fort Bonifacio Development Corporation v. Commissioner of Internal
Revenue.38
Prior payment of taxes is not required
for a taxpayer to avail of the 8%
transitional input tax credit
Section 105 of the old NIRC reads:
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. (Emphasis supplied.)
Contrary to the view of the CTA and the CA, there is nothing in the above-quoted
provision to indicate that prior payment of taxes is necessary for the availment of the 8%
transitional input tax credit. Obviously, all that is required is for the taxpayer to file a
beginning inventory with the BIR.
To require prior payment of taxes, as proposed in the Dissent is not only tantamount to
judicial legislation but would also render nugatory the provision in Section 105 of the old
NIRC that the transitional input tax credit shall be "8% of the value of [the beginning]
inventory or the actual [VAT] paid on such goods, materials and supplies, whichever is
higher" because the actual VAT (now 12%) paid on the goods, materials, and supplies
would always be higher than the 8% (now 2%) of the beginning inventory which,
following the view of Justice Carpio, would have to exclude all goods, materials, and
supplies where no taxes were paid. Clearly, limiting the value of the beginning inventory
only to goods, materials, and supplies, where prior taxes were paid, was not the intention
of the law. Otherwise, it would have specifically stated that the beginning inventory
excludes goods, materials, and supplies where no taxes were paid. As retired Justice
Consuelo Ynares-Santiago has pointed out in her Concurring Opinion in the earlier case of
Fort Bonifacio:
If the intent of the law were to limit the input tax to cases where actual VAT was paid, it
could have simply said that the tax base shall be the actual value-added tax paid. Instead,
the law as framed contemplates a situation where a transitional input tax credit is
claimed even if there was no actual payment of VAT in the underlying transaction. In such
cases, the tax base used shall be the value of the beginning inventory of goods, materials
and supplies.39
Moreover, prior payment of taxes is not required to avail of the transitional input tax
credit because it is not a tax refund per se but a tax credit. Tax credit is not synonymous
to tax refund. Tax refund is defined as the money that a taxpayer overpaid and is thus
returned by the taxing authority.40 Tax credit, on the other hand, is an amount
subtracted directly from one’s total tax liability.41 It is any amount given to a taxpayer as
a subsidy, a refund, or an incentive to encourage investment. Thus, unlike a tax refund,
prior payment of taxes is not a prerequisite to avail of a tax credit. In fact, in
Commissioner of Internal Revenue v. Central Luzon Drug Corp.,42 we declared that prior
payment of taxes is not required in order to avail of a tax credit.43 Pertinent portions of
the Decision read:
While a tax liability is essential to the availment or use of any tax credit, prior tax
payments are not. On the contrary, for the existence or grant solely of such credit,
neither a tax liability nor a prior tax payment is needed. The Tax Code is in fact replete
with provisions granting or allowing tax credits, even though no taxes have been
previously paid.
For example, in computing the estate tax due, Section 86(E) allows a tax credit -- subject
to certain limitations -- for estate taxes paid to a foreign country. Also found in Section
101(C) is a similar provision for donor’s taxes -- again when paid to a foreign country -- in
computing for the donor’s tax due. The tax credits in both instances allude to the prior
payment of taxes, even if not made to our government.
Under Section 110, a VAT (Value-Added Tax) - registered person engaging in transactions
-- whether or not subject to the VAT -- is also allowed a tax credit that includes a ratable
portion of any input tax not directly attributable to either activity. This input tax may
either be the VAT on the purchase or importation of goods or services that is merely due
from -- not necessarily paid by -- such VAT-registered person in the course of trade or
business; or the transitional input tax determined in accordance with Section 111(A). The
latter type may in fact be an amount equivalent to only eight percent of the value of a
VAT-registered person’s beginning inventory of goods, materials and supplies, when such
amount -- as computed -- is higher than the actual VAT paid on the said items. Clearly
from this provision, the tax credit refers to an input tax that is either due only or given a
value by mere comparison with the VAT actually paid -- then later prorated. No tax is
actually paid prior to the availment of such credit.
In Section 111(B), a one and a half percent input tax credit that is merely presumptive is
allowed. For the purchase of primary agricultural products used as inputs -- either in the
processing of sardines, mackerel and milk, or in the manufacture of refined sugar and
cooking oil -- and for the contract price of public works contracts entered into with the
government, again, no prior tax payments are needed for the use of the tax credit.
More important, a VAT-registered person whose sales are zero-rated or effectively zero-
rated may, under Section 112(A), apply for the issuance of a tax credit certificate for the
amount of creditable input taxes merely due -- again not necessarily paid to -- the
government and attributable to such sales, to the extent that the input taxes have not
been applied against output taxes. Where a taxpayer is engaged in zero-rated or
effectively zero-rated sales and also in taxable or exempt sales, the amount of creditable
input taxes due that are not directly and entirely attributable to any one of these
transactions shall be proportionately allocated on the basis of the volume of sales.
Indeed, in availing of such tax credit for VAT purposes, this provision -- as well as the one
earlier mentioned -- shows that the prior payment of taxes is not a requisite.
It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of a tax
credit allowed, even though no prior tax payments are not required. Specifically, in this
provision, the imposition of a final withholding tax rate on cash and/or property
dividends received by a nonresident foreign corporation from a domestic corporation is
subjected to the condition that a foreign tax credit will be given by the domiciliary
country in an amount equivalent to taxes that are merely deemed paid. Although true,
this provision actually refers to the tax credit as a condition only for the imposition of a
lower tax rate, not as a deduction from the corresponding tax liability. Besides, it is not
our government but the domiciliary country that credits against the income tax payable
to the latter by the foreign corporation, the tax to be foregone or spared.
In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as
credits, against the income tax imposable under Title II, the amount of income taxes
merely incurred -- not necessarily paid -- by a domestic corporation during a taxable year
in any foreign country. Moreover, Section 34(C)(5) provides that for such taxes incurred
but not paid, a tax credit may be allowed, subject to the condition precedent that the
taxpayer shall simply give a bond with sureties satisfactory to and approved by petitioner,
in such sum as may be required; and further conditioned upon payment by the taxpayer
of any tax found due, upon petitioner’s redetermination of it.
In addition to the above-cited provisions in the Tax Code, there are also tax treaties and
special laws that grant or allow tax credits, even though no prior tax payments have been
made.
Under the treaties in which the tax credit method is used as a relief to avoid double
taxation, income that is taxed in the state of source is also taxable in the state of
residence, but the tax paid in the former is merely allowed as a credit against the tax
levied in the latter. Apparently, payment is made to the state of source, not the state of
residence. No tax, therefore, has been previously paid to the latter.
Under special laws that particularly affect businesses, there can also be tax credit
incentives. To illustrate, the incentives provided for in Article 48 of Presidential Decree
No. (PD) 1789, as amended by Batas Pambansa Blg. (BP) 391, include tax credits
equivalent to either five percent of the net value earned, or five or ten percent of the net
local content of export. In order to avail of such credits under the said law and still
achieve its objectives, no prior tax payments are necessary.
From all the foregoing instances, it is evident that prior tax payments are not
indispensable to the availment of a tax credit. Thus, the CA correctly held that the
availment under RA 7432 did not require prior tax payments by private establishments
concerned. However, we do not agree with its finding that the carry-over of tax credits
under the said special law to succeeding taxable periods, and even their application
against internal revenue taxes, did not necessitate the existence of a tax liability.
The examples above show that a tax liability is certainly important in the availment or
use, not the existence or grant, of a tax credit. Regarding this matter, a private
establishment reporting a net loss in its financial statements is no different from another
that presents a net income. Both are entitled to the tax credit provided for under RA
7432, since the law itself accords that unconditional benefit. However, for the losing
establishment to immediately apply such credit, where no tax is due, will be an
improvident usance.44
In this case, when petitioner realized that its transitional input tax credit was not applied
in computing its output VAT for the 1st quarter of 1997, it filed a claim for refund to
recover the output VAT it erroneously or excessively paid for the 1st quarter of 1997. In
filing a claim for tax refund, petitioner is simply applying its transitional input tax credit
against the output VAT it has paid. Hence, it is merely availing of the tax credit incentive
given by law to first time VAT taxpayers. As we have said in the earlier case of Fort
Bonifacio, the provision on transitional input tax credit was enacted to benefit first time
VAT taxpayers by mitigating the impact of VAT on the taxpayer.45 Thus, contrary to the
view of Justice Carpio, the granting of a transitional input tax credit in favor of petitioner,
which would be paid out of the general fund of the government, would be an
appropriation authorized by law, specifically Section 105 of the old NIRC.
The history of the transitional input tax credit likewise does not support the ruling of the
CTA and CA. In our Decision dated April 2, 2009, in the related case of Fort Bonifacio, we
explained that:
If indeed the transitional input tax credit is integrally related to previously paid sales
taxes, the purported causal link between those two would have been nonetheless
extinguished long ago. Yet Congress has reenacted the transitional input tax credit
several times; that fact simply belies the absence of any relationship between such tax
credit and the long-abolished sales taxes.
Obviously then, the purpose behind the transitional input tax credit is not confined to the
transition from sales tax to VAT.
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 VAT-registered 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. The sale would be subject to capital gains taxes under
Section 24 (D), 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 donor’s tax under Section 98 instead. It is the donor who would be
liable to pay the donor’s tax, and the donation would be exempt if the donor’s total net
gifts during the calendar year does not exceed ₱ 100,000.00.
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. If the net estate does not exceed ₱ 200,000.00, no estate tax would be
assessed.
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 pre-requisite for inclusion in the beginning inventory.
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 taxpayer's
income by affording the opportunity to offset the losses incurred through the remittance
of the output VAT at a stage when the person is yet unable to credit input VAT payments.
There is another point that weighs against the CTA’s 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." 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.46
In view of the foregoing, we find petitioner entitled to the 8% transitional input tax credit
provided in Section 105 of the old NIRC. The fact that it acquired the Global City property
under a tax-free transaction makes no difference as prior payment of taxes is not a pre-
requisite.
Section 4.105-1 of RR 7-95 is
inconsistent with Section 105 of the old
NIRC
As regards Section 4.105-147 of RR 7-95 which limited the 8% transitional input tax credit
to the value of the improvements on the land, the same contravenes the provision of
Section 105 of the old NIRC, in relation to Section 100 of the same Code, as amended by
RA 7716, which defines "goods or properties," to wit:
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; x x x
In fact, in our Resolution dated October 2, 2009, in the related case of Fort Bonifacio, we
ruled that Section 4.105-1 of RR 7-95, insofar as it limits the transitional input tax credit
to the value of the improvement of the real properties, is a nullity.48 Pertinent portions
of the Resolution read:
As mandated by Article 7 of the Civil Code, an administrative rule or regulation cannot Development Corporation the amount of ₱ 359,652,009.47 paid as output VAT for the
contravene the law on which it is based. RR 7-95 is inconsistent with Section 105 insofar first quarter of 1997 in light of the transitional input tax credit available to petitioner for
as the definition of the term "goods" is concerned. This is a legislative act beyond the the said quarter, or in the alternative, to issue a tax credit certificate corresponding to
authority of the CIR and the Secretary of Finance. The rules and regulations that such amount.
administrative agencies promulgate, which are the product of a delegated legislative
power to create new and additional legal provisions that have the effect of law, should be SO ORDERED.
within the scope of the statutory authority granted by the legislature to the objects and
purposes of the law, and should not be in contradiction to, but in conformity with, the
standards prescribed by law.

To be valid, an administrative rule or regulation must conform, not contradict, the

provisions of the enabling law.1âwphi1 An implementing rule or regulation cannot
modify, expand, or subtract from the law it is intended to implement. Any rule that is not
consistent with the statute itself is null and void.

While administrative agencies, such as the Bureau of Internal Revenue, may issue
regulations to implement statutes, they are without authority to limit the scope of the
statute to less than what it provides, or extend or expand the statute beyond its terms, or
in any way modify explicit provisions of the law. Indeed, a quasi-judicial body or an
administrative agency for that matter cannot amend an act of Congress. Hence, in case of
a discrepancy between the basic law and an interpretative or administrative ruling, the
basic law prevails.

To recapitulate, RR 7-95, insofar as it restricts the definition of "goods" as basis of

transitional input tax credit under Section 105 is a nullity.49

As we see it then, the 8% transitional input tax credit should not be limited to the value
of the improvements on the real properties but should include the value of the real
properties as well.

In this case, since petitioner is entitled to a transitional input tax credit of ₱

5,698,200,256, which is more than sufficient to cover its output VAT liability for the first
quarter of 1997, a refund of the amount of ₱ 359,652,009.47 erroneously paid as output
VAT for the said quarter is in order.

WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated July 7, 2006 of
the Court of Appeals in CA-G.R. SP No. 61436 is REVERSED and SET ASIDE. Respondent
Commissioner of Internal Revenue is ordered to refund to petitioner Fort Bonifacio
[G.R. No. 125704. August 28, 1998]
PHILEX MINING CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE,
COURT OF APPEALS, and THE COURT OF TAX APPEALS, respondents.
DECISION
ROMERO, J.:
Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated
on April 8, 1996 in CA-G.R. SP No. 36975[1] affirming the Court of Tax Appeals decision in
CTA Case No. 4872 dated March 16, 1995[2] ordering it to pay the amount of
P110,677,668.52 as excise tax liability for the period from the 2nd quarter of 1991 to the
2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid
pursuant to Sections 248 and 249 of the Tax Code of 1977.
The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle its
tax liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd quarter
of 1992 in the total amount of P123,821,982.52 computed as follows:
PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE
TAX DUE
2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91
3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60
4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88
------------------- ----------------- ----------------- ---------------------
47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39
1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25
2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88
43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13
90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52
========== ========== =========== ===========[3]
In a letter dated August 20, 1992,[4] Philex protested the demand for payment of the tax
liabilities stating that it has pending claims for VAT input credit/refund for the taxes it
paid for the years 1989 to 1991 in the amount of P119,977,037.02 plus interest.
Therefore, these claims for tax credit/refund should be applied against the tax liabilities,
citing our ruling in Commissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc.[5]
In reply, the BIR, in a letter dated September 7, 1992,[6] found no merit in Philexs
position. Since these pending claims have not yet been established or determined with
certainty, it follows that no legal compensation can take place. Hence, he BIR reiterated
its demand that Philex settle the amount plus interest within 30 days from the receipt of
the letter.
In view of the BIRs denial of the offsetting of Philexs claim for VAT input credit/refund
against its exercise tax obligation, Philex raised the issue to the Court of Tax Appeals on
November 6, 1992.[7] In the course of the proceedings, the BIR issued a Tax Credit
Certificate SN 001795 in the amount of P13,144,313.88 which, applied to the total tax
liabilities of Philex of P123,821,982.52; effectively lowered the latters tax obligation of
P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the
remaining balance of P110,677,688.52 plus interest, elucidating its reason, to wit:
Thus, for legal compensation to take place, both obligations must be liquidated and
demandable. Liquidated debts are those where the exact amount has already been
determined (PARAS, Civil Code of the Philippines, Annotated, Vol. IV, Ninth Edition, p.
259). In the instant case, the claims of the Petitioner for VAT refund is still pending 1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61
litigation, and still has to be determined by this Court (C.T.A. Case No. 4707). A fortiori,
the liquidated debt of the Petitioner to the government cannot, therefore, be set-off 1989 007732 11 July 1996 P37,322,799.19
against the unliquidated claim which Petitioner conceived to exist in its favor (see
1990-1991 007751 16 July 1996 P84,662,787.46
Compaia General de Tabacos vs. French and Unson, No. 14027, November 8, 1918, 39
Phil. 34).[8]
1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95
Moreover, the Court of Tax Appeals ruled that taxes cannot be subject to set-off on
In view of the grant of its VAT input credit/refund, Philex now contends that the same
compensation since claim for taxes is not a debt or contract.[9] The dispositive portion of
should, ipso jure, off-set its excise tax liabilities[15] since both had already become due
the CTA decision[10] provides:
and demandable, as well as fully liquidated;[16] hence, legal compensation can properly
take place.
In all the foregoing, this Petition for Review is hereby DENIED for lack of merit and
Petitioner is hereby ORDERED to PAY the Respondent the amount of P110,677,668.52
We see no merit in this contention.
representing excise tax liability for the period from the 2nd quarter of 1991 to the 2nd
quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid pursuant to In several instances prior to the instant case, we have already made the pronouncement
Section 248 and 249 of the Tax Code, as amended. that taxes cannot be subject to compensation for the simple reason that the government
and the taxpayer are not creditors and debtors of each other.[17] There is a material
Aggrieved with the decision, Philex appealed the case before the Court of Appeals
distinction between a tax and debt. Debts are due to the Government in its corporate
docketed as CA-G.R. CV No. 36975.[11] Nonetheless, on April 8, 1996, the Court of
capacity, while taxes are due to the Government in its sovereign capacity.[18] We find no
Appeals affirmed the Court of Tax Appeals observation. The pertinent portion of which
cogent reason to deviate from the aforementioned distinction.
reads:[12]
Prescinding from this premise, in Francia v. Intermediate Appellate Court,[19] we
WHEREFORE, the appeal by way of petition for review is hereby DISMISSED and the
categorically held that taxes cannot be subject to set-off or compensation, thus:
decision dated March 16, 1995 is AFFIRMED.

Philex filed a motion for reconsideration which was, nevertheless, denied in a Resolution
dated July 11, 1996.[13] We have consistently ruled that there can be no off-setting of taxes against the claims
that the taxpayer may have against the government. A person cannot refuse to pay a tax
However, a few days after the denial of its motion for reconsideration, Philex was able to
on the ground that the government owes him an amount equal to or greater than the tax
obtain its VAT input credit/refund not only for the taxable year 1989 to 1991 but also for
being collected. The collection of tax cannot await the results of a lawsuit against the
1992 and 1994, computed as follows:[14]
government.
Period Covered By Tax Credit Certificate Date Of Issue Amount
The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v.
Commission on Audit,[20] which reiterated that:
Claims For Vat Number
x x x a taxpayer may not offset taxes due from the claims that he may have against the
refund/credit
government. Taxes cannot be the subject of compensation because the government and
1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01
taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not
such a debt, demand, contract or judgment as is allowed to be set-off.
Further, Philexs reliance on our holding in Commissioner of Internal Revenue v. Itogon-
Suyoc Mines, Inc., wherein we ruled that a pending refund may be set off against an
existing tax liability even though the refund has not yet been approved by the
Commissioner,[21] is no longer without any support in statutory law.
It is important to note that the premise of our ruling in the aforementioned case was
anchored on Section 51(d) of the National Revenue Code of 1939. However, when the
National Internal Revenue Code of 1977 was enacted, the same provision upon which the
Itogon-Suyoc pronouncement was based was omitted.[22] Accordingly, the doctrine
enunciated in Itogon-Suyoc cannot be invoked by Philex.
Despite the foregoing rulings clearly adverse to Philexs position, it asserts that the
imposition of surcharge and interest for the non-payment of the excise taxes within the
time prescribed was unjustified. Philex posits the theory that it had no obligation to pay
the excise liabilities within the prescribed period since, after all, it still has pending claims
for VAT input credit/refund with BIR.[23]
We fail to see the logic of Philexs claim for this is an outright disregard of the basic
principle in tax law that taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance.[24] Evidently, to countenance Philexs
whimsical reason would render ineffective our tax collection system. Too simplistic, it
finds no support in law or in jurisprudence.
To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the
ground that it has a pending tax claim for refund or credit against the government which
has not yet been granted. It must be noted that a distinguishing feature of a tax is that it
is compulsory rather than a matter of bargain.[25] Hence, a tax does not depend upon
the consent of the taxpayer.[26] If any payer can defer the payment of taxes by raising
the defense that it still has a pending claim for refund or credit, this would adversely
affect the government revenue system. A taxpayer cannot refuse to pay his taxes when
they fall due simply because he has a claim against the government or that the collection
of the tax is contingent on the result of the lawsuit it filed against the government.[27]
Moreover, Philex's theory that would automatically apply its VAT input credit/refund
against its tax liabilities can easily give rise to confusion and abuse, depriving the
government of authority over the manner by which taxpayers credit and offset their tax
liabilities.
Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the
government is immaterial for the imposition of charges and penalties prescribed under
Section 248 and 249 of the Tax Code of 1977. The payment of the surcharge is mandatory
and the BIR is not vested with any authority to waive the collection thereof.[28] The same
cannot be condoned for flimsy reasons,[29] similar to the one advanced by Philex in
justifying its non-payment of its tax liabilities.
Finally, Philex asserts that the BIR violated Section 106(e)[30] of the National Internal
Revenue Code of 1977, which requires the refund of input taxes within 60 days,[31] when
it took five years for the latter to grant its tax claim for VAT input credit/refund.[32]
In this regard, we agree with Philex. While there is no dispute that a claimant has the
burden of proof to establish the factual basis of his or her claim for tax credit or
refund,[33] however, once the claimant has submitted all the required documents, it is
the function of the BIR to assess these documents with purposeful dispatch. After all,
since taxpayers owe honesty to government it is but just that government render fair
service to the taxpayers.[34]
In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund
of these erroneously paid taxes was only granted in 1996. Obviously, had the BIR been
more diligent and judicious with their duty, it could have granted the refund earlier. We
need not remind the BIR that simple justice requires the speedy refund of wrongly-held
taxes.[35] Fair dealing and nothing less, is expected by the taxpayer from the BIR in the
latter's discharge of its function. As aptly held in Roxas v. Court of Tax Appeals:[36]
"The power of taxation is sometimes called also the power to destroy. Therefore it should
be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It
must be exercised fairly, equally and uniformly, lest the tax collectot kill the 'hen that lays
the golden egg.' And, in the order to maintain the general public's trust and confidence in
the Government this power must be used justly and not treacherously."
Despite our concern with the lethargic manner by which the BIR handled Philex's tax
claim, it is a settled rule that in the performance of governmental function, the State is
not bound by the neglect of its agents and officers. Nowhere is this more true than in the
field of taxation.[37] Again, while we understand Philex's predicament, it must be WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The
stressed that the same is not valid reason for the non- payment of its tax liabilities. assailed decision of the Court of Appeals dated April 8, 1996 is hereby AFFIRMED.

To be sure, this is not state that the taxpayer is devoid of remedy against public servants SO ORDERED.
or employees especially BIR examiners who, in investigating tax claims are seen to drag
their feet needlessly. First, if the BIR takes time in acting upon the taxpayer's claims for
refund, the latter can seek judicial remedy before the Court of Tax Appeals in the manner
prescribed by law.[38] Second, if the inaction can be characterized as willful neglect of
duty, then recourse under the Civil Code and the Tax Code can also be availed of.

Article 27 of the Civil Code provides:

"Art. 27. Any person suffering material or moral loss because a public servant or
employee refuses or neglects, without just cause, to perform his official duty may file an
action for damages and other relief against the latter, without prejudice to any
disciplinary action that may be taken."

More importantly, Section 269 (c) of the National Internal Revenue Act of 1997 states:

"xxx xxx xxx

(c) wilfully neglecting to give receipts, as by law required for any sum collected in the
performance of duty or wilfully neglecting to perform, any other duties enjoined by law."

Simply put, both provisions abhor official inaction, willful neglect and unreasonable delay
in the performance of official duties.[39] In no uncertain terms must we stress that every
public employee or servant must strive to render service to the people with utmost
diligence and efficiency. Insolence and delay have no place in government service. The
BIR, being the government collecting arm, must and should do no less. It simply cannot
be apathetic and laggard in rendering service to the taxpayer if it wishes to remain true to
its mission of hastening the country's development. We take judicial notice of the
taxpayer's generally negative perception towards the BIR; hence, it is up to the latter to
prove its detractors wrong.

In sum, while we can never condone the BIR's apparent callousness in performing its
duties, still, the same cannot justify Philex's non-payment of its tax liabilities. The adage
"no one should take the law into his own hands" should have guided Philex's action.
G.R. Nos. 141104 & 148763 June 8, 2007 review of petitioner corporation for failure to state a cause of action. After due trial, the
CTA promulgated its Decision4 on 24 November 1997 with the following disposition –
ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner,
WHEREFORE, in view of the foregoing, the instant claim for refund is hereby DENIED on
vs. the ground of prescription, insufficiency of evidence and failure to comply with Section
230 of the Tax Code, as amended. Accordingly, the petition at bar is hereby DISMISSED
COMMISSIONER OF INTERNAL REVENUE, respondent.
for lack of merit.
DECISION
The CTA denied the motion for reconsideration of petitioner corporation in a Resolution5
dated 15 April 1998.
CHICO-NAZARIO, J.:
When the case was elevated to the Court of Appeals as CA-G.R. SP No. 47607, the
Before this Court are the consolidated cases involving the unsuccessful claims of herein
appellate court, in its Decision,6 dated 6 July 1999, dismissed the appeal of petitioner
petitioner Atlas Consolidated Mining and Development Corporation (petitioner
corporation, finding no reversible error in the CTA Decision, dated 24 November 1997.
corporation) for the refund/credit of the input Value Added Tax (VAT) on its purchases of
The subsequent motion for reconsideration of petitioner corporation was also denied by
capital goods and on its zero-rated sales in the taxable quarters of the years 1990 and
the Court of Appeals in its Resolution,7 dated 14 December 1999.
1992, the denial of which by the Court of Tax Appeals (CTA), was affirmed by the Court of
Appeals.
Thus, petitioner corporation comes before this Court, via a Petition for Review on
Certiorari under Rule 45 of the Revised Rules of Court, assigning the following errors
Petitioner corporation is engaged in the business of mining, production, and sale of
committed by the Court of Appeals –
various mineral products, such as gold, pyrite, and copper concentrates. It is a VAT-
registered taxpayer. It was initially issued VAT Registration No. 32-A-6-002224, dated 1
I
January 1988, but it had to register anew with the appropriate revenue district office
(RDO) of the Bureau of Internal Revenue (BIR) when it moved its principal place of THE COURT OF APPEALS ERRED IN AFFIRMING THE REQUIREMENT OF REVENUE
business, and it was re-issued VAT Registration No. 32-0-004622, dated 15 August 1990.1 REGULATIONS NO. 2-88 THAT AT LEAST 70% OF THE SALES OF THE [BOARD OF
INVESTMENTS (BOI)]-REGISTERED FIRM MUST CONSIST OF EXPORTS FOR ZERO-RATING
G.R. No. 141104
TO APPLY.
Petitioner corporation filed with the BIR its VAT Return for the first quarter of 1992.2 It
II
alleged that it likewise filed with the BIR the corresponding application for the
refund/credit of its input VAT on its purchases of capital goods and on its zero-rated sales THE COURT OF APPEALS ERRED IN AFFIRMING THAT PETITIONER FAILED TO SUBMIT
in the amount of P26,030,460.00.3 When its application for refund/credit remained SUFFICIENT EVIDENCE SINCE FAILURE TO SUBMIT PHOTOCOPIES OF VAT INVOICES AND
unresolved by the BIR, petitioner corporation filed on 20 April 1994 its Petition for RECEIPTS IS NOT A FATAL DEFECT.
Review with the CTA, docketed as CTA Case No. 5102. Asserting that it was a "zero-rated
VAT person," it prayed that the CTA order herein respondent Commissioner of Internal III
Revenue (respondent Commissioner) to refund/credit petitioner corporation with the
amount of P26,030,460.00, representing the input VAT it had paid for the first quarter of
1992. The respondent Commissioner opposed and sought the dismissal of the petition for
THE COURT OF APPEALS ERRED IN RULING THAT THE JUDICIAL CLAIM WAS FILED BEYOND 75,304,774.77
THE PRESCRIPTIVE PERIOD SINCE THE JUDICIAL CLAIM WAS FILED WITHIN TWO (2) YEARS
FROM THE FILING OF THE VAT RETURN. 19 February 1991

IV 4th Quarter, 1990

THE COURT OF APPEALS ERRED IN NOT ORDERING CTA TO ALLOW THE RE-OPENING OF 43,829,766.10
THE CASE FOR PETITIONER TO PRESENT ADDITIONAL EVIDENCE.8
When the BIR failed to act on its applications for refund/credit, petitioner corporation
G.R. No. 148763 filed with the CTA the following petitions for review –

G.R. No. 148763 involves almost the same set of facts as in G.R. No. 141104 presented Date Filed
above, except that it relates to the claims of petitioner corporation for refund/credit of
Period Covered
input VAT on its purchases of capital goods and on its zero-rated sales made in the last
three taxable quarters of 1990.
CTA Case No.
Petitioner corporation filed with the BIR its VAT Returns for the second, third, and fourth
20 July 1992
quarters of 1990, on 20 July 1990, 18 October 1990, and 20 January 1991, respectively. It
submitted separate applications to the BIR for the refund/credit of the input VAT paid on 2nd Quarter, 1990
its purchases of capital goods and on its zero-rated sales, the details of which are
presented as follows – 4831

Date of Application 9 October 1992

Period Covered 3rd Quarter, 1990

Amount Applied For 4859

21 August 1990 14 January 1993

2nd Quarter, 1990 4th Quarter, 1990

P 54,014,722.04 4944

21 November 1990 which were eventually consolidated. The respondent Commissioner contested the
foregoing Petitions and prayed for the dismissal thereof. The CTA ruled in favor of
3rd Quarter, 1990 respondent Commissioner and in its Decision,9 dated 30 October 1997, dismissed the
Petitions mainly on the ground that the prescriptive periods for filing the same had
expired. In a Resolution,10 dated 15 January 1998, the CTA denied the motion for
reconsideration of petitioner corporation since the latter presented no new matter not
already discussed in the court's prior Decision. In the same Resolution, the CTA also
denied the alternative prayer of petitioner corporation for a new trial since it did not fall
under any of the grounds cited under Section 1, Rule 37 of the Revised Rules of Court,
and it was not supported by affidavits of merits required by Section 2 of the same Rule.
Petitioner corporation appealed its case to the Court of Appeals, where it was docketed
as CA-G.R. SP No. 46718. On 15 September 2000, the Court of Appeals rendered its
Decision,11 finding that although petitioner corporation timely filed its Petitions for
Review with the CTA, it still failed to substantiate its claims for the refund/credit of its
input VAT for the last three quarters of 1990. In its Resolution,12 dated 27 June 2001, the
appellate court denied the motion for reconsideration of petitioner corporation, finding
no cogent reason to reverse its previous Decision.
Aggrieved, petitioner corporation filed with this Court another Petition for Review on
Certiorari under Rule 45 of the Revised Rules of Court, docketed as G.R. No. 148763,
raising the following issues –
A.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER'S
CLAIM IS BARRED UNDER REVENUE REGULATIONS NOS. 2-88 AND 3-88 I.E., FOR FAILURE
TO PTOVE [sic] THE 70% THRESHOLD FOR ZERO-RATING TO APPLY AND FOR FAILURE TO
ESTABLISH THE FACTUAL BASIS FOR THE INSTANT CLAIM.
B.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN FINDING THAT THERE IS NO BASIS
TO GRANT PETITIONER'S MOTION FOR NEW TRIAL.
There being similarity of parties, subject matter, and issues, G.R. Nos. 141104 and 148763
were consolidated pursuant to a Resolution, dated 4 September 2006, issued by this
Court. The ruling of this Court in these cases hinges on how it will resolve the following
key issues: (1) prescription of the claims of petitioner corporation for input VAT
refund/credit; (2) validity and applicability of Revenue Regulations No. 2-88 imposing
upon petitioner corporation, as a requirement for the VAT zero-rating of its sales, the
burden of proving that the buyer companies were not just BOI-registered but also
exporting 70% of their total annual production; (3) sufficiency of evidence presented by
petitioner corporation to establish that it is indeed entitled to input VAT refund/credit;
and (4) legal ground for granting the motion of petitioner corporation for re-opening of
its cases or holding of new trial before the CTA so it could be given the opportunity to
present the required evidence.
Prescription
The prescriptive period for filing an application for tax refund/credit of input VAT on zero-
rated sales made in 1990 and 1992 was governed by Section 106(b) and (c) of the Tax
Code of 1977, as amended, which provided that –
SEC. 106. Refunds or tax credits of input tax. – x x x.
(b) Zero-rated or effectively zero-rated sales. – Any person, except those covered by
paragraph (a) above, whose sales are zero-rated may, within two years after the close of
the quarter when such sales were made, apply for the issuance of a tax credit certificate
or refund of the input taxes attributable to such sales to the extent that such input tax
has not been applied against output tax.
xxxx
(e) Period within which refund of input taxes may be made by the Commissioner. – The
Commissioner shall refund input taxes within 60 days from the date the application for
refund was filed with him or his duly authorized representative. No refund of input taxes
shall be allowed unless the VAT-registered person files an application for refund within
the period prescribed in paragraphs (a), (b) and (c) as the case may be.
By a plain reading of the foregoing provision, the two-year prescriptive period for filing
the application for refund/credit of input VAT on zero-rated sales shall be determined
from the close of the quarter when such sales were made.
Petitioner contends, however, that the said two-year prescriptive period should be
counted, not from the close of the quarter when the zero-rated sales were made, but
from the date of filing of the quarterly VAT return and payment of the tax due 20 days
thereafter, in accordance with Section 110(b) of the Tax Code of 1977, as amended,
quoted as follows –
SEC. 110. Return and payment of value-added tax. – x x x.
(b) Time for filing of return and payment of tax. – The return shall be filed and the tax
paid within 20 days following the end of each quarter specifically prescribed for a VAT-
registered person under regulations to be promulgated by the Secretary of Finance:
Provided, however, That any person whose registration is cancelled in accordance with
paragraph (e) of Section 107 shall file a return within 20 days from the cancellation of
such registration.
It is already well-settled that the two-year prescriptive period for instituting a suit or
proceeding for recovery of corporate income tax erroneously or illegally paid under
Section 23013 of the Tax Code of 1977, as amended, was to be counted from the filing of
the final adjustment return. This Court already set out in ACCRA Investments Corporation
v. Court of Appeals,14 the rationale for such a rule, thus –
Clearly, there is the need to file a return first before a claim for refund can prosper
inasmuch as the respondent Commissioner by his own rules and regulations mandates
that the corporate taxpayer opting to ask for a refund must show in its final adjustment
return the income it received from all sources and the amount of withholding taxes
remitted by its withholding agents to the Bureau of Internal Revenue. The petitioner
corporation filed its final adjustment return for its 1981 taxable year on April 15, 1982. In
our Resolution dated April 10, 1989 in the case of Commissioner of Internal Revenue v.
Asia Australia Express, Ltd. (G.R. No. 85956), we ruled that the two-year prescriptive
period within which to claim a refund commences to run, at the earliest, on the date of
the filing of the adjusted final tax return. Hence, the petitioner corporation had until April
15, 1984 within which to file its claim for refund.
Considering that ACCRAIN filed its claim for refund as early as December 29, 1983 with
the respondent Commissioner who failed to take any action thereon and considering
further that the non-resolution of its claim for refund with the said Commissioner
prompted ACCRAIN to reiterate its claim before the Court of Tax Appeals through a
petition for review on April 13, 1984, the respondent appellate court manifestly
committed a reversible error in affirming the holding of the tax court that ACCRAIN's
claim for refund was barred by prescription.
It bears emphasis at this point that the rationale in computing the two-year prescriptive
period with respect to the petitioner corporation's claim for refund from the time it filed
its final adjustment return is the fact that it was only then that ACCRAIN could ascertain
whether it made profits or incurred losses in its business operations. The "date of
payment", therefore, in ACCRAIN's case was when its tax liability, if any, fell due upon its
filing of its final adjustment return on April 15, 1982.
In another case, Commissioner of Internal Revenue v. TMX Sales, Inc.,15 this Court
further expounded on the same matter –
A re-examination of the aforesaid minute resolution of the Court in the Pacific Procon
case is warranted under the circumstances to lay down a categorical pronouncement on
the question as to when the two-year prescriptive period in cases of quarterly corporate
income tax commences to run. A full-blown decision in this regard is rendered more
imperative in the light of the reversal by the Court of Tax Appeals in the instant case of its
previous ruling in the Pacific Procon case.
Section 292 (now Section 230) of the National Internal Revenue Code should be
interpreted in relation to the other provisions of the Tax Code in order to give effect the
legislative intent and to avoid an application of the law which may lead to inconvenience
and absurdity. In the case of People vs. Rivera (59 Phil. 236 [1933]), this Court stated that
statutes should receive a sensible construction, such as will give effect to the legislative
intention and so as to avoid an unjust or an absurd conclusion. INTERPRETATIO TALIS IN
AMBIGUIS SEMPER FRIENDA EST, UT EVITATUR INCONVENIENS ET ABSURDUM. Where
there is ambiguity, such interpretation as will avoid inconvenience and absurdity is to be
adopted. Furthermore, courts must give effect to the general legislative intent that can
be discovered from or is unraveled by the four corners of the statute, and in order to
discover said intent, the whole statute, and not only a particular provision thereof, should
be considered. (Manila Lodge No. 761, et al. vs. Court of Appeals, et al. 73 SCRA 162
[1976) Every section, provision or clause of the statute must be expounded by reference
to each other in order to arrive at the effect contemplated by the legislature. The
intention of the legislator must be ascertained from the whole text of the law and every
part of the act is to be taken into view. (Chartered Bank vs. Imperial, 48 Phil. 931 [1921];
Lopez vs. El Hoger Filipino, 47 Phil. 249, cited in Aboitiz Shipping Corporation vs. City of
Cebu, 13 SCRA 449 [1965]).
Thus, in resolving the instant case, it is necessary that we consider not only Section 292
(now Section 230) of the National Internal Revenue Code but also the other provisions of
the Tax Code, particularly Sections 84, 85 (now both incorporated as Section 68), Section
86 (now Section 70) and Section 87 (now Section 69) on Quarterly Corporate Income Tax
Payment and Section 321 (now Section 232) on keeping of books of accounts. All these
provisions of the Tax Code should be harmonized with each other.
xxxx
Therefore, the filing of a quarterly income tax returns required in Section 85 (now Section
68) and implemented per BIR Form 1702-Q and payment of quarterly income tax should
only be considered mere installments of the annual tax due. These quarterly tax
payments which are computed based on the cumulative figures of gross receipts and
deductions in order to arrive at a net taxable income, should be treated as advances or
portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal
year. This is reinforced by Section 87 (now Section 69) which provides for the filing of
adjustment returns and final payment of income tax. Consequently, the two-year
prescriptive period provided in Section 292 (now Section 230) of the Tax Code should be
computed from the time of filing the Adjustment Return or Annual Income Tax Return
and final payment of income tax.
In the case of Collector of Internal Revenue vs. Antonio Prieto (2 SCRA 1007 [1961]), this
Court held that when a tax is paid in installments, the prescriptive period of two years
provided in Section 306 (Section 292) of the National Internal Revenue Code should be
counted from the date of the final payment. This ruling is reiterated in Commissioner of
Internal Revenue vs. Carlos Palanca (18 SCRA 496 [1966]), wherein this Court stated that
where the tax account was paid on installment, the computation of the two-year
prescriptive period under Section 306 (Section 292) of the Tax Code, should be from the
date of the last installment.
In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the
two-year prescriptive period should be counted from the filing of the Adjustment Return
on April 15,1982, TMX Sales, Inc. is not yet barred by prescription.
The very same reasons set forth in the afore-cited cases concerning the two-year
prescriptive period for claims for refund of illegally or erroneously collected income tax
may also apply to the Petitions at bar involving the same prescriptive period for claims for
refund/credit of input VAT on zero-rated sales.
It is true that unlike corporate income tax, which is reported and paid on installment
every quarter, but is eventually subjected to a final adjustment at the end of the taxable
year, VAT is computed and paid on a purely quarterly basis without need for a final
adjustment at the end of the taxable year. However, it is also equally true that until and
unless the VAT-registered taxpayer prepares and submits to the BIR its quarterly VAT
return, there is no way of knowing with certainty just how much input VAT16 the
taxpayer may apply against its output VAT;17 how much output VAT it is due to pay for
the quarter or how much excess input VAT it may carry-over to the following quarter; or
how much of its input VAT it may claim as refund/credit. It should be recalled that not
only may a VAT-registered taxpayer directly apply against his output VAT due the input
VAT it had paid on its importation or local purchases of goods and services during the
quarter; the taxpayer is also given the option to either (1) carry over any excess input VAT
to the succeeding quarters for application against its future output VAT liabilities, or (2)
file an application for refund or issuance of a tax credit certificate covering the amount of
such input VAT.18 Hence, even in the absence of a final adjustment return, the
determination of any output VAT payable necessarily requires that the VAT-registered
taxpayer make adjustments in its VAT return every quarter, taking into consideration the
input VAT which are creditable for the present quarter or had been carried over from the
previous quarters.
Moreover, when claiming refund/credit, the VAT-registered taxpayer must be able to
establish that it does have refundable or creditable input VAT, and the same has not been
applied against its output VAT liabilities – information which are supposed to be reflected
in the taxpayer's VAT returns. Thus, an application for refund/credit must be
accompanied by copies of the taxpayer's VAT return/s for the taxable quarter/s
concerned.
Lastly, although the taxpayer's refundable or creditable input VAT may not be considered
as illegally or erroneously collected, its refund/credit is a privilege extended to qualified
and registered taxpayers by the very VAT system adopted by the Legislature. Such input
VAT, the same as any illegally or erroneously collected national internal revenue tax,
consists of monetary amounts which are currently in the hands of the government but
must rightfully be returned to the taxpayer. Therefore, whether claiming refund/credit of
illegally or erroneously collected national internal revenue tax, or input VAT, the taxpayer
must be given equal opportunity for filing and pursuing its claim.
For the foregoing reasons, it is more practical and reasonable to count the two-year
prescriptive period for filing a claim for refund/credit of input VAT on zero-rated sales
from the date of filing of the return and payment of the tax due which, according to the
law then existing, should be made within 20 days from the end of each quarter. Having
established thus, the relevant dates in the instant cases are summarized and reproduced
below –
Period Covered
20 April 1994
The above table readily shows that the administrative and judicial claims of petitioner
corporation for refund of its input VAT on its zero-rated sales for the last three quarters
of 1990 were all filed within the prescriptive period.

Date of Filing (Return w/ BIR) However, the same cannot be said for the claim of petitioner corporation for refund of its
input VAT on its zero-rated sales for the first quarter of 1992. Even though it may seem
Date of Filing (Application w/ BIR) that petitioner corporation filed in time its judicial claim with the CTA, there is no
showing that it had previously filed an administrative claim with the BIR. Section 106(e)
Date of Filing (Case w/ CTA)
of the Tax Code of 1977, as amended, explicitly provided that no refund of input VAT shall
be allowed unless the VAT-registered taxpayer filed an application for refund with
2nd Quarter, 1990
respondent Commissioner within the two-year prescriptive period. The application of
20 July 1990 petitioner corporation for refund/credit of its input VAT for the first quarter of 1992 was
not only unsigned by its supposed authorized representative, Ma. Paz R. Semilla,
21 August 1990 Manager-Finance and Treasury, but it was not dated, stamped, and initialed by the BIR
official who purportedly received the same. The CTA, in its Decision,19 dated 24
20 July 1992 November 1997, in CTA Case No. 5102, made the following observations –

3rd Quarter, 1990 This Court, likewise, rejects any probative value of the Application for Tax Credit/Refund
of VAT Paid (BIR Form No. 2552) [Exhibit "B'] formally offered in evidence by the
18 October 1990
petitioner on account of the fact that it does not bear the BIR stamp showing the date
21 November 1990 when such application was filed together with the signature or initial of the receiving
officer of respondent's Bureau. Worse still, it does not show the date of application and
9 October 1992 the signature of a certain Ma. Paz R. Semilla indicated in the form who appears to be
petitioner's authorized filer.
4th Quarter, 1990
A review of the records reveal that the original of the aforecited application was lost
20 January 1991 during the time petitioner transferred its office (TSN, p. 6, Hearing of December 9, 1994).
Attempt was made to prove that petitioner exerted efforts to recover the original copy,
19 February 1991 but to no avail. Despite this, however, We observe that petitioner completely failed to
establish the missing dates and signatures abovementioned. On this score, said
14 January 1993
application has no probative value in demonstrating the fact of its filing within two years
1st Quarter, 1992 after the [filing of the VAT return for the quarter] when petitioner's sales of goods were
made as prescribed under Section 106(b) of the Tax Code. We believe thus that petitioner
20 April 1992 failed to file an application for refund in due form and within the legal period set by law
at the administrative level. Hence, the case at bar has failed to satisfy the requirement on
-- the prior filing of an application for refund with the respondent before the
commencement of a judicial claim for refund, as prescribed under Section 230 of the Tax
Code. This fact constitutes another one of the many reasons for not granting petitioner's
judicial claim.
As pointed out by the CTA, in serious doubt is not only the fact of whether petitioner
corporation timely filed its administrative claim for refund of its input VAT for the first
quarter of 1992, but also whether petitioner corporation actually filed such
administrative claim in the first place. For failing to prove that it had earlier filed with the
BIR an application for refund/credit of its input VAT for the first quarter of 1992, within
the period prescribed by law, then the case instituted by petitioner corporation with the
CTA for the refund/credit of the very same tax cannot prosper.
Revenue Regulations No. 2-88 and the 70% export requirement
Under Section 100(a) of the Tax Code of 1977, as amended, a 10% VAT was imposed on
the gross selling price or gross value in money of goods sold, bartered or exchanged. Yet,
the same provision subjected the following sales made by VAT-registered persons to 0%
VAT –
(1) Export sales; and
(2) Sales to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects such sales to zero-
rate.
"Export Sales" means the sale and shipment or exportation of goods from the Philippines
to a foreign country, irrespective of any shipping arrangement that may be agreed upon
which may influence or determine the transfer of ownership of the goods so exported, or
foreign currency denominated sales. "Foreign currency denominated sales", means sales
to nonresidents of goods assembled or manufactured in the Philippines, for delivery to
residents in the Philippines and paid for in convertible foreign currency remitted through
the banking system in the Philippines.
These are termed zero-rated sales. A zero-rated sale is still considered a taxable
transaction for VAT purposes, although the VAT rate applied is 0%. A sale by a VAT-
registered taxpayer of goods and/or services taxed at 0% shall not result in any output
VAT, while the input VAT on its purchases of goods or services related to such zero-rated
sale shall be available as tax credit or refund.20
Petitioner corporation questions the validity of Revenue Regulations No. 2-88 averring
that the said regulations imposed additional requirements, not found in the law itself, for
the zero-rating of its sales to Philippine Smelting and Refining Corporation (PASAR) and
Philippine Phosphate, Inc. (PHILPHOS), both of which are registered not only with the
BOI, but also with the then Export Processing Zone Authority (EPZA).21
The contentious provisions of Revenue Regulations No. 2-88 read –
SEC. 2. Zero-rating. – (a) Sales of raw materials to BOI-registered exporters. – Sales of raw
materials to export-oriented BOI-registered enterprises whose export sales, under rules
and regulations of the Board of Investments, exceed seventy percent (70%) of total
annual production, shall be subject to zero-rate under the following conditions:
"(1) The seller shall file an application with the BIR, ATTN.: Division, applying for zero-
rating for each and every separate buyer, in accordance with Section 8(d) of Revenue
Regulations No. 5-87. The application should be accompanied with a favorable
recommendation from the Board of Investments."
"(2) The raw materials sold are to be used exclusively by the buyer in the manufacture,
processing or repacking of his own registered export product;
"(3) The words "Zero-Rated Sales" shall be prominently indicated in the sales invoice. The
exporter (buyer) can no longer claim from the Bureau of Internal Revenue or any other
government office tax credits on their zero-rated purchases;
(b) Sales of raw materials to foreign buyer. – Sales of raw materials to a nonresident
foreign buyer for delivery to a resident local export-oriented BOI-registered enterprise to
be used in manufacturing, processing or repacking of the said buyer's goods and paid for
in foreign currency, inwardly remitted in accordance with Central Bank rules and
regulations shall be subject to zero-rate.
It is the position of the respondent Commissioner, affirmed by the CTA and the Court of
Appeals, that Section 2 of Revenue Regulations No. 2-88 should be applied in the cases at
bar; and to be entitled to the zero-rating of its sales to PASAR and PHILPHOS, petitioner
corporation, as a VAT-registered seller, must be able to prove not only that PASAR and
PHILPHOS are BOI-registered corporations, but also that more than 70% of the total
annual production of these corporations are actually exported. Revenue Regulations No.
2-88 merely echoed the requirement imposed by the BOI on export-oriented
corporations registered with it.
While this Court is not prepared to strike down the validity of Revenue Regulations No. 2-
88, it finds that its application must be limited and placed in the proper context. Note
that Section 2 of Revenue Regulations No. 2-88 referred only to the zero-rated sales of
raw materials to export-oriented BOI-registered enterprises whose export sales, under
BOI rules and regulations, should exceed seventy percent (70%) of their total annual
production.
Section 2 of Revenue Regulations No. 2-88, should not have been applied to the zero-
rating of the sales made by petitioner corporation to PASAR and PHILPHOS. At the onset,
it must be emphasized that PASAR and PHILPHOS, in addition to being registered with the
BOI, were also registered with the EPZA and located within an export-processing zone.
Petitioner corporation does not claim that its sales to PASAR and PHILPHOS are zero-
rated on the basis that said sales were made to export-oriented BOI-registered
corporations, but rather, on the basis that the sales were made to EPZA-registered
enterprises operating within export processing zones. Although sales to export-oriented
BOI-registered enterprises and sales to EPZA-registered enterprises located within export
processing zones were both deemed export sales, which, under Section 100(a) of the Tax
Code of 1977, as amended, shall be subject to 0% VAT distinction must be made between
these two types of sales because each may have different substantiation requirements.
The Tax Code of 1977, as amended, gave a limited definition of export sales, to wit: "The
sale and shipment or exportation of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may influence
or determine the transfer of ownership of the goods so exported, or foreign currency
denominated sales." Executive Order No. 226, otherwise known as the Omnibus
Investments Code of 1987 - which, in the years concerned (i.e., 1990 and 1992), governed
enterprises registered with both the BOI and EPZA, provided a more comprehensive
definition of export sales, as quoted below:
"ART. 23. "Export sales" shall mean the Philippine port F.O.B. value, determined from
invoices, bills of lading, inward letters of credit, landing certificates, and other
commercial documents, of export products exported directly by a registered export
producer or the net selling price of export product sold by a registered export producer
or to an export trader that subsequently exports the same: Provided, That sales of export
products to another producer or to an export trader shall only be deemed export sales
when actually exported by the latter, as evidenced by landing certificates of similar
commercial documents: Provided, further, That without actual exportation the following
shall be considered constructively exported for purposes of this provision: (1) sales to
bonded manufacturing warehouses of export-oriented manufacturers; (2) sales to export
processing zones; (3) sales to registered export traders operating bonded trading
warehouses supplying raw materials used in the manufacture of export products under
guidelines to be set by the Board in consultation with the Bureau of Internal Revenue and
the Bureau of Customs; (4) sales to foreign military bases, diplomatic missions and other
agencies and/or instrumentalities granted tax immunities, of locally manufactured,
assembled or repacked products whether paid for in foreign currency or not: Provided,
further, That export sales of registered export trader may include commission income;
and Provided, finally, That exportation of goods on consignment shall not be deemed
export sales until the export products consigned are in fact sold by the consignee.
Sales of locally manufactured or assembled goods for household and personal use to
Filipinos abroad and other non-residents of the Philippines as well as returning Overseas
Filipinos under the Internal Export Program of the government and paid for in convertible
foreign currency inwardly remitted through the Philippine banking systems shall also be
considered export sales. (Underscoring ours.)
The afore-cited provision of the Omnibus Investments Code of 1987 recognizes as export
sales the sales of export products to another producer or to an export trader, provided
that the export products are actually exported. For purposes of VAT zero-rating, such
producer or export trader must be registered with the BOI and is required to actually
export more than 70% of its annual production.
Without actual exportation, Article 23 of the Omnibus Investments Code of 1987 also
considers constructive exportation as export sales. Among other types of constructive
exportation specifically identified by the said provision are sales to export processing
zones. Sales to export processing zones are subjected to special tax treatment. Article 77
of the same Code establishes the tax treatment of goods or merchandise brought into the
export processing zones. Of particular relevance herein is paragraph 2, which provides
that "Merchandise purchased by a registered zone enterprise from the customs territory
and subsequently brought into the zone, shall be considered as export sales and the
exporter thereof shall be entitled to the benefits allowed by law for such transaction."
Such tax treatment of goods brought into the export processing zones are only consistent
with the Destination Principle and Cross Border Doctrine to which the Philippine VAT
system adheres. According to the Destination Principle,22 goods and services are taxed Any enterprise whose export sales exceed 70% of the total annual production of the
only in the country where these are consumed. In connection with the said principle, the preceding taxable year shall be considered an export-oriented enterprise upon
Cross Border Doctrine23 mandates that no VAT shall be imposed to form part of the cost accreditation as such under the provisions of the Export Development Act (R.A. 7844) and
of the goods destined for consumption outside the territorial border of the taxing its implementing rules and regulations;
authority. Hence, actual export of goods and services from the Philippines to a foreign
country must be free of VAT, while those destined for use or consumption within the (4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and
Philippines shall be imposed with 10% VAT.24 Export processing zones25 are to be
(5) Those considered export sales under Articles 23 and 77 of Executive Order No. 226,
managed as a separate customs territory from the rest of the Philippines and, thus, for
otherwise known as the Omnibus Investments Code of 1987, and other special laws, e.g.
tax purposes, are effectively considered as foreign territory. For this reason, sales by
Republic Act No. 7227, otherwise known as the Bases Conversion and Development Act
persons from the Philippine customs territory to those inside the export processing zones
of 1992.
are already taxed as exports.
The Tax Code of 1997, as amended,27 later adopted the foregoing definition of export
Plainly, sales to enterprises operating within the export processing zones are export sales,
sales, which are subject to 0% VAT.
which, under the Tax Code of 1977, as amended, were subject to 0% VAT. It is on this
ground that petitioner corporation is claiming refund/credit of the input VAT on its zero-
This Court then reiterates its conclusion that Section 2 of Revenue Regulations No. 2-88,
rated sales to PASAR and PHILPHOS.
which applied to zero-rated export sales to export-oriented BOI-registered enterprises,
should not be applied to the applications for refund/credit of input VAT filed by
The distinction made by this Court in the preceding paragraphs between the zero-rated
petitioner corporation since it based its applications on the zero-rating of export sales to
sales to export-oriented BOI-registered enterprises and zero-rated sales to EPZA-
enterprises registered with the EPZA and located within export processing zones.
registered enterprises operating within export processing zones is actually supported by
subsequent development in tax laws and regulations. In Revenue Regulations No. 7-95,
Sufficiency of evidence
the Consolidated VAT Regulations, as amended,26 the BIR defined with more precision
what are zero-rated export sales – There can be no dispute that the taxpayer-claimant has the burden of proving the legal
and factual bases of its claim for tax credit or refund, but once it has submitted all the
(1) The sale and actual shipment of goods from the Philippines to a foreign country,
required documents, it is the function of the BIR to assess these documents with
irrespective of any shipping arrangement that may be agreed upon which may influence
purposeful dispatch.28 It therefore falls upon herein petitioner corporation to first
or determine the transfer of ownership of the goods so exported paid for in acceptable
establish that its sales qualify for VAT zero-rating under the existing laws (legal basis), and
foreign currency or its equivalent in goods or services, and accounted for in accordance
then to present sufficient evidence that said sales were actually made and resulted in
with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
refundable or creditable input VAT in the amount being claimed (factual basis).
(2) The sale of raw materials or packaging materials to a non-resident buyer for delivery
It would initially appear that the applications for refund/credit filed by petitioner
to a resident local export-oriented enterprise to be used in manufacturing, processing,
corporation cover only input VAT on its purportedly zero-rated sales to PASAR and
packing or repacking in the Philippines of the said buyer's goods and paid for in
PHILPHOS; however, a more thorough perusal of its applications, VAT returns, pleadings,
acceptable foreign currency and accounted for in accordance with the rules and
and other records of these cases would reveal that it is also claiming refund/credit of its
regulations of the Bangko Sentral ng Pilipinas (BSP);
input VAT on purchases of capital goods and sales of gold to the Central Bank of the
Philippines (CBP).
(3) The sale of raw materials or packaging materials to an export-oriented enterprise
whose export sales exceed seventy percent (70%) of total annual production;
This Court finds that the claims for refund/credit of input VAT of petitioner corporation
have sufficient legal bases.
As has been extensively discussed herein, Section 106(b)(2), in relation to Section
100(a)(2) of the Tax Code of 1977, as amended, allowed the refund/credit of input VAT
on export sales to enterprises operating within export processing zones and registered
with the EPZA, since such export sales were deemed to be effectively zero-rated sales.29
The fact that PASAR and PHILPHOS, to whom petitioner corporation sold its products,
were operating inside an export processing zone and duly registered with EPZA, was
never raised as an issue herein. Moreover, the same fact was already judicially recognized
in the case Atlas Consolidated Mining & Development Corporation v. Commissioner of
Internal Revenue.30 Section 106(c) of the same Code likewise permitted a VAT-registered
taxpayer to apply for refund/credit of the input VAT paid on capital goods imported or
locally purchased to the extent that such input VAT has not been applied against its
output VAT. Meanwhile, the effective zero-rating of sales of gold to the CBP from 1989 to
199131 was already affirmed by this Court in Commissioner of Internal Revenue v.
Benguet Corporation,32 wherein it ruled that –
At the time when the subject transactions were consummated, the prevailing BIR
regulations relied upon by respondent ordained that gold sales to the Central Bank were
zero-rated. The BIR interpreted Sec. 100 of the NIRC in relation to Sec. 2 of E.O. No. 581 s.
1980 which prescribed that gold sold to the Central Bank shall be considered export and
therefore shall be subject to the export and premium duties. In coming out with this
interpretation, the BIR also considered Sec. 169 of Central Bank Circular No. 960 which
states that all sales of gold to the Central Bank are considered constructive exports. x x x.
This Court now comes to the question of whether petitioner corporation has sufficiently
established the factual bases for its applications for refund/credit of input VAT. It is in this
regard that petitioner corporation has failed, both in the administrative and judicial level.
Applications for refund/credit of input VAT with the BIR must comply with the
appropriate revenue regulations. As this Court has already ruled, Revenue Regulations
No. 2-88 is not relevant to the applications for refund/credit of input VAT filed by
petitioner corporation; nonetheless, the said applications must have been in accordance
with Revenue Regulations No. 3-88, amending Section 16 of Revenue Regulations No. 5-
87, which provided as follows –
SECTION 16. Refunds or tax credits of input tax. –
xxxx
(c) Claims for tax credits/refunds. – Application for Tax Credit/Refund of Value-Added Tax
Paid (BIR Form No. 2552) shall be filed with the Revenue District Office of the city or
municipality where the principal place of business of the applicant is located or directly
with the Commissioner, Attention: VAT Division.
A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall
be submitted together with the application. The original copy of the said invoice/receipt,
however, shall be presented for cancellation prior to the issuance of the Tax Credit
Certificate or refund. In addition, the following documents shall be attached whenever
applicable:
xxxx
"3. Effectively zero-rated sale of goods and services.
"i) photo copy of approved application for zero-rate if filing for the first time.
"ii) sales invoice or receipt showing name of the person or entity to whom the sale of
goods or services were delivered, date of delivery, amount of consideration, and
description of goods or services delivered.
"iii) evidence of actual receipt of goods or services.
"4. Purchase of capital goods.
"i) original copy of invoice or receipt showing the date of purchase, purchase price,
amount of value-added tax paid and description of the capital equipment locally
purchased.
"ii) with respect to capital equipment imported, the photo copy of import entry
document for internal revenue tax purposes and the confirmation receipt issued by the
Bureau of Customs for the payment of the value-added tax.
"5. In applicable cases,
where the applicant's zero-rated transactions are regulated by certain government
agencies, a statement therefrom showing the amount and description of sale of goods
and services, name of persons or entities (except in case of exports) to whom the goods
or services were sold, and date of transaction shall also be submitted.
In all cases, the amount of refund or tax credit that may be granted shall be limited to the
amount of the value-added tax (VAT) paid directly and entirely attributable to the zero-
rated transaction during the period covered by the application for credit or refund.
Where the applicant is engaged in zero-rated and other taxable and exempt sales of
goods and services, and the VAT paid (inputs) on purchases of goods and services cannot
be directly attributed to any of the aforementioned transactions, the following formula
shall be used to determine the creditable or refundable input tax for zero-rated sale:
Amount of Zero-rated Sale
Total Sales
X
Total Amount of Input Taxes
= marked by the party concerned and submitted to the Court in order to be made
Amount Creditable/Refundable
In case the application for refund/credit of input VAT was denied or remained unacted
upon by the BIR, and before the lapse of the two-year prescriptive period, the taxpayer-
applicant may already file a Petition for Review before the CTA. If the taxpayer's claim is
supported by voluminous documents, such as receipts, invoices, vouchers or long
accounts, their presentation before the CTA shall be governed by CTA Circular No. 1-95,
as amended, reproduced in full below –
In the interest of speedy administration of justice, the Court hereby promulgates the
following rules governing the presentation of voluminous documents and/or long
accounts, such as receipts, invoices and vouchers, as evidence to establish certain facts
pursuant to Section 3(c), Rule 130 of the Rules of Court and the doctrine enunciated in
Compania Maritima vs. Allied Free Workers Union (77 SCRA 24), as well as Section 8 of
Republic Act No. 1125:
1. The party who desires to introduce as evidence such voluminous documents must,
after motion and approval by the Court, present:
(a) a Summary containing, among others, a chronological listing of the numbers, dates
and amounts covered by the invoices or receipts and the amount/s of tax paid; and (b) a
Certification of an independent Certified Public Accountant attesting to the correctness
of the contents of the summary after making an examination, evaluation and audit of the
voluminous receipts and invoices. The name of the accountant or partner of the firm in
charge must be stated in the motion so that he/she can be commissioned by the Court to
conduct the audit and, thereafter, testify in Court relative to such summary and
certification pursuant to Rule 32 of the Rules of Court.
2. The method of individual presentation of each and every receipt, invoice or account for
marking, identification and comparison with the originals thereof need not be done
before the Court or Clerk of Court anymore after the introduction of the summary and
CPA certification. It is enough that the receipts, invoices, vouchers or other documents
covering the said accounts or payments to be introduced in evidence must be pre-
accessible to the adverse party who desires to check and verify the correctness of the
summary and CPA certification. Likewise, the originals of the voluminous receipts,
invoices or accounts must be ready for verification and comparison in case doubt on the
authenticity thereof is raised during the hearing or resolution of the formal offer of
evidence.
Since CTA Cases No. 4831, 4859, 4944,33 and 5102,34 were still pending before the CTA
when the said Circular was issued, then petitioner corporation must have complied
therewith during the course of the trial of the said cases.
In Commissioner of Internal Revenue v. Manila Mining Corporation,35 this Court denied
the claim of therein respondent, Manila Mining Corporation, for refund of the input VAT
on its supposed zero-rated sales of gold to the CBP because it was unable to substantiate
its claim. In the same case, this Court emphasized the importance of complying with the
substantiation requirements for claiming refund/credit of input VAT on zero-rated sales,
to wit –
For a judicial claim for refund to prosper, however, respondent must not only prove that
it is a VAT registered entity and that it filed its claims within the prescriptive period. It
must substantiate the input VAT paid by purchase invoices or official receipts.
This respondent failed to do.
Revenue Regulations No. 3-88 amending Revenue Regulations No. 5-87 provides the
requirements in claiming tax credits/refunds.
xxxx
Under Section 8 of RA1125, the CTA is described as a court of record. As cases filed
before it are litigated de novo, party litigants should prove every minute aspect of their
cases. No evidentiary value can be given the purchase invoices or receipts submitted to
the BIR as the rules on documentary evidence require that these documents must be
formally offered before the CTA.
This Court thus notes with approval the following findings of the CTA:
x x x [S]ale of gold to the Central Bank should not be subject to the 10% VAT-output tax
but this does not ipso fact mean that [the seller] is entitled to the amount of refund
sought as it is required by law to present evidence showing the input taxes it paid during
the year in question. What is being claimed in the instant petition is the refund of the
input taxes paid by the herein petitioner on its purchase of goods and services. Hence, it
is necessary for the Petitioner to show proof that it had indeed paid the input taxes
during the year 1991. In the case at bar, Petitioner failed to discharge this duty. It did not
adduce in evidence the sales invoice, receipts or other documents showing the input
value added tax on the purchase of goods and services.
xxx
Section 8 of Republic Act 1125 (An Act Creating the Court of Tax Appeals) provides
categorically that the Court of Tax Appeals shall be a court of record and as such it is
required to conduct a formal trial (trial de novo) where the parties must present their
evidence accordingly if they desire the Court to take such evidence into consideration.
(Emphasis and italics supplied)
A "sales or commercial invoice" is a written account of goods sold or services rendered
indicating the prices charged therefor or a list by whatever name it is known which is
used in the ordinary course of business evidencing sale and transfer or agreement to sell
or transfer goods and services.
A "receipt" on the other hand is a written acknowledgment of the fact of payment in
money or other settlement between seller and buyer of goods, debtor or creditor, or
person rendering services and client or customer.
These sales invoices or receipts issued by the supplier are necessary to substantiate the
actual amount or quantity of goods sold and their selling price, and taken collectively are
the best means to prove the input VAT payments.36
Although the foregoing decision focused only on the proof required for the applicant for
refund/credit to establish the input VAT payments it had made on its purchases from
suppliers, Revenue Regulations No. 3-88 also required it to present evidence proving
actual zero-rated VAT sales to qualified buyers, such as (1) photocopy of the approved
application for zero-rate if filing for the first time; (2) sales invoice or receipt showing the
name of the person or entity to whom the goods or services were delivered, date of
delivery, amount of consideration, and description of goods or services delivered; and (3)
the evidence of actual receipt of goods or services.
Also worth noting in the same decision is the weight given by this Court to the
certification by the independent certified public accountant (CPA), thus –
Respondent contends, however, that the certification of the independent CPA attesting
to the correctness of the contents of the summary of suppliers' invoices or receipts which
were examined, evaluated and audited by said CPA in accordance with CTA Circular No.
1-95 as amended by CTA Circular No. 10-97 should substantiate its claims.
There is nothing, however, in CTA Circular No. 1-95, as amended by CTA Circular No. 10-
97, which either expressly or impliedly suggests that summaries and schedules of input
VAT payments, even if certified by an independent CPA, suffice as evidence of input VAT
payments.
xxxx
The circular, in the interest of speedy administration of justice, was promulgated to avoid
the time-consuming procedure of presenting, identifying and marking of documents
before the Court. It does not relieve respondent of its imperative task of pre-marking
photocopies of sales receipts and invoices and submitting the same to the court after the
independent CPA shall have examined and compared them with the originals. Without
presenting these pre-marked documents as evidence – from which the summary and
schedules were based, the court cannot verify the authenticity and veracity of the
independent auditor's conclusions.
There is, moreover, a need to subject these invoices or receipts to examination by the
CTA in order to confirm whether they are VAT invoices. Under Section 21 of Revenue
Regulation, No. 5-87, all purchases covered by invoices other than a VAT invoice shall not
be entitled to a refund of input VAT.
xxxx
While the CTA is not governed strictly by technical rules of evidence, as rules of
procedure are not ends in themselves but are primarily intended as tools in the
administration of justice, the presentation of the purchase receipts and/or invoices is not
mere procedural technicality which may be disregarded considering that it is the only
means by which the CTA may ascertain and verify the truth of the respondent's claims.
The records further show that respondent miserably failed to substantiate its claims for
input VAT refund for the first semester of 1991. Except for the summary and schedules of
input VAT payments prepared by respondent itself, no other evidence was adduced in
support of its claim.
As for respondent's claim for input VAT refund for the second semester of 1991, it
employed the services of Joaquin Cunanan & Co. on account of which it (Joaquin Cunanan
& Co.) executed a certification that:
We have examined the information shown below concerning the input tax payments
made by the Makati Office of Manila Mining Corporation for the period from July 1 to
December 31, 1991. Our examination included inspection of the pertinent suppliers'
invoices and official receipts and such other auditing procedures as we considered
necessary in the circumstances. x x x
As the certification merely stated that it used "auditing procedures considered necessary"
and not auditing procedures which are in accordance with generally accepted auditing
principles and standards, and that the examination was made on "input tax payments by
the Manila Mining Corporation," without specifying that the said input tax payments are
attributable to the sales of gold to the Central Bank, this Court cannot rely thereon and
regard it as sufficient proof of the respondent's input VAT payments for the second
semester.37
As for the Petition in G.R. No. 141104, involving the input VAT of petitioner corporation
on its zero-rated sales in the first quarter of 1992, this Court already found that the
petitioner corporation failed to comply with Section 106(b) of the Tax Code of 1977, as
amended, imposing the two-year prescriptive period for the filing of the application for
refund/credit thereof. This bars the grant of the application for refund/credit, whether
administratively or judicially, by express mandate of Section 106(e) of the same Code.
Granting arguendo that the application of petitioner corporation for the refund/credit of
the input VAT on its zero-rated sales in the first quarter of 1992 was actually and timely
filed, petitioner corporation still failed to present together with its application the
required supporting documents, whether before the BIR or the CTA. As the Court of
Appeals ruled –
In actions involving claims for refund of taxes assessed and collected, the burden of proof
rests on the taxpayer. As clearly discussed in the CTA's decision, petitioner failed to
substantiate its claim for tax refunds. Thus:
"We note, however, that in the cases at bar, petitioner has relied totally on Revenue
Regulations No. 2-88 in determining compliance with the documentary requirements for
a successful refund or issuance of tax credit. Unmentioned is the applicable and specific
amendment later introduced by Revenue Regulations No. 3-88 dated April 7, 1988 (issued
barely after two months from the promulgation of Revenue Regulations No. 2-88 on
February 15, 1988), which amended Section 16 of Revenue Regulations No. 5-87 on
refunds or tax credits of input tax. x x x.
xxxx
"A thorough examination of the evidence submitted by the petitioner before this court
reveals outright the failure to satisfy documentary requirements laid down under the
above-cited regulations. Specifically, petitioner was not able to present the following
documents, to wit:
"a) sales invoices or receipts;
"b) purchase invoices or receipts;
"c) evidence of actual receipt of goods;
"d) BOI statement showing the amount and description of sale of goods, etc.
"e) original or attested copies of invoice or receipt on capital equipment locally
purchased; and
"f) photocopy of import entry document and confirmation receipt on imported capital
equipment.
"There is the need to examine the sales invoices or receipts in order to ascertain the
actual amount or quantity of goods sold and their selling price. Without them, this Court
cannot verify the correctness of petitioner's claim inasmuch as the regulations require
that the input taxes being sought for refund should be limited to the portion that is
directly and entirely attributable to the particular zero-rated transaction. In this instance,
the best evidence of such transaction are the said sales invoices or receipts.
"Also, even if sales invoices are produced, there is the further need to submit evidence
that such goods were actually received by the buyer, in this case, by CBP, Philp[h]os and
PASAR.
xxxx
"Lastly, this Court cannot determine whether there were actual local and imported
purchase of capital goods as well as domestic purchase of non-capital goods without the
required purchase invoice or receipt, as the case may be, and confirmation receipts.
"There is, thus, the imperative need to submit before this Court the original or attested
photocopies of petitioner's invoices or receipts, confirmation receipts and import entry
documents in order that a full ascertainment of the claimed amount may be achieved.
"Petitioner should have taken the foresight to introduce in evidence all of the missing
documents abovementioned. Cases filed before this Court are litigated de novo. This
means that party litigants should endeavor to prove at the first instance every minute
aspect of their cases strictly in accordance with the Rules of Court, most especially on
documentary evidence." (pp. 37-42, Rollo)
Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the
sovereign authority, and should be construed in strictissimi juris against the person or
entity claiming the exemption. The taxpayer who claims for exemption must justify his
claim by the clearest grant of organic or statute law and should not be permitted to stand
on vague implications (Asiatic Petroleum Co. v. Llanes, 49 Phil. 466; Northern Phil.
Tobacco Corp. v. Mun. of Agoo, La Union, 31 SCRA 304; Reagan v. Commissioner, 30 SCRA
968; Asturias Sugar Central, Inc. v. Commissioner of Customs, 29 SCRA 617; Davao Light
and Power Co., Inc. v. Commissioner of Customs, 44 SCRA 122).
There is no cogent reason to fault the CTA's conclusion that the SGV's certificate is "self-
destructive", as it finds comfort in the very SGV's stand, as follows:
"It is our understanding that the above procedure are sufficient for the purpose of the
Company. We make no presentation regarding the sufficiency of these procedures for
such purpose. We did not compare the total of the input tax claimed each quarter against
the pertinent VAT returns and books of accounts. The above procedures do not
constitute an audit made in accordance with generally accepted auditing standards.
Accordingly, we do not express an opinion on the company's claim for input VAT refund
or credit. Had we performed additional procedures, or had we made an audit in
accordance with generally accepted auditing standards, other matters might have come
to our attention that we would have accordingly reported on."
The SGV's "disclaimer of opinion" carries much weight as it is petitioner's independent
auditor. Indeed, SGV expressed that it "did not compare the total of the input tax claimed
each quarter against the VAT returns and books of accounts."38
Moving on to the Petition in G.R. No. 148763, concerning the input VAT of petitioner
corporation on its zero-rated sales in the second, third, and fourth quarters of 1990, the
appellate court likewise found that petitioner corporation failed to sufficiently establish
its claims. Already disregarding the declarations made by the Court of Appeals on its
erroneous application of Revenue Regulations No. 2-88, quoted hereunder is the rest of
the findings of the appellate court after evaluating the evidence submitted in accordance
with the requirements under Revenue Regulations No. 3-88 –
The Secretary of Finance validly adopted Revenue Regulations [No.] x x x 3-98 pursuant to
Sec. 245 of the National Internal Revenue Code, which recognized his power to
"promulgate all needful rules and regulations for the effective enforcement of the
provisions of this Code." Thus, it is incumbent upon a taxpayer intending to file a claim
for refund of input VATs or the issuance of a tax credit certificate with the BIR x x x to
prove sales to such buyers as required by Revenue Regulations No. 3-98. Logically, the
same evidence should be presented in support of an action to recover taxes which have
been paid.
x x x Neither has [herein petitioner corporation] presented sales invoices or receipts
showing sales of gold, copper concentrates, and pyrite to the CBP, [PASAR], and
[PHILPHOS], respectively, and the dates and amounts of the same, nor any evidence of
actual receipt by the said buyers of the mineral products. It merely presented receipts of
purchases from suppliers on which input VATs were allegedly paid. Thus, the Court of Tax
Appeals correctly denied the claims for refund of input VATs or the issuance of tax credit
certificates of petitioner [corporation]. Significantly, in the resolution, dated 7 June 2000,
this Court directed the parties to file memoranda discussing, among others, the
submission of proof for "its [petitioner's] sales of gold, copper concentrates, and pyrite to
buyers." Nevertheless, the parties, including the petitioner, failed to address this issue,
thereby necessitating the affirmance of the ruling of the Court of Tax Appeals on this
point.39
This Court is, therefore, bound by the foregoing facts, as found by the appellate court, for
well-settled is the general rule that the jurisdiction of this Court in cases brought before it
from the Court of Appeals, by way of a Petition for Review on Certiorari under Rule 45 of
the Revised Rules of Court, is limited to reviewing or revising errors of law; findings of
fact of the latter are conclusive.40 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.41
The distinction between a question of law and a question of fact is clear-cut. It has been
held that "[t]here is a question of law in a given case when the doubt or difference arises
as to what the law is on a certain state of facts; there is a question of fact when the doubt
or difference arises as to the truth or falsehood of alleged facts."42
Whether petitioner corporation actually made zero-rated sales; whether it paid input VAT
on these sales in the amount it had declared in its returns; whether all the input VAT
subject of its applications for refund/credit can be attributed to its zero-rated sales; and
whether it had not previously applied the input VAT against its output VAT liabilities, are
all questions of fact which could only be answered after reviewing, examining, evaluating,
or weighing the probative value of the evidence it presented, and which this Court does
not have the jurisdiction to do in the present Petitions for Review on Certiorari under
Rule 45 of the revised Rules of Court.
Granting that there are exceptions to the general rule, when this Court looked into
questions of fact under particular circumstances,43 none of these exist in the instant
cases. The Court of Appeals, in both cases, found a dearth of evidence to support the
claims for refund/credit of the input VAT of petitioner corporation, and the records bear
out this finding. Petitioner corporation itself cannot dispute its non-compliance with the
requirements set forth in Revenue Regulations No. 3-88 and CTA Circular No. 1-95, as
amended. It concentrated its arguments on its assertion that the substantiation
requirements under Revenue Regulations No. 2-88 should not have applied to it, while
being conspicuously silent on the evidentiary requirements mandated by other relevant
regulations.
Re-opening of cases/holding of new trial before the CTA
This Court now faces the final issue of whether the prayer of petitioner corporation for
the re-opening of its cases or holding of new trial before the CTA for the reception of
additional evidence, may be granted. Petitioner corporation prays that the Court exercise
its discretion on the matter in its favor, consistent with the policy that rules of procedure
be liberally construed in pursuance of substantive justice.
This Court, however, cannot grant the prayer of petitioner corporation.
An aggrieved party may file a motion for new trial or reconsideration of a judgment
already rendered in accordance with Section 1, Rule 37 of the revised Rules of Court,
which provides –
SECTION 1. Grounds of and period for filing motion for new trial or reconsideration. –
Within the period for taking an appeal, the aggrieved party may move the trial court to
set aside the judgment or final order and grant a new trial for one or more of the
following causes materially affecting the substantial rights of said party:
(a) Fraud, accident, mistake or excusable negligence which ordinary prudence could not
have guarded against and by reason of which such aggrieved party has probably been
impaired in his rights; or
(b) Newly discovered evidence, which he could not, with reasonable diligence, have
discovered and produced at the trial, and which if presented would probably alter the
result.
Within the same period, the aggrieved party may also move fore reconsideration upon
the grounds that the damages awarded are excessive, that the evidence is insufficient to
justify the decision or final order, or that the decision or final order is contrary to law.
In G.R. No. 148763, petitioner corporation attempts to justify its motion for the re-
opening of its cases and/or holding of new trial before the CTA by contending that the
"[f]ailure of its counsel to adduce the necessary evidence should be construed as
excusable negligence or mistake which should constitute basis for such re-opening of trial
as for a new trial, as counsel was of the belief that such evidence was rendered
unnecessary by the presentation of unrebutted evidence indicating that respondent
[Commissioner] has acknowledged the sale of [sic] PASAR and [PHILPHOS] to be zero-
rated." 44 The CTA denied such motion on the ground that it was not accompanied by an
affidavit of merit as required by Section 2, Rule 37 of the revised Rules of Court. The
Court of Appeals affirmed the denial of the motion, but apart from this technical defect,
it also found that there was no justification to grant the same.
On the matter of the denial of the motion of the petitioner corporation for the re-
opening of its cases and/or holding of new trial based on the technicality that said motion
was unaccompanied by an affidavit of merit, this Court rules in favor of the petitioner
corporation. The facts which should otherwise be set forth in a separate affidavit of merit
may, with equal effect, be alleged and incorporated in the motion itself; and this will be
deemed a substantial compliance with the formal requirements of the law, provided, of
course, that the movant, or other individual with personal knowledge of the facts, take
oath as to the truth thereof, in effect converting the entire motion for new trial into an
affidavit.45 The motion of petitioner corporation was prepared and verified by its
counsel, and since the ground for the motion was premised on said counsel's excusable
negligence or mistake, then the obvious conclusion is that he had personal knowledge of
the facts relating to such negligence or mistake. Hence, it can be said that the motion of
petitioner corporation for the re-opening of its cases and/or holding of new trial was in
substantial compliance with the formal requirements of the revised Rules of Court.
Even so, this Court finds no sufficient ground for granting the motion of petitioner
corporation for the re-opening of its cases and/or holding of new trial.
In G.R. No. 141104, petitioner corporation invokes the Resolution,46 dated 20 July 1998,
by the CTA in another case, CTA Case No. 5296, involving the claim of petitioner
corporation for refund/credit of input VAT for the third quarter of 1993. The said
Resolution allowed the re-opening of CTA Case No. 5296, earlier dismissed by the CTA, to
give the petitioner corporation the opportunity to present the missing export documents.
The rule that the grant or denial of motions for new trial rests on the discretion of the
trial court,47 may likewise be extended to the CTA. When the denial of the motion rests
upon the discretion of a lower court, this Court will not interfere with its exercise, unless
there is proof of grave abuse thereof.48
That the CTA granted the motion for re-opening of one case for the presentation of
additional evidence and, yet, deny a similar motion in another case filed by the same
party, does not necessarily demonstrate grave abuse of discretion or arbitrariness on the
part of the CTA. Although the cases involve identical parties, the causes of action and the
evidence to support the same can very well be different. As can be gleaned from the
Resolution, dated 20 July 1998, in CTA Case No. 5296, petitioner corporation was claiming
refund/credit of the input VAT on its zero-rated sales, consisting of actual export sales, to
Mitsubishi Metal Corporation in Tokyo, Japan. The CTA took into account the
presentation by petitioner corporation of inward remittances of its export sales for the
quarter involved, its Supply Contract with Mitsubishi Metal Corporation, its 1993 Annual
Report showing its sales to the said foreign corporation, and its application for refund. In
contrast, the present Petitions involve the claims of petitioner corporation for
refund/credit of the input VAT on its purchases of capital goods and on its effectively
zero-rated sales to CBP and EPZA-registered enterprises PASAR and PHILPHOS for the
second, third, and fourth quarters of 1990 and first quarter of 1992. There being a
difference as to the bases of the claims of petitioner corporation for refund/credit of
input VAT in CTA Case No. 5926 and in the Petitions at bar, then, there are resulting
variances as to the evidence required to support them.
Moreover, the very same Resolution, dated 20 July 1998, in CTA Case No. 5296, invoked
by petitioner corporation, emphasizes that the decision of the CTA to allow petitioner
corporation to present evidence "is applicable pro hac vice or in this occasion only as it is
the finding of [the CTA] that petitioner [corporation] has established a few of the
aforementioned material points regarding the possible existence of the export
documents together with the prior and succeeding returns for the quarters involved, x x
x" [Emphasis supplied.] Therefore, the CTA, in the present cases, cannot be bound by its
ruling in CTA Case No. 5296, when these cases do not involve the exact same
circumstances that compelled it to grant the motion of petitioner corporation for re-
opening of CTA Case No. 5296.
Finally, assuming for the sake of argument that the non-presentation of the required
documents was due to the fault of the counsel of petitioner corporation, this Court finds
that it does not constitute excusable negligence or mistake which would warrant the re-
opening of the cases and/or holding of new trial.
Under Section 1, Rule 37 of the Revised Rules of Court, the "negligence" must be
excusable and generally imputable to the party because if it is imputable to the counsel,
it is binding on the client. To follow a contrary rule and allow a party to disown his
counsel's conduct would render proceedings indefinite, tentative, and subject to re-
opening by the mere subterfuge of replacing the counsel. What the aggrieved litigant
should do is seek administrative sanctions against the erring counsel and not ask for the
reversal of the court's ruling.49
As elucidated by this Court in another case,50 the general rule is that the client is bound
by the action of his counsel in the conduct of his case and he cannot therefore complain
that the result of the litigation might have been otherwise had his counsel proceeded
differently. It has been held time and again that blunders and mistakes made in the
conduct of the proceedings in the trial court as a result of the ignorance, inexperience or
incompetence of counsel do not qualify as a ground for new trial. If such were to be
admitted as valid reasons for re-opening cases, there would never be an end to litigation
so long as a new counsel could be employed to allege and show that the prior counsel
had not been sufficiently diligent, experienced or learned.
Moreover, negligence, to be "excusable," must be one which ordinary diligence and
prudence could not have guarded against.51 Revenue Regulations No. 3-88, which was
issued on 15 February 1988, had been in effect more than two years prior to the filing by
petitioner corporation of its earliest application for refund/credit of input VAT involved
herein on 21 August 1990. CTA Circular No. 1-95 was issued only on 25 January 1995,
after petitioner corporation had filed its Petitions before the CTA, but still during the
pendency of the cases of petitioner corporation before the tax court. The counsel of
petitioner corporation does not allege ignorance of the foregoing administrative
regulation and tax court circular, only that he no longer deemed it necessary to present
the documents required therein because of the presentation of alleged unrebutted
evidence of the zero-rated sales of petitioner corporation. It was a judgment call made by
the counsel as to which evidence to present in support of his client's cause, later proved
to be unwise, but not necessarily negligent.
Neither is there any merit in the contention of petitioner corporation that the non-
presentation of the required documentary evidence was due to the excusable mistake of
its counsel, a ground under Section 1, Rule 37 of the revised Rules of Court for the grant
of a new trial. "Mistake," as it is referred to in the said rule, must be a mistake of fact, not
of law, which relates to the case.52 In the present case, the supposed mistake made by
the counsel of petitioner corporation is one of law, for it was grounded on his
interpretation and evaluation that Revenue Regulations No. 3-88 and CTA Circular No. 1-
95, as amended, did not apply to his client's cases and that there was no need to comply
with the documentary requirements set forth therein. And although the counsel of
petitioner corporation advocated an erroneous legal position, the effects thereof, which
did not amount to a deprivation of his client's right to be heard, must bind petitioner
corporation. The question is not whether petitioner corporation succeeded in
establishing its interests, but whether it had the opportunity to present its side.53
Besides, litigation is a not a "trial and error" proceeding. A party who moves for a new
trial on the ground of mistake must show that ordinary prudence could not have guarded
against it. A new trial is not a refuge for the obstinate.54 Ordinary prudence in these
cases would have dictated the presentation of all available evidence that would have
supported the claims for refund/credit of input VAT of petitioner corporation. Without
sound legal basis, counsel for petitioner corporation concluded that Revenue Regulations
No. 3-88, and later on, CTA Circular No. 1-95, as amended, did not apply to its client's
claims. The obstinacy of petitioner corporation and its counsel is demonstrated in their
failure, nay, refusal, to comply with the appropriate administrative regulations and tax
court circular in pursuing the claims for refund/credit, now subject of G.R. Nos. 141104
and 148763, even though these were separately instituted in a span of more than two
years. It is also evident in the failure of petitioner corporation to address the issue and to
present additional evidence despite being given the opportunity to do so by the Court of
Appeals. As pointed out by the appellate court, in its Decision, dated 15 September 2000,
in CA-G.R. SP No. 46718 –
x x x Significantly, in the resolution, dated 7 June 2000, this Court directed the parties to
file memoranda discussing, among others, the submission of proof for "its [petitioner's]
sales of gold, copper concentrates, and pyrite to buyers." Nevertheless, the parties,
including the petitioner, failed to address this issue, thereby necessitating the affirmance
of the ruling of the Court of Tax Appeals on this point.55
Summary
Hence, although this Court agreed with the petitioner corporation that the two-year
prescriptive period for the filing of claims for refund/credit of input VAT must be counted
from the date of filing of the quarterly VAT return, and that sales to EPZA-registered
enterprises operating within economic processing zones were effectively zero-rated and
were not covered by Revenue Regulations No. 2-88, it still denies the claims of petitioner
corporation for refund of its input VAT on its purchases of capital goods and effectively
zero-rated sales during the second, third, and fourth quarters of 1990 and the first
quarter of 1992, for not being established and substantiated by appropriate and
sufficient evidence. Petitioner corporation is also not entitled to the re-opening of its
cases and/or holding of new trial since the non-presentation of the required
documentary evidence before the BIR and the CTA by its counsel does not constitute
excusable negligence or mistake as contemplated in Section 1, Rule 37 of the revised
Rules of Court.

WHEREFORE, premises considered, the instant Petitions for Review are hereby DENIED,
and the Decisions, dated 6 July 1999 and 15 September 2000, of the Court of Appeals in
CA-G.R. SP Nos. 47607 and 46718, respectively, are hereby AFFIRMED. Costs against
petitioner.
COMMISSIONER OF INTERNAL REVENUE,
Petitioner,
- versus -
MIRANT PAGBILAO CORPORATION (Formerly SOUTHERN ENERGY QUEZON, INC.),
Respondent.
G.R. No. 172129
Present:
Promulgated:
September 12, 2008
x-----------------------------------------------------------------------------------------x
DECISION
VELASCO, JR., J.:
Before us is a Petition for Review on Certiorari under Rule 45 assailing and seeking to set
aside the Decision[1] dated December 22, 2005 of the Court of Appeals (CA) in CA-G.R. SP
No. 78280 which modified the March 18, 2003 Decision[2] of the Court of Tax Appeals
(CTA) in CTA Case No. 6133 entitled Mirant Pagbilao Corporation (Formerly Southern
Energy Quezon, Inc.) v. Commissioner of Internal Revenue and ordered the Bureau of
Internal Revenue (BIR) to refund or issue a tax credit certificate (TCC) in favor of
respondent Mirant Pagbilao Corporation (MPC) in the amount representing its unutilized
input value added tax (VAT) for the second quarter of 1998. Also assailed is the CAs
Resolution[3] of March 31, 2006 denying petitioners motion for reconsideration.
The Facts
MPC, formerly Southern Energy Quezon, Inc., and also formerly known as Hopewell (Phil.)
Corporation, is a domestic firm engaged in the generation of power which it sells to the
National Power Corporation (NPC). For the construction of the electrical and mechanical
equipment portion of its Pagbilao, Quezon plant, which appears to have been undertaken
from 1993 to 1996, MPC secured the services of Mitsubishi Corporation (Mitsubishi) of
Japan.
Under Section 13[4] of Republic Act No. (RA) 6395, the NPCs revised charter, NPC is
exempt from all taxes. In Maceda v. Macaraig,[5] the Court construed the exemption as
covering both direct and indirect taxes.
In the light of the NPCs tax exempt status, MPC, on the belief that its sale of power
generation services to NPC is, pursuant to Sec. 108(B)(3) of the Tax Code,[6] zero-rated
for VAT purposes, filed on December 1, 1997 with Revenue District Office (RDO) No. 60 in
Lucena City an Application for Effective Zero Rating. The application covered the
construction and operation of its Pagbilao power station under a Build, Operate, and
Transfer scheme.
Not getting any response from the BIR district office, MPC refiled its application in the
form of a request for ruling with the VAT Review Committee at the BIR national office on
January 28, 1999. On May 13, 1999, the Commissioner of Internal Revenue issued VAT
Ruling No. 052-99, stating that the supply of electricity by Hopewell Phil. to the NPC, shall
be subject to the zero percent (0%) VAT, pursuant to Section 108 (B) (3) of the National
Internal Revenue Code of 1997.
It must be noted at this juncture that consistent with its belief to be zero-rated, MPC
opted not to pay the VAT component of the progress billings from Mitsubishi for the
period covering April 1993 to September 1996for the E & M Equipment Erection Portion
of MPCs contract with Mitsubishi. This prompted Mitsubishi to advance the VAT
component as this serves as its output VAT which is essential for the determination of its
VAT payment. Apparently, it was only on April 14, 1998 that MPC paid Mitsubishi the VAT
component for the progress billings from April 1993 to September 1996, and for which
Mitsubishi issued Official Receipt (OR) No. 0189 in the aggregate amount of PhP
135,993,570.
On August 25, 1998, MPC, while awaiting approval of its application aforestated, filed its
quarterly VAT return for the second quarter of 1998 where it reflected an input VAT of
PhP 148,003,047.62, which included PhP 135,993,570 supported by OR No. 0189.
Pursuant to the procedure prescribed in Revenue Regulations No. 7-95, MPC filed on
December 20, 1999 an administrative claim for refund of unutilized input VAT in the
amount of PhP 148,003,047.62.
Since the BIR Commissioner failed to act on its claim for refund and obviously to forestall
the running of the two-year prescriptive period under Sec. 229 of the National Internal
Revenue Code (NIRC), MPC went to the CTA via a petition for review, docketed as CTA
Case No. 6133.
Answering the petition, the BIR Commissioner, citing Kumagai-Gumi Co. Ltd. v. CIR,[7]
asserted that MPCs claim for refund cannot be granted for this main reason: MPCs sale of
electricity to NPC is not zero-rated for its failure to secure an approved application for
zero-rating.
Before the CTA, among the issues stipulated by the parties for resolution were, in gist,
the following:
1. Whether or not [MPC] has unapplied or unutilized creditable input VAT for the 2nd
quarter of 1998 attributable to zero-rated sales to NPC which are proper subject for
refund pursuant to relevant provisions of the NIRC;
2. Whether the creditable input VAT of MPC for said period, if any, is substantiated by
documents; and
3. Whether the unutilized creditable input VAT for said quarter, if any, was applied
against any of the VAT output tax of MPC in the subsequent quarter.
To provide support to the CTA in verifying and analyzing documents and figures and
entries contained therein, the Sycip Gorres & Velayo (SGV), an independent auditing firm,
was commissioned.
The Ruling of the CTA
On the basis of its affirmative resolution of the first issue, the CTA, by its Decision dated
March 18, 2003, granted MPCs claim for input VAT refund or credit, but only for the
amount of PhP 10,766,939.48. The fallo of the CTAs decision reads:
In view of all the foregoing, the instant petition is PARTIALLY GRANTED. Accordingly,
respondent is hereby ORDERED to REFUND or in the alternative, ISSUE A TAX CREDIT
CERTIFICATE in favor of the petitioner its unutilized input VAT payments directly
attributable to its effectively zero-rated sales for the second quarter of 1998 in the
reduced amount of P10,766,939.48, computed as follows:
Claimed Input VAT P148,003,047.62
Less: Disallowances
a.) As summarized by SGV & Co. in its initial report (Exh. P)
I. Input Taxes on Purchases of Services:
1. Supported by documents other than VAT Ors P 10,629.46
2. Supported by photocopied VAT OR 879.09
II. Input Taxes on Purchases of Goods:
1. Supported by documents other than
VAT invoices 165,795.70
2. Supported by Invoices with TIN only 1,781.82
3. Supported by photocopied VAT
invoices 3,153.62
III. Input Taxes on Importation of Goods:
1. Supported by photocopied documents
[IEDs and/or Bureau of Customs
(BOC) Ors] 716,250.00
2. Supported by brokers computations 91,601.00 990,090.69
b.) Input taxes without supporting documents as
summarized in Annex A of SGV & Co.s
supplementary report (CTA records, page 134) 252,447.45
c.) Claimed input taxes on purchases of services from
Mitsubishi Corp. for being substantiated by dubious OR 135,996,570.00[8]
Refundable Input P10,766,939.48
SO ORDERED.[9]
Explaining the disallowance of over PhP 137 million claimed input VAT, the CTA stated
that most of MPCs purchases upon which it anchored its claims for refund or tax credit
have not been amply substantiated by pertinent documents, such as but not limited to
VAT ORs, invoices, and other supporting documents. Wrote the CTA:
We agree with the above SGV findings that out of the remaining taxes of
P136,246,017.45, the amount of P252,477.45 was not supported by any document and
should therefore be outrightly disallowed.
As to the claimed input tax of P135,993,570.00 (P136,246,017.45 less P252,477.45 ) on
purchases of services from Mitsubishi Corporation, Japan, the same is found to be of
doubtful veracity. While it is true that said amount is substantiated by a VAT official
receipt with Serial No. 0189 dated April 14, 1998 x x x, it must be observed, however, that
said VAT allegedly paid pertains to the services which were rendered for the period 1993
to 1996. x x x
The Ruling of the CA
Aggrieved, MPC appealed the CTAs Decision to the CA via a petition for review under Rule
43, docketed as CA-G.R. SP No. 78280. On December 22, 2005, the CA rendered its
assailed decision modifying that of the CTA decision by granting most of MPCs claims for
tax refund or credit. And in a Resolution of March 31, 2006, the CA denied the BIR
Commissioners motion for reconsideration. The decretal portion of the CA decision reads:
WHEREFORE, premises considered, the instant petition is GRANTED. The assailed
Decision of the Court of Tax Appeals dated March 18, 2003 is hereby MODIFIED.
Accordingly, respondent Commissioner of Internal Revenue is ordered to refund or issue
a tax credit certificate in favor of petitioner Mirant Pagbilao Corporation its unutilized
input VAT payments directly attributable to its effectively zero-rated sales for the second
quarter of 1998 in the total amount of P146,760,509.48.
SO ORDERED.[10]
The CA agreed with the CTA on MPCs entitlement to (1) a zero-rating for VAT purposes
for its sales and services to tax-exempt NPC; and (2) a refund or tax credit for its
unutilized input VAT for the second quarter of 1998. Their disagreement, however,
centered on the issue of proper documentation, particularly the evidentiary value of OR
No. 0189.
The CA upheld the disallowance of PhP 1,242,538.14 representing zero-rated input VAT
claims supported only by photocopies of VAT OR/Invoice, documents other than VAT
Invoice/OR, and mere brokers computations. But the CA allowed MPCs refund claim of
PhP 135,993,570 representing input VAT payments for purchases of goods and/or
services from Mitsubishi supported by OR No. 0189. The appellate court ratiocinated that
the CTA erred in disallowing said claim since the OR from Mitsubishi was the best
evidence for the payment of input VAT by MPC to Mitsubishi as required under Sec.
110(A)(1)(b) of the NIRC. The CA ruled that the legal requirement of a VAT Invoice/OR to
substantiate creditable input VAT was complied with through OR No. 0189 which must be
viewed as conclusive proof of the payment of input VAT. To the CA, OR No. 0189
represented an undisputable acknowledgment and receipt by Mitsubishi of the input VAT
payment of MPC.
 The CA brushed aside the CTAs ruling and disquisition casting doubt on the veracity and
genuineness of the Mitsubishi-issued OR No. 0189. It reasoned that the issuance date of
the said receipt, April 14, 1998, must be taken conclusively to represent the input VAT
payments made by MPC to Mitsubishi as MPC had no real control on the issuance of the
OR. The CA held that the use of a different exchange rate reflected in the OR is of no
consequence as what the OR undeniably attests and acknowledges was Mitsubishis
receipt of MPCs input VAT payment.
The Issue
Hence, the instant petition on the sole issue of whether or not respondent [MPC] is
entitled to the refund of its input VAT payments made from 1993 to 1996 amounting to
[PhP] 146,760,509.48.[11]
The Courts Ruling
As a preliminary matter, it should be stressed that the BIR Commissioner, while making
reference to the figure PhP 146,760,509.48, joins the CA and the CTA on their disposition
on the propriety of the refund of or the issuance of a TCC for the amount of PhP
10,766,939.48. In fine, the BIR Commissioner trains his sight and focuses his arguments
on the core issue of whether or not MPC is entitled to a refund for PhP 135,993,570 (PhP
146,760,509.48 - PhP 10,766,939.48 = PhP 135,993,570) it allegedly paid as creditable
input VAT for services and goods purchased from Mitsubishi during the 1993 to 1996
stretch.
The divergent factual findings and rulings of the CTA and CA impel us to evaluate the
evidence adduced below, particularly the April 14, 1998 OR 0189 in the amount of PhP
135,996,570 [for US$ 5,190,000 at US$1: PhP 26.203 rate of exchange]. Verily, a claim for
tax refund may be based on a statute granting tax exemption, or, as Commissioner of
Internal Revenue v. Fortune Tobacco Corporation[12] would have it, the result of
legislative grace. In such case, the claim is to be construed strictissimi juris against the
taxpayer,[13] meaning that the claim cannot be made to rest on vague inference. Where
the rule of strict interpretation against the taxpayer is applicable as the claim for refund
partakes of the nature of an exemption, the claimant must show that he clearly falls
under the exempting statute. On the other hand, a tax refund may be, as usually it is,
predicated on tax refund provisions allowing a refund of erroneous or excess payment of
tax. The return of what was erroneously paid is founded on the principle of solutio
indebiti, a basic postulate that no one should unjustly enrich himself at the expense of
another. The caveat against unjust enrichment covers the government.[14] And as
decisional law teaches, a claim for tax refund proper, as here, necessitates only the
preponderance-of-evidence threshold like in any ordinary civil case.[15]
We apply the foregoing elementary principles in our evaluation on whether OR 0189, in
the backdrop of the factual antecedents surrounding its issuance, sufficiently proves the
alleged unutilized input VAT claimed by MPC.
The Court can review issues of fact where there are divergent findings by the trial and
appellate courts
As a matter of sound practice, the Court refrains from reviewing the factual
determinations of the CA or reevaluate the evidence upon which its decision is founded.
One exception to this rule is when the CA and the trial court diametrically differ in their
findings,[16] as here. In such a case, it is incumbent upon the Court to review and
determine if the CA might have overlooked, misunderstood, or misinterpreted certain
facts or circumstances of weight, which, if properly considered, would justify a different
conclusion.[17] In the instant case, the CTA, unlike the CA, doubted the veracity of OR No.
0189 and did not appreciate the same to support MPCs claim for tax refund or credit.
Petitioner BIR Commissioner, echoing the CTAs stand, argues against the sufficiency of
OR No. 0189 to prove unutilized input VAT payment by MPC. He states in this regard that
the BIR can require additional evidence to prove and ascertain payment of creditable
input VAT, or that the claim for refund or tax credit was filed within the prescriptive
period, or had not previously been refunded to the taxpayer.
To bolster his position on the dubious character of OR No. 0189, or its insufficiency to
prove input VAT payment by MPC, petitioner proffers the following arguments:
(1) The input tax covered by OR No. 0189 pertains to purchases by MPC from Mitsubishi
covering the period from 1993 to 1996; however, MPCs claim for tax refund or credit was
filed on December 20, 1999, clearly way beyond the two-year prescriptive period set in
Sec. 112 of the NIRC;
(2) MPC failed to explain why OR No. 0189 was issued by Mitsubishi (Manila) when the
invoices which the VAT were originally billed came from the Mitsubishis head office in
Japan;
(3) The exchange rate used in OR No. 0189 was pegged at PhP 26.203: USD 1 or the
exchange rate prevailing in 1993 to 1996, when, on April 14, 1998, the date OR No. 0189
was issued, the exchange rate was already PhP 38.01 to a US dollar;
(4) OR No. 0189 does not show or include payment of accrued interest which Mitsubishi
was charging and demanded from MPC for having advanced a considerable amount of
VAT. The demand, per records, is embodied in the May 12, 1995 letter of Mitsubishi to
MPC;
14, 1998 clearly reflects the belated payment of input VAT corresponding to the payment
of the progress billings from Mitsubishi for the period covering April 7, 1993 to
September 6, 1996. SGV found that OR No. 0189 in the amount of PhP 135,993,570 (USD
5,190,000) was duly supported by bank statement evidencing payment to Mitsubishi
(Japan).[20] Undoubtedly, OR No. 0189 proves payment by MPC of its creditable input
VAT relative to its purchases from Mitsubishi.
OR No. 0189 by itself sufficiently proves payment of VAT

(5) MPC failed to present to the CTA its VAT returns for the second and third quarters of The CA, citing Sec. 110(A)(1)(B) of the NIRC, held that OR No. 0189 constituted sufficient
1995, when the bulk of the VAT payment covered by OR No. 0189specifically PhP proof of payment of creditable input VAT for the progress billings from Mitsubishi for the
109,329,135.17 of the total amount of PhP 135,993,570was billed by Mitsubishi, when period covering April 7, 1993 to September 6, 1996. Sec. 110(A)(1)(B) of the NIRC
such return is necessary to ascertain that the total amount covered by the receipt or a pertinently provides:
large portion thereof was not previously refunded or credited; and
Section 110. Tax Credits.
(6) No other documents proving said input VAT payment were presented except OR No.
0189 which, considering the fact that OR No. 0188 was likewise issued by Mitsubishi and A. Creditable Input Tax.
presented before the CTA but admittedly for payments made by MPC on progress billings
(1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with
covering service purchases from 1993 to 1996, does not clearly show if such input VAT
Section 113 hereof on the following transactions shall be creditable against the output
payment was also paid for the period 1993 to 1996 and would be beyond the two-year
tax:
prescriptive period.
(a) Purchase or importation of goods:
The petition is partly meritorious.
xxxx
Belated payment by MPC of its obligation for creditable input VAT
(b) Purchase of services on which a value-added tax has been actually paid. (Emphasis
As no less found by the CTA, citing the SGVs report, the payments covered by OR No.
ours.)
0189 were for goods and service purchases made by MPC through the progress billings
from Mitsubishi for the period covering April 1993 to September 1996for the E & M
Without necessarily saying that the BIR is precluded from requiring additional evidence to
Equipment Erection Portion of MPCs contract with Mitsubishi.[18] It is likewise
prove that input tax had indeed paid or, in fine, that the taxpayer is indeed entitled to a
undisputed that said payments did not include payments for the creditable input VAT of
tax refund or credit for input VAT, we agree with the CAs above disposition. As the Court
MPC. This fact is shown by the May 12, 1995 letter[19] from Mitsubishi where, as earlier
distinctly notes, the law considers a duly-executed VAT invoice or OR referred to in the
indicated, it apprised MPC of the advances Mitsubishi made for the VAT payments, i.e.,
above provision as sufficient evidence to support a claim for input tax credit. And any
MPCs creditable input VAT, and for which it was holding MPC accountable for interest
doubt as to what OR No. 0189 was for or tended to prove should reasonably be put to
therefor.
rest by the SGV report on which the CTA notably placed much reliance. The SGV report
stated that [OR] No. 0189 dated April 14, 1998 is for the payment of the VAT on the
In net effect, MPC did not, for the VATable MPC-Mitsubishi 1993 to 1996 transactions
progress billings from Mitsubishi Japan for the period April 7, 1993 to September 6, 1996
adverted to, immediately pay the corresponding input VAT. OR No. 0189 issued on April
for the E & M Equipment Erection Portion of the Companys contract with Mitsubishi
Corporation (Japan).[21]
VAT presumably paid on April 14, 1998
While available records do not clearly indicate when MPC actually paid the creditable
input VAT amounting to PhP 135,993,570 (USD 5,190,000) for the aforesaid 1993 to 1996
service purchases, the presumption is that payment was made on the date appearing on
OR No. 0189, i.e., April 14, 1998. In fact, said creditable input VAT was reflected in MPCs
VAT return for the second quarter of 1998.
The aforementioned May 12, 1995 letter from Mitsubishi to MPC provides collaborating
proof of the belated payment of the creditable input VAT angle. To reiterate, Mitsubishi,
via said letter, apprised MPC of the VAT component of the service purchases MPC made
and reminded MPC that Mitsubishi had advanced VAT payments to which Mitsubishi was
entitled and from which it was demanding interest payment. Given the scenario depicted
in said letter, it is understandable why Mitsubishi, in its effort to recover the amount it
advanced, used the PhP 26.203: USD 1 exchange formula in OR No. 0189 for USD
5,190,000.
No showing of interest payment not fatal to claim for refund
Contrary to petitioners posture, the matter of nonpayment by MPC of the interests
demanded by Mitsubishi is not an argument against the fact of payment by MPC of its
creditable input VAT or of the authenticity or genuineness of OR No. 0189; for at the end
of the day, the matter of interest payment was between Mitsubishi and MPC and may
very well be covered by another receipt. But the more important consideration is the fact
that MPC, as confirmed by the SGV, paid its obligation to Mitsubishi, and the latter issued
to MPC OR No. 0189, for the VAT component of its 1993 to 1996 service purchases.
The next question is, whether or not MPC is entitled to a refund or a TCC for the alleged
unutilized input VAT of PhP 135,993,570 covered by OR No. 0189 which sufficiently
proves payment of the input VAT.
We answer the query in the negative.
Claim for refund or tax credit filed out of time
The claim for refund or tax credit for the creditable input VAT payment made by MPC
embodied in OR No. 0189 was filed beyond the period provided by law for such claim.
Sec. 112(A) of the NIRC pertinently reads:
(A) Zero-rated or Effectively Zero-rated Sales. Any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years after the close of the
taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales, except
transitional input tax, to the extent that such input tax has not been applied against
output tax: x x x. (Emphasis ours.)
The above proviso clearly provides in no uncertain terms that unutilized input VAT
payments not otherwise used for any internal revenue tax due the taxpayer must be
claimed within two years reckoned from the close of the taxable quarter when the
relevant sales were made pertaining to the input VAT regardless of whether said tax was
paid or not. As the CA aptly puts it, albeit it erroneously applied the aforequoted Sec.
112(A), [P]rescriptive period commences from the close of the taxable quarter when the
sales were made and not from the time the input VAT was paid nor from the time the
official receipt was issued.[22] Thus, when a zero-rated VAT taxpayer pays its input VAT a
year after the pertinent transaction, said taxpayer only has a year to file a claim for
refund or tax credit of the unutilized creditable input VAT. The reckoning frame would
always be the end of the quarter when the pertinent sales or transaction was made,
regardless when the input VAT was paid. Be that as it may, and given that the last
creditable input VAT due for the period covering the progress billing of September 6,
1996 is the third quarter of 1996 ending on September 30, 1996, any claim for unutilized
creditable input VAT refund or tax credit for said quarter prescribed two years after
September 30, 1996 or, to be precise, on September 30, 1998. Consequently, MPCs claim
for refund or tax credit filed on December 10, 1999 had already prescribed.
Reckoning for prescriptive period under
Secs. 204(C) and 229 of the NIRC inapplicable
To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of the
NIRC which, for the purpose of refund, prescribes a different starting point for the two-
year prescriptive limit for the filing of a claim therefor. Secs. 204(C) and 229 respectively
provide:
Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit
Taxes. The Commissioner may
xxxx
(c) Credit or refund taxes erroneously or illegally received or penalties imposed without
authority, refund the value of internal revenue stamps when they are returned in good
condition by the purchaser, and, in his discretion, redeem or change unused stamps that
have been rendered unfit for use and refund their value upon proof of destruction. No
credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing
with the Commissioner a claim for credit or refund within two (2) years after the payment
of the tax or penalty: Provided, however, That a return filed showing an overpayment
shall be considered as a written claim for credit or refund.
xxxx
Sec. 229. Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter
alleged to have been erroneously or illegally assessed or collected, or of any penalty
claimed to have been collected without authority, of any sum alleged to have been
excessively or in any manner wrongfully collected without authority, or of any sum
alleged to have been excessively or in any manner wrongfully collected, until a claim for
refund or credit has been duly filed with the Commissioner; but such suit or proceeding
may be maintained, whether or not such tax, penalty, or sum has been paid under
protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years
from the date of payment of the tax or penalty regardless of any supervening cause that
may arise after payment: Provided, however, That the Commissioner may, even without
a written claim therefor, refund or credit any tax, where on the face of the return upon
which payment was made, such payment appears clearly to have been erroneously paid.
(Emphasis ours.)
Notably, the above provisions also set a two-year prescriptive period, reckoned from date
of payment of the tax or penalty, for the filing of a claim of refund or tax credit. Notably
too, both provisions apply only to instances of erroneous payment or illegal collection of
internal revenue taxes.
MPCs creditable input VAT not erroneously paid
For perspective, under Sec. 105 of the NIRC, creditable input VAT is an indirect tax which
can be shifted or passed on to the buyer, transferee, or lessee of the goods, properties,
or services of the taxpayer. The fact that the subsequent sale or transaction involves a
wholly-tax exempt client, resulting in a zero-rated or effectively zero-rated transaction,
does not, standing alone, deprive the taxpayer of its right to a refund for any unutilized
creditable input VAT, albeit the erroneous, illegal, or wrongful payment angle does not
enter the equation.
In Commissioner of Internal Revenue v. Seagate Technology (Philippines), the Court
explained the nature of the VAT and the entitlement to tax refund or credit of a zero-
rated taxpayer:
Viewed broadly, the VAT is a uniform tax x x x levied on every importation of goods,
whether or not in the course of trade or business, or imposed on each sale, barter,
exchange or lease of goods or properties or on each rendition of services in the course of
trade or business as they pass along the production and distribution chain, the tax being
limited only to the value added to such goods, properties or services by the seller,
transferor or lessor. It is an indirect tax that may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services. As such, it should be understood
not in the context of the person or entity that is primarily, directly and legally liable for its
payment, but in terms of its nature as a tax on consumption. In either case, though, the
same conclusion is arrived at.
The law that originally imposed the VAT in the country, as well as the subsequent
amendments of that law, has been drawn from the tax credit method. Such method
adopted the mechanics and self-enforcement features of the VAT as first implemented
and practiced in Europe x x x. Under the present method that relies on invoices, an entity
can credit against or subtract from the VAT charged on its sales or outputs the VAT paid
on its purchases, inputs and imports.
If at the end of a taxable quarter the output taxes charged by a seller are equal to the
input taxes passed on by the suppliers, no payment is required. It is when the output
taxes exceed the input taxes that the excess has to be paid. If, however, the input taxes
exceed the output taxes, the excess shall be carried over to the succeeding quarter or
quarters. Should the input taxes result from zero-rated or effectively zero-rated
transactions or from the acquisition of capital goods, any excess over the output taxes
shall instead be refunded to the taxpayer or credited against other internal revenue No pronouncement as to costs.
taxes.
SO ORDERED.
xxxx

Zero-rated transactions generally refer to the export sale of goods and supply of services.
The tax rate is set at zero. When applied to the tax base, such rate obviously results in no
tax chargeable against the purchaser. The seller of such transactions charges no output
tax, but can claim a refund of or a tax credit certificate for the VAT previously charged by
suppliers.[23] (Emphasis added.)

Considering the foregoing discussion, it is clear that Sec. 112(A) of the NIRC, providing a
two-year prescriptive period reckoned from the close of the taxable quarter when the
relevant sales or transactions were made pertaining to the creditable input VAT, applies
to the instant case, and not to the other actions which refer to erroneous payment of
taxes.

As a final consideration, the Court wishes to remind the BIR and other tax agencies of
their duty to treat claims for refunds and tax credits with proper attention and urgency.
Had RDO No. 60 and, later, the BIR proper acted, instead of sitting, on MPCs underlying
application for effective zero rating, the matter of addressing MPCs right, or lack of it, to
tax credit or refund could have plausibly been addressed at their level and perchance
freed the taxpayer and the government from the rigors of a tedious litigation.

The all too familiar complaint is that the government acts with dispatch when it comes to
tax collection, but pays little, if any, attention to tax claims for refund or exemption. It is
high time our tax collectors prove the cynics wrong.

WHEREFORE, the petition is PARTLY GRANTED. The Decision dated December 22, 2005
and the Resolution dated March 31, 2006 of the CA in CA-G.R. SP No. 78280 are
AFFIRMED with the MODIFICATION that the claim of respondent MPC for tax refund or
credit to the extent of PhP 135,993,570, representing its input VAT payments for service
purchases from Mitsubishi Corporation of Japan for the construction of a portion of its
Pagbilao, Quezon power station, is DENIED on the ground that the claim had prescribed.
Accordingly, petitioner Commissioner of Internal Revenue is ordered to refund or, in the
alternative, issue a tax credit certificate in favor of MPC, its unutilized input VAT
payments directly attributable to its effectively zero-rated sales for the second quarter in
the total amount of PhP 10,766,939.48.
G.R. No. 184823 October 6, 2010
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
AICHI FORGING COMPANY OF ASIA, INC., Respondent.
DECISION
DEL CASTILLO, J.:
A taxpayer is entitled to a refund either by authority of a statute expressly granting such
right, privilege, or incentive in his favor, or under the principle of solutio indebiti requiring
the return of taxes erroneously or illegally collected. In both cases, a taxpayer must prove
not only his entitlement to a refund but also his compliance with the procedural due
process as non-observance of the prescriptive periods within which to file the
administrative and the judicial claims would result in the denial of his claim.
This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set
aside the July 30, 2008 Decision1 and the October 6, 2008 Resolution2 of the Court of Tax
Appeals (CTA) En Banc.
Factual Antecedents
Respondent Aichi Forging Company of Asia, Inc., a corporation duly organized and
existing under the laws of the Republic of the Philippines, is engaged in the
manufacturing, producing, and processing of steel and its by-products.3 It is registered
with the Bureau of Internal Revenue (BIR) as a Value-Added Tax (VAT) entity4 and its
products, "close impression die steel forgings" and "tool and dies," are registered with
the Board of Investments (BOI) as a pioneer status.5
On September 30, 2004, respondent filed a claim for refund/credit of input VAT for the
period July 1, 2002 to September 30, 2002 in the total amount of ₱3,891,123.82 with the
petitioner Commissioner of Internal Revenue (CIR), through the Department of Finance
(DOF) One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center.6
Proceedings before the Second Division of the CTA
On even date, respondent filed a Petition for Review7 with the CTA for the refund/credit
of the same input VAT. The case was docketed as CTA Case No. 7065 and was raffled to
the Second Division of the CTA.
In the Petition for Review, respondent alleged that for the period July 1, 2002 to
September 30, 2002, it generated and recorded zero-rated sales in the amount of
₱131,791,399.00,8 which was paid pursuant to Section 106(A) (2) (a) (1), (2) and (3) of
the National Internal Revenue Code of 1997 (NIRC);9 that for the said period, it incurred
and paid input VAT amounting to ₱3,912,088.14 from purchases and importation
attributable to its zero-rated sales;10 and that in its application for refund/credit filed
with the DOF One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center, it only
claimed the amount of ₱3,891,123.82.11
In response, petitioner filed his Answer12 raising the following special and affirmative
defenses, to wit:
4. Petitioner’s alleged claim for refund is subject to administrative investigation by the
Bureau;
5. Petitioner must prove that it paid VAT input taxes for the period in question;
6. Petitioner must prove that its sales are export sales contemplated under Sections
106(A) (2) (a), and 108(B) (1) of the Tax Code of 1997;
7. Petitioner must prove that the claim was filed within the two (2) year period
prescribed in Section 229 of the Tax Code;
8. In an action for refund, the burden of proof is on the taxpayer to establish its right to
refund, and failure to sustain the burden is fatal to the claim for refund; and
9. Claims for refund are construed strictly against the claimant for the same partake of
the nature of exemption from taxation.13
Trial ensued, after which, on January 4, 2008, the Second Division of the CTA rendered a
Decision partially granting respondent’s claim for refund/credit. Pertinent portions of the
Decision read:
For a VAT registered entity whose sales are zero-rated, to validly claim a refund, Section
112 (A) of the NIRC of 1997, as amended, provides:
SEC. 112. Refunds or Tax Credits of Input Tax. –
(A) Zero-rated or Effectively Zero-rated Sales. – Any VAT-registered person, whose sales
are zero-rated or effectively zero-rated may, within two (2) years after the close of the
taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales, except
transitional input tax, to the extent that such input tax has not been applied against
output tax: x x x
Pursuant to the above provision, petitioner must comply with the following requisites: (1)
the taxpayer is engaged in sales which are zero-rated or effectively zero-rated; (2) the
taxpayer is VAT-registered; (3) the claim must be filed within two years after the close of
the taxable quarter when such sales were made; and (4) the creditable input tax due or
paid must be attributable to such sales, except the transitional input tax, to the extent
that such input tax has not been applied against the output tax.
The Court finds that the first three requirements have been complied [with] by
petitioner.
With regard to the first requisite, the evidence presented by petitioner, such as the Sales
Invoices (Exhibits "II" to "II-262," "JJ" to "JJ-431," "KK" to "KK-394" and "LL") shows that it
is engaged in sales which are zero-rated.
The second requisite has likewise been complied with. The Certificate of Registration with
OCN 1RC0000148499 (Exhibit "C") with the BIR proves that petitioner is a registered VAT
taxpayer.
In compliance with the third requisite, petitioner filed its administrative claim for refund
on September 30, 2004 (Exhibit "N") and the present Petition for Review on September
30, 2004, both within the two (2) year prescriptive period from the close of the taxable
quarter when the sales were made, which is from September 30, 2002.
As regards, the fourth requirement, the Court finds that there are some documents and
claims of petitioner that are baseless and have not been satisfactorily substantiated.
xxxx
In sum, petitioner has sufficiently proved that it is entitled to a refund or issuance of a tax
credit certificate representing unutilized excess input VAT payments for the period July 1,
2002 to September 30, 2002, which are attributable to its zero-rated sales for the same
period, but in the reduced amount of ₱3,239,119.25, computed as follows:
Amount of Claimed Input VAT ₱ 3,891,123.82
Less:
Exceptions as found by the ICPA 41,020.37
Net Creditable Input VAT ₱ 3,850,103.45
Less:
Output VAT Due 610,984.20
Excess Creditable Input VAT ₱ 3,239,119.25
WHEREFORE, premises considered, the present Petition for Review is PARTIALLY
GRANTED. Accordingly, respondent is hereby ORDERED TO REFUND OR ISSUE A TAX
CREDIT CERTIFICATE in favor of petitioner [in] the reduced amount of THREE MILLION
TWO HUNDRED THIRTY NINE THOUSAND ONE HUNDRED NINETEEN AND 25/100 PESOS
(₱3,239,119.25), representing the unutilized input VAT incurred for the months of July to
September 2002.
SO ORDERED.14
Dissatisfied with the above-quoted Decision, petitioner filed a Motion for Partial
Reconsideration,15 insisting that the administrative and the judicial claims were filed
beyond the two-year period to claim a tax refund/credit provided for under Sections
112(A) and 229 of the NIRC. He reasoned that since the year 2004 was a leap year, the
filing of the claim for tax refund/credit on September 30, 2004 was beyond the two-year
period, which expired on September 29, 2004.16 He cited as basis Article 13 of the Civil
Code,17 which provides that when the law speaks of a year, it is equivalent to 365 days.
In addition, petitioner argued that the simultaneous filing of the administrative and the
judicial claims contravenes Sections 112 and 229 of the NIRC.18 According to the
petitioner, a prior filing of an administrative claim is a "condition precedent"19 before a
judicial claim can be filed. He explained that the rationale of such requirement rests not
only on the doctrine of exhaustion of administrative remedies but also on the fact that
the CTA is an appellate body which exercises the power of judicial review over
administrative actions of the BIR. 20
The Second Division of the CTA, however, denied petitioner’s Motion for Partial
Reconsideration for lack of merit. Petitioner thus elevated the matter to the CTA En Banc
via a Petition for Review.21
Ruling of the CTA En Banc
On July 30, 2008, the CTA En Banc affirmed the Second Division’s Decision allowing the
partial tax refund/credit in favor of respondent. However, as to the reckoning point for
counting the two-year period, the CTA En Banc ruled:
Petitioner argues that the administrative and judicial claims were filed beyond the period
allowed by law and hence, the honorable Court has no jurisdiction over the same. In
addition, petitioner further contends that respondent's filing of the administrative and
judicial [claims] effectively eliminates the authority of the honorable Court to exercise
jurisdiction over the judicial claim.
We are not persuaded.
Section 114 of the 1997 NIRC, and We quote, to wit:
SEC. 114. Return and Payment of Value-added Tax. –
(A) In General. – Every person liable to pay the value-added tax imposed under this Title
shall file a quarterly return of the amount of his gross sales or receipts within twenty-five
(25) days following the close of each taxable quarter prescribed for each taxpayer:
Provided, however, That VAT-registered persons shall pay the value-added tax on a
monthly basis.
[x x x x ]
Based on the above-stated provision, a taxpayer has twenty five (25) days from the close
of each taxable quarter within which to file a quarterly return of the amount of his gross
sales or receipts. In the case at bar, the taxable quarter involved was for the period of
July 1, 2002 to September 30, 2002. Applying Section 114 of the 1997 NIRC, respondent
has until October 25, 2002 within which to file its quarterly return for its gross sales or
receipts [with] which it complied when it filed its VAT Quarterly Return on October 20,
2002.
In relation to this, the reckoning of the two-year period provided under Section 229 of
the 1997 NIRC should start from the payment of tax subject claim for refund. As stated
above, respondent filed its VAT Return for the taxable third quarter of 2002 on October
20, 2002. Thus, respondent's administrative and judicial claims for refund filed on
September 30, 2004 were filed on time because AICHI has until October 20, 2004 within
which to file its claim for refund.
In addition, We do not agree with the petitioner's contention that the 1997 NIRC requires
the previous filing of an administrative claim for refund prior to the judicial claim. This
should not be the case as the law does not prohibit the simultaneous filing of the
administrative and judicial claims for refund. What is controlling is that both claims for
refund must be filed within the two-year prescriptive period.
In sum, the Court En Banc finds no cogent justification to disturb the findings and
conclusion spelled out in the assailed January 4, 2008 Decision and March 13, 2008
Resolution of the CTA Second Division. What the instant petition seeks is for the Court En
Banc to view and appreciate the evidence in their own perspective of things, which
unfortunately had already been considered and passed upon.
WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and
DISMISSED for lack of merit. Accordingly, the January 4, 2008 Decision and March 13,
2008 Resolution of the CTA Second Division in CTA Case No. 7065 entitled, "AICHI Forging
Company of Asia, Inc. petitioner vs. Commissioner of Internal Revenue, respondent" are
hereby AFFIRMED in toto.
SO ORDERED.22
Petitioner sought reconsideration but the CTA En Banc denied23 his Motion for
Reconsideration.
Issue
Hence, the present recourse where petitioner interposes the issue of whether
respondent’s judicial and administrative claims for tax refund/credit were filed within the
two-year prescriptive period provided in Sections 112(A) and 229 of the NIRC.24
Petitioner’s Arguments
Petitioner maintains that respondent’s administrative and judicial claims for tax
refund/credit were filed in violation of Sections 112(A) and 229 of the NIRC.25 He posits
that pursuant to Article 13 of the Civil Code,26 since the year 2004 was a leap year, the
filing of the claim for tax refund/credit on September 30, 2004 was beyond the two-year
period, which expired on September 29, 2004.27
Petitioner further argues that the CTA En Banc erred in applying Section 114(A) of the
NIRC in determining the start of the two-year period as the said provision pertains to the
compliance requirements in the payment of VAT.28 He asserts that it is Section 112,
paragraph (A), of the same Code that should apply because it specifically provides for the
period within which a claim for tax refund/ credit should be made.29
Petitioner likewise puts in issue the fact that the administrative claim with the BIR and
the judicial claim with the CTA were filed on the same day.30 He opines that the
simultaneous filing of the administrative and the judicial claims contravenes Section 229
of the NIRC, which requires the prior filing of an administrative claim.31 He insists that
such procedural requirement is based on the doctrine of exhaustion of administrative
remedies and the fact that the CTA is an appellate body exercising judicial review over
administrative actions of the CIR.32
Respondent’s Arguments
For its part, respondent claims that it is entitled to a refund/credit of its unutilized input
VAT for the period July 1, 2002 to September 30, 2002 as a matter of right because it has
substantially complied with all the requirements provided by law.33 Respondent likewise
defends the CTA En Banc in applying Section 114(A) of the NIRC in computing the
prescriptive period for the claim for tax refund/credit. Respondent believes that Section
112(A) of the NIRC must be read together with Section 114(A) of the same Code.34
As to the alleged simultaneous filing of its administrative and judicial claims, respondent
contends that it first filed an administrative claim with the One-Stop Shop Inter-Agency
Tax Credit and Duty Drawback Center of the DOF before it filed a judicial claim with the
CTA.35 To prove this, respondent points out that its Claimant Information Sheet No.
4970236 and BIR Form No. 1914 for the third quarter of 2002,37 which were filed with
the DOF, were attached as Annexes "M" and "N," respectively, to the Petition for Review
filed with the CTA.38 Respondent further contends that the non-observance of the 120-
day period given to the CIR to act on the claim for tax refund/credit in Section 112(D) is
not fatal because what is important is that both claims are filed within the two-year
prescriptive period.39 In support thereof, respondent cites Commissioner of Internal
Revenue v. Victorias Milling Co., Inc.40 where it was ruled that "[i]f, however, the [CIR]
takes time in deciding the claim, and the period of two years is about to end, the suit or
proceeding must be started in the [CTA] before the end of the two-year period without
awaiting the decision of the [CIR]."41 Lastly, respondent argues that even if the period
had already lapsed, it may be suspended for reasons of equity considering that it is not a
jurisdictional requirement.42
Our Ruling
The petition has merit.
Unutilized input VAT must be claimed within two years after the close of the taxable
quarter when the sales were made
In computing the two-year prescriptive period for claiming a refund/credit of unutilized
input VAT, the Second Division of the CTA applied Section 112(A) of the NIRC, which
states:
SEC. 112. Refunds or Tax Credits of Input Tax. –
(A) Zero-rated or Effectively Zero-rated Sales – Any VAT-registered person, whose sales
are zero-rated or effectively zero-rated may, within two (2) years after the close of the
taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales, except
transitional input tax, to the extent that such input tax has not been applied against
output tax: Provided, however, That in the case of zero-rated sales under Section
106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign currency
exchange proceeds thereof had been duly accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the
taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or
exempt sale of goods or properties or services, and the amount of creditable input tax
due or paid cannot be directly and entirely attributed to any one of the transactions, it
shall be allocated proportionately on the basis of the volume of sales. (Emphasis
supplied.)
The CTA En Banc, on the other hand, took into consideration Sections 114 and 229 of the
NIRC, which read:
SEC. 114. Return and Payment of Value-Added Tax. –
(A) In General. – Every person liable to pay the value-added tax imposed under this Title
shall file a quarterly return of the amount of his gross sales or receipts within twenty-five
(25) days following the close of each taxable quarter prescribed for each taxpayer:
Provided, however, That VAT-registered persons shall pay the value-added tax on a
monthly basis.
Any person, whose registration has been cancelled in accordance with Section 236, shall
file a return and pay the tax due thereon within twenty-five (25) days from the date of
cancellation of registration: Provided, That only one consolidated return shall be filed by
the taxpayer for his principal place of business or head office and all branches.
xxxx
SEC. 229. Recovery of tax erroneously or illegally collected. –
No suit or proceeding shall be maintained in any court for the recovery of any national
internal revenue tax hereafter alleged to have been erroneously or illegally assessed or
collected, or of any penalty claimed to have been collected without authority, or of any
sum alleged to have been excessively or in any manner wrongfully collected, until a claim
for refund or credit has been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax, penalty or sum has been paid
under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years
from the date of payment of the tax or penalty regardless of any supervening cause that
may arise after payment: Provided, however, That the Commissioner may, even without
written claim therefor, refund or credit any tax, where on the face of the return upon
which payment was made, such payment appears clearly to have been erroneously paid.
(Emphasis supplied.)
Hence, the CTA En Banc ruled that the reckoning of the two-year period for filing a claim
for refund/credit of unutilized input VAT should start from the date of payment of tax
and not from the close of the taxable quarter when the sales were made.43
The pivotal question of when to reckon the running of the two-year prescriptive period,
however, has already been resolved in Commissioner of Internal Revenue v. Mirant
Pagbilao Corporation,44 where we ruled that Section 112(A) of the NIRC is the applicable
provision in determining the start of the two-year period for claiming a refund/credit of
unutilized input VAT, and that Sections 204(C) and 229 of the NIRC are inapplicable as
"both provisions apply only to instances of erroneous payment or illegal collection of
internal revenue taxes."45 We explained that:
The above proviso [Section 112 (A) of the NIRC] clearly provides in no uncertain terms
that unutilized input VAT payments not otherwise used for any internal revenue tax due
the taxpayer must be claimed within two years reckoned from the close of the taxable
quarter when the relevant sales were made pertaining to the input VAT regardless of
whether said tax was paid or not. As the CA aptly puts it, albeit it erroneously applied the
aforequoted Sec. 112 (A), "[P]rescriptive period commences from the close of the taxable
quarter when the sales were made and not from the time the input VAT was paid nor
from the time the official receipt was issued." Thus, when a zero-rated VAT taxpayer pays
its input VAT a year after the pertinent transaction, said taxpayer only has a year to file a
claim for refund or tax credit of the unutilized creditable input VAT. The reckoning frame
would always be the end of the quarter when the pertinent sales or transaction was
made, regardless when the input VAT was paid. Be that as it may, and given that the last
creditable input VAT due for the period covering the progress billing of September 6,
1996 is the third quarter of 1996 ending on September 30, 1996, any claim for unutilized
creditable input VAT refund or tax credit for said quarter prescribed two years after
September 30, 1996 or, to be precise, on September 30, 1998. Consequently, MPC’s claim
for refund or tax credit filed on December 10, 1999 had already prescribed.
Reckoning for prescriptive period under
Secs. 204(C) and 229 of the NIRC inapplicable
To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of the
NIRC which, for the purpose of refund, prescribes a different starting point for the two-
year prescriptive limit for the filing of a claim therefor. Secs. 204(C) and 229 respectively
provide:
Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit
Taxes. – The Commissioner may –
xxxx
(c) Credit or refund taxes erroneously or illegally received or penalties imposed without
authority, refund the value of internal revenue stamps when they are returned in good
condition by the purchaser, and, in his discretion, redeem or change unused stamps that
have been rendered unfit for use and refund their value upon proof of destruction. No
credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing
with the Commissioner a claim for credit or refund within two (2) years after the payment
of the tax or penalty: Provided, however, That a return filed showing an overpayment
shall be considered as a written claim for credit or refund.
xxxx
Sec. 229. Recovery of Tax Erroneously or Illegally Collected. – No suit or proceeding shall
be maintained in any court for the recovery of any national internal revenue tax hereafter
alleged to have been erroneously or illegally assessed or collected, or of any penalty
claimed to have been collected without authority, of any sum alleged to have been
excessively or in any manner wrongfully collected without authority, or of any sum
alleged to have been excessively or in any manner wrongfully collected, until a claim for
refund or credit has been duly filed with the Commissioner; but such suit or proceeding
may be maintained, whether or not such tax, penalty, or sum has been paid under
protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years
from the date of payment of the tax or penalty regardless of any supervening cause that
may arise after payment: Provided, however, That the Commissioner may, even without
a written claim therefor, refund or credit any tax, where on the face of the return upon
which payment was made, such payment appears clearly to have been erroneously paid.
Notably, the above provisions also set a two-year prescriptive period, reckoned from date
of payment of the tax or penalty, for the filing of a claim of refund or tax credit. Notably
too, both provisions apply only to instances of erroneous payment or illegal collection of
internal revenue taxes.
MPC’s creditable input VAT not erroneously paid
For perspective, under Sec. 105 of the NIRC, creditable input VAT is an indirect tax which
can be shifted or passed on to the buyer, transferee, or lessee of the goods, properties,
or services of the taxpayer. The fact that the subsequent sale or transaction involves a
wholly-tax exempt client, resulting in a zero-rated or effectively zero-rated transaction,
does not, standing alone, deprive the taxpayer of its right to a refund for any unutilized
creditable input VAT, albeit the erroneous, illegal, or wrongful payment angle does not
enter the equation.
xxxx
Considering the foregoing discussion, it is clear that Sec. 112 (A) of the NIRC, providing a
two-year prescriptive period reckoned from the close of the taxable quarter when the
relevant sales or transactions were made pertaining to the creditable input VAT, applies
to the instant case, and not to the other actions which refer to erroneous payment of
taxes.46 (Emphasis supplied.)
In view of the foregoing, we find that the CTA En Banc erroneously applied Sections
114(A) and 229 of the NIRC in computing the two-year prescriptive period for claiming
refund/credit of unutilized input VAT. To be clear, Section 112 of the NIRC is the pertinent
provision for the refund/credit of input VAT. Thus, the two-year period should be
reckoned from the close of the taxable quarter when the sales were made.
The administrative claim was timely filed
Bearing this in mind, we shall now proceed to determine whether the administrative
claim was timely filed.
Relying on Article 13 of the Civil Code,47 which provides that a year is equivalent to 365
days, and taking into account the fact that the year 2004 was a leap year, petitioner
submits that the two-year period to file a claim for tax refund/ credit for the period July
1, 2002 to September 30, 2002 expired on September 29, 2004.48
We do not agree. 8th calendar month November 15, 1998 to December 14, 1998

In Commissioner of Internal Revenue v. Primetown Property Group, Inc.,49 we said that 9th calendar month December 15, 1998 to January 14, 1999
as between the Civil Code, which provides that a year is equivalent to 365 days, and the
Administrative Code of 1987, which states that a year is composed of 12 calendar 10th calendar month January 15, 1999 to February 14, 1999
months, it is the latter that must prevail following the legal maxim, Lex posteriori derogat
11th calendar month February 15, 1999 to March 14, 1999
priori.50 Thus:
12th calendar month March 15, 1999 to April 14, 1999
Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative
Code of 1987 deal with the same subject matter – the computation of legal periods.
Year 2 13th calendar month April 15, 1999 to May 14, 1999
Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a
leap year. Under the Administrative Code of 1987, however, a year is composed of 12 14th calendar month May 15, 1999 to June 14, 1999
calendar months. Needless to state, under the Administrative Code of 1987, the number
of days is irrelevant. 15th calendar month June 15, 1999 to July 14, 1999

There obviously exists a manifest incompatibility in the manner of 16th calendar month July 15, 1999 to August 14, 1999

computing legal periods under the Civil Code and the Administrative Code of 1987. For 17th calendar month August 15, 1999 to September 14, 1999
this reason, we hold that Section 31, Chapter VIII, Book I of the Administrative Code of
1987, being the more recent law, governs the computation of legal periods. Lex posteriori 18th calendar month September 15, 1999 to October 14, 1999
derogat priori.
19th calendar month October 15, 1999 to November 14, 1999
Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this case,
20th calendar month November 15, 1999 to December 14, 1999
the two-year prescriptive period (reckoned from the time respondent filed its final
adjusted return on April 14, 1998) consisted of 24 calendar months, computed as follows: 21st calendar month December 15, 1999 to January 14, 2000

Year 1 1st calendar month April 15, 1998 to May 14, 1998 22nd calendar month January 15, 2000 to February 14, 2000

2nd calendar month May 15, 1998 to June 14, 1998 23rd calendar month February 15, 2000 to March 14, 2000

3rd calendar month June 15, 1998 to July 14, 1998 24th calendar month March 15, 2000 to April 14, 2000

4th calendar month
5th calendar month
6th calendar month
July 15, 1998 to August 14, 1998
August 15, 1998 to September 14, 1998
September 15, 1998 to October 14, 1998
We therefore hold that respondent's petition (filed on April 14, 2000) was filed on the
last day of the 24th calendar month from the day respondent filed its final adjusted
return. Hence, it was filed within the reglementary period.51

7th calendar month October 15, 1998 to November 14, 1998

Applying this to the present case, the two-year period to file a claim for tax refund/credit
for the period July 1, 2002 to September 30, 2002 expired on September 30, 2004. Hence,
respondent’s administrative claim was timely filed.
The filing of the judicial claim was premature
However, notwithstanding the timely filing of the administrative claim, we
are constrained to deny respondent’s claim for tax refund/credit for having been filed in
violation of Section 112(D) of the NIRC, which provides that:
SEC. 112. Refunds or Tax Credits of Input Tax. –
xxxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. – In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for
creditable input taxes within one hundred twenty (120) days from the date of submission
of complete documents in support of the application filed in accordance with Subsections
(A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on
the part of the Commissioner to act on the application within the period prescribed
above, the taxpayer affected may, within thirty (30) days from the receipt of the decision
denying the claim or after the expiration of the one hundred twenty day-period, appeal
the decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied.)
Section 112(D) of the NIRC clearly provides that the CIR has "120 days, from the date of
the submission of the complete documents in support of the application [for tax
refund/credit]," within which to grant or deny the claim. In case of full or partial denial by
the CIR, the taxpayer’s recourse is to file an appeal before the CTA within 30 days from
receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to act
on the application for tax refund/credit, the remedy of the taxpayer is to appeal the
inaction of the CIR to CTA within 30 days.
In this case, the administrative and the judicial claims were simultaneously filed on
September 30, 2004. Obviously, respondent did not wait for the decision of the CIR or the
lapse of the 120-day period. For this reason, we find the filing of the judicial claim with
the CTA premature.
Respondent’s assertion that the non-observance of the 120-day period is not fatal to the
filing of a judicial claim as long as both the administrative and the judicial claims are filed
within the two-year prescriptive period52 has no legal basis.
There is nothing in Section 112 of the NIRC to support respondent’s view. Subsection (A)
of the said provision states that "any VAT-registered person, whose sales are zero-rated
or effectively zero-rated may, within two years after the close of the taxable quarter
when the sales were made, apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales." The phrase "within two (2)
years x x x apply for the issuance of a tax credit certificate or refund" refers to
applications for refund/credit filed with the CIR and not to appeals made to the CTA. This
is apparent in the first paragraph of subsection (D) of the same provision, which states
that the CIR has "120 days from the submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B)" within which to decide on
the claim.
In fact, applying the two-year period to judicial claims would render nugatory Section
112(D) of the NIRC, which already provides for a specific period within which a taxpayer
should appeal the decision or inaction of the CIR. The second paragraph of Section 112(D)
of the NIRC envisions two scenarios: (1) when a decision is issued by the CIR before the
lapse of the 120-day period; and (2) when no decision is made after the 120-day period.
In both instances, the taxpayer has 30 days within which to file an appeal with the CTA.
As we see it then, the 120-day period is crucial in filing an appeal with the CTA.
With regard to Commissioner of Internal Revenue v. Victorias Milling, Co., Inc.53 relied
upon by respondent, we find the same inapplicable as the tax provision involved in that
case is Section 306, now Section 229 of the NIRC. And as already discussed, Section 229
does not apply to refunds/credits of input VAT, such as the instant case.
In fine, the premature filing of respondent’s claim for refund/credit of input VAT before
the CTA warrants a dismissal inasmuch as no jurisdiction was acquired by the CTA.
WHEREFORE, the Petition is hereby GRANTED. The assailed July 30, 2008 Decision and
the October 6, 2008 Resolution of the Court of Tax Appeals are hereby REVERSED and SET
ASIDE. The Court of Tax Appeals Second Division is DIRECTED to dismiss CTA Case No.
7065 for having been prematurely filed.

SO ORDERED.
G.R. No. 187485 February 12, 2013
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
SAN ROQUE POWER CORPORATION, Respondent.
DECISION
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 CIR’s
petition for review in CTA Case No. 7574. The CTA EB dismissed, for having been
prematurely filed, Taganito Mining Corporation’s (Taganito) judicial claim for
P8,365,664.38 tax refund or credit.
G.R. No. 197156 is a petition for review11 assailing the Decision12promulgated on 3
December 2010 as well as the Resolution13 promulgated on 17 May 2011 by the CTA EB
in CTA EB No. 569. The CTA EB affirmed the 20 July 2009 Decision as well as the 10
November 2009 Resolution of the CTA Second Division in CTA Case No. 7687. The CTA
Second Division denied, due to prescription, Philex Mining Corporation’s (Philex) judicial
claim for P23,956,732.44 tax refund or credit.
On 3 August 2011, the Second Division of this Court resolved14 to consolidate G.R. No.
197156 with G.R. No. 196113, which were pending in the same Division, and with G.R.
No. 187485, which was assigned to the Court En Banc. The Second Division also resolved
to refer G.R. Nos. 197156 and 196113 to the Court En Banc, where G.R. No. 187485, the
lower-numbered case, was assigned.
G.R. No. 187485
CIR v. San Roque Power Corporation
The Facts
The CTA EB’s narration of the pertinent facts is as follows:
[CIR] is the duly appointed Commissioner of Internal Revenue, empowered, among
others, to act upon and approve claims for refund or tax credit, with office at the Bureau
of Internal Revenue ("BIR") National Office Building, Diliman, Quezon City.
[San Roque] is a domestic corporation duly organized and existing under and by virtue of
the laws of the Philippines with principal office at Barangay San Roque, San Manuel,
Pangasinan. It was incorporated in October 1997 to design, construct, erect, assemble,
own, commission and operate power-generating plants and related facilities pursuant to
and under contract with the Government of the Republic of the Philippines, or any
subdivision, instrumentality or agency thereof, or any 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. 005-
017-501. It is likewise registered with the Board of Investments ("BOI") on a preferred
pioneer status, to engage in the design, construction, erection, assembly, as well as to
own, commission, and operate electric power-generating plants and related activities, for
which it was issued Certificate of Registration No. 97-356 on February 11, 1998.
On October 11, 1997, [San Roque] entered into a Power Purchase Agreement ("PPA")
with the National Power Corporation ("NPC") to develop hydro-potential of the Lower
Agno River and generate additional power and energy for the Luzon Power Grid, by
building the San Roque Multi-Purpose Project located in San Manuel, Pangasinan. The
PPA provides, among others, that [San Roque] shall be responsible for the design,
construction, installation, completion, testing and commissioning of the Power Station
and shall operate and maintain the same, subject to NPC instructions. During the
cooperation period of twenty-five (25) years commencing from the completion date of
the Power Station, NPC will take and pay for all electricity available from the Power
Station.
On the construction and development of the San Roque 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.
[CIR’s] inaction on the subject claims led to the filing by [San Roque] of the Petition for
Review with the Court [of Tax Appeals] in Division on April 10, 2003.
Trial of the case ensued and on July 20, 2005, the case was submitted for decision.15
The Court of Tax Appeals’ Ruling: Division
The CTA Second Division initially denied San Roque’s claim. In its Decision16 dated 8
March 2006, it cited the following as bases for the denial of San Roque’s claim: lack of
recorded zero-rated or effectively zero-rated sales; failure to submit documents
specifically identifying the purchased goods/services related to the claimed input VAT
which were included in its Property, Plant and Equipment account; and failure to prove
that the related construction costs were capitalized in its books of account and subjected
to depreciation.
The CTA Second Division required San Roque to show that it complied with the following
requirements of Section 112(B) of Republic Act No. 8424 (RA 8424)17 to be entitled to a
tax refund or credit of input VAT attributable to capital goods imported or locally
purchased: (1) it is a VAT-registered entity; (2) its input taxes claimed were paid on capital
goods duly supported by VAT invoices and/or official receipts; (3) it did not offset or apply
the claimed input VAT payments on capital goods against any output VAT liability; and (4)
its claim for refund was filed within the two-year prescriptive period both in the
administrative and judicial levels.
The CTA Second Division found that San Roque complied with the first, third, and fourth
requirements, thus:
The fact that [San Roque] is a VAT registered entity is admitted (par. 4, Facts Admitted,
Joint Stipulation of Facts, Records, p. 157). It was also established that the instant claim
of ₱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 Roque’s] claim for refund/tax credit certificate of excess input VAT was filed
within the two-year prescriptive period reckoned from the dates of filing of the
corresponding quarterly VAT returns.
For the first, second, third, and fourth quarters of 2001, [San Roque] filed its VAT returns
on April 25, 2001, July 25, 2001, October 23, 2001 and January 24, 2002, respectively
(Exhibits "H, J, L, and N"). These returns were all subsequently amended on March 28,
2003 (Exhibits "I, K, M, and O"). On the other hand, [San Roque] originally filed its
separate claims for refund on July 10, 2001, October 10, 2001, February 21, 2002, and
May 9, 2002 for the first, second, third, and fourth quarters of 2001, respectively,
(Exhibits "EE, FF, GG, and HH") and subsequently filed amended claims for all quarters on
March 28, 2003 (Exhibits "II, JJ, KK, and LL"). Moreover, the Petition for Review was filed
on April 10, 2003. Counting from the respective dates when [San Roque] originally filed
its VAT returns for the first, second, third and fourth quarters of 2001, the administrative
claims for refund (original and amended) and the Petition for Review fall within the two-
year prescriptive period.18
San Roque filed a Motion for New Trial and/or Reconsideration on 7 April 2006. In its 29 The Commissioner filed a Petition for Review before the CTA EB praying for the denial of
November 2007 Amended Decision,19 the CTA Second Division found legal basis to San Roque’s claim for refund or tax credit in its entirety as well as for the setting aside of
partially grant San Roque’s claim. The CTA Second Division ordered the Commissioner to the 29 November 2007 Amended Decision and the 11 July 2008 Resolution in CTA Case
refund or issue a tax credit in favor of San Roque in the amount of ₱483,797,599.65, No. 6647.
which represents San Roque’s unutilized input VAT on its purchases of capital goods and
services for the taxable year 2001. The CTA based the adjustment in the amount on the The CTA EB dismissed the CIR’s petition for review and affirmed the challenged decision
findings of the independent certified public accountant. The following reasons were cited and resolution.
for the disallowed claims: erroneous computation; failure to ascertain whether the
The CTA EB cited Commissioner of Internal Revenue v. Toledo Power, Inc.21 and Revenue
related purchases are in the nature of capital goods; and the purchases pertain to capital
Memorandum Circular No. 49-03,22 as its bases for ruling that San Roque’s judicial claim
goods. Moreover, the reduction of claims was based on the following: the difference
was not prematurely filed. The pertinent portions of the Decision state:
between San Roque’s claim and that appearing on its books; the official receipts covering
the claimed input VAT on purchases of local services are not within the period of the
More importantly, the Court En Banc has squarely and exhaustively ruled on this issue in
claim; and the amount of VAT cannot be determined from the submitted official receipts
this wise:
and invoices. The CTA Second Division denied San Roque’s claim for refund or tax credit
of its unutilized input VAT attributable to its zero-rated or effectively zero-rated sales It is true that Section 112(D) of the abovementioned provision applies to the present
because San Roque had no record of such sales for the four quarters of 2001. 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
The dispositive portion of the CTA Second Division’s 29 November 2007 Amended
have repeatedly held that the claim for refund with the BIR and the subsequent appeal to
Decision reads:
the Court of Tax Appeals must be filed within the two-year period.
WHEREFORE, [San Roque’s] "Motion for New Trial and/or Reconsideration" is hereby
Accordingly, the Supreme Court held in the case of Atlas Consolidated Mining and
PARTIALLY GRANTED and this Court’s Decision promulgated on March 8, 2006 in the
Development Corporation vs. Commissioner of Internal Revenue that the two-year
instant case is hereby MODIFIED.
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
Accordingly, [the CIR] is hereby ORDERED to REFUND or in the alternative, to ISSUE A TAX
but the BIR has not yet acted on the application for refund, the taxpayer may interpose a
CREDIT CERTIFICATE in favor of [San Roque] in the reduced amount of Four Hundred
petition for review with this Court within the two year period.
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
In the case of Gibbs vs. Collector, the Supreme Court held that if, however, the Collector
purchases of capital goods and services for the taxable year 2001.
(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
SO ORDERED.20
the end of the two-year period without awaiting the decision of the Collector.
The Commissioner filed a Motion for Partial Reconsideration on 20 December 2007. The
Furthermore, in the case of Commissioner of Customs and Commissioner of Internal
CTA Second Division issued a Resolution dated 11 July 2008 which denied the CIR’s
Revenue vs. The Honorable Court of Tax Appeals and Planters Products, Inc., the
motion for lack of merit.
Supreme Court held that the taxpayer need not wait indefinitely for a decision or ruling
The Court of Tax Appeals’ Ruling: En Banc 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.
42-2003, to wit:
I.) A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as
follows:
In cases where the taxpayer has filed a "Petition for Review" with the Court of Tax
Appeals involving a claim for refund/TCC that is pending at the administrative agency
(Bureau of Internal Revenue or OSS-DOF), the administrative agency and the tax court
may act on the case separately. While the case is pending in the tax court and at the
same time is still under process by the administrative agency, the litigation lawyer of the
BIR, upon receipt of the summons from the tax court, shall request from the head of the
investigating/processing office for the docket containing certified true copies of all the
documents pertinent to the claim. The docket shall be presented to the court as evidence
for the BIR in its defense on the tax credit/refund case filed by the taxpayer. In the
meantime, the investigating/processing office of the administrative agency shall continue
processing the refund/TCC case until such time that a final decision has been reached by
either the CTA or the administrative agency.
If the CTA is able to release its decision ahead of the evaluation of the administrative
agency, the latter shall cease from processing the claim. On the other hand, if the
administrative agency is able to process the claim of the taxpayer ahead of the CTA and
the taxpayer is amenable to the findings thereof, the concerned taxpayer must file a
motion to withdraw the claim with the CTA.23 (Emphasis supplied)
G.R. No. 196113
Taganito Mining Corporation v. CIR
The Facts
The CTA Second Division’s narration of the pertinent facts is as follows:
Petitioner, Taganito Mining Corporation, is a corporation duly organized and existing
under and by virtue of the laws of the Philippines, with principal office at 4th Floor, Solid
Mills Building, De La Rosa St., Lega[s]pi Village, Makati City. It is duly registered with the
Securities and Exchange Commission with Certificate of Registration No. 138682 issued
on March 4, 1987 with the following primary purpose:
To carry on the business, for itself and for others, of mining lode and/or placer mining,
developing, exploiting, extracting, milling, concentrating, converting, smelting, treating,
refining, preparing for market, manufacturing, buying, selling, exchanging, shipping,
transporting, and otherwise producing and dealing in nickel, chromite, cobalt, gold, silver,
copper, lead, zinc, brass, iron, steel, limestone, and all kinds of ores, metals and their by-
products and which by-products thereof of every kind and description and by whatsoever
process the same can be or may hereafter be produced, and generally and without limit
as to amount, to buy, sell, locate, exchange, lease, acquire and deal in lands, mines, and
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,
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 the Return Mode of filing Filing Date
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 L to L-4 1st Original Electronic April 15, 2005
roads, barges, vessels, aircraft and vehicles, private telegraph and telephone lines, and
M to M-3 Amended Electronic July 20, 2005
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
N to N-4 Amended Electronic October 18, 2006
maintain and operate bridges, piers, wharves, wells, reservoirs, plumes, watercourses,
waterworks, aqueducts, shafts, tunnels, furnaces, cook ovens, crushing works, gasworks, Q to Q-3 2nd Original Electronic July 20, 2005
electric lights and power plants and compressed air plants, chemical works of all kinds,
concentrators, smelters, smelting plants, and refineries, matting plants, warehouses, R to R-4 Amended Electronic October 18, 2006
workshops, factories, dwelling houses, stores, hotels or other buildings, engines,
machinery, spare parts, tools, implements and other works, conveniences and properties U to U-4 3rd Original Electronic October 19, 2005
of any description in connection with or which may be directly or indirectly conducive to
V to V-4 Amended Electronic October 18, 2006
any of the objects of the corporation, and to contribute to, subsidize or otherwise aid or
take part in any operations; Y to Y-4 4th Original Electronic January 20, 2006

and is a VAT-registered entity, with Certificate of Registration (BIR Form No. 2303) No. Z to Z-4 Amended Electronic October 18, 2006
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 As can be gleaned from its amended Quarterly VAT Returns, [Taganito] reported zero-
of Registration No. EP-88-306. 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
Respondent, on the other hand, is the duly appointed Commissioner of Internal Revenue P2,314,730.43; and input VAT on its domestic purchases and importations of capital
vested with authority to exercise the functions of the said office, including inter alia, the goods amounting to P6,050,933.95, the details of which are summarized as follows:
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 Period
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 Covered Zero-Rated Sales Input VAT on
City.
Domestic
[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 Purchases and
of the original and amended Quarterly VAT Returns for taxable year 2005 of [Taganito] is
Importations
as follows:
of Goods and

Services Input VAT on

Exhibit(s) Quarter Nature of
Domestic 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
Purchases and Review on February 17, 2007.

Importations In his Answer filed on March 28, 2007, [the CIR] interposes the following defenses:

of Capital 4. [Taganito’s] alleged claim for refund is subject to administrative

investigation/examination by the Bureau of Internal Revenue (BIR);
Goods Total Input VAT
5. The amount of ₱8,365,664.38 being claimed by [Taganito] as alleged unutilized input
01/01/05 -
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;
03/31/05 P551,179,871.58 P1,491,880.56 P239,803.22 P1,731,683.78
6. [Taganito] must prove that it has complied with the provisions of Sections 112 (A) and
04/01/05 -
(D) and 229 of the National Internal Revenue Code of 1997 (1997 Tax Code) on the
06/30/05 64,677,530.78 204,364.17 5,811,130.73 6,015,494.90 prescriptive period for claiming tax refund/credit;

07/01/05 - 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,
09/30/05 480,784,287.30 144,887.67 - 144,887.67 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
10/01/05 - 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,
12/31/05 350,212,345.02 473,598.03 - 473,598.03
requires the submission of complete documents in support of the application filed with
TOTAL P1,446,854,034.68 P2,314,730.43 P6,050,933.95 P8,365,664.38 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, [Taganito’s] failure to submit proof
On November 14, 2006, [Taganito] filed with [the CIR], through BIR’s Large Taxpayers of compliance with the above-stated requirements warrants immediate dismissal of the
Audit and Investigation Division II (LTAID II), a letter dated November 13, 2006 claiming a petition for review.
tax 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 8. [Taganito] must prove that it has complied with the invoicing requirements mentioned
filed an Application for Tax Credits/Refunds for the period covering January 1, 2005 to in Sections 110 and 113 of the 1997 Tax Code, as amended, in relation to provisions of
December 31, 2005 for the same amount. Revene Regulations No. 7-95.

On November 29, 2006, [Taganito] sent again another letter dated November 29, 2004 to 9. In an action for refund/credit, the burden of proof is on the taxpayer to establish its
[the CIR], to correct the period of the above claim for tax credit/refund in the said right to refund, and failure to sustain the burden is fatal to the claim for refund/credit
amount of ₱8,365,664.38 as actually referring to the period covering January 1, 2005 to (Asiatic Petroleum Co. vs. Llanes, 49 Phil. 466 cited in Collector of Internal Revenue vs.
December 31, 2005. Manila Jockey Club, Inc., 98 Phil. 670);

10. Claims for refund are construed strictly against the claimant for the same partake the
nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 31
SCRA 95) and as such, they are looked upon with disfavor (Western Minolco Corp. vs.
Commissioner of Internal Revenue, 124 SCRA 1211).
SPECIAL AND AFFIRMATIVE DEFENSES
11. The Court of Tax Appeals has no jurisdiction to entertain the instant petition for
review for failure on the part of [Taganito] to comply with the provision of Section 112
(D) of the 1997 Tax Code which provides, thus:
Section 112. Refunds or Tax Credits of Input Tax. –
xxx xxx xxx
(D) Period within which refund or Tax Credit of Input Taxes shall be Made. – In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for
creditable input taxes within one hundred (120) days from the date of submission of
complete documents in support of the application filed in accordance with Subsections
(A) and (B) hereof.
In cases of full or partial denial for tax refund or tax credit, or the failure on the part of
the Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from the receipt of the decision denying
the claim or after the expiration of the one hundred twenty 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 [Taganito’s] "Memorandum" filed on January 19, 2009 and [the CIR’s]
"Memorandum" filed on December 19, 2008.24
The Court of Tax Appeals’ Ruling: Division
The CTA Second Division partially granted Taganito’s claim. In its 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 Division’s Decision read:
Finally, records show that [Taganito’s] administrative claim filed on November 14, 2006,
which was amended on November 29, 2006, and the Petition for Review filed with this
Court on February 14, 2007 are well within the two-year prescriptive period, reckoned
from March 31, 2005, June 30, 2005, September 30, 2005, and December 31, 2005,
respectively, the close of each taxable quarter covering the period January 1, 2005 to
December 31, 2005.
In fine, [Taganito] sufficiently proved that it is entitled to a tax credit certificate in the
amount of ₱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 CIR’s motion.
The CTA Second Division ruled that the legislature did not intend that Section 112
(Refunds or Tax Credits of Input Tax) should be read in isolation from Section 229
(Recovery of Tax Erroneously or Illegally Collected) or vice versa. The CTA Second Division
applied the mandatory statute of limitations in seeking judicial recourse prescribed under
Section 229 to claims for refund or tax credit under Section 112.
The Court of Tax Appeals’ Ruling: En Banc
On 29 April 2010, the Commissioner filed a Petition for Review before the CTA EB
assailing the 8 January 2010 Decision and the 7 April 2010 Resolution in CTA Case No.
7574 and praying that Taganito’s entire claim for refund be denied.
In its 8 December 2010 Decision,29 the CTA EB granted the CIR’s petition for review and
reversed and set aside the challenged decision and resolution.
The CTA EB declared that Section 112(A) and (B) of the 1997 Tax Code both set forth the
reckoning of the two-year prescriptive period for filing a claim for tax refund or credit
over input VAT to be the close of the taxable quarter when the sales were made. The CTA
EB also relied on this Court’s rulings in the cases of Commissioner of Internal Revenue v.
Aichi Forging Company of Asia, Inc. (Aichi)30 and 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 Taganito’s judicial claim was prematurely filed.
Taganito filed its Petition for Review before the CTA Second Division on 14 February
2007. The judicial claim was filed after the lapse of only 92 days from the filing of its
administrative claim before the CIR, in violation of the 120-day period prescribed in
Section 112(D) of the 1997 Tax Code.
The dispositive portion of the Decision states:
WHEREFORE, the instant Petition for Review is hereby GRANTED. The assailed Decision
dated January 8, 2010 and Resolution dated April 7, 2010 of the Special Second Division
of this Court are hereby REVERSED and SET ASIDE. Another one is hereby entered
DISMISSING the Petition for Review filed in CTA Case No. 7574 for having been
prematurely filed.
SO ORDERED.32
In his dissent,33 Associate Justice Lovell R. Bautista insisted that Taganito timely filed its
claim before the CTA. Justice Bautista read Section 112(C) of the 1997 Tax Code (Period
within which Refund or Tax Credit of Input Taxes shall be Made) in conjunction with
Section 229 (Recovery of Tax Erroneously or Illegally Collected). Justice Bautista also
relied on this Court’s ruling in Atlas Consolidated Mining and Development Corporation v.
Commissioner of Internal Revenue (Atlas),34 which stated that refundable or creditable
input VAT and illegally or erroneously collected national internal revenue tax are the
same, insofar as both are monetary amounts which are currently in the hands of the
government but must rightfully be returned to the taxpayer. Justice Bautista concluded:
Being merely permissive, a taxpayer claimant has the option of seeking judicial redress
for refund or tax credit of excess or unutilized input tax with this Court, either within 30
days from receipt of the denial of its claim, or after the lapse of the 120-day period in the
event of inaction by the Commissioner, provided that both administrative and judicial
remedies must be undertaken within the 2-year period.35
Taganito filed its Motion for Reconsideration on 29 December 2010. The Commissioner
filed an Opposition on 26 January 2011. The CTA EB denied for lack of merit Taganito’s
motion in a Resolution36 dated 14 March 2011. The CTA EB did not see any justifiable
reason to depart from this Court’s rulings in Aichi and Mirant.
G.R. No. 197156
Philex Mining Corporation v. CIR
The Facts
The CTA EB’s narration of the pertinent facts is as follows:
[Philex] is a corporation duly organized and existing under the laws of the Republic of the
Philippines, which is principally engaged in the mining business, which includes the
exploration and operation of mine properties and commercial production and marketing
of mine products, with office address at 27 Philex Building, Fairlaine St., Kapitolyo, Pasig
City.
[The CIR], on the other hand, is the head of the Bureau of Internal Revenue ("BIR"), the
government entity tasked with the duties/functions of assessing and collecting all
national internal revenue taxes, fees, and charges, and enforcement of all forfeitures,
penalties and fines connected therewith, including the execution of judgments in all cases
decided in its favor by [the Court of Tax Appeals] and the ordinary courts, where she can
be served with court processes at the BIR Head Office, BIR Road, Quezon City.
On October 21, 2005, [Philex] filed its Original VAT Return for the third quarter of taxable
year 2005 and Amended VAT Return for the same quarter on December 1, 2005.
On March 20, 2006, [Philex] filed its claim for refund/tax credit of the amount of
₱23,956,732.44 with the One Stop Shop Center of the Department of Finance. However,
due to [the CIR’s] failure to act on such claim, on October 17, 2007, pursuant to Sections
112 and 229 of the NIRC of 1997, as amended, [Philex] filed a Petition for Review,
docketed as C.T.A. Case No. 7687.
In [her] Answer, respondent CIR alleged the following special and affirmative defenses:
4. Claims for refund are strictly construed against the taxpayer as the same partake the
nature of an exemption;
5. The taxpayer has the burden to show that the taxes were erroneously or illegally paid.
Failure on the part of [Philex] to prove the same is fatal to its cause of action;
6. [Philex] should prove its legal basis for claiming for the amount being refunded.37
The Court of Tax Appeals’ Ruling: Division
The CTA Second Division, in its Decision dated 20 July 2009, denied Philex’s claim due to
prescription. The CTA Second Division ruled that the two-year prescriptive period
specified in Section 112(A) of RA 8424, as amended, applies not only to the filing of the
administrative claim with the BIR, but also to the filing of the judicial claim with the CTA.
Since Philex’s claim covered the 3rd quarter of 2005, its administrative claim filed on 20
March 2006 was timely filed, while its judicial claim filed on 17 October 2007 was filed
late and therefore barred by prescription.
On 10 November 2009, the CTA Second Division denied Philex’s Motion for
Reconsideration.
The Court of Tax Appeals’ Ruling: En Banc
Philex filed a Petition for Review before the CTA EB praying for a reversal of the 20 July
2009 Decision and the 10 November 2009 Resolution of the CTA Second Division in CTA
Case No. 7687.
The CTA EB, in its Decision38 dated 3 December 2010, denied Philex’s petition and
affirmed the CTA Second Division’s Decision and Resolution.
The pertinent portions of the Decision read:
In this case, while there is no dispute that [Philex’s] administrative claim for refund was
filed within the two-year prescriptive period; however, as to its judicial claim for
refund/credit, records show that on March 20, 2006, [Philex] applied the administrative
claim for refund of unutilized input VAT in the amount of ₱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 [Philex’s] Motion for Reconsideration are
hereby AFFIRMED, with modification that the dismissal is based on the ground that the
Petition for Review in CTA Case No. 7687 was filed way beyond the 30-day prescribed
period to appeal.
SO ORDERED.39
G.R. No. 187485
CIR v. San Roque Power Corporation
The Commissioner raised the following grounds in the Petition for Review:
I. The Court of Tax Appeals En Banc erred in holding that [San Roque’s] claim for refund
was not prematurely filed.
II. The Court of Tax Appeals En Banc erred in affirming the amended decision of the Court
of Tax Appeals (Second Division) granting [San Roque’s] claim for refund of alleged
unutilized input VAT on its purchases of capital goods and services for the taxable year
2001 in the amount of P483,797,599.65. 40
G.R. No. 196113
Taganito Mining Corporation v. CIR
Taganito raised the following grounds in its Petition for Review:
I. The Court of Tax Appeals En Banc committed serious error and acted with grave abuse
of discretion tantamount to lack or excess of jurisdiction in erroneously applying the Aichi
doctrine in violation of [Taganito’s] right to due process.
II. The Court of Tax Appeals committed serious error and acted with grave abuse of
discretion amounting to lack or excess of jurisdiction in erroneously interpreting the
provisions of Section 112 (D).41
G.R. No. 197156
Philex Mining Corporation v. CIR
Philex raised the following grounds in its Petition for Review:
I. The CTA En Banc erred in denying the petition due to alleged prescription. The fact is
that the petition was filed with the CTA within the period set by prevailing court rulings at
the time it was filed.
II. The CTA En Banc erred in retroactively applying the Aichi ruling in denying the petition
in this instant case.42
The Court’s Ruling
For ready reference, the following are the provisions of the Tax Code applicable to the
present cases:
Section 105:
Persons Liable. — Any person who, in the course of trade or business, sells, barters,
exchanges, leases goods or properties, renders services, and any person who imports
goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this
Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on
to the buyer, transferee or lessee of the goods, properties or services. This rule shall
likewise apply to existing contracts of sale or lease of goods, properties or services at the
time of the effectivity of Republic Act No. 7716.
xxxx
Section 110(B):
Sec. 110. Tax Credits. —
(B) Excess Output or Input Tax. — If at the end of any taxable quarter the output tax
exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input
tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or
quarters: [Provided, That the input tax inclusive of input VAT carried over from the
previous quarter that may be credited in every quarter shall not exceed seventy percent
(70%) of the output VAT:]43 Provided, however, That any input tax attributable to zero-
rated sales by a VAT-registered person may at his option be refunded or credited against
other internal revenue taxes, subject to the provisions of Section 112.
Section 112:44
Sec. 112. Refunds or Tax Credits of Input Tax. —
(A) Zero-Rated or Effectively Zero-Rated Sales.— Any VAT-registered person, whose sales
are zero-rated or effectively zero-rated may, within two (2) years after the close of the
taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales, except
transitional input tax, to the extent that such input tax has not been applied against
output tax: Provided, however, That in the case of zero-rated sales under Section
106(A)(2) (a)(1), (2) and (B) and Section 108(B)(1) and (2), the acceptable foreign currency
exchange proceeds thereof had been duly accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the
taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or
exempt sale of goods or properties or services, and the amount of creditable input tax
due or paid cannot be directly and entirely attributed to any one of the transactions, it
shall be allocated proportionately on the basis of the volume of sales.
(B) Capital Goods.- A VAT — registered person may apply for the issuance of a tax credit
certificate or refund of input taxes paid on capital goods imported or locally purchased,
to the extent that such input taxes have not been applied against output taxes. The
application may be made only within two (2) years after the close of the taxable quarter
when the importation or purchase was made.
(C) Cancellation of VAT Registration. — A person whose registration has been cancelled
due to retirement from or cessation of business, or due to changes in or cessation of
status under Section 106(C) of this Code may, within two (2) years from the date of
cancellation, apply for the issuance of a tax credit certificate for any unused input tax
which may be used in payment of his other internal revenue taxes
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. — In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for
creditable input taxes within one hundred twenty (120) days from the date of submission
of complete documents in support of the application filed in accordance with Subsection
(A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on
the part of the Commissioner to act on the application within the period prescribed
above, the taxpayer affected may, within thirty (30) days from the receipt of the decision
denying the claim or after the expiration of the one hundred twenty day-period, appeal
the decision or the unacted claim with the Court of Tax Appeals.
(E) Manner of Giving Refund. — Refunds shall be made upon warrants drawn by the
Commissioner or by his duly authorized representative without the necessity of being
countersigned by the Chairman, Commission on Audit, the provisions of the
Administrative Code of 1987 to the contrary notwithstanding: Provided, that refunds
under this paragraph shall be subject to post audit by the Commission on Audit.
Section 229:
Recovery of Tax Erroneously or Illegally Collected. — No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter
alleged to have been erroneously or illegally assessed or collected, or of any penalty
claimed to have been collected without authority, or of any sum alleged to have been
excessively or in any manner wrongfully collected, until a claim for refund or credit has
been duly filed with the Commissioner; but such suit or proceeding may be maintained,
whether or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years
from the date of payment of the tax or penalty regardless of any supervening cause that
may arise after payment: Provided, however, That the Commissioner may, even without
a written claim therefor, refund or credit any tax, where on the face of the return upon
which payment was made, such payment appears clearly to have been erroneously paid.
(All emphases supplied)
I. Application of the 120+30 Day Periods
a. G.R. No. 187485 - CIR v. San Roque Power Corporation
On 10 April 2003, a mere 13 days after it filed its amended administrative claim with the
Commissioner on 28 March 2003, San Roque filed a Petition for Review with the CTA
docketed as CTA Case No. 6647. From this we gather two crucial facts: first, San Roque
did not wait for the 120-day period to lapse before filing its judicial claim; second, San
Roque filed its judicial claim more than four (4) years before the Atlas45 doctrine, which
was promulgated by the Court on 8 June 2007.
Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly
given by law to the Commissioner to decide whether to grant or deny San Roque’s
application for tax refund or credit. It is indisputable that compliance with the 120-day
waiting period is mandatory and jurisdictional. The waiting period, originally fixed at 60
days only, was part of the provisions of the first VAT law, Executive Order No. 273, which
took effect on 1 January 1988. The waiting period was extended to 120 days effective 1
January 1998 under RA 8424 or the Tax Reform Act of 1997. Thus, the waiting period has
been in our statute books for more than fifteen (15) years before San Roque filed its
judicial claim.
Failure to comply with the 120-day waiting period violates a mandatory provision of law.
It violates the doctrine of exhaustion of administrative remedies and renders the petition
premature and thus without a cause of action, with the effect that the CTA does not
acquire jurisdiction over the taxpayer’s petition. Philippine jurisprudence is replete with
cases upholding and reiterating these doctrinal principles.46
The charter of the CTA expressly provides that its jurisdiction is to review on appeal
"decisions of the Commissioner of Internal Revenue in cases involving x x x refunds of
internal revenue taxes."47 When a taxpayer prematurely files a judicial claim for tax
refund or credit with the CTA without waiting for the decision of the Commissioner, there
is no "decision" of the Commissioner to review and thus the CTA as a court of special
jurisdiction has no jurisdiction over the appeal. The charter of the CTA also expressly
provides that if the Commissioner fails to decide within "a specific period" required by
law, such "inaction shall be deemed a denial"48 of the application for tax refund or
credit. It is the Commissioner’s decision, or inaction "deemed a denial," that the taxpayer
can take to the CTA for review. Without a decision or an "inaction x x x deemed a denial"
of the Commissioner, the CTA has no jurisdiction over a petition for review.49
San Roque’s failure to comply with the 120-day mandatory period renders its petition for
review with the CTA void. Article 5 of the Civil Code provides, "Acts executed against
provisions of mandatory or prohibitory laws shall be void, except when the law itself
authorizes their validity." San Roque’s void petition for review cannot be legitimized by
the CTA or this Court because Article 5 of the Civil Code states that such void petition
cannot be legitimized "except when the law itself authorizes [its] validity." There is no law
authorizing the petition’s validity.
It is hornbook doctrine that a person committing a void act contrary to a mandatory
provision of law cannot claim or acquire any right from his void act. A right cannot spring
in favor of a person from his own void or illegal act. This doctrine is repeated in Article
2254 of the Civil Code, which states, "No vested or acquired right can arise from acts or
omissions which are against the law or which infringe upon the rights of others."50 For
violating a mandatory provision of law in filing its petition with the CTA, San Roque
cannot claim any right arising from such void petition. Thus, San Roque’s petition with the
CTA is a mere scrap of paper.
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,
non-observance of prescriptive periods, and non-adherence to exhaustion of
administrative remedies bar a taxpayer’s 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 Atlas doctrine 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 Atlas
doctrine 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. The Atlas 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 Atlas as 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. The Atlas 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 Roque’s 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 Roque’s non-compliance with the 120-
day 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 Roque’s 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 taxpayer’s claim. The law is clear,
plain, and unequivocal: "x x x the Commissioner shall grant a refund or issue the tax
credit certificate for creditable input taxes within one hundred twenty (120) days from
the date of submission of complete documents." Following the verba legis doctrine, this
law must be applied exactly as worded since it is clear, plain, and unequivocal. The
taxpayer cannot simply file a petition with the CTA without waiting for the
Commissioner’s decision within the 120-day mandatory and jurisdictional period. The
CTA will have no jurisdiction because there will be no "decision" or "deemed a denial"
decision of the Commissioner for the CTA to review. In San Roque’s case, it filed its
petition with the CTA a mere 13 days after it filed its administrative claim with the
Commissioner. Indisputably, San Roque knowingly violated the mandatory 120-day
period, and it cannot blame anyone but itself.
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA
the decision or inaction of the Commissioner, thus:
x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision
denying the claim or after the expiration of the one hundred twenty day-period, appeal
the decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied)
This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine,
this law should be applied exactly as worded since it is clear, plain, and unequivocal. As
this law states, the taxpayer may, if he wishes, appeal the decision of the Commissioner
to the CTA within 30 days from receipt of the Commissioner’s decision, or if the
Commissioner does not act on the taxpayer’s claim within the 120-day period, the
taxpayer may appeal to the CTA within 30 days from the expiration of the 120-day period.
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 Philex’s claim. Since the
Commissioner did not act on Philex’s claim on or before 17 July 2006, Philex had until 17
August 2006, the last day of the 30-day period, to file its judicial claim. The CTA EB held
that 17 August 2006 was indeed the last day for Philex to file its judicial claim. However,
Philex filed its Petition for Review with the CTA only on 17 October 2007, or four hundred
twenty-six (426) days after the last day of filing. In short, Philex was late by one year and
61 days in filing its judicial claim. As the CTA EB correctly found:
Evidently, the Petition for Review in C.T.A. Case No. 7687 was filed 426 days late. Thus,
the Petition for Review in C.T.A. Case No. 7687 should have been dismissed on the
ground that the Petition for Review was filed way beyond the 30-day prescribed period;
thus, no jurisdiction was acquired by the CTA Division; x x x58 (Emphasis supplied)
Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late
filing. Philex did not file any petition with the CTA within the 120-day period. Philex did
not also file any petition with the CTA within 30 days after the expiration of the 120-day
period. Philex filed its judicial claim long after the expiration of the 120-day period, in fact
426 days after the lapse of the 120-day period. In any event, whether governed by
jurisprudence before, during, or after the Atlas case, Philex’s judicial claim will have to be
rejected because of late filing. Whether the two-year prescriptive period is counted from
the date of payment of the output VAT following the Atlas doctrine, or from the close of
the taxable quarter when the sales attributable to the input VAT were made following the
Mirant and Aichi doctrines, Philex’s judicial claim was indisputably filed late.
The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction
of the Commissioner on Philex’s claim during the 120-day period is, by express provision
of law, "deemed a denial" of Philex’s claim. Philex had 30 days from the expiration of the
120-day period to file its judicial claim with the CTA. Philex’s failure to do so rendered the
"deemed a denial" decision of the Commissioner final and inappealable. The right to
appeal to the CTA from a decision or "deemed a denial" decision of the Commissioner is
merely a statutory privilege, not a constitutional right. The exercise of such statutory
privilege requires strict compliance with the conditions attached by the statute for its
exercise.59 Philex failed to comply with the statutory conditions and must thus bear the
consequences.
II. Prescriptive Periods under Section 112(A) and (C)
There are three compelling reasons why the 30-day period need not necessarily fall
within the two-year prescriptive period, as long as the administrative claim is filed within
the two-year prescriptive period.
First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer "may,
within two (2) years after the close of the taxable quarter when the sales were made,
apply for the issuance of a tax credit certificate or refund of the creditable input tax due
or paid to such sales." In short, the law states that the taxpayer may apply with the
Commissioner for a refund or credit "within two (2) years," which means at anytime
within two years. Thus, the application for refund or credit may be filed by the taxpayer
with the Commissioner on the last day of the two-year prescriptive period and it will still
strictly comply with the law. The 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 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.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.
Any suggestion that the "excess" input VAT under the VAT System is an "excessively"
collected tax under Section 229 may lead taxpayers to file a claim for refund or credit for
such "excess" input VAT under Section 229 as an ordinary tax refund or credit outside of
the VAT System. Under Section 229, mere payment of a tax beyond what is legally due
can be claimed as a refund or credit. There is no requirement under Section 229 for an
output VAT or subsequent sale of goods, properties, or services using materials subject to
input VAT.
From the plain text of Section 229, it is clear that what can be refunded or credited is a
tax that is "erroneously, x x x illegally, x x x excessively or in any manner wrongfully
collected." In short, there must be a wrongful payment because what is paid, or part of it,
is not legally due. As the Court held in Mirant, Section 229 should "apply only to instances
of erroneous payment or illegal collection of internal revenue taxes." Erroneous or
wrongful payment includes excessive payment because they all refer to payment of taxes
not legally due. Under the VAT System, there is no claim or issue that the "excess" input
VAT is "excessively or in any manner wrongfully collected." In fact, if the "excess" input
VAT is an "excessively" collected tax under Section 229, then the taxpayer claiming to
apply such "excessively" collected input VAT to offset his output VAT may have no legal
basis to make such offsetting. The person legally liable to pay the input VAT can claim a
refund or credit for such "excessively" collected tax, and thus there will no longer be any
"excess" input VAT. This will upend the present VAT System as we know it.
IV. Effectivity and Scope of the Atlas , Mirant and Aichi Doctrines
The Atlas doctrine, which held that claims for refund or credit of input VAT must comply
with the two-year prescriptive period under Section 229, should be effective only from its
promulgation on 8 June 2007 until its abandonment on 12 September 2008 in Mirant.
The Atlas doctrine was limited to the reckoning of the two-year prescriptive period from
the date of payment of the output VAT. Prior to the Atlas doctrine, the two-year
prescriptive period for claiming refund or credit of input VAT should be governed by
Section 112(A) following the verba legis rule. The Mirant ruling, which abandoned the
Atlas doctrine, adopted the verba legis rule, thus applying Section 112(A) in computing
the two-year prescriptive period in claiming refund or credit of input VAT.
The Atlas doctrine has no relevance to the 120+30 day periods under Section 112(C)
because the application of the 120+30 day periods was not in issue in Atlas. The
application of the 120+30 day periods was first raised in Aichi, which adopted the verba
legis rule in holding that the 120+30 day periods are mandatory and jurisdictional. The
language of Section 112(C) is plain, clear, and unambiguous. When Section 112(C) states
that "the Commissioner shall grant a refund or issue the tax credit within one hundred
twenty (120) days from the date of submission of complete documents," the law clearly
gives the Commissioner 120 days within which to decide the taxpayer’s claim. Resort to
the courts prior to the expiration of the 120-day period is a patent violation of the
doctrine of exhaustion of administrative remedies, a ground for dismissing the judicial
suit due to prematurity. Philippine jurisprudence is awash with cases affirming and
reiterating the doctrine of exhaustion of administrative remedies.65 Such doctrine is
basic and elementary.
When Section 112(C) states that "the taxpayer affected may, within thirty (30) days from
receipt of the decision denying the claim or after the expiration of the one hundred
twenty-day period, appeal the decision or the unacted claim with the Court of Tax
Appeals," the law does not make the 120+30 day periods optional just because the law
uses the word "may." The word "may" simply means that the taxpayer may or may not
appeal the decision of the Commissioner within 30 days from receipt of the decision, or
within 30 days from the expiration of the 120-day period. Certainly, by no stretch of the
imagination can the word "may" be construed as making the 120+30 day periods
optional, allowing the taxpayer to file a judicial claim one day after filing the
administrative claim with the Commissioner.
The old rule66 that the taxpayer may file the judicial claim, without waiting for the
Commissioner’s decision if the two-year prescriptive period is about to expire, cannot
apply because that rule was adopted before the enactment of the 30-day period. The 30-
day period was adopted precisely to do away with the old rule, so that under the VAT
System the taxpayer will always have 30 days to file the judicial claim even if the
Commissioner acts only on the 120th day, or does not act at all during the 120-day
period. With the 30-day period always available to the taxpayer, the taxpayer can no
longer file a judicial claim for refund or credit of input VAT without waiting for the
Commissioner to decide until the expiration of the 120-day period.
To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed
strictly against the taxpayer. One of the conditions for a judicial claim of refund or credit
under the VAT System is compliance with the 120+30 day mandatory and jurisdictional
periods. Thus, strict compliance with the 120+30 day periods is necessary for such a claim
to prosper, whether before, during, or after the effectivity of the Atlas doctrine, except
for the period from the issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6
October 2010 when the Aichi doctrine was adopted, which again reinstated the 120+30
day periods as mandatory and jurisdictional.
V. Revenue Memorandum Circular No. 49-03 (RMC 49-03) dated 15 April 2003
There is nothing in RMC 49-03 that states, expressly or impliedly, that the taxpayer need
not wait for the 120-day period to expire before filing a judicial claim with the CTA. RMC
49-03 merely authorizes the BIR to continue processing the administrative claim even
after the taxpayer has filed its judicial claim, without saying that the taxpayer can file its
judicial claim before the expiration of the 120-day period. RMC 49-03 states: "In cases
where the taxpayer has filed a ‘Petition for Review’ with the Court of Tax Appeals
involving a claim for refund/TCC that is pending at the administrative agency (either the
Bureau of Internal Revenue or the One- Stop Shop Inter-Agency Tax Credit and Duty
Drawback Center of the Department of Finance), the administrative agency and the court
may act on the case separately." Thus, if the taxpayer files its judicial claim before the
expiration of the 120-day period, the BIR will nevertheless continue to act on the
administrative claim because such premature filing cannot divest the Commissioner of his
statutory power and jurisdiction to decide the administrative claim within the 120-day
period.
On the other hand, if the taxpayer files its judicial claim after the 120- day period, the
Commissioner can still continue to evaluate the administrative claim. There is nothing
new in this because even after the expiration of the 120-day period, the Commissioner
should still evaluate internally the administrative claim for purposes of opposing the
taxpayer’s judicial claim, or even for purposes of determining if the BIR should actually
concede to the taxpayer’s judicial claim. The internal administrative evaluation of the
taxpayer’s claim must necessarily continue to enable the BIR to oppose intelligently the
judicial claim or, if the facts and the law warrant otherwise, for the BIR to concede to the
judicial claim, resulting in the termination of the judicial proceedings.
What is important, as far as the present cases are concerned, is that the mere filing by a
taxpayer of a judicial claim with the CTA before the expiration of the 120-day period
cannot operate to divest the Commissioner of his jurisdiction to decide an administrative
claim within the 120-day mandatory period, unless the Commissioner has clearly given
cause for equitable estoppel to apply as expressly recognized in Section 246 of the Tax
Code.67
VI. BIR Ruling No. DA-489-03 dated 10 December 2003
BIR Ruling No. DA-489-03 does provide a valid claim for equitable estoppel under Section
246 of the Tax Code. BIR Ruling No. DA-489-03 expressly states that the "taxpayer-
claimant need not wait for the lapse of the 120-day period before it could seek judicial
relief with the CTA by way of Petition for Review." Prior to this ruling, the BIR held, as
shown by its position in the Court of Appeals,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 CTA’s assumption of jurisdiction over such
claim since equitable estoppel has set in as expressly authorized under Section 246 of the
Tax Code.
Section 4 of the Tax Code, a new provision introduced by RA 8424, expressly grants to the
Commissioner the power to interpret tax laws, thus:
Sec. 4. Power of the Commissioner To Interpret Tax Laws and To Decide Tax Cases. — The
power to interpret the provisions of this Code and other tax laws shall be under the
exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary
of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties imposed in relation thereto, or other matters arising under this
Code or other laws or portions thereof administered by the Bureau of Internal Revenue is
vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of
Tax Appeals.
Since the Commissioner has exclusive and original jurisdiction to interpret tax laws,
taxpayers acting in good faith should not be made to suffer for adhering to general
interpretative rules of the Commissioner interpreting tax laws, should such interpretation
later turn out to be erroneous and be reversed by the Commissioner or this Court.
Indeed, Section 246 of the Tax Code expressly provides that a reversal of a BIR regulation
or ruling cannot adversely prejudice a taxpayer who in good faith relied on the BIR
regulation or ruling prior to its reversal. 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
(c) Where the taxpayer acted in bad faith. (Emphasis supplied)
Thus, a general interpretative rule issued by the Commissioner may be relied upon by
taxpayers from the time the rule is issued up to its reversal by the Commissioner or this
Court. Section 246 is not limited to a reversal only by the Commissioner because this
Section expressly states, "Any revocation, modification or reversal" without specifying
who made the revocation, modification or reversal. Hence, a reversal by this Court is
covered under Section 246.
Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner,
particularly on a difficult question of law. The abandonment of the Atlas doctrine by
Mirant and Aichi69 is proof that the reckoning of the prescriptive periods for input VAT
tax refund or credit is a difficult question of law. The abandonment of the Atlas doctrine
did not result in Atlas, or other taxpayers similarly situated, being made to return the tax
refund or credit they received or could have received under Atlas prior to its
abandonment. This Court is applying Mirant and Aichi prospectively. Absent fraud, bad
faith or misrepresentation, the reversal by this Court of a general interpretative rule
issued by the Commissioner, like the reversal of a specific BIR ruling under Section 246,
should also apply prospectively. As held by this Court in CIR v. Philippine Health Care
Providers, Inc.:70
In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this Court held that under Section
246 of the 1997 Tax Code, the Commissioner of Internal Revenue is precluded from
adopting a position contrary to one previously taken where injustice would result to the
taxpayer. Hence, where an assessment for deficiency withholding income taxes was
made, three years after a new BIR Circular reversed a previous one upon which the
taxpayer had relied upon, such an assessment was prejudicial to the taxpayer. To rule
otherwise, opined the Court, would be contrary to the tenets of good faith, equity, and
fair play.
This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting Corp.1âwphi1 in
the later cases of Commissioner of Internal Revenue v. Borroughs, Ltd., Commissioner of
Internal Revenue v. Mega Gen. Mdsg. Corp., Commissioner of Internal Revenue v.
Telefunken Semiconductor (Phils.) Inc., and Commissioner of Internal Revenue v. Court of
Appeals. The rule is that the BIR rulings have no retroactive effect where a grossly unfair
deal would result to the prejudice of the taxpayer, as in this case.
More recently, in Commissioner of Internal Revenue v. Benguet Corporation, wherein the
taxpayer was entitled to tax refunds or credits based on the BIR’s own issuances but later
was suddenly saddled with deficiency taxes due to its subsequent ruling changing the
category of the taxpayer’s transactions for the purpose of paying its VAT, this Court ruled
that applying such ruling retroactively would be prejudicial to the taxpayer. (Emphasis
supplied)
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule
applicable to all taxpayers or a specific ruling applicable only to a particular taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a
query made, not by a particular taxpayer, but by a government agency tasked with
processing tax refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit and
Drawback Center of the Department of Finance. This government agency is also the
addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus, while this
government agency mentions in its query to the Commissioner the administrative claim
of Lazi Bay Resources Development, Inc., the agency was in fact asking the Commissioner
what to do in cases like the tax claim of Lazi Bay Resources Development, Inc., where the
taxpayer did not wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can
rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up
to its reversal by this Court in Aichi on 6 October 2010, where this Court held that the
120+30 day periods are mandatory and jurisdictional
However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four reasons:
first, it is admittedly an erroneous interpretation of the law; second, prior to its issuance,
the BIR held that the 120-day period was mandatory and jurisdictional, which is the
correct interpretation of the law; third, prior to its issuance, no taxpayer can claim that it
was misled by the BIR into filing a judicial claim prematurely; and fourth, a claim for tax
refund or credit, like a claim for tax exemption, is strictly construed against the taxpayer.
San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its
judicial claim prematurely on 10 April 2003, before the issuance of BIR Ruling No. DA-489-
03 on 10 December 2003. To repeat, San Roque cannot claim that it was misled by the
BIR into filing its judicial claim prematurely because BIR Ruling No. DA-489-03 was issued
only after San Roque filed its judicial claim. At the time San Roque filed its judicial claim,
the law as applied and administered by the BIR was that the Commissioner had 120 days
to act on administrative claims. This was in fact the position of the BIR prior to the
issuance of BIR Ruling No. DA-489-03. Indeed, San Roque never claimed the benefit of BIR
Ruling No. DA-489-03 or RMC 49-03, whether in this Court, the CTA, or before the
Commissioner.
Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the
issuance of BIR Ruling No. DA-489-03 on 10 December 2003. Truly, Taganito can claim
that in filing its judicial claim prematurely without waiting for the 120-day period to
expire, it was misled by BIR Ruling No. DA-489-03. Thus, Taganito can claim the benefit of
BIR Ruling No. DA-489-03, which shields the filing of its judicial claim from the vice of
prematurity.
Philex’s situation is not a case of premature filing of its judicial claim but of late filing,
indeed very late filing. BIR Ruling No. DA-489-03 allowed premature filing of a judicial
claim, which means non-exhaustion of the 120-day period for the Commissioner to act on
an administrative claim. Philex cannot claim the benefit of BIR Ruling No. DA-489-03
because Philex did not file its judicial claim prematurely but filed it long after the lapse of
the 30-day period following the expiration of the 120-day period. In fact, Philex filed its
judicial claim 426 days after the lapse of the 30-day period.
VII. Existing Jurisprudence
There is no basis whatsoever to the claim that in five cases this Court had already made a
ruling that the filing dates of the administrative and judicial claims are inconsequential, as
long as they are within the two-year prescriptive period. The effect of the claim of the
dissenting opinions is that San Roque’s failure to wait for the 120-day mandatory period
to lapse is inconsequential, thus allowing San Roque to claim the tax refund or credit.
However, the five cases cited by the dissenting opinions do not support even remotely
the claim that this Court had already made such a ruling. None of these five cases
mention, cite, discuss, rule or even hint that compliance with the 120-day mandatory
period is inconsequential as long as the administrative and judicial claims are filed within
the two-year prescriptive period.
In CIR v. Toshiba Information Equipment (Phils.), Inc.,71 the issue was whether any
output VAT was actually passed on to Toshiba that it could claim as input VAT subject to
tax credit or refund. The Commissioner argued that "although Toshiba may be a VAT-
registered taxpayer, it is not engaged in a VAT-taxable business." The Commissioner cited
Section 4.106-1 of Revenue Regulations No. 75 that "refund of input taxes on capital
goods shall be allowed only to the extent that such capital goods are used in VAT-taxable
business." In the words of the Court, "Ultimately, however, the issue still to be resolved
herein shall be whether respondent Toshiba is entitled to the tax credit/refund of its
input VAT on its purchases of capital goods and services, to which this Court answers in
the affirmative." Nowhere in this case did the Court discuss, state, or rule that the filing
dates of the administrative and judicial claims are inconsequential, as long as they are
within the two-year prescriptive period.
In Intel Technology Philippines, Inc. v. CIR,72 the Court stated: "The issues to be resolved
in the instant case are (1) whether the absence of the BIR authority to print or the
absence of the TIN-V in petitioner’s export sales invoices operates to forfeit its
entitlement to a tax refund/credit of its unutilized input VAT attributable to its zero-rated
sales; and (2) whether petitioner’s failure to indicate "TIN-V" in its sales invoices
automatically invalidates its claim for a tax credit certification." Again, nowhere in this
case did the Court discuss, state, or rule that the filing dates of the administrative and
judicial claims are inconsequential, as long as they are within the two-year prescriptive
period.
In AT&T Communications Services Philippines, Inc. v. CIR,73 the Court stated: "x x x the
CTA First Division, conceding that petitioner’s transactions fall under the classification of
zero-rated sales, nevertheless denied petitioner’s claim ‘for lack of substantiation,’ x x x."
The Court quoted the ruling of the First Division that "valid VAT official receipts, and not
mere sale invoices, should have been submitted" by petitioner to substantiate its claim.
The Court further stated: "x x x the CTA En Banc, x x x affirmed x x x the CTA First
Division," and "petitioner’s motion for reconsideration having been denied x x x, the
present petition for review was filed." Clearly, the sole issue in this case is whether
petitioner complied with the substantiation requirements in claiming for tax refund or
credit. Again, nowhere in this case did the Court discuss, state, or rule that the filing dates
of the administrative and judicial claims are inconsequential, as long as they are within
the two-year prescriptive period.
In CIR v. Ironcon Builders and Development Corporation,74 the Court put the issue in this
manner: "Simply put, the sole issue the petition raises is whether or not the CTA erred in
granting respondent Ironcon’s application for refund of its excess creditable VAT
withheld." The Commissioner argued that "since the NIRC does not specifically grant
taxpayers the option to refund excess creditable VAT withheld, it follows that such refund
cannot be allowed." Thus, this case is solely about whether the taxpayer has the right
under the NIRC to ask for a cash refund of excess creditable VAT withheld. Again,
nowhere in this case did the Court discuss, state, or rule that the filing dates of the
administrative and judicial claims are inconsequential, as long as they are within the two-
year prescriptive period.
In CIR v. Cebu Toyo Corporation,75 the issue was whether Cebu Toyo was exempt or
subject to VAT. Compliance with the 120-day period was never an issue in Cebu Toyo. As
the Court explained:
Both the Commissioner of Internal Revenue and the Office of the Solicitor General argue
that respondent Cebu Toyo Corporation, as a PEZA-registered enterprise, is exempt from
national and local taxes, including VAT, under Section 24 of Rep. Act No. 7916 and Section
109 of the NIRC. Thus, they contend that respondent Cebu Toyo Corporation is not
entitled to any refund or credit on input taxes it previously paid as provided under
Section 4.103-1 of Revenue Regulations No. 7-95, notwithstanding its registration as a
VAT taxpayer. For petitioner claims that said registration was erroneous and did not
confer upon the respondent any right to claim recognition of the input tax credit.
The respondent counters that it availed of the income tax holiday under E.O. No. 226 for
four years from August 7, 1995 making it exempt from income tax but not from other
taxes such as VAT. Hence, according to respondent, its export sales are not exempt from
VAT, contrary to petitioner’s claim, but its export sales is subject to 0% VAT. Moreover, it
argues that it was able to establish through a report certified by an independent Certified
Public Accountant that the input taxes it incurred from April 1, 1996 to December 31,
1997 were directly attributable to its export sales. Since it did not have any output tax
against which said input taxes may be offset, it had the option to file a claim for
refund/tax credit of its unutilized input taxes.
Considering the submission of the parties and the evidence on record, we find the
petition bereft of merit.
Petitioner’s contention that respondent is not entitled to refund for being exempt from
VAT is untenable. This argument turns a blind eye to the fiscal incentives granted to
PEZA-registered enterprises under Section 23 of Rep. Act No. 7916. Note that under said
statute, the respondent had two options with respect to its tax burden. It could avail of
an income tax holiday pursuant to provisions of E.O. No. 226, thus exempt it from income
taxes for a number of years but not from other internal revenue taxes such as VAT; or it
could avail of the tax exemptions on all taxes, including VAT under P.D. No. 66 and pay
only the preferential tax rate of 5% under Rep. Act No. 7916. Both the Court of Appeals
and the Court of Tax Appeals found that respondent availed of the income tax holiday for
four (4) years starting from August 7, 1995, as clearly reflected in its 1996 and 1997
Annual Corporate Income Tax Returns, where respondent specified that it was availing of
the tax relief under E.O. No. 226. Hence, respondent is not exempt from VAT and it
correctly registered itself as a VAT taxpayer. In fine, it is engaged in taxable rather than
exempt transactions. (Emphasis supplied)
Clearly, the issue in Cebu Toyo was whether the taxpayer was exempt from VAT or
subject to VAT at 0% tax rate. If subject to 0% VAT rate, the taxpayer could claim a refund
or credit of its input VAT. Again, nowhere in this case did the Court discuss, state, or rule
that the filing dates of the administrative and judicial claims are inconsequential, as long
as they are within the two-year prescriptive period.
While this Court stated in the narration of facts in Cebu Toyo that the taxpayer "did not
bother to wait for the Resolution of its (administrative) claim by the CIR" before filing its
judicial claim with the CTA, this issue was not raised before the Court. Certainly, this
statement of the Court is not a binding precedent that the taxpayer need not wait for the
120-day period to lapse.
Any issue, whether raised or not by the parties, but not passed upon by the Court, does
not have any value as precedent. As this Court has explained as early as 1926:
It is contended, however, that the question before us was answered and resolved against
the contention of the appellant in the case of Bautista vs. Fajardo (38 Phil. 624). In that
case no question was raised nor was it even suggested that said section 216 did not apply
to a public officer. That question was not discussed nor referred to by any of the parties
interested in that case. It has been frequently decided that the fact that a statute has
been accepted as valid, and invoked and applied for many years in cases where its validity
was not raised or passed on, does not prevent a court from later passing on its validity,
where that question is squarely and properly raised and presented. Where a question
passes the Court sub silentio, the case in which the question was so passed is not binding
on the Court (McGirr vs. Hamilton and Abreu, 30 Phil. 563), nor should it be 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 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 day-period, appeal the
decision or the unacted claim with the Court of Tax Appeals.
There can be no dispute that under Section 106(d) of the 1977 Tax Code, as amended by
RA 7716, the Commissioner has a 60-day period to act on the administrative claim. This
60-day period is mandatory and jurisdictional.
Did Section 4.106-2(c) of Revenue Regulations No. 7-95 change this, so that the 60-day
period is no longer mandatory and jurisdictional? The obvious answer is no.
Section 4.106-2(c) itself expressly states that if, "after the sixty (60) day period," the
Commissioner fails to act on the administrative claim, the taxpayer may file the judicial
claim even "before the lapse of the two (2) year period." Thus, under Section 4.106-2(c)
the 60-day period is still mandatory and jurisdictional.
Section 4.106-2(c) did not change Section 106(d) as amended by RA 7716, but merely
implemented it, for two reasons. First, Section 4.106-2(c) still expressly requires
compliance with the 60-day period. This cannot be disputed.1âwphi1
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, taxpayers who do not comply with statutory requirements for tax refunds or credits. The
Section 4.106-2(c), a mere administrative issuance, becomes inconsistent with Section tax refund claims in the present cases are not a pittance. Many other companies stand to
112(D), a later law. Obviously, the later law prevails over a prior inconsistent gain if this Court were to rule otherwise. The dissenting opinions will turn on its head the
administrative issuance. well-settled doctrine that tax refunds are strictly construed against the taxpayer.

Section 112(D) of the 1997 Tax Code is clear, unequivocal, and categorical that the WHEREFORE, the Court hereby (1) GRANTS the petition of the Commissioner of Internal
Commissioner has 120 days to act on an administrative claim. The taxpayer can file the Revenue in G.R. No. 187485 to DENY the P483,797,599.65 tax refund or credit claim of
judicial claim (1) only within thirty days after the Commissioner partially or fully denies San Roque Power Corporation; (2) GRANTS the petition of Taganito Mining Corporation in
the claim within the 120- day period, or (2) only within thirty days from the expiration of G.R. No. 196113 for a tax refund or credit of P8,365,664.38; and (3) DENIES the petition
the 120- day period if the Commissioner does not act within the 120-day period. of Philex Mining Corporation in G.R. No. 197156 for a tax refund or credit of
P23,956,732.44.
There can be no dispute that upon effectivity of the 1997 Tax Code on 1 January 1998, or
more than five years before San Roque filed its administrative claim on 28 March 2003, SO ORDERED.
the law has been clear: the 120- day period is mandatory and jurisdictional. San Roque’s
claim, having been filed administratively on 28 March 2003, is governed by the 1997 Tax
Code, not the 1977 Tax Code. Since San Roque filed its judicial claim before the expiration
of the 120-day mandatory and jurisdictional period, San Roque’s claim cannot prosper.

San Roque cannot also invoke Section 4.106-2(c), which expressly provides that the
taxpayer can only file the judicial claim "after" the lapse of the 60-day period from the
filing of the administrative claim. San Roque filed its judicial claim just 13 days after filing
its administrative claim. To recall, San Roque filed its judicial claim on 10 April 2003, a
mere 13 days after it filed its administrative claim.

Even if, contrary to all principles of statutory construction as well as plain common sense,
we gratuitously apply now Section 4.106-2(c) of Revenue Regulations No. 7-95, still San
Roque cannot recover any refund or credit because San Roque did not wait for the 60-
day period to lapse, contrary to the express requirement in Section 4.106-2(c). In short,
San Roque does not even comply with Section 4.106-2(c). A claim for tax refund or credit
is strictly construed against the taxpayer, who must prove that his claim clearly complies
with all the conditions for granting the tax refund or credit. San Roque did not comply
with the express condition for such statutory grant.

A final word. Taxes are the lifeblood of the nation. The Philippines has been struggling to
improve its tax efficiency collection for the longest time with minimal success.
Consequently, the Philippines has suffered the economic adversities arising from poor tax
collections, forcing the government to continue borrowing to fund the budget deficits.
This Court cannot turn a blind eye to this economic malaise by being unduly liberal to
KEPCO PHILIPPINES CORPORATION, Exhibit Quarter Involved

Petitioner, Zero-Rated Sales

- versus - B 1st Quarter

COMMISSIONER OF INTERNAL REVENUE, P651,672,672.47

Respondent. C 2nd Quarter

G.R. No. 181858 725,104,468.99

Present: D 3rd Quarter

November 24, 2010 952,053,527.29

x --------------------------------------------------------------------------------------------------------x E 4th Quarter

DECISION 956,477,387.10

MENDOZA, J.: ________________

This is a petition for review on certiorari[1] under Rule 45 of the Rules of Court seeking Total
reversal of the February 20, 2008 Decision[2] of the Court of Tax Appeals En Banc (CTA) in
C.T.A. EB No. 299, which ruled that in order for petitioner to be entitled to its claim for P3,285,308,055.85[4]
refund/issuance of tax credit certificate representing unutilized input VAT attributable to
In the course of doing business with NPC, Kepco claimed expenses reportedly sustained in
its zero-rated sales for taxable year 2002, it must comply with the substantiation
connection with the production and sale of electricity with NPC. Based on Kepcos
requirements under the appropriate Revenue Regulations.
calculation, it paid input VAT amounting to P11,710,868.86 attributing the same to its
Petitioner KEPCO Philippines Corporation (Kepco) is a VAT-registered independent power zero-rated sales of electricity with NPC. The table shows the purchases and
producer engaged in the business of generating electricity. It exclusively sells electricity corresponding input VAT it paid.
to National Power Corporation (NPC), an entity exempt from taxes under Section 13 of
Exhibit
Republic Act No. 6395 (RA No. 6395).[3]
Quarter Involved Purchases
Records show that on December 4, 2001, Kepco filed an application for zero-rated sales
with the Revenue District Office (RDO) No. 54 of the Bureau of Internal Revenue (BIR).
Input VAT
Kepcos application was approved under VAT Ruling 64-01. Accordingly, for taxable year
2002, it filed four Quarterly VAT Returns declaring zero-rated sales in the aggregate B
amount of P3,285,308,055.85 itemized as follows:
1st Quarter During the hearing, Kepco presented court-commissioned Independent Certified Public
Accountant, Victor O. Machacon, who audited their bulky documentary evidence
P6,063,184.90 consisting of official receipts, invoices and vouchers, to prove its claim for refund of
unutilized input VAT.[9]
P606,318.49
On February 26, 2007, the CTA Second Division ruled that out of the total declared zero-
C
rated sales of P3,285,308,055.85, Kepco was only able to properly substantiate
P1,451,788,865.52 as its zero-rated sales. After factoring, only 44.19% of the validly
2nd Quarter
supported input VAT payments being claimed could be considered.[10] The CTA Division
18,410,193.20 used the following computation in determining Kepcos total allowable input VAT:

1,841,019.32 Substantiated zero-rated sales to NPC

D 3rd Quarter P1,451,788,865.52

16,811,819.21 Divided by the total declared zero-rated sales

1,681,181.93 3,285,308,055.85

E 4th Quarter Rate of substantiated zero-rated sales

75,823,491.20 44.19%[11]

P117,108,688.51 Total Input VAT Claimed

7,582,349.12 P11,710,868.86

P11,710,868.86[5] Less:Disallowance

Thus, on April 20, 2004, Kepco filed before the Commissioner of Internal Revenue (CIR) a (a) Per verification of the independent CPA
claim for tax refund covering unutilized input VAT payments attributable to its zero-rated
P125,556.40
sales transactions for taxable year 2002.[6] Two days later, on April 22, 2004, it filed a
petition for review before the CTA. The case was docketed as C.T.A. Case No. 6965.[7]
(b) Per Courts verification
In its Answer,[8] respondent CIR averred that claims for refund were strictly construed
5,045,357.80
against the taxpayer as it was similar to a tax exemption. It asserted that the burden to
show that the taxes were erroneous or illegal lay upon the taxpayer. Thus, failure on the 5,170,914.20
part of Kepco to prove the same was fatal to its cause of action because it was its duty to
prove the legal basis of the amount being claimed as a tax refund. Validly Supported Input VAT
P6,539,954.66 On appeal to the CTA En Banc,[17] Kepco argued that the CTA Second Division erred in
not considering P8,691,873.81 in addition to P2,890,005.96 as refundable tax credit for
Multiply by Rate of Substantiated Zero-Rated Sales Kepcos zero-rated sales to NPC for taxable year 2002.

44.19% On February 20, 2008, the CTA En Banc dismissed the petition[18] and ruled that in order
for Kepco to be entitled to its claim for refund/issuance of tax credit certificate
Total Allowed Input VAT
representing unutilized input VAT attributable to its zero-rated sales for taxable year
2002, it must comply with the substantiation requirements under the appropriate
P2,890,005.96[12]
Revenue Regulations, i.e. Revenue Regulations 7-95.[19] Thus, it concluded that the
The CTA Second Division likewise disallowed the P5,170,914.20 of Kepcos claimed input Court in Division was correct in disallowing a portion of Kepcos claim for refund on the
VAT due to its failure to comply with the substantiation requirement. Specifically, the CTA ground that input taxes on Kepcos purchase of goods and services were not supported by
Second Division wrote: invoices and receipts printed with TIN-VAT.[20]

[i]nput VAT on purchases supported by invoices or official receipts stamped with TIN-VAT CTA Presiding Justice Ernesto Acosta concurred with the majority in finding that Kepcos
shall be disallowed because these purchases are not supported by VAT Invoices under the claim could not be allowed for lack of proper substantiation but expressed his dissent on
contemplation of the aforequoted invoicing requirement. To be considered a VAT the denial of certain claims,[21] to wit:
Invoice, the TIN-VAT must be printed, and not merely stamped. Consequently, purchases
[I] dissent with regard to the denial of the amount P4,720,725.63 for nothing in the law
supported by invoices or official receipts, wherein the TIN-VAT are not printed thereon,
allows the automatic invalidation of official receipts/invoices which were not imprinted
shall not give rise to any input VAT. Likewise, input VAT on purchases supported by
with TIN-VAT; and further reduction of petitioners claim representing input VAT on
invoices or official receipts which are not NON-VAT are disallowed because these invoices
purchase of goods not supported by invoices in the amount of P64,509.50 and input VAT
or official receipts are not considered as VAT Invoices. Hence, the claims for input VAT on
on purchase of services not supported by official receipts in the amount of P256,689.98,
purchases referred to in item (e) are properly disallowed.[13]
because the law makes use of invoices and official receipts interchangeably. Both can
Accordingly, the CTA Second Division partially granted Kepcos claim for refund of validly substantiate petitioners claim.[22]
unutilized input VAT for taxable year 2002. The dispositive portion of the decision[14] of
Hence, this petition alleging the following errors:
the CTA Second Division reads:
ASSIGNMENT OF ERRORS
WHEREFORE, petitioners claim for refund is hereby PARTIALLY GRANTED. Accordingly,
respondent is ORDERED to REFUND petitioner the reduced amount of TWO MILLION
I.
EIGHT HUNDRED NINETY THOUSAND FIVE PESOS AND 96/100 (P2,890,005.96)
representing unutilized input value-added tax for taxable year 2002. THE COURT OF TAX APPEALS EN BANC GRAVELY ABUSED ITS DISCRETION AMOUNTING
TO LACK OR EXCESS OF JURISDICTION WHEN IT HELD THAT NON-COMPLIANCE WITH THE
SO ORDERED.[15]
INVOICING REQUIREMENT SHALL RESULT IN THE AUTOMATIC DENIAL OF THE CLAIM.
Kepco moved for partial reconsideration, but the CTA Second Division denied it in its
II.
June 28, 2007 Resolution.[16]
THE COURT OF TAX APPEALS EN BANC GRAVELY ABUSED ITS DISCRETION AMOUNTING
TO LACK OF EXCESS OF JURISDICTION WHEN IT DISALLOWED PETITIONERS CLAIM ON THE
GROUND THAT TIN-VAT IS NOT IMPRINTED ON THE INVOICES AND OFFICIAL RECEIPTS.
III.
THE COURT OF TAX APPEALS EN BANC GRAVELY ABUSED ITS DISCRETION WHEN IT MADE
A DISTINCTION BETWEEN INVOICES AND OFFICIAL RECEIPTS AS SUPPORTING
DOCUMENTS TO CLAIM FOR AN INPUT VAT REFUND.[23]
At the outset, the Court has noticed that although this petition is denominated as
Petition for Review on Certiorari under Rule 45 of the Rules of Court, Kepco, in its
assignment of errors, impugns against the CTA En Banc grave abuse of discretion
amounting to lack or excess of jurisdiction, which are grounds in a petition for certiorari
under Rule 65 of the Rules of Court. Time and again, the Court has emphasized that there
is a whale of difference between a Rule 45 petition (Petition for Review on Certiorari) and
a Rule 65 petition (Petition for Certiorari.) A Rule 65 petition is an original action that
dwells on jurisdictional errors of whether a lower court acted without or in excess of its
jurisdiction or with grave abuse of discretion.[24] A Rule 45 petition, on the other hand, is
a mode of appeal which centers on the review on the merits of a judgment, final order or
award rendered by a lower court involving purely questions of law.[25] Thus, imputing
jurisdictional errors against the CTA is not proper in this Rule 45 petition. Kepco failed to
follow the correct procedure. On this point alone, the Court can deny the subject petition
outright.
At any rate, even if the Court would disregard this procedural flaw, the petition would
still fail.
Kepco argues that the 1997 National Internal Revenue Code (NIRC) does not require the
imprinting of the word zero-rated on invoices and/or official receipts covering zero-rated
sales.[26] It claims that Section 113 in relation to Section 237 of the 1997 NIRC does not
mention the requirement of imprinting the words zero-rated to purchases covering zero-
rated transactions.[27] Only Section 4.108-1 of Revenue Regulation No. 7-95 (RR No. 7-
95) required the imprinting of the word zero-rated on the VAT invoice or receipt.[28]
Thus, Section 4.108-1 of RR No. 7-95 cannot be considered as a valid legislation
considering the long settled rule that administrative rules and regulations cannot expand
the letter and spirit of the law they seek to enforce.[29]
The Court does not agree.
The issue of whether the word zero-rated should be imprinted on invoices and/or official
receipts as part of the invoicing requirement has been settled in the case of Panasonic
Communications Imaging Corporation of the Philippines vs. Commissioner of Internal
Revenue[30] and restated in the later case of J.R.A. Philippines, Inc. v. Commissioner.[31]
In the first case, Panasonic Communications Imaging Corporation (Panasonic), a VAT-
registered entity, was engaged in the production and exportation of plain paper copiers
and their parts and accessories. From April 1998 to March 31, 1999, Panasonic generated
export sales amounting to US$12,819,475.15 and US$11,859,489.78 totaling
US$24,678,964.93. Thus, it paid input VAT of P9,368,482.40 that it attributed to its zero-
rated sales. It filed applications for refund or tax credit on what it had paid. The CTA
denied its application. Panasonics export sales were subject to 0% VAT under Section
106(A)(2)(a)(1) of the 1997 NIRC but it did not qualify for zero-rating because the word
zero-rated was not printed on Panasonics export
invoices. This omission, according to the CTA, violated the invoicing requirements of
Section 4.108-1 of RR No. 7-95. Panasonic argued, however, that in requiring the printing
on its sales invoices of the word zero-rated, the Secretary of Finance unduly expanded,
amended, and modified by a mere regulation (Section 4.108-1 of RR No. 7-95) the letter
and spirit of Sections 113 and 237 of the 1997 NIRC, prior to their amendment by R.A.
9337.[32] Panasonic stressed that Sections 113 and 237 did not necessitate the
imprinting of the word zero-rated for its zero-rated sales receipts or invoices. The BIR
integrated this requirement only after the enactment of R.A. No. 9337 on November 1,
2005, a law that was still inexistent at the time of the transactions. Denying Panasonics
claim for refund, the Court stated:
Section 4.108-1 of RR 7-95 proceeds from the rule-making authority granted to the
Secretary of Finance under Section 245 of the 1977 NIRC (Presidential Decree 1158) for
the efficient enforcement of the tax code and of course its amendments. The
requirement is reasonable and is in accord with the efficient collection of VAT from the
covered sales of goods and services. As aptly explained by the CTAs First Division, the
appearance of the word zero-rated on the face of invoices covering zero-rated sales
prevents buyers from falsely claiming input VAT from their purchases when no VAT was
actually paid. If, absent such word, a successful claim for input VAT is made, the
government would be refunding money it did not collect.
Further, the printing of the word zero-rated on the invoice helps segregate sales that are
subject to 10% (now 12%) VAT from those sales that are zero-rated. Unable to submit
the proper invoices, petitioner Panasonic has been unable to substantiate its claim for
refund.[33]
Following said ruling, Section 4.108-1 of RR 7-95[34] neither expanded nor supplanted
the tax code but merely supplemented what the tax code already defined and discussed.
In fact, the necessity of indicating zero-rated into VAT invoices/receipts became more
apparent when the provisions of this revenue regulation was later integrated into RA No.
9337,[35] the amendatory law of the 1997 NIRC. Section 113, in relation to Section 237 of
the 1997 NIRC, as amended by RA No. 9337, now reads:
SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. -
(A) Invoicing Requirements. - A VAT-registered person shall issue:
(1) A VAT invoice for every sale, barter or exchange of goods or properties; and
(2) A VAT official receipt for every lease of goods or properties, and for every sale, barter
or exchange of services.
(B) Information Contained in the VAT Invoice or VAT Official Receipt. - The following
information shall be indicated in the VAT invoice or VAT official receipt:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's
identification number (TIN);
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the
indication that such amount includes the value-added tax: Provided, That:
(a) The amount of the tax shall be shown as a separate item in the invoice or receipt;
(b) If the sale is exempt from value-added tax, the term "VAT-exempt sale" shall be
written or printed prominently on the invoice or receipt;
(c) If the sale is subject to zero percent (0%) value-added tax, the term "zero-rated sale"
shall be written or printed prominently on the invoice or receipt;
(d) If the sale involves goods, properties or services some of which are subject to and
some of which are VAT zero-rated or VAT-exempt, the invoice or receipt shall clearly
indicate the breakdown of the sale price between its taxable, exempt and zero-rated
components, and the calculation of the value-added tax on each portion of the sale shall
be shown on the invoice or receipt: Provided, That the seller may issue separate invoices
or receipts for the taxable, exempt, and zero-rated components of the sale.
(3) The date of transaction, quantity, unit cost and description of the goods or properties
or nature of the service; and
(4) In the case of sales in the amount of one thousand pesos (P1,000) or more where the
sale or transfer is made to a VAT-registered person, the name, business style, if any,
address and taxpayer identification number (TIN) of the purchaser, customer or client.
(C) Accounting Requirements. - Notwithstanding the provisions of Section 233, all
persons subject to the value-added tax under Sections 106 and 108 shall, in addition to
the regular accounting records required, maintain a subsidiary sales journal and
subsidiary purchase journal on which the daily sales and purchases are recorded. The
subsidiary journals shall contain such information as may be required by the Secretary of
Finance.
xxxx
SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. - All persons subject to an
internal revenue tax shall, for each sale and transfer of merchandise or for services
rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or
sale or commercial invoices, prepared at least in duplicate, showing the date of
transaction, quantity, unit cost and description of merchandise or nature of service:
Provided, however, That where the receipt is issued to cover payment made as rentals,
commissions, compensation or fees, receipts or invoices shall be issued which shall show
the name, business style, if any, and address of the purchaser, customer or client.
The original of each receipt or invoice shall be issued to the purchaser, customer or client
at the time the transaction is effected, who, if engaged in business or in the exercise of
profession, shall keep and preserve the same in his place of business for a period of three
(3) years from the close of the taxable year in which such invoice or receipt was issued,
while the duplicate shall be kept and preserved by the issuer, also in his place of business,
for a like period.
The Commissioner may, in meritorious cases, exempt any person subject to an internal
revenue tax from compliance with the provisions of this Section. [Emphases supplied]
Evidently, as it failed to indicate in its VAT invoices and receipts that the transactions
were zero-rated, Kepco failed to comply with the correct substantiation requirement for
zero-rated transactions.
Kepco then argues that non-compliance of invoicing requirements should not result in
the denial of the taxpayers refund claim. Citing Atlas Consolidated Mining &
Development Corporation vs. Commissioner of Internal Revenue,[36] it claims that a
party who fails to issue VAT official receipts/invoices for its sales should only be imposed
penalties as provided under Section 264 of the 1997 NIRC.[37]
The Court has read the Atlas decision, and has not come across any categorical ruling that
refund should be allowed for those who had not complied with the substantiation
requirements. It merely recited Section 263 which provided for penalties in case of
Failure or refusal to Issue Receipts or Sales or Commercial Invoices, Violations related to
the Printing of such Receipts or Invoices and Other Violations. It does not categorically
say that the claimant should be refunded. At any rate, Section 264 (formerly Section
263)[38] of the 1997 NIRC was not intended to excuse the compliance of the substantive
invoicing requirement needed to justify a claim for refund on input VAT payments.
Furthermore, Kepco insists that Section 4.108.1 of Revenue Regulation 07-95 does not
require the word TIN-VAT to be imprinted on a VAT-registered persons supporting
invoices and official receipts[39] and so there is no reason for the denial of its
P4,720,725.63 claim of input tax.[40]
In this regard, Internal Revenue Regulation 7-95 (Consolidated Value-Added Tax
Regulations) is clear. Section 4.108-1 thereof reads:
Only VAT registered persons are required to print their TIN followed by the word VAT in
their invoice or receipts and this shall be considered as a VAT Invoice. All purchases
covered by invoices other than VAT Invoice shall not give rise to any input tax.
Contrary to Kepcos allegation, the regulation specifically requires the VAT registered
person to imprint TIN-VAT on its invoices or receipts. Thus, the Court agrees with the CTA
when it wrote: [T]o be considered a VAT invoice, the TIN-VAT must be printed, and not
merely stamped. Consequently, purchases supported by invoices or official receipts,
wherein the TIN-VAT is not printed thereon, shall not give rise to any input VAT. Likewise,
input VAT on purchases supported by invoices or official receipts which are NON-VAT are
disallowed because these invoices or official receipts are not considered as VAT
Invoices.[41]
Kepco further argues that under Section 113(A) of the 1997 NIRC, invoices and official
receipts are used interchangeably for purposes of substantiating input VAT.[42] Hence, it
claims that the CTA should have accepted its substantiation of input VAT on (1)
P64,509.50 on purchases of goods with official receipts and (2) P256,689.98 on purchases
of services with invoices.[43]
The Court is not persuaded.
Under the law, a VAT invoice is necessary for every sale, barter or exchange of goods or
properties while a VAT official receipt properly pertains to every lease of goods or
properties, and for every sale, barter or exchange of services.[44] In Commissioner of
Internal Revenue v. Manila Mining Corporation,[45] the Court distinguished an invoice
from a receipt, thus:
A sales or commercial invoice is a written account of goods sold or services rendered
indicating the prices charged therefor or a list by whatever name it is known which is
used in the ordinary course of business evidencing sale and transfer or agreement to sell
or transfer goods and services.
A receipt on the other hand is a written acknowledgment of the fact of payment in
money or other settlement between seller and buyer of goods, debtor or creditor, or
person rendering services and client or customer.
In other words, the VAT invoice is the sellers best proof of the sale of the goods or
services to the buyer while the VAT receipt is the buyers best evidence of the payment of
goods or services received from the seller. Even though VAT invoices and receipts are
normally issued by the supplier/seller alone, the said invoices and receipts, taken
collectively, are necessary to substantiate the actual amount or quantity of goods sold
and their selling price (proof of transaction), and the best means to prove the input VAT
payments (proof of payment).[46] Hence, VAT invoice and VAT receipt should not be
confused as referring to one and the same thing. Certainly, neither does the law intend
the two to be used alternatively.

Although it is true that the CTA is not strictly governed by technical rules of evidence,[47]
the invoicing and substantiation requirements must, nevertheless, be followed because it
is the only way to determine the veracity of Kepcos claims. Verily, the CTA En Banc
correctly disallowed the input VAT that did not meet the required standard of
substantiation.

The CTA is devoted exclusively to the resolution of tax-related issues and has
unmistakably acquired an expertise on the subject matter. In the absence of abuse or
reckless exercise of authority,[48] the CTA En Bancs decision should be upheld.

The Court has always decreed that tax refunds are in the nature of tax exemptions which
represent a loss of revenue to the government. These exemptions, therefore, must not
rest on vague, uncertain or indefinite inference, but should be granted only by a clear and
unequivocal provision of law on the basis of language too plain to be mistaken. Such
exemptions must be strictly construed against the taxpayer, as taxes are the lifeblood of
the government.[49]

WHEREFORE, the petition is DENIED.

SO ORDERED.