FIRST DIVISION

SYSTRA PHILIPPINES, INC., - versus

G.R. No. 176290

COMMISSIONER OF INTERNAL REVENUE,

Respondent.

Promulgated: September 21, 2007

x---------------------------------------------------x RESOLUTION CORONA, J.:

This resolves petitioner Systra Philippines, Inc.s (1) motion for leave to file a second motion for reconsideration and (2) second motion for reconsideration of the Courts March 28, 2007 resolution.

On March 9, 2007, petitioner filed a petition for review on certiorari assailing the January 18, 2007 decision of the Court of Tax Appeals (CTA) in CTA EB Case No. 135. The Court denied the petition in its March 28, 2007 resolution on the following grounds: (a) failure of petitioners counsel to submit his IBP O.R. number showing proof of payment of IBP dues for the current year (the IBP O.R. No. was for 2006, i.e., it was dated November 20, 2006); (b) submitting a verification of the petition, certification of non-forum shopping and affidavit of service that failed to comply with the 2004 Rules on Notarial Practice with respect to competent evidence of affiants identities and (c) failure to give an explanation why service was not done personally as required by Section 11, Rule 13 in relation to Section 3, Rule 45 and Section 5(d), Rule 56 of the Rules of Court.

On July 5, 2007, petitioners motion for reconsideration was denied with finality as there was no compelling reason to warrant a modification of the March 28, 2007 resolution. Thus, the present motions. Petitioner claims that this Court has granted second and even third motions for reconsideration for extraordinarily persuasive reasons. It avers that this Court should look into the importance of the issues involved in deciding whether leave to file a second motion for reconsideration should be granted or not. It prays that its petition should not be denied on the basis of procedural lapses alone and points out that the substantial amount involved in the petition justifies relaxation of technical rules. It asserts that there is an important legal issue involved in this case: whether the exercise of the option to carry over excess income tax credits under Section 76 of the National Internal Revenue Code of 1997, as amended (Tax Code) bars a taxpayer from claiming the excess tax credits for refund even if the amount remains unutilized in the succeeding taxable year. Finally, it contends that the assailed CTA decision was contradictory to the decisions of the Court of Appeals (CA) in Bank of the Philippine Islands v. Commissioner of Internal Revenue and Raytheon Ebasco Overseas Ltd. Philippine Branch v. Commissioner of Internal Revenue which involved the

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same issue as that in this case. According to petitioner, in view of those CA decisions, it is unjust to deprive it of the right to claim a refund. We deny petitioners motions. A SECOND MOTION FOR RECONSIDERATION IS PROHIBITED The denial of a motion for reconsideration is final. It means that the Court will no longer entertain and consider further arguments or submissions from the parties respecting the correctness of its decision or resolution. It signifies that, in the Courts considered view, nothing more is left to be discussed, clarified or done in the case since all issues raised have been passed upon and definitely resolved. Any other issue which could and should have been raised is deemed waived and is no longer available as ground for a second motion. A denial with finality underscores that the case is considered closed. Thus, as a rule, a second motion for reconsideration is a prohibited pleading. The Court stressed in Ortigas and Company Limited Partnership v. Velasco: A second motion for reconsideration is forbidden except for extraordinarily persuasive reasons, and only upon express leave first obtained. (emphasis supplied) It is true that procedural rules may be relaxed in the interest of substantial justice. They are not, however, to be disdained as mere technicalities that may be ignored at will to suit the convenience of a party. They are intended to ensure the orderly administration of justice and the protection of substantive rights in judicial proceedings. Thus, procedural rules are not to be belittled or dismissed simply because their non-observance may have resulted in prejudicing a partys substantive rights. Like all rules, they are required to be followed except only when, for the most persuasive of reasons, they may be relaxed to relieve a litigant of negative consequences commensurate with the degree of thoughtlessness in not complying with the prescribed procedure. In this case, contrary to petitioners claim, there was no compelling reason to excuse non-compliance with the rules. Nor were the grounds raised by it extraordinarily persuasive. Moreover, petitioner can neither properly nor successfully rely on the decisions of the CA in the Bank of the Philippine Islands and Raytheon Ebasco Overseas Ltd. Philippine Branch cases. First, the CA and the CTA are now of the same level pursuant to RA 9282. Decisions of the CA are thus no longer superior to nor reversive of those of the CTA. Second, a decision of the CA in an action in personam binds only the parties in that case. A third party in an action in personam cannot claim any right arising from a decision therein. Finally and most importantly, while a ruling of the CA on any question of law is not conclusive on this Court, all rulings of this Court on questions of law are conclusive and binding on all courts including the CA. All courts must take their bearings from the decisions of this Court. ON THE SUBSTANTIVE ASPECT, THE PETITION HAS NO MERIT The antecedents of this case are as follows: On April 16, 2001, petitioner filed with the [Bureau of Internal Revenue (BIR)] its Annual Income Tax Return (ITR) for the taxable year ended December 31, 2000 declaring revenues in the amount of [P18,252,719] the bulk of which consists of income from management consultancy services rendered to the Philippine Branch of Group Systra SA, France. Subjecting said income from consultancy services of petitioner to 5% creditable withholding tax, a total amount of [P4,703,019] was declared by petitioner as creditable taxes withheld for the taxable year 2000. For the same period, petitioner reflected a total gross income of [P3,752,129], a net loss of [P17,930] and a minimum corporate income tax (MCIT) of [P75,043]. Said MCIT of P75,043 was offset against its total tax credits for the year 2000 amounting to [P4,703,019] thereby leaving a total unutilized tax credits of [P4,627,976], computed as follows: Gross Income Less: Deductions Net loss Minimum Corporate Income Tax Due P3,752,129.00 P3,770,059.00 P 17,930.00 P75,043.00
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Less: Tax Credits Prior years excess credits Creditable taxes withheld during the year Tax Overpayment

P P4,703,019.00

P4,703,019.00 P4,627,976.00

Petitioner opted to carry over the said excess tax credit to the succeeding taxable year 2001. For the taxable year ended December 31, 2001, petitioner filed with the BIR its Annual ITR on April 12, 2002, reflecting a total gross income of [P4,771,419] and a total creditable taxes withheld of [P1,111,587] for consultancy services. It likewise declared a taxable income of [P1,936,851] with corresponding normal income tax due in the amount of [P619,792]. After deducting the unexpired excess of the previous year MCIT [1999 and 2000] in the amount of [P222,475] from the normal income tax due for the period, petitioners net tax due of [P397,317] was applied against the accumulated tax credits of [P5,739,563]. Said reported tax credits comprised of prior years excess tax credits in the amount of [P4,627,976] and creditable taxes withheld during the year 2001 in the sum of [P1,111,587]. These excess tax credits were utilized to pay off the income tax still due of [P397,317] resulting to an overpayment of [P5,342,246], computed as follows: Gross Income Less: Deductions Taxable Income P4,771,419.00 P2,834,568.00 P1,936,851.00

Income Tax Due at the Normal Rate of 32% P 619,792.00 Less: Unexpired Excess of Prior Years MCIT Over Normal Income Tax Rate P 397,317.00 Income Tax Still Due Less: Tax Credits Prior years excess credits P4,627,976.00 Creditable taxes withheld during the year 1,111,587.00 P5,739,563.00 Tax Overpayment P5,342,246.00

222,475.00

Petitioner indicated in the 2001 ITR the option To be issued a Tax Credit Certificate relative to its tax overpayments. On August 9, 2002, petitioner instituted a claim for refund or issuance of a tax credit certificate with the BIR of its unutilized creditable withholding taxes in the amount of P5,342,246.00 as of December 31, 2001. Due to the inaction of the BIR on petitioners claim for refund and to preserve its right to claim for the refund to its unutilized CWT for CYs 2000 and 2001 by judicial action, petitioner filed a petition for review with the Court in Division on April 14, 2003. In its August 3, 2005 decision, the First Division of the CTA partially granted the petition and ordered the issuance of a tax credit certificate to petitioner in the amount of P1,111,587 representing the excess or unutilized creditable withholding taxes for taxable year 2001. The CTA, however, denied petitioners claim for refund of the excess tax credits for the year 2000 in the amount of P4,627,976. It ruled that petitioner was precluded from claiming a refund thereof or requesting a tax credit certificate therefor. Once it was made for a particular taxable period, the option to carry over became irrevocable.

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Petitioner moved for reconsideration but it was denied. Petitioner elevated the case to the CTA en banc which rendered the assailed decision. Thus, this petition. As already stated, petitioner formulated the issue in this petition as follows: whether the exercise of the option to carry-over excess income tax credits under Section 76 of the Tax Code bars a taxpayer from claiming the excess tax credits for refund even if the amount remains unutilized in the succeeding taxable year. Petitioner contends that it does not. We disagree. Section 76 of the Tax Code provides: SEC. 76. Final Adjustment Return. Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either: (A) (B) (C) Pay the balance of tax still due; or Carry-over the excess credit; or

Be credited or refunded with the excess amount paid, as the case may be.

In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefor. (emphasis supplied)

A corporation entitled to a tax credit or refund of the excess estimated quarterly income taxes paid has two options: (1) to carry over the excess credit or (2) to apply for the issuance of a tax credit certificate or to claim a cash refund. If the option to carry over the excess credit is exercised, the same shall be irrevocable for that taxable period. In exercising its option, the corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention either to carry over the excess credit or to claim a refund. To facilitate tax collection, these remedies are in the alternative and the choice of one precludes the other. This is known as the irrevocability rule and is embodied in the last sentence of Section 76 of the Tax Code. The phrase such option shall be considered irrevocable for that taxable period means that the option to carry over the excess tax credits of a particular taxable year can no longer be revoked. The rule prevents a taxpayer from claiming twice the excess quarterly taxes paid: (1) as automatic credit against taxes for the taxable quarters of the succeeding years for which no tax credit certificate has been issued and (2) as a tax credit either for which a tax credit certificate will be issued or which will be claimed for cash refund. In this case, it was in the year 2000 that petitioner derived excess tax credits and exercised the irrevocable option to carry them over as tax credits for the next taxable year. Under Section 76 of the Tax Code, a claim for refund of such excess credits can no longer be made. The excess credits will only be applied against income tax due for the taxable quarters of the succeeding taxable years. The legislative intent to make the option irrevocable becomes clearer when Section 76 is viewed in comparison to Section 69 of the (old) 1977 Tax Code:

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SECTION 69. Final Adjustment Return. Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either: (A) (B) Pay the excess tax still due; or Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year. Under Section 69 of the 1977 Tax Code, there was no irrevocability rule. Instead of claiming a refund, the excess tax credits could be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year, that is, the immediately following year only. In contrast, Section 76 of the present Tax Code formulates an irrevocability rule which stresses and fortifies the nature of the remedies or options as alternative, not cumulative. It also provides that the excess tax credits may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years until fully utilized. Furthermore, this case is closely similar to Philam Asset Management, Inc. v. Commissioner of Internal Revenue. In that case, Philam Asset Management, Inc. had an unapplied creditable withholding tax in the amount of P459,756.07 for the year 1998. It carried over the said excess tax to the following taxable year, 1999. In the next succeeding year, it had a tax due in the amount of P80,042 and a creditable withholding tax in the amount of P915,995. As such, the amount due for the year 1999 (P80,042) was credited to its P915,995 creditable withholding tax for that year. Thus, its 1998 creditable withholding tax in the amount of P459,756.07 remained unutilized. Thereafter, it filed a claim for refund with respect to the unapplied creditable withholding tax of P459,756.07 for the year 1998. The Court denied the claim and ruled: Section 76 [is] clear and unequivocal. Once the carry-over option is taken, actually or constructively, it becomes irrevocable. Petitioner has chosen that option for its 1998 creditable withholding taxes. Thus, it is no longer entitled to a tax refund of P459,756.07, which corresponds to its 1998 excess tax credit. Nonetheless, the amount will not be forfeited in the governments favor, because it may be claimed by petitioner as tax credits in the succeeding taxable years. (emphasis supplied) Since petitioner elected to carry over its excess credits for the year 2000 in the amount of P4,627,976 as tax credits for the following year, it could no longer claim a refund. Again, at the risk of being repetitive, once the carry over option was made, actually or constructively, it became forever irrevocable regardless of whether the excess tax credits were actually or fully utilized. Nevertheless, as held in Philam Asset Management, Inc., the amount will not be forfeited in favor of the government but will remain in the taxpayers account. Petitioner may claim and carry it over in the succeeding taxable years, creditable against future income tax liabilities until fully utilized. WHEREFORE, petitioners motion for leave to file a second motion for reconsideration and the second motion for reconsideration are hereby DENIED. Costs against petitioner. No further pleadings shall be entertained. Let entry of judgment be made in due course. SO ORDERED.

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G.R. No. 163345

July 4, 2008

COMMISSIONER OF INTERNAL REVENUE, petitioners, vs. PERF REALTY CORPORATION, respondent. DECISION REYES, R.T., J.: FOR Our review on certiorari is the Decision1 of the Court of Appeals (CA) granting the claim for refund of respondent PERF Realty Corporation (PERF) for creditable withholding tax for the year 1997. Facts Petitioner Commissioner is the head of the Bureau of Internal Revenue (BIR) whose principal duty is to assess and collect internal revenue taxes. Respondent PERF is a domestic corporation engaged in the business of leasing properties to various clients including the Philippine American Life and General Insurance Company (Philamlife) and Read-Rite Philippines (Read-Rite). On April 14, 1998, PERF filed its Annual Income Tax Return (ITR) for the year 1997 showing a net taxable income in the amount of P6,430,345.00 and income tax due of P2,250,621.00. For the year 1997, its tenants, Philamlife and Read-Rite, withheld and subsequently remitted creditable withholding taxes in the total amount of P3,531,125.00. After deducting creditable withholding taxes in the total amount of P3,531,125.00 from its total income tax due of P2,250,621.00, PERF showed in its 1997 ITR an overpayment of income taxes in the amount of P1,280,504.00. On November 3, 1999, PERF filed an administrative claim with the appellate division of the BIR for refund of overpaid income taxes in the amount of P1,280,504.00. On December 3, 1999, due to the inaction of the BIR, PERF filed a petition for review with the Court of Tax Appeals (CTA) seeking for the refund of the overpaid income taxes in the amount of P1,280,504.00. CTA Disposition In a Decision dated November 20, 2001, the CTA denied the petition of PERF on the ground of insufficiency of evidence. The CTA noted that PERF did not indicate in its 1997 ITR the option to either claim the excess income tax as a refund or tax credit pursuant to Section 692 (now 76) of the National Internal Revenue Code (NIRC) Further, the CTA likewise found that PERF failed to present in evidence its 1998 annual ITR. It held that the failure of PERF to signify its option on whether to claim for refund or opt for an automatic tax credit and to present its 1998 ITR left the Court with no way to determine with certainty whether or not PERF has applied or credited the refundable amount sought for in its administrative and judicial claims for refund. PERF moved for reconsideration attaching to its motion its 1998 ITR. The motion was, however, denied by the CTA in its Resolution dated March 26, 2002. Aggrieved by the decision of the CTA, PERF filed a petition for review with the CA under Rule 43 of the Rules of Court. CA Disposition In a Decision dated July 18, 2003, the CA ruled in favor of PERF, disposing as follows:

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WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated November 20, 2001, and Resolution of March 26, 2002 of the Court of Tax Appeals are SET ASIDE. The Commissioner of Internal Revenue is ordered to REFUND to the petitioner the amount of P1,280,504.00 as creditable withholding tax for the year 1997. SO ORDERED.3 According to the appellate court, even if the taxpayer has indicated its option for refund or tax credit in its ITR, it does not mean that it will automatically be entitled to either option since the Commissioner of Internal Revenue (CIR) must be given the opportunity to investigate and confirm the veracity of the claim. Thus, there is still a need to file a claim for refund. As to the failure of PERF to present its 1998 ITR, the CA observed that there is no need to rule on its admissibility since the CTA already held that PERF had complied with the requisites for applying for a tax refund. The sole purpose of requiring the presentation of PERF's 1998 ITR is to verify whether or not PERF had carried over the 1997 excess income tax claimed for refund to the year 1998. The verification process is not incumbent upon PERF; rather, it is the duty of the BIR to disprove the taxpayer's claim. The CIR filed a motion for reconsideration which was subsequently denied by the CA. Thus, this appeal to Us under Rule 45. Issues Petitioner submits the following assignment: I THE COURT OF APPEALS ERRED IN GRANTING RESPONDENT'S TAX REFUND CONSIDERING THE LATTER'S FAILURE TO SUBSTANTIALLY ESTABLISH ITS CLAIM FOR REFUND. II THE COURT OF APPEALS ERRED IN CONSIDERING RESPONDENT'S ANNUAL CORPORATE INCOME TAX RETURN FOR 1998 NOTWITHSTANDING THAT IT WAS NOT FORMALLY OFFERED IN EVIDENCE.4 (Underscoring supplied) Our Ruling We rule in favor of respondent. I. Respondent substantially complied with the requisites for claim of refund. The CTA, citing Section 10 of Revenue Regulations 6-85 and Citibank, N.A. v. Court of Appeals,5 determined the requisites for a claim for refund, thus: 1) That the claim for refund was filed within the two (2) year period as prescribed under Section 230 of the National Internal Revenue Code; 2) That the income upon which the taxes were withheld were included in the return of the recipient; 3) That the fact of withholding is established by a copy of a statement (BIR Form 1743.1) duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom. 6 We find that PERF filed its administrative and judicial claims for refund on November 3, 1999 and December 3, 1999, respectively, which are within the two-year prescriptive period under Section 230 (now 229) of the National Internal Tax Code.

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The CTA noted that based on the records, PERF presented certificates of creditable withholding tax at source reflecting creditable withholding taxes in the amount of P4,153,604.18 withheld from PERF's rental income of P83,072,076.81 (Exhibits B, C, D, E, and H). In addition, it submitted in evidence the Monthly Remittance Returns of its withholding agents to prove the fact of remittance of said taxes to the BIR. Although the certificates of creditable withholding tax at source for 1997 reflected a total amount of P4,153,604.18 corresponding to the rental income of P83,072,076.81, PERF is claiming only the amount of P3,531,125.00 pertaining to a rental income of P70,813,079.00. The amount of P3,531,125.00 less the income tax due of PERF of P2,250,621.00 leaves the refundable amount of P1,280,504.00. It is settled that findings of fact of the CTA are entitled to great weight and will not be disturbed on appeal unless it is shown that the lower courts committed gross error in the appreciation of facts. We see no cogent reason not to apply the same principle here. II. The failure of respondent to indicate its option in its annual ITR to avail itself of either the tax refund or tax credit is not fatal to its claim for refund. Respondent PERF did not indicate in its 1997 ITR the option whether to request a refund or claim the excess withholding tax as tax credit for the succeeding taxable year. Citing Section 76 of the NIRC, the CIR opines that such failure is fatal to PERF's claim for refund. We do not agree. In Philam Asset Management, Inc. v. Commissioner of Internal Revenue,7 the Court had occasion to trace the history of the Final Adjustment Return found in Section 69 (now 76) of the NIRC. Thus: The provision on the final adjustment return (FAR) was originally found in Section 69 of Presidential Decree (PD) No. 1158, otherwise known as the "National Internal Revenue Code of 1977." On August 1, 1980, this provision was restated as Section 86 in PD 1705. On November 5, 1985, all prior amendments and those introduced by PD 1994 were codified into the National Internal Revenue Code (NIRC) of 1985, as a result of which Section 86 was renumbered as Section 79. On July 31, 1986, Section 24 of Executive Order (EO) No. 37 changed all "net income" phrases appearing in Title II of the NIRC of 1977 to "taxable income." Section 79 of the NIRC of 1985, however, was not amended. On July 25, 1987, EO 273 renumbered Section 86 of the NIRC as Section 76, which was also rearranged to fall under Chapter of Title II of the NIRC. Section 79, which had earlier been renumbered by PD 1994, remained unchanged. Thus, Section 69 of the NIRC of 1977 was renumbered as Section 86 under PD 1705; later, as Section 79 under PD 1994; then, as Section 76 under EO 273. Finally, after being renumbered and reduced to the chaff of a grain, Section 69 was repealed by EO 37. Subsequently, Section 69 reappeared in the NIRC (or Tax Code) of 1997 as Section 76, which reads: "Section 76. Final Adjustment Return. - Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either: "(a) Pay the excess tax still due; or "(b) Be refunded the excess amount paid, as the case may be.

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In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year."8 Section 76 offers two options: (1) filing for tax refund and (2) availing of tax credit. The two options are alternative and the choice of one precludes the other. However, in Philam Asset Management, Inc. v. Commissioner of Internal Revenue,9 the Court ruled that failure to indicate a choice, however, will not bar a valid request for a refund, should this option be chosen by the taxpayer later on. The requirement is only for the purpose of easing tax administration particularly the self-assessment and collection aspects. Thus: These two options under Section 76 are alternative in nature. The choice of one precludes the other. Indeed, in Philippine Bank of Communications v. Commissioner of Internal Revenue, the Court ruled that a corporation must signify its intention - whether to request a tax refund or claim a tax credit - by marking the corresponding option box provided in the FAR. While a taxpayer is required to mark its choice in the form provided by the BIR, this requirement is only for the purpose of facilitating tax collection. One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid. Failure to signify one's intention in the FAR does not mean outright barring of a valid request for a refund, should one still choose this option later on. A tax credit should be construed merely as an alternative remedy to a tax refund under Section 76, subject to prior verification and approval by respondent. The reason for requiring that a choice be made in the FAR upon its filing is to ease tax administration, particularly the self-assessment and collection aspects. A taxpayer that makes a choice expresses certainty or preference and thus demonstrates clear diligence. Conversely, a taxpayer that makes no choice expresses uncertainty or lack of preference and hence shows simple negligence or plain oversight. xxxx Third, there is no automatic grant of a tax refund. As a matter of procedure, the BIR should be given the opportunity "to investigate and confirm the veracity" of a taxpayer's claim, before it grants the refund. Exercising the option for a tax refund or a tax credit does not ipso facto confer upon a taxpayer the right to an immediate availment of the choice made. Neither does it impose a duty on the government to allow tax collection to be at the sole control of a taxpayer. Fourth, the BIR ought to have on file its own copies of petitioner's FAR for the succeeding year, on the basis of which it could rebut the assertion that there was a subsequent credit of the excess income tax payments for the previous year. Its failure to present this vital document to support its contention against the grant of a tax refund to petitioner is certainly fatal. Fifth, the CTA should have taken judicial notice of the fact of filing and the pendency of petitioner's subsequent claim for a refund of excess creditable taxes withheld for 1998. The existence of the claim ought to be known by reason of its judicial functions. Furthermore, it is decisive to and will easily resolve the material issue in this case. If only judicial notice were taken earlier, the fact that there was no carry-over of the excess creditable taxes withheld for 1997 would have already been crystal clear. Sixth, the Tax Code allows the refund of taxes to a taxpayer that claims it in writing within two years after payment of the taxes erroneously received by the BIR. Despite the failure of petitioner to make the appropriate marking in the BIR form, the filing of its written claim effectively serves as an expression of its choice to request a tax refund, instead of a tax credit. To assert that any future claim for a tax refund will be instantly hindered by a failure to signify one's intention in the FAR is to render nugatory the clear provision that allows for a two-year prescriptive period. In fact, in BPI-Family Savings Bank v. CA, this Court even ordered the refund of a taxpayer's excess creditable taxes, despite the express declaration in the FAR to apply the excess to the succeeding year. When circumstances show that a choice of tax credit has been made, it should be respected. But when indubitable circumstances clearly show that another choice - a tax refund - is in order, it should be granted. "Technicalities and legalisms,

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however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens." In the present case, although petitioner did not mark the refund box in its 1997 FAR, neither did it perform any act indicating that it chose a tax credit. On the contrary, it filed on September 11, 1998, an administrative claim for the refund of its excess taxes withheld in 1997. In none of its quarterly returns for 1998 did it apply the excess creditable taxes. Under these circumstances, petitioner is entitled to a tax refund of its 1997 excess tax credits in the amount of P522,092.10 In this case, PERF did not mark the refund box in its 1997 FAR. Neither did it perform any act indicating that it chose tax credit. In fact, in its 1998 ITR, PERF left blank the portion "Less: Tax Credit/ Payments." That action coupled with the filing of a claim for refund indicates that PERF opted to claim a refund. Under these circumstances, PERF is entitled to a refund of its 1997 excess tax credits in the amount of P1,280,504.00. III. The failure of respondent to present in evidence the 1998 ITR is not fatal to its claim for refund. The CIR takes the view that the CA erred in considering the 1998 ITR of PERF. It was not formally offered in evidence. Section 34, Rule 132 of the Revised Rules of Court states that the court shall consider no evidence which has not been formally offered. The reasoning is specious. PERF attached its 1998 ITR to its motion for reconsideration. The 1998 ITR is a part of the records of the case and clearly showed that income taxes in the amount of P1,280,504.00 were not claimed as tax credit in 1998. In Filinvest Development Corporation v. Commissioner of Internal Revenue,11 the Court held that the 1997 ITR attached to the motion for reconsideration is part of the records of that case and cannot be simply ignored by the CTA. Moreover, technicalities should not be used to defeat substantive rights, especially those that have been held as a matter of right. We quote: In the proceedings before the CTA, petitioner presented in evidence its letter of claim for refund before the BIR to show that it was made within the two-year reglementary period; its Income Tax Returns for the years 1995 and 1996 to prove its total creditable withholding tax and the fact that the amounts were declared as part of its gross income; and several certificates of income tax withheld at source corresponding to the period of claim to prove the total amount of the taxes erroneously withheld. More importantly, petitioner attached its 1997 Income Tax Return to its Motion for Reconsideration, making the same part of the records of the case. The CTA cannot simply ignore this document.1avvphi1 Thus, we hold that petitioner has complied with all the requirements to prove its claim for tax refund. The CA, therefore, erred in denying the petition for review of the CTA's denial of petitioner's claim for tax refund on the ground that it failed to present its 1997 Income Tax Return. The CA's reliance on Rule 132, Section 34 26 of the Rules on Evidence is misplaced. This provision must be taken in the light of Republic Act No. 1125, as amended, the law creating the CTA, which provides that proceedings therein shall not be governed strictly by technical rules of evidence. Moreover, this Court has held time and again that technicalities should not be used to defeat substantive rights, especially those that have been established as a matter of fact. xxxx We must also point out that, simply by exercising the CIR's power to examine and verify petitioner's claim for tax exemption as granted by law, respondent CIR could have easily verified petitioner's claim by presenting the latter's 1997 Income Tax Return, the original of which it has in its files. However, records show that in the proceedings before the CTA, respondent CIR failed to comment on petitioner's formal offer of evidence, waived its right to present its own evidence, and failed to file its memorandum. Neither did it file an opposition to petitioner's motion to reconsider the CTA decision to which the 1997 Income Tax Return was appended.

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10

That no one shall unjustly enrich oneself at the expense of another is a long-standing principle prevailing in our legal system. This applies not only to individuals but to the State as well. In the field of taxation where the State exacts strict compliance upon its citizens, the State must likewise deal with taxpayers with fairness and honesty. The harsh power of taxation must be tempered with evenhandedness. Hence, under the principle of solutio indebiti, the Government has to restore to petitioner the sums representing erroneous payments of taxes.12 Further, We sustain the CA that there is no need to rule on the issue of the admissibility of the 1998 ITR since the CTA ruled that PERF already complied with the requisites of applying for a tax refund. The verification process is not incumbent on PERF; it is the duty of the CIR to verify whether or not PERF had carried over the 1997 excess income taxes. WHEREFORE, the petition is DENIED for lack of merit. SO ORDERED. Ynares-Santiago, Chairperson, Austria-Martinez, Chico-Nazario, Nachura, JJ., concur.

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11

THIRD DIVISION G.R. Nos. 141104 & 148763 June 8, 2007

ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent. DECISION CHICO-NAZARIO, J.: Before this Court are the consolidated cases involving the unsuccessful claims of herein petitioner Atlas Consolidated Mining and Development Corporation (petitioner corporation) for the refund/credit of the input Value Added Tax (VAT) on its purchases of capital goods and on its zero-rated sales in the taxable quarters of the years 1990 and 1992, the denial of which by the Court of Tax Appeals (CTA), was affirmed by the Court of Appeals. Petitioner corporation is engaged in the business of mining, production, and sale of 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-6002224, dated 1 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 business, and it was re-issued VAT Registration No. 32-0-004622, dated 15 August 1990.1 G.R. No. 141104 Petitioner corporation filed with the BIR its VAT Return for the first quarter of 1992. 2 It 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 in the amount of P26,030,460.00.3 When its application for refund/credit remained unresolved by the BIR, petitioner corporation filed on 20 April 1994 its Petition for 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 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 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 WHEREFORE, in view of the foregoing, the instant claim for refund is hereby DENIED on 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 for lack of merit. The CTA denied the motion for reconsideration of petitioner corporation in a Resolution 5 dated 15 April 1998. When the case was elevated to the Court of Appeals as CA-G.R. SP No. 47607, the appellate court, in its Decision,6 dated 6 July 1999, dismissed the appeal of petitioner corporation, finding no reversible error in the CTA Decision, dated 24 November 1997. The subsequent motion for reconsideration of petitioner corporation was also denied by the Court of Appeals in its Resolution,7 dated 14 December 1999. 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 committed by the Court of Appeals I THE COURT OF APPEALS ERRED IN AFFIRMING THE REQUIREMENT OF REVENUE 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 TO APPLY. II THE COURT OF APPEALS ERRED IN AFFIRMING THAT PETITIONER FAILED TO SUBMIT SUFFICIENT EVIDENCE SINCE FAILURE TO SUBMIT PHOTOCOPIES OF VAT INVOICES AND RECEIPTS IS NOT A FATAL DEFECT.

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III THE COURT OF APPEALS ERRED IN RULING THAT THE JUDICIAL CLAIM WAS FILED BEYOND THE PRESCRIPTIVE PERIOD SINCE THE JUDICIAL CLAIM WAS FILED WITHIN TWO (2) YEARS FROM THE FILING OF THE VAT RETURN. IV THE COURT OF APPEALS ERRED IN NOT ORDERING CTA TO ALLOW THE RE-OPENING OF THE CASE FOR PETITIONER TO PRESENT ADDITIONAL EVIDENCE.8 G.R. No. 148763 G.R. No. 148763 involves almost the same set of facts as in G.R. No. 141104 presented above, except that it relates to the claims of petitioner corporation for refund/credit of input VAT on its purchases of capital goods and on its zero-rated sales made in the last three taxable quarters of 1990. Petitioner corporation filed with the BIR its VAT Returns for the second, third, and fourth 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 its purchases of capital goods and on its zero-rated sales, the details of which are presented as follows Date of Application 21 August 1990 21 November 1990 19 February 1991 Period Covered 2nd Quarter, 1990 3rd Quarter, 1990 4th Quarter, 1990 Amount Applied For P 54,014,722.04 75,304,774.77 43,829,766.10

When the BIR failed to act on its applications for refund/credit, petitioner corporation filed with the CTA the following petitions for review Date Filed 20 July 1992 9 October 1992 14 January 1993 Period Covered 2nd Quarter, 1990 3rd Quarter, 1990 4th Quarter, 1990 CTA Case No. 4831 4859 4944

which were eventually consolidated. The respondent Commissioner contested the foregoing Petitions and prayed for the dismissal thereof. The CTA ruled in favor of 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.

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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
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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 230 13 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 twoyear 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
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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.

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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 2nd Quarter, 1990 3rd Quarter, 1990 4th Quarter, 1990 1st Quarter, 1992 Date of Filing (Return w/ BIR) 20 July 1990 18 October 1990 20 January 1991 20 April 1992 Date of Filing (Application w/ BIR) 21 August 1990 21 November 1990 19 February 1991 -Date of Filing (Case w/ CTA) 20 July 1992 9 October 1992 14 January 1993 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. 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 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) 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 respondent Commissioner within the two-year prescriptive period. The application of 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, 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 November 1997, in CTA Case No. 5102, made the following observations 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 petitioner on account of the fact that it does not bear the BIR stamp showing the date 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 the signature of a certain Ma. Paz R. Semilla indicated in the form who appears to be petitioner's authorized filer. A review of the records reveal that the original of the aforecited application was lost 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, 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 application has no probative value in demonstrating the fact of its filing within two years 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 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

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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 VATregistered 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 exportoriented 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.

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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
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and services are taxed only in the country where these are consumed. In connection with the said principle, the Cross Border Doctrine23 mandates that no VAT shall be imposed to form part of the cost of the goods destined for consumption outside the territorial border of the taxing 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 Philippines shall be imposed with 10% VAT.24 Export processing zones25 are to be managed as a separate customs territory from the rest of the Philippines and, thus, for tax purposes, are effectively considered as foreign territory. For this reason, sales by persons from the Philippine customs territory to those inside the export processing zones are already taxed as exports. Plainly, sales to enterprises operating within the export processing zones are export sales, 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-rated sales to PASAR and PHILPHOS. The distinction made by this Court in the preceding paragraphs between the zero-rated sales to export-oriented BOIregistered enterprises and zero-rated sales to EPZA-registered enterprises operating within export processing zones is actually supported by subsequent development in tax laws and regulations. In Revenue Regulations No. 7-95, the Consolidated VAT Regulations, as amended,26 the BIR defined with more precision what are zero-rated export sales (1) The sale and actual shipment 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 paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); (2) The sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); (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; Any enterprise whose export sales exceed 70% of the total annual production of the preceding taxable year shall be considered an export-oriented enterprise upon accreditation as such under the provisions of the Export Development Act (R.A. 7844) and its implementing rules and regulations; (4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and (5) Those considered export sales under Articles 23 and 77 of Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws, e.g. Republic Act No. 7227, otherwise known as the Bases Conversion and Development Act of 1992. The Tax Code of 1997, as amended,27 later adopted the foregoing definition of export sales, which are subject to 0% VAT. This Court then reiterates its conclusion that Section 2 of Revenue Regulations No. 2-88, 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 petitioner corporation since it based its applications on the zero-rating of export sales to enterprises registered with the EPZA and located within export processing zones. Sufficiency of evidence 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 required documents, it is the function of the BIR to assess these documents with purposeful dispatch.28 It therefore falls upon herein petitioner corporation to first establish that its sales qualify for VAT zero-rating under the existing laws (legal basis), and then to present sufficient evidence that said sales were actually made and resulted in refundable or creditable input VAT in the amount being claimed (factual basis). It would initially appear that the applications for refund/credit filed by petitioner corporation cover only input VAT on its purportedly zero-rated sales to PASAR and PHILPHOS; however, a more thorough perusal of its applications, VAT
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returns, pleadings, and other records of these cases would reveal that it is also claiming refund/credit of its input VAT on purchases of capital goods and sales of gold to the Central Bank of the Philippines (CBP). 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.
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"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 valueadded 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 zerorated sale: Amount of Zero-rated Sale Total Sales X Total Amount of Input Taxes = 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
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documents covering the said accounts or payments to be introduced in evidence must be pre-marked by the party concerned and submitted to the Court in order to be made 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.

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23

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
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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. 587 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

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25

"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
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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,
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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 reopening 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.

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28

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
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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. Ynares-Santiago, Chairperson, Austria-Martinez, Nachura, JJ., concur.

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THIRD DIVISION G.R. Nos. 156637/162004 December 14, 2005 PHILAM ASSET MANAGEMENT, INC., Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. DECISION PANGANIBAN, J.: Under Section 76 of the National Internal Revenue Code, a taxable corporation with excess quarterly income tax payments may apply for either a tax refund or a tax credit, but not both. The choice of one precludes the other. Failure to indicate a choice, however, will not bar a valid request for a refund, should this option be chosen by the taxpayer later on. The Case Before us are two consolidated Petitions for Review1 under Rule 45 of the Rules of Court, seeking to review and reverse the December 19, 2002 Decision2 of the Court of Appeals (CA) in CA-GR SP No. 69197 and its January 30, 2004 Decision3 in CA-GR SP No. 70882. The dispositive portion of the assailed December 19, 2002 Decision, on the one hand, reads as follows: "WHEREFORE, the petition is hereby DENIED. The assailed decision and resolution of the Court of Tax Appeals are AFFIRMED."4 That of the assailed January 30, 2004 Decision, on the other hand, was similarly worded, except that it referred to the May 2, 2002 Decision of the Court of Tax Appeals (CTA).5 The Facts In GR No. 156637, the CA adopted the CTAs narration of the facts as follows: "Petitioner, formerly Philam Fund Management, Inc., is a domestic corporation duly organized and existing under the laws of the Republic of the Philippines. It acts as the investment manager of both Philippine Fund, Inc. (PFI) and Philam Bond Fund, Inc. (PBFI), which are open-end investment companies[,] in the sale of their shares of stocks and in the investment of the proceeds of these sales into a diversified portfolio of debt and equity securities. Being an investment manager, [p]etitioner provides management and technical services to PFI and PBFI. Petitioner is, likewise, PFIs and PBFIs principal distributor which takes charge of the sales of said companies shares to prospective investors. Pursuant to the separate [m]anagement and [d]istribution agreements between the [p]etitioner and PFI and PBFI, both PFI and PBFI [agree] to pay the [p]etitioner, by way of compensation for the latters services and facilities, a monthly management fee from which PFI and PBFI withhold the amount equivalent to [a] five percent (5%) creditable tax[,] pursuant to the Expanded Withholding Tax Regulations. "On April 3, 1998, [p]etitioner filed its [a]nnual [c]orporate [i]ncome [t]ax [r]eturn for the taxable year 1997 representing a net loss of P2,689,242.00. Consequently, it failed to utilize the creditable tax withheld in the amount of Five Hundred Twenty-Two Thousand Ninety-Two Pesos (P522,092.00) representing [the] tax withheld by [p]etitioners withholding agents, PFI and PBFI[,] on professional fees. "The creditable tax withheld by PFI and PBFI in the amount of P522,092.00 is broken down as follows: PFI P496,702.05 PBFI 25,389.66_ Total P522,091.71

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"On September 11, 1998, [p]etitioner filed an administrative claim for refund with the [Bureau of Internal Revenue (BIR)] -- Appellate Division in the amount of P522,092.00 representing unutilized excess tax credits for calendar year 1997. Thereafter, on July 28, 1999, a written request was filed with the same division for the early resolution of [p]etitioners claim for refund. "Respondent did not act on [p]etitioners claim for refund[;] hence, a Petition for Review was filed with this Court 6 on November 29, 1999 to toll the running of the two-year prescriptive period."7 On October 9, 2001, the CTA rendered a Decision denying petitioners Petition for Review. Its Motion for Reconsideration was likewise denied in a Resolution dated January 29, 2002. In GR No. 162004, the antecedents are narrated by the CA in this wise: "On April 13, 1999, [petitioner] filed its Annual Income Tax Return with the [BIR] for the taxable year 1998 declaring a net loss of P1,504,951.00. Thus, there was no tax due against [petitioner] for the taxable year 1998. Likewise, [petitioner] had an unapplied creditable withholding tax in the amount of P459,756.07, which amount had been previously withheld in that year by petitioners withholding agents[,] namely x x x [PFI], x x x [PBFI], and Philam Strategic Growth Fund, Inc. (PSGFI). "In the next succeeding year, [petitioner] had a tax due in the amount of P80,042.00, and a creditable withholding tax in the amount of P915,995.00. [Petitioner] likewise declared in its 1999 tax return the amount of P459,756.07, which represents its prior excess credit for taxable year 1998. "Thereafter, on November 14, 2000, [petitioner] filed with the Revenue District Office No. 50, Revenue Region No. 8, a written administrative claim for refund with respect to the unapplied creditable withholding tax of P459,756.07. According to [petitioner,] the amount of P80,042.00, representing the tax due for the taxable year 1999 has been credited from its P915,995.00 creditable withholding tax for taxable year 1999, thus leaving its 1998 creditable withholding tax in the amount of P459,756.07 still unapplied. "The claim for refund yielded no action on the part of the BIR. [Petitioner] then filed a Petition for Review before the CTA on December 26, 2000, asserting that it is entitled [to] the refund [of P459,756.07,] since said amount has not been applied against its tax liabilities in the taxable year 1998. "On May 2, 2002, the CTA rendered [a] x x x decision denying [petitioners] Petition for Review. x x x." 8 Ruling of the Court of Appeals The CA denied the claim of petitioner for a refund of the latters excess creditable taxes withheld for the years 1997 and 1998, despite compliance with the basic requirements of Revenue Regulations (RR) No. 12-94. The appellate court pointed out that, in the respective Income Tax Returns (ITRs) for both years, petitioner did not indicate its option to have the amounts either refunded or carried over and applied to the succeeding year. It was held that to request for either a refund or a credit of income tax paid, a corporation must signify its intention by marking the corresponding option box on its annual corporate adjustment return. The CA further held in GR No. 156637 that the failure to present the 1998 ITR was fatal to the claim for a refund, because there was no way to verify if the tax credit for 1997 could not have been applied against the 1998 tax liabilities of petitioner. In GR No. 162004, however, the subsequent acts of petitioner demonstrated its option to carry over its tax credit for 1998, even if it again failed to tick the appropriate box for that option in its 1998 ITR. Under RR 12-94, its failure to indicate that option resulted in the automatic carry-over of any excess tax credit for the prior year. The appellate court said that the government would not be unjustly enriched by denying a refund, because there would be no forfeiture of the amount in its favor. The amount claimed as a refund would remain in the account of the taxpayer until utilized in succeeding taxable years. Hence, these Petitions.9
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The Issues Petitioner raises two issues in GR No. 156637 for the Courts consideration: "A. "Whether or not the failure of the [p]etitioner to indicate in its [a]nnual [i]ncome [t]ax [r]eturn the option to refund its creditable withholding tax is fatal to its claim for refund. "B. "Whether or not the presentation in evidence of the [p]etitioners [a]nnual [i]ncome [t]ax [r]eturn for the succeeding calendar year is a legal requisite in a claim for refund of unapplied creditable withholding tax." 10 In GR No. 162004, petitioner raises one question only: "Whether or not the petitioner is entitled to the refund of its unutilized creditable withholding tax in the taxable year 1998 in the amount of P459,756.07."11 In both cases, a simple issue needs to be resolved: whether petitioner is entitled to a refund of its creditable taxes withheld for taxable years 1997 and 1998. The Courts Ruling The Petition in GR No. 156637 is meritorious, but that in GR No. 162004 is not. Main Issue: Entitlement to Refund The provision on the final adjustment return (FAR) was originally found in Section 69 of Presidential Decree (PD) No. 1158, otherwise known as the "National Internal Revenue Code of 1977."12 On August 1, 1980, this provision was restated as Section 8613 in PD 1705.14 On November 5, 1985, all prior amendments and those introduced by PD 1994 15 were codified16 into the National Internal Revenue Code (NIRC) of 1985, as a result of which Section 86 was renumbered17 as Section 79.18 On July 31, 1986, Section 24 of Executive Order (EO) No. 37 changed all "net income" phrases appearing in Title II of the NIRC of 1977 to "taxable income." Section 79 of the NIRC of 1985,19 however, was not amended. On July 25, 1987, EO 27320 renumbered21 Section 86 of the NIRC22 as Section 76,23 which was also rearranged24 to fall under Chapter 10 of Title II of the NIRC. Section 79, which had earlier been renumbered by PD 1994, remained unchanged. Thus, Section 69 of the NIRC of 1977 was renumbered as Section 86 under PD 1705; later, as Section 79 under PD 1994; 25 then, as Section 76 under EO 273.26 Finally, after being renumbered and reduced to the chaff of a grain, Section 69 was repealed by EO 37. Subsequently, Section 69 reappeared in the NIRC (or Tax Code) of 1997 as Section 76, which reads: "Section 76. Final Adjustment Return. -- Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income27 for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable net income 28 of that year the corporation shall either:

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"(a) Pay the excess tax still due; or "(b) Be refunded the excess amount paid, as the case may be. "In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year." GR No. 156637 This section applies to the first case before the Court. Differently numbered in 1977 but similarly worded 20 years later (1997), Section 76 offers two options to a taxable corporation whose total quarterly income tax payments in a given taxable year exceeds its total income tax due. These options are (1) filing for a tax refund or (2) availing of a tax credit. The first option is relatively simple. Any tax on income that is paid in excess of the amount due the government may be refunded, provided that a taxpayer properly applies for the refund. The second option works by applying the refundable amount, as shown on the FAR of a given taxable year, against the estimated quarterly income tax liabilities of the succeeding taxable year. These two options under Section 76 are alternative in nature.29 The choice of one precludes the other. Indeed, in Philippine Bank of Communications v. Commissioner of Internal Revenue,30 the Court ruled that a corporation must signify its intention -- whether to request a tax refund or claim a tax credit -- by marking the corresponding option box provided in the FAR.31 While a taxpayer is required to mark its choice in the form provided by the BIR, this requirement is only for the purpose of facilitating tax collection. One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid. Failure to signify ones intention in the FAR does not mean outright barring of a valid request for a refund, should one still choose this option later on. A tax credit should be construed merely as an alternative remedy to a tax refund under Section 76, subject to prior verification and approval by respondent. 32 The reason for requiring that a choice be made in the FAR upon its filing is to ease tax administration, 33 particularly the self-assessment and collection aspects. A taxpayer that makes a choice expresses certainty or preference and thus demonstrates clear diligence. Conversely, a taxpayer that makes no choice expresses uncertainty or lack of preference and hence shows simple negligence or plain oversight. In the present case, respondent denied the claim of petitioner for a refund of excess taxes withheld in 1997, because the latter (1) had not indicated in its ITR for that year whether it was opting for a credit or a refund; and (2) had not submitted as evidence its 1998 ITR, which could have been the basis for determining whether its claimed 1997 tax credit had not been applied against its 1998 tax liabilities. Requiring that the ITR or the FAR of the succeeding year be presented to the BIR in requesting a tax refund has no basis in law and jurisprudence. First, Section 76 of the Tax Code does not mandate it. The law merely requires the filing of the FAR for the preceding -- not the succeeding -- taxable year. Indeed, any refundable amount indicated in the FAR of the preceding taxable year may be credited against the estimated income tax liabilities for the taxable quarters of the succeeding taxable year. However, nowhere is there even a tinge of a hint in any of the provisions of the Tax Code that the FAR of the taxable year following the period to which the tax credits are originally being applied should also be presented to the BIR. Second, Section 534 of RR 12-94, amending Section 10(a) of RR 6-85, merely provides that claims for the refund of income taxes deducted and withheld from income payments shall be given due course only (1) when it is shown on the ITR that the income payment received is being declared part of the taxpayers gross income; and (2) when the fact of withholding is established by a copy of the withholding tax statement, duly issued by the payor to the payee, showing the amount paid and the income tax withheld from that amount.35
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Undisputedly, the records do not show that the income payments received by petitioner have not been declared as part of its gross income, or that the fact of withholding has not been established. According to the CTA, "[p]etitioner substantially complied with the x x x requirements" of RR 12-94 "[t]hat the fact of withholding is established by a copy of a statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom; and x x x [t]hat the income upon which the taxes were withheld were included in the return of the recipient." 36 The established procedure is that a taxpayer that wants a cash refund shall make a written request for it, and the ITR showing the excess expanded withholding tax credits shall then be examined by the BIR. For the grant of refund, RRs 1294 and 6-85 state that all pertinent accounting records should be submitted by the taxpayer. These records, however, actually refer only to (1) the withholding tax statements; (2) the ITR of the present quarter to which the excess withholding tax credits are being applied; and (3) the ITR of the quarter for the previous taxable year in which the excess credits arose. 37 To stress, these regulations implementing the law do not require the proffer of the FAR for the taxable year following the period to which the tax credits are being applied. Third, there is no automatic grant of a tax refund. As a matter of procedure, the BIR should be given the opportunity "to investigate and confirm the veracity"38 of a taxpayers claim, before it grants the refund. Exercising the option for a tax refund or a tax credit does not ipso facto confer upon a taxpayer the right to an immediate availment of the choice made. Neither does it impose a duty on the government to allow tax collection to be at the sole control of a taxpayer. 39 Fourth, the BIR ought to have on file its own copies of petitioners FAR for the succeeding year, on the basis of which it could rebut the assertion that there was a subsequent credit of the excess income tax payments for the previous year. Its failure to present this vital document to support its contention against the grant of a tax refund to petitioner is certainly fatal. Fifth, the CTA should have taken judicial notice40 of the fact of filing and the pendency of petitioners subsequent claim for a refund of excess creditable taxes withheld for 1998. The existence of the claim ought to be known by reason of its judicial functions. Furthermore, it is decisive to and will easily resolve the material issue in this case. If only judicial notice were taken earlier, the fact that there was no carry-over of the excess creditable taxes withheld for 1997 would have already been crystal clear. Sixth, the Tax Code allows the refund of taxes to a taxpayer that claims it in writing within two years after payment of the taxes erroneously received by the BIR.41 Despite the failure of petitioner to make the appropriate marking in the BIR form, the filing of its written claim effectively serves as an expression of its choice to request a tax refund, instead of a tax credit. To assert that any future claim for a tax refund will be instantly hindered by a failure to signify ones intention in the FAR is to render nugatory the clear provision that allows for a twoyear prescriptive period. In fact, in BPI-Family Savings Bank v. CA,42 this Court even ordered the refund of a taxpayers excess creditable taxes, despite the express declaration in the FAR to apply the excess to the succeeding year.43 When circumstances show that a choice of tax credit has been made, it should be respected. But when indubitable circumstances clearly show that another choice -- a tax refund -- is in order, it should be granted. "Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens."44 In the present case, although petitioner did not mark the refund box in its 1997 FAR, neither did it perform any act indicating that it chose a tax credit. On the contrary, it filed on September 11, 1998, an administrative claim for the refund of its excess taxes withheld in 1997. In none of its quarterly returns for 1998 did it apply the excess creditable taxes. Under these circumstances, petitioner is entitled to a tax refund of its 1997 excess tax credits in the amount of P522,092. GR No. 162004 As to the second case, Section 76 also applies. Amended by Republic Act (RA) No. 8424, otherwise known as the "Tax Reform Act of 1997," it now states: "SEC. 76. Final Adjustment Return. -- Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made
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during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either: (A) Pay the balance of tax still due; or (B) Carry over the excess credit; or (C) Be credited or refunded with the excess amount paid, as the case may be. "In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefor." The carry-over option under Section 76 is permissive. A corporation that is entitled to a tax refund or a tax credit for excess payment of quarterly income taxes may carry over and credit the excess income taxes paid in a given taxable year against the estimated income tax liabilities of the succeeding quarters. Once chosen, the carry-over option shall be considered irrevocable45 for that taxable period, and no application for a tax refund or issuance of a tax credit certificate shall then be allowed. According to petitioner, it neither chose nor marked the carry-over option box in its 1998 FAR.46 As this option was not chosen, it seems that there is nothing that can be considered irrevocable. In other words, petitioner argues that it is still entitled to a refund of its 1998 excess income tax payments. This argument does not hold water. The subsequent acts of petitioner reveal that it has effectively chosen the carry-over option. First, the fact that it filled out the portion "Prior Years Excess Credits" in its 1999 FAR means that it categorically availed itself of the carry-over option. In fact, the line that precedes that phrase in the BIR form clearly states "Less: Tax Credits/Payments." The contention that it merely filled out that portion because it was a requirement -- and that to have done otherwise would have been tantamount to falsifying the FAR -- is a long shot. The FAR is the most reliable firsthand evidence of corporate acts pertaining to income taxes. In it are found the itemization and summary of additions to and deductions from income taxes due. These entries are not without rhyme or reason. They are required, because they facilitate the tax administration process. Failure to indicate the amount of "prior years excess credits" does not mean falsification by a taxpayer of its current years FAR. On the contrary, if an application for a tax refund has been -- or will be -- filed, then that portion of the BIR form should necessarily be blank, even if the FAR of the previous taxable year already shows an overpayment in taxes. Second, the resulting redundancy in the claim of petitioner for a refund of its 1998 excess tax credits on November 14, 200047 cannot be countenanced. It cannot be allowed to avail itself of a tax refund and a tax credit at the same time for the same excess income taxes paid. Besides, disallowing it from getting a tax refund of those excess tax credits will not enervate the two-year prescriptive period under the Tax Code. That period will apply if the carry-over option has not been chosen. Besides, "tax refunds x x x are construed strictly against the taxpayer."48 Petitioner has failed to meet the burden of proof required in order to establish the factual basis of its claim for a tax refund. Third, the "first-in first-out" (FIFO) principle enunciated by the CTA49 does not apply.50 Money is fungible property.51 The amount to be applied against the P80,042 income tax due in the 1998 FAR52 of petitioner may be taken from its excess credits in 1997 or from those withheld in 1998 or from both. Whichever of these the amount will be taken from will not make a difference.

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Even if the FIFO principle were to be applied, the tax credits would have to be in consonance with the usual and normal course of events. In fact, the FAR is cumulative in nature. 53 Following a natural sequence, the prior years excess tax credits will have to be reduced first to answer for any current tax liabilities before the current years withheld amounts can be applied. Otherwise, there will be no sense in requiring a taxpayer to fill out the line items in the FAR to segregate its sources of tax credits. Whether the FIFO principle is applied or not, Section 76 remains clear and unequivocal. Once the carry-over option is taken, actually or constructively, it becomes irrevocable. Petitioner has chosen that option for its 1998 creditable withholding taxes. Thus, it is no longer entitled to a tax refund of P459,756.07, which corresponds to its 1998 excess tax credit. Nonetheless, the amount will not be forfeited in the governments favor, because it may be claimed by petitioner as tax credits in the succeeding taxable years. WHEREFORE, the Petition in GR No. 156637 is GRANTED and the assailed December 19, 2002 Decision REVERSED and SET ASIDE. No pronouncement as to costs. The Petition in GR No. 162004 is, however, DENIED and the assailed January 30, 2004 Decision AFFIRMED. Costs against petitioner. SO ORDERED. ARTEMIO V. PANGANIBAN Associate Justice

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SECOND DIVISION G.R. No. 154068 August 3, 2007

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ROSEMARIE ACOSTA, as represented by Virgilio A. Abogado, respondent. DECISION QUISUMBING, J.: Assailed in this petition for review are the Decision1 and Resolution2 dated February 13, 2002 and May 29, 2002, respectively, of the Court of Appeals in CA-G.R. SP No. 55572 which had reversed the Resolution3 dated August 4, 1999 of the Court of Tax Appeals in C.T.A. Case No. 5828 and ordered the latter to resolve respondents petition for review. The facts are as follows: Respondent is an employee of Intel Manufacturing Phils., Inc. (Intel). For the period January 1, 1996 to December 31, 1996, respondent was assigned in a foreign country. During that period, Intel withheld the taxes due on respondents compensation income and remitted to the Bureau of Internal Revenue (BIR) the amount of P308,084.56. On March 21, 1997, respondent and her husband filed with the BIR their Joint Individual Income Tax Return for the year 1996. Later, on June 17, 1997, respondent, through her representative, filed an amended return and a Non-Resident Citizen Income Tax Return, and paid the BIR P17,693.37 plus interests in the amount of P14,455.76. On October 8, 1997, she filed another amended return indicating an overpayment of P358,274.63. Claiming that the income taxes withheld and paid by Intel and respondent resulted in an overpayment of P340,918.92,4 respondent filed on April 15, 1999 a petition for review docketed as C.T.A. Case No. 5828 with the Court of Tax Appeals (CTA). The Commissioner of Internal Revenue (CIR) moved to dismiss the petition for failure of respondent to file the mandatory written claim for refund before the CIR. In its Resolution dated August 4, 1999, the CTA dismissed respondents petition. For one, the CTA ruled that respondent failed to file a written claim for refund with the CIR, a condition precedent to the filing of a petition for review before the CTA.5 Second, the CTA noted that respondents omission, inadvertently or otherwise, to allege in her petition the date of filing the final adjustment return, deprived the court of its jurisdiction over the subject matter of the case. 6 The decretal portion of the CTAs resolution states: WHEREFORE, in view of all the foregoing, Respondents Motion to Dismiss is GRANTED. Accordingly[,] the Petition for Review is hereby DISMISSED. SO ORDERED.7 Upon review, the Court of Appeals reversed the CTA and directed the latter to resolve respondents petition for review. Applying Section 204(c)8 of the 1997 National Internal Revenue Code (NIRC), the Court of Appeals ruled that respondents filing of an amended return indicating an overpayment was sufficient compliance with the requirement of a written claim for refund.9 The decretal portion of the Court of Appeals decision reads: WHEREFORE, finding the petition to be meritorious, this Court GRANTS it due course and REVERSES the appealed Resolutions and DIRECTS the Court of Tax Appeal[s] to resolve the petition for review on the merits. SO ORDERED.10 Petitioner sought reconsideration, but it was denied. Hence, the instant petition raising the following questions of law: I.
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WHETHER OR NOT THE 1997 TAX REFORM ACT CAN BE APPLIED RETROACTIVELY. II. WHETHER OR NOT THE CTA HAS JURISDICTION TO TAKE [COGNIZANCE] OF RESPONDENTS PETITION FOR REVIEW.11 While the main concern in this controversy is the CTAs jurisdiction, we must first resolve two issues. First, does the amended return filed by respondent indicating an overpayment constitute the written claim for refund required by law, thereby vesting the CTA with jurisdiction over this case? Second, can the 1997 NIRC be applied retroactively? Petitioner avers that an amended return showing an overpayment does not constitute the written claim for refund required under Section 23012 of the 1993 NIRC13 (old Tax Code). He claims that an actual written claim for refund is necessary before a suit for its recovery may proceed in any court. On the other hand, respondent contends that the filing of an amended return indicating an overpayment of P358,274.63 constitutes a written claim for refund pursuant to the clear proviso stated in the last sentence of Section 204(c) of the 1997 NIRC (new Tax Code), to wit: xxxx Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund. xxxx Along the same vein, respondent invokes the liberal application of technicalities in tax refund cases, conformably with our ruling in BPI-Family Savings Bank, Inc. v. Court of Appeals. 14 We are, however, unable to agree with respondents submission on this score. The applicable law on refund of taxes pertaining to the 1996 compensation income is Section 230 of the old Tax Code, which was the law then in effect, and not Section 204(c) of the new Tax Code, which was effective starting only on January 1, 1998. Noteworthy, the requirements under Section 230 for refund claims are as follows: 1. A written claim for refund or tax credit must be filed by the taxpayer with the Commissioner; 2. The claim for refund must be a categorical demand for reimbursement; 3. The claim for refund or tax credit must be filed, or the suit or proceeding therefor must be commenced in court within two (2) years from date of payment of the tax or penalty regardless of any supervening cause.15 (Emphasis ours.) In our view, the law is clear. A claimant must first file a written claim for refund, categorically demanding recovery of overpaid taxes with the CIR, before resorting to an action in court. This obviously is intended, first, to afford the CIR an opportunity to correct the action of subordinate officers; and second, to notify the government that such taxes have been questioned, and the notice should then be borne in mind in estimating the revenue available for expenditure.16 Thus, on the first issue, we rule against respondents contention. Entrenched in our jurisprudence is the principle that tax refunds are in the nature of tax exemptions which are construed strictissimi juris against the taxpayer and liberally in favor of the government. As tax refunds involve a return of revenue from the government, the claimant must show indubitably the specific provision of law from which her right arises; it cannot be allowed to exist upon a mere vague implication or inference17 nor can it be extended beyond the ordinary and reasonable intendment of the language actually used by the legislature in granting the refund.18 To repeat, strict compliance with the conditions imposed for the return of revenue collected is a doctrine consistently applied in this jurisdiction. 19
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Under the circumstances of this case, we cannot agree that the amended return filed by respondent constitutes the written claim for refund required by the old Tax Code, the law prevailing at that time. Neither can we apply the liberal interpretation of the law based on our pronouncement in the case of BPI-Family Savings Bank, Inc. v. Court of Appeals, as the taxpayer therein filed a written claim for refund aside from presenting other evidence to prove its claim, unlike this case before us. On the second issue, petitioner argues that the 1997 NIRC cannot be applied retroactively as the instant case involved refund of taxes withheld on a 1996 income. Respondent, however, points out that when the petition was filed with the CTA on April 15, 1999, the 1997 NIRC was already in effect, hence, Section 204(c) should apply, despite the fact that the refund being sought pertains to a 1996 income tax. Note that the issue on the retroactivity of Section 204(c) of the 1997 NIRC arose because the last paragraph of Section 204(c) was not found in Section 230 of the old Code. After a thorough consideration of this matter, we find that we cannot give retroactive application to Section 204(c) abovecited. We have to stress that tax laws are prospective in operation, unless the language of the statute clearly provides otherwise.20 Moreover, it should be emphasized that a party seeking an administrative remedy must not merely initiate the prescribed administrative procedure to obtain relief, but also pursue it to its appropriate conclusion before seeking judicial intervention in order to give the administrative agency an opportunity to decide the matter itself correctly and prevent unnecessary and premature resort to court action.21 This the respondent did not follow through. Additionally, it could not escape notice that at the time respondent filed her amended return, the 1997 NIRC was not yet in effect. Hence, respondent had no reason at that time to think that the filing of an amended return would constitute the written claim for refund required by applicable law. Furthermore, as the CTA stressed, even the date of filing of the Final Adjustment Return was omitted, inadvertently or otherwise, by respondent in her petition for review. This omission was fatal to respondents claim, for it deprived the CTA of its jurisdiction over the subject matter of the case. Finally, we cannot agree with the Court of Appeals finding that the nature of the instant case calls for the application of remedial laws. Revenue statutes are substantive laws and in no sense must their application be equated with that of remedial laws. As well said in a prior case, revenue laws are not intended to be liberally construed. 22 Considering that taxes are the lifeblood of the government and in Holmess memorable metaphor, the price we pay for civilization, tax laws must be faithfully and strictly implemented. WHEREFORE, the petition is GRANTED. Both the assailed Decision and Resolution dated February 13, 2002 and May 29, 2002, respectively, of the Court of Appeals in CA-G.R. SP No. 55572 are REVERSED and SET ASIDE. The Resolution dated August 4, 1999 of the Court of Tax Appeals in C.T.A. Case No. 5828 is hereby REINSTATED. No pronouncement as to costs. SO ORDERED. Carpio, Carpio-Morales, Tinga, Velasco, Jr., JJ., concur.

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FIRST DIVISION COMMISSIONER OF INTERNAL REVENUE, Petitioner, G.R. Nos. 179045-46 Present: CORONA, C. J., Chairperson, VELASCO, JR., LEONARDO-DE CASTRO, DEL CASTILLO, and PEREZ, JJ. Promulgated: August 25, 2010

- versus -

SMART COMMUNICATION, INC.,* Respondent.

x-----------------------------------------------------------x DECISION DEL CASTILLO, J.: The right of a withholding agent to claim a refund of erroneously or illegally withheld taxes comes with the responsibility to return the same to the principal taxpayer. This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the Decision1 dated June 28, 2007 and the Resolution2 dated July 31, 2007 of the Court of Tax Appeals (CTA) En Banc. Factual Antecedents Respondent Smart Communications, Inc. is a corporation organized and existing under Philippine law. It is an enterprise duly registered with the Board of Investments. On May 25, 2001, respondent entered into three Agreements for Programming and Consultancy Services 3 with Prism Transactive (M) Sdn. Bhd. (Prism), a non-resident corporation duly organized and existing under the laws of Malaysia. Under the agreements, Prism was to provide programming and consultancy services for the installation of the Service Download Manager (SDM) and the Channel Manager (CM), and for the installation and implementation of Smart Money and Mobile Banking Service SIM Applications (SIM Applications) and Private Text Platform (SIM Application). On June 25, 2001, Prism billed respondent in the amount of US$547,822.45, broken down as follows: SDM Agreement US$236,000.00 CM Agreement 296,000.00 SIM Application Agreement 15,822.45 Total US$547,822.454 Thinking that these payments constitute royalties, respondent withheld the amount of US$136,955.61 or P7,008,840.43,5 representing the 25% royalty tax under the RP-Malaysia Tax Treaty.6 On September 25, 2001, respondent filed its Monthly Remittance Return of Final Income Taxes Withheld (BIR Form No. 1601-F)7 for the month of August 2001. On September 24, 2003, or within the two-year period to claim a refund, respondent filed with the Bureau of Internal Revenue (BIR), through the International Tax Affairs Division (ITAD), an administrative claim for refund8 of the amount of P7,008,840.43.

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Proceedings before the CTA Second Division Due to the failure of the petitioner Commissioner of Internal Revenue (CIR) to act on the claim for refund, respondent filed a Petition for Review9 with the CTA, docketed as CTA Case No. 6782 which was raffled to its Second Division. In its Petition for Review, respondent claimed that it is entitled to a refund because the payments made to Prism are not royalties10 but "business profits,"11 pursuant to the definition of royalties under the RP-Malaysia Tax Treaty,12 and in view of the pertinent Commentaries of the Organization for Economic Cooperation and Development (OECD) Committee on Fiscal Affairs through the Technical Advisory Group on Treaty Characterization of Electronic Commerce Payments.13 Respondent further averred that since under Article 7 of the RP-Malaysia Tax Treaty, "business profits" are taxable in the Philippines "only if attributable to a permanent establishment in the Philippines, the payments made to Prism, a Malaysian company with no permanent establishment in the Philippines," 14 should not be taxed.15 On December 1, 2003, petitioner filed his Answer16 arguing that respondent, as withholding agent, is not a party-ininterest to file the claim for refund,17 and that assuming for the sake of argument that it is the proper party, there is no showing that the payments made to Prism constitute "business profits." 18 Ruling of the CTA Second Division In a Decision19 dated February 23, 2006, the Second Division of the CTA upheld respondents right, as a withholding agent, to file the claim for refund citing the cases of Commissioner of Internal Revenue v. Wander Philippines, Inc., 20 Commissioner of Internal Revenue v. Procter & Gamble Philippine Manufacturing Corporation 21 and Commissioner of Internal Revenue v. The Court of Tax Appeals.22 However, as to the claim for refund, the Second Division found respondent entitled only to a partial refund. Although it agreed with respondent that the payments for the CM and SIM Application Agreements are "business profits," 23 and therefore, not subject to tax24 under the RP-Malaysia Tax Treaty, the Second Division found the payment for the SDM Agreement a royalty subject to withholding tax.25 Accordingly, respondent was granted refund in the amount of P3,989,456.43, computed as follows:26 Particulars 1. CM 2. SIM Application Total Particulars Tax Base Multiply by: Withholding Tax Rate Final Withholding Tax Multiply by: Prevailing Exchange Rate Tax Refund Due Amount (in US$) 296,000.00 15,822.45 US$311,822.45 Amount US$311,822.45 25% US$ 77,955.61 51.176 P3,989,456.43

The dispositive portion of the Decision of the CTA Second Division reads: WHEREFORE, premises considered, the instant petition is partially GRANTED. Accordingly, respondent Commissioner of Internal Revenue is hereby ORDERED to REFUND or ISSUE a TAX CREDIT CERTIFICATE to petitioner Smart Communications, Inc. in the amount of P3,989,456.43, representing overpaid final withholding taxes for the month of August 2001. SO ORDERED.27 Both parties moved for partial reconsideration28 but the CTA Second Division denied the motions in a Resolution29 dated July 18, 2006.

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Ruling of the CTA En Banc Unsatisfied, both parties appealed to the CTA En Banc by filing their respective Petitions for Review,30 which were consolidated per Resolution31 dated February 8, 2007. On June 28, 2007, the CTA En Banc rendered a Decision affirming the partial refund granted to respondent. In sustaining respondents right to file the claim for refund, the CTA En Banc said that although respondent "and Prism are unrelated entities, such circumstance does not affect the status of [respondent] as a party-in-interest [as its legal interest] is based on its direct and independent liability under the withholding tax system."32 The CTA En Banc also concurred with the Second Divisions characterization of the payments made to Prism, specifically that the payments for the CM and SIM Application Agreements constitute "business profits," 33 while the payment for the SDM Agreement is a royalty.34 The dispositive portion of the CTA En Banc Decision reads: WHEREFORE, the instant petition is hereby DISMISSED. Accordingly, the assailed Decision and Resolution are hereby AFFIRMED. SO ORDERED.35 Only petitioner sought reconsideration36 of the Decision. The CTA En Banc, however, found no cogent reason to reverse its Decision, and thus, denied petitioners motion for reconsideration in a Resolution 37 dated July 31, 2007. Unfazed, petitioner availed of the present recourse. Issues The two issues to be resolved are: (1) whether respondent has the right to file the claim for refund; and (2) if respondent has the right, whether the payments made to Prism constitute "business profits" or royalties. Petitioners Arguments Petitioner contends that the cases relied upon by the CTA in upholding respondents right to claim the refund are inapplicable since the withholding agents therein are wholly owned subsidiaries of the principal taxpayers, unlike in the instant case where the withholding agent and the taxpayer are unrelated entities. Petitioner further claims that since respondent did not file the claim on behalf of Prism, it has no legal standing to claim the refund. To rule otherwise would result to the unjust enrichment of respondent, who never shelled-out any amount to pay the royalty taxes. Petitioner, thus, posits that the real party-in-interest to file a claim for refund of the erroneously withheld taxes is Prism. He cites as basis the case of Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue,38 where it was ruled that the proper party to file a refund is the statutory taxpayer.39 Finally, assuming that respondent is the proper party, petitioner counters that it is still not entitled to any refund because the payments made to Prism are taxable as royalties, having been made in consideration for the use of the programs owned by Prism. Respondents Arguments Respondent, on the other hand, maintains that it is the proper party to file a claim for refund as it has the statutory and primary responsibility and liability to withhold and remit the taxes to the BIR. It points out that under the withholding tax system, the agent-payor becomes a payee by fiction of law because the law makes the agent personally liable for the tax arising from the breach of its duty to withhold. Thus, the fact that respondent is not in any way related to Prism is immaterial. Moreover, respondent asserts that the payments made to Prism do not fall under the definition of royalties since the agreements are for programming and consultancy services only, wherein Prism undertakes to perform services for the creation, development or the bringing into existence of software applications solely for the satisfaction of the peculiar needs and requirements of respondent.

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Our Ruling The petition is bereft of merit. Withholding agent may file a claim for refund Sections 204(c) and 229 of the National Internal Revenue Code (NIRC) provide: Sec. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. The Commissioner may xxxx (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund. xxxx Sec. 229. Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. (Emphasis supplied) Pursuant to the foregoing, the person entitled to claim a tax refund is the taxpayer. However, in case the taxpayer does not file a claim for refund, the withholding agent may file the claim. In Commissioner of Internal Revenue v. Procter & Gamble Philippine Manufacturing Corporation,40 a withholding agent was considered a proper party to file a claim for refund of the withheld taxes of its foreign parent company. Pertinent portions of the Decision read: The term "taxpayer" is defined in our NIRC as referring to "any person subject to tax imposed by the Title [on Tax on Income]." It thus becomes important to note that under Section 53(c) 41 of the NIRC, the withholding agent who is "required to deduct and withhold any tax" is made "personally liable for such tax" and indeed is indemnified against any claims and demands which the stockholder might wish to make in questioning the amount of payments effected by the withholding agent in accordance with the provisions of the NIRC. The withholding agent, P&G-Phil., is directly and independently liable for the correct amount of the tax that should be withheld from the dividend remittances. The withholding agent is, moreover, subject to and liable for deficiency assessments, surcharges and penalties should the amount of the tax withheld be finally found to be less than the amount that should have been withheld under law. A "person liable for tax" has been held to be a "person subject to tax" and properly considered a "taxpayer." The terms "liable for tax" and "subject to tax" both connote legal obligation or duty to pay a tax. It is very difficult, indeed conceptually impossible, to consider a person who is statutorily made "liable for tax" as not "subject to tax." By any reasonable standard, such a person should be regarded as a party in interest, or as a person having sufficient legal interest, to bring a suit for refund of taxes he believes were illegally collected from him.

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44

In Philippine Guaranty Company, Inc. v. Commissioner of Internal Revenue, this Court pointed out that a withholding agent is in fact the agent both of the government and of the taxpayer, and that the withholding agent is not an ordinary government agent: "The law sets no condition for the personal liability of the withholding agent to attach. The reason is to compel the withholding agent to withhold the tax under all circumstances. In effect, the responsibility for the collection of the tax as well as the payment thereof is concentrated upon the person over whom the Government has jurisdiction. Thus, the withholding agent is constituted the agent of both the Government and the taxpayer. With respect to the collection and/or withholding of the tax, he is the Governments agent. In regard to the filing of the necessary income tax return and the payment of the tax to the Government, he is the agent of the taxpayer. The withholding agent, therefore, is no ordinary government agent especially because under Section 53 (c) he is held personally liable for the tax he is duty bound to withhold; whereas the Commissioner and his deputies are not made liable by law." If, as pointed out in Philippine Guaranty, the withholding agent is also an agent of the beneficial owner of the dividends with respect to the filing of the necessary income tax return and with respect to actual payment of the tax to the government, such authority may reasonably be held to include the authority to file a claim for refund and to bring an action for recovery of such claim. This implied authority is especially warranted where, as in the instant case, the withholding agent is the wholly owned subsidiary of the parent-stockholder and therefore, at all times, under the effective control of such parent-stockholder. In the circumstances of this case, it seems particularly unreal to deny the implied authority of P&G-Phil. to claim a refund and to commence an action for such refund. xxxx We believe and so hold that, under the circumstances of this case, P&G-Phil. is properly regarded as a "taxpayer" within the meaning of Section 309,42 NIRC, and as impliedly authorized to file the claim for refund and the suit to recover such claim. (Emphasis supplied.) Petitioner, however, submits that this ruling applies only when the withholding agent and the taxpayer are related parties, i.e., where the withholding agent is a wholly owned subsidiary of the taxpayer. We do not agree. Although such relation between the taxpayer and the withholding agent is a factor that increases the latters legal interest to file a claim for refund, there is nothing in the decision to suggest that such relationship is required or that the lack of such relation deprives the withholding agent of the right to file a claim for refund. Rather, what is clear in the decision is that a withholding agent has a legal right to file a claim for refund for two reasons. First, he is considered a "taxpayer" under the NIRC as he is personally liable for the withholding tax as well as for deficiency assessments, surcharges, and penalties, should the amount of the tax withheld be finally found to be less than the amount that should have been withheld under law. Second, as an agent of the taxpayer, his authority to file the necessary income tax return and to remit the tax withheld to the government impliedly includes the authority to file a claim for refund and to bring an action for recovery of such claim. In this connection, it is however significant to add that while the withholding agent has the right to recover the taxes erroneously or illegally collected, he nevertheless has the obligation to remit the same to the principal taxpayer. As an agent of the taxpayer, it is his duty to return what he has recovered; otherwise, he would be unjustly enriching himself at the expense of the principal taxpayer from whom the taxes were withheld, and from whom he derives his legal right to file a claim for refund. As to Silkair (Singapore) Pte, Ltd. v. Commissioner of Internal Revenue43 cited by the petitioner, we find the same inapplicable as it involves excise taxes, not withholding taxes. In that case, it was ruled that the proper party to question, or seek a refund of, an indirect tax "is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another." In view of the foregoing, we find no error on the part of the CTA in upholding respondents right as a withholding agent to file a claim for refund.

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The payments for the CM and the SIM Application Agreements constitute "business profits" Under the RP-Malaysia Tax Treaty, the term royalties is defined as payments of any kind received as consideration for: "(i) the use of, or the right to use, any patent, trade mark, design or model, plan, secret formula or process, any copyright of literary, artistic or scientific work, or for the use of, or the right to use, industrial, commercial, or scientific equipment, or for information concerning industrial, commercial or scientific experience; (ii) the use of, or the right to use, cinematograph films, or tapes for radio or television broadcasting."44 These are taxed at the rate of 25% of the gross amount.45 Under the same Treaty, the "business profits" of an enterprise of a Contracting State is taxable only in that State, unless the enterprise carries on business in the other Contracting State through a permanent establishment.46 The term "permanent establishment" is defined as a fixed place of business where the enterprise is wholly or partly carried on. 47 However, even if there is no fixed place of business, an enterprise of a Contracting State is deemed to have a permanent establishment in the other Contracting State if it carries on supervisory activities in that other State for more than six months in connection with a construction, installation or assembly project which is being undertaken in that other State.48 In the instant case, it was established during the trial that Prism does not have a permanent establishment in the Philippines. Hence, "business profits" derived from Prisms dealings with respondent are not taxable. The question is whether the payments made to Prism under the SDM, CM, and SIM Application agreements are "business profits" and not royalties. Paragraph 1.3 of the Programming Services (Schedule A) of the SDM Agreement,49 reads: 1.3 Intellectual Property Rights (IPR) The SDM shall be installed by PRISM, including the SDM Libraries, the IPR of which shall be retained by PRISM. PRISM, however, shall provide the Client the APIs for the SDM at no cost to the Client. The Client shall be permitted to develop programs to interface with the SDM or the SDM Libraries, using the related APIs as appropriate. 50 (Emphasis supplied.) Whereas, paragraph 1.4 of the Programming Services (Schedule A) of the CM Agreement and paragraph 1.3 of the Programming Services (Schedule A) of the SIM Agreement provide: 1.4 Intellectual Property Rights (IPR) The IPR of all components of the CM belong to the Client with the exception of the following components, which are provided, without technical or commercial restraints or obligations: ConfigurationException.java DataStructures (DblLinkedListjava, DbIListNodejava, List EmptyException.java, ListFullException.java, ListNodeNotFoundException.java, QueueEmptyException.java, QueueFullException.java, QueueList.java, QueuListEx.java, and QueueNodeNotFoundException.java) FieldMappedObjeet.java LogFileEx.java Logging (BaseLogger.java and Logger.java) PrismGeneric Exception.java PrismGenericObject.java ProtocolBuilders/CIMD2 (Alive.java, BaseMessageData. java, DeliverMessage.java, Login.java, Logout.java, Nack.java, SubmitMessage.java, TemplateManagement (FileTemplateDataBag.java, Template DataBag.java, TemplateManagerExBag.java, and TemplateParserExBag.java) TemplateManager.class TemplateServer.class TemplateServer$RequestThread.class
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 Template Server_skel.class TemplateServer_stub.class TemplateService.class Prism Crypto Server module for PHP451 xxxx 1.3 Intellectual Property Rights (IPR) The Client shall own the IPR for the Specifications and the Source Code for the SIM Applications. PRISM shall develop an executable compiled code (the "Executable Version") of the SIM Applications for use on the aSIMetric card which, however, shall only be for the Clients use. The Executable Version may not be provided by PRISM to any third [party] without the prior written consent of the Client. It is further recognized that the Client anticipates licensing the use of the SIM Applications, but it is agreed that no license fee will be charged to PRISM or to a licensee of the aSIMetrix card from PRISM when SIMs are supplied to the Client.52 (Emphases supplied.) The provisions in the agreements are clear. Prism has intellectual property right over the SDM program, but not over the CM and SIM Application programs as the proprietary rights of these programs belong to respondent. In other words, out of the payments made to Prism, only the payment for the SDM program is a royalty subject to a 25% withholding tax. A refund of the erroneously withheld royalty taxes for the payments pertaining to the CM and SIM Application Agreements is therefore in order. Indeed, the government has no right to retain what does not belong to it. "No one, not even the State, should enrich oneself at the expense of another."53 WHEREFORE, the petition is DENIED. The assailed Decision dated June 28, 2007 and the Resolution dated July 31, 2007 of the Court of Tax Appeals En Banc are hereby AFFIRMED. The Bureau of Internal Revenue is hereby ordered to issue a Tax Credit Certificate to Prism Transactive (M) Sdn. Bhd. in the amount of P3,989,456.43 representing the overpaid final withholding taxes for the month of August 2001. SO ORDERED. MARIANO C. DEL CASTILLO Associate Justice

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