Tax 2 Cases

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 125355
March 30, 2000
COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
COURT OF APPEALS and COMMONWEALTH MANAGEMENT AND SERVICES CORPORATION, respondents.
PARDO, J.:
What is before the Court is a petition for review on certiorari of the decision of the Court of Appeals, 1 reversing that of the Court of Tax Appeals,2 which
affirmed with modification the decision of the Commissioner of Internal Revenue ruling that Commonwealth Management and Services Corporation, is
liable for value added tax for services to clients during taxable year 1988.
Commonwealth Management and Services Corporation (COMASERCO, for brevity), is a corporation duly organized and existing under the laws of the
Philippines. It is an affiliate of Philippine American Life Insurance Co. (Philamlife), organized by the letter to perform collection, consultative and other
technical services, including functioning as an internal auditor, of Philamlife and its other affiliates.1wphi1.nt
On January 24, 1992, the Bureau of Internal Revenue (BIR) issued an assessment to private respondent COMASERCO for deficiency value-added tax
(VAT) amounting to P351,851.01, for taxable year 1988, computed as follows:
P1,679,155.00
============
Taxable sale/receipt
10% tax due thereon
167,915.50
25% surcharge
41,978.88
20% interest per annum
125,936.63
Compromise penalty for late payment

TOTAL AMOUNT DUE AND COLLECTIBLE
16,000.00
P351,831.01
============
COMASERCO's annual corporate income tax return ending December 31, 1988 indicated a net loss in its operations in the amount of P6,077.00.
On February 10, 1992, COMASERCO filed with the BIR, a letter-protest objecting to the latter's finding of deficiency VAT. On August 20, 1992, the
Commissioner of Internal Revenue sent a collection letter to COMASERCO demanding payment of the deficiency VAT.
On September 29, 1992, COMASERCO filed with the Court of Tax Appeals 4 a petition for review contesting the Commissioner's assessment.
COMASERCO asserted that the services it rendered to Philamlife and its affiliates, relating to collections, consultative and other technical assistance,
including functioning as an internal auditor, were on a "no-profit, reimbursement-of-cost-only" basis. It averred that it was not engaged in the business
of providing services to Philamlife and its affiliates. COMASERCO was established to ensure operational orderliness and administrative efficiency of
Philamlife and its affiliates, and not in the sale of services. COMASERCO stressed that it was not profit-motivated, thus not engaged in business. In
fact, it did not generate profit but suffered a net loss in taxable year 1988. COMASERCO averred that since it was not engaged in business, it was not
liable to pay VAT.
On June 22, 1995, the Court of Tax Appeals rendered decision in favor of the Commissioner of Internal Revenue, the dispositive portion of which reads:
WHEREFORE, the decision of the Commissioner of Internal Revenue assessing petitioner deficiency value-added tax for the taxable year
1988 is AFFIRMED with slight modifications. Accordingly, petitioner is ordered to pay respondent Commissioner of Internal Revenue the
amount of P335,831.01 inclusive of the 25% surcharge and interest plus 20% interest from January 24, 1992 until fully paid pursuant to
Section 248 and 249 of the Tax Code.
The compromise penalty of P16,000.00 imposed by the respondent in her assessment letter shall not be included in the payment as there
was no compromise agreement entered into between petitioner and respondent with respect to the value-added tax deficiency. 5
On July 26, 1995, respondent filed with the Court of Appeals, a petition for review of the decision of the Court of Appeals.
After due proceedings, on May 13, 1996, the Court of Appeals rendered decision reversing that of the Court of Tax Appeals, the dispositive portion of
which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered REVERSING and SETTING ASIDE the questioned Decision
promulgated on 22 June 1995. The assessment for deficiency value-added tax for the taxable year 1988 inclusive of surcharge, interest
and penalty charges are ordered CANCELLED for lack of legal and factual basis. 6
The Court of Appeals anchored its decision on the ratiocination in another tax case involving the same parties, 7where it was held that COMASERCO
was not liable to pay fixed and contractor's tax for services rendered to Philamlife and its affiliates. The Court of Appeals, in that case, reasoned that
COMASERCO was not engaged in business of providing services to Philamlife and its affiliates. In the same manner, the Court of Appeals held that
COMASERCO was not liable to pay VAT for it was not engaged in the business of selling services.
On July 16, 1996, the Commissioner of Internal Revenue filed with this Court a petition for review on certiorariassailing the decision of the Court of
Appeals.
On August 7, 1996, we required respondent COMASERCO to file comment on the petition, and on September 26, 1996, COMASERCO complied with
the resolution.8
We give due course to the petition.
At issue in this case is whether COMASERCO was engaged in the sale of services, and thus liable to pay VAT thereon.
Petitioner avers that to "engage in business" and to "engage in the sale of services" are two different things. Petitioner maintains that the services
rendered by COMASERCO to Philamlife and its affiliates, for a fee or consideration, are subject to VAT. VAT is a tax on the value added by the
performance of the service. It is immaterial whether profit is derived from rendering the service.
We agree with the Commissioner.
Sec. 99 of the National Internal Revenue Code of 1986, as amended by Executive Order (E. O.) No. 273 in 1988, provides that:
Sec. 99. Persons liable. Any person who, in the course of trade or business, sells, barters or exchanges goods, renders services, or
engages in similar transactions and any person who, imports goods shall be subject to the value-added tax (VAT) imposed in Sections 100
to 102 of this Code. 9
COMASERCO contends that the term "in the course of trade or business" requires that the "business" is carried on with a view to profit or livelihood. It
avers that the activities of the entity must be profit-oriented. COMASERCO submits that it is not motivated by profit, as defined by its primary purpose
in the articles of incorporation, stating that it is operating "only on reimbursement-of-cost basis, without any profit." Private respondent argues that profit
motive is material in ascertaining who to tax for purposes of determining liability for VAT.
We disagree.
On May 28, 1994, Congress enacted Republic Act No. 7716, the Expanded VAT Law (EVAT), amending among other sections, Section 99 of the Tax
Code. On January 1, 1998, Republic Act 8424, the National Internal Revenue Code of 1997, took effect. The amended law provides that:
Sec. 105. Persons Liable. Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties,
renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 and 108 of this
Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services. This rule shall likewise apply to existing sale or lease of goods, properties or services at the time of the effectivity of
Republic Act No. 7716.
The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including
transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a nonstock, nonprofit organization
(irrespective of the disposition of its net income and whether or not it sells exclusively to members of their guests), or government entity.
The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the Philippines by nonresident foreign
persons shall be considered as being rendered in the course of trade or business.
Contrary to COMASERCO's contention the above provision clarifies that even a non-stock, non-profit, organization or government entity, is liable to pay
VAT on the sale of goods or services. VAT is a tax on transactions, imposed at every stage of the distribution process on the sale, barter, exchange of
goods or property, and on the performance of services, even in the absence of profit attributable thereto. The term "in the course of trade or business"
requires the regular conduct or pursuit of a commercial or an economic activity regardless of whether or not the entity is profit-oriented.
The definition of the term "in the course of trade or business" present law applies to all transactions even to those made prior to its enactment.
Executive Order No. 273 stated that any person who, in the course of trade or business, sells, barters or exchanges goods and services, was already
liable to pay VAT. The present law merely stresses that even a nonstock, nonprofit organization or government entity is liable to pay VAT for the sale of
goods and services.
Sec. 108 of the National Internal Revenue Code of 1997 10 defines the phrase "sale of services" as the "performance of all kinds of services for others
for a fee, remuneration or consideration." It includes "the supply of technical advice, assistance or services rendered in connection with technical
management or administration of any scientific, industrial or commercial undertaking or project." 11
On February 5, 1998, the Commissioner of Internal Revenue issued BIR Ruling No. 010-98 12 emphasizing that a domestic corporation that provided
technical, research, management and technical assistance to its affiliated companies and received payments on a reimbursement-of-cost basis,
without any intention of realizing profit, was subject to VAT on services rendered. In fact, even if such corporation was organized without any intention
realizing profit, any income or profit generated by the entity in the conduct of its activities was subject to income tax.
Hence, it is immaterial whether the primary purpose of a corporation indicates that it receives payments for services rendered to its affiliates on a
reimbursement-on-cost basis only, without realizing profit, for purposes of determining liability for VAT on services rendered. As long as the entity
provides service for a fee, remuneration or consideration, then the service rendered is subject to VAT.1awp++i1
At any rate, it is a rule that because taxes are the lifeblood of the nation, statutes that allow exemptions are construed strictly against the grantee and
liberally in favor of the government. Otherwise stated, any exemption from the payment of a tax must be clearly stated in the language of the law; it
cannot be merely implied therefrom. 13 In the case of VAT, Section 109, Republic Act 8424 clearly enumerates the transactions exempted from VAT. The
services rendered by COMASERCO do not fall within the exemptions.
Both the Commissioner of Internal Revenue and the Court of Tax Appeals correctly ruled that the services rendered by COMASERCO to Philamlife and
its affiliates are subject to VAT. As pointed out by the Commissioner, the performance of all kinds of services for others for a fee, remuneration or
consideration is considered as sale of services subject to VAT. As the government agency charged with the enforcement of the law, the opinion of the
Commissioner of Internal Revenue, in the absence of any showing that it is plainly wrong, is entitled to great weight. 14 Also, it has been the long
standing policy and practice of this Court to respect the conclusions of quasi-judicial agencies, such as the Court of Tax Appeals which, by the nature of
its functions, is dedicated exclusively to the study and consideration of tax cases and has necessarily developed an expertise on the subject, unless
there has been an abuse or improvident exercise of its authority. 15
There is no merit to respondent's contention that the Court of Appeals' decision in CA-G.R. No. 34042, declaring the COMASERCO as not engaged in
business and not liable for the payment of fixed and percentage taxes, binds petitioner. The issue in CA-G.R. No. 34042 is different from the present
case, which involves COMASERCO's liability for VAT. As heretofore stated, every person who sells, barters, or exchanges goods and services, in the
course of trade or business, as defined by law, is subject to VAT.
WHEREFORE, the Court GRANTS the petition and REVERSES the decision of the Court of Appeals in CA-G.R. SP No. 37930. The Court hereby
REINSTATES the decision of the Court of Tax Appeals in C. T. A. Case No. 4853.
No costs.
SO ORDERED.

SUPREME COURT
EN BANC
G.R. No. 168056 September 1, 2005
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. ALCANTARA and ED VINCENT S. ALBANO, Petitioners,
vs.
THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY OF THE DEPARTMENT OF FINANCE CESAR
PURISIMA; and HONORABLE COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO, JR., Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
The expenses of government, having for their object the interest of all, should be borne by everyone, and the more man enjoys the advantages of
society, the more he ought to hold himself honored in contributing to those expenses.
-Anne Robert Jacques Turgot (1727-1781)
French statesman and economist
Mounting budget deficit, revenue generation, inadequate fiscal allocation for education, increased emoluments for health workers, and wider coverage
for full value-added tax benefits these are the reasons why Republic Act No. 9337 (R.A. No. 9337) 1 was enacted. Reasons, the wisdom of which, the
Court even with its extensive constitutional power of review, cannot probe. The petitioners in these cases, however, question not only the wisdom of the
law, but also perceived constitutional infirmities in its passage.
Every law enjoys in its favor the presumption of constitutionality. Their arguments notwithstanding, petitioners failed to justify their call for the invalidity
of the law. Hence, R.A. No. 9337 is not unconstitutional.
LEGISLATIVE HISTORY
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. 3555 and 3705, and Senate Bill No. 1950.
House Bill No. 35552 was introduced on first reading on January 7, 2005. The House Committee on Ways and Means approved the bill, in substitution
of House Bill No. 1468, which Representative (Rep.) Eric D. Singson introduced on August 8, 2004. The President certified the bill on January 7, 2005
for immediate enactment. On January 27, 2005, the House of Representatives approved the bill on second and third reading.
House Bill No. 37053 on the other hand, substituted House Bill No. 3105 introduced by Rep. Salacnib F. Baterina, and House Bill No. 3381 introduced
by Rep. Jacinto V. Paras. Its "mother bill" is House Bill No. 3555. The House Committee on Ways and Means approved the bill on February 2, 2005.
The President also certified it as urgent on February 8, 2005. The House of Representatives approved the bill on second and third reading on February
28, 2005.
Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No. 19504 on March 7, 2005, "in substitution of Senate Bill Nos. 1337,
1838 and 1873, taking into consideration House Bill Nos. 3555 and 3705." Senator Ralph G. Recto sponsored Senate Bill No. 1337, while Senate Bill
Nos. 1838 and 1873 were both sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis N. Pangilinan. The President certified the bill on
March 11, 2005, and was approved by the Senate on second and third reading on April 13, 2005.
On the same date, April 13, 2005, the Senate agreed to the request of the House of Representatives for a committee conference on the disagreeing
provisions of the proposed bills.
Before long, the Conference Committee on the Disagreeing Provisions of House Bill No. 3555, House Bill No. 3705, and Senate Bill No. 1950, "after
having met and discussed in full free and conference," recommended the approval of its report, which the Senate did on May 10, 2005, and with the
House of Representatives agreeing thereto the next day, May 11, 2005.
On May 23, 2005, the enrolled copy of the consolidated House and Senate version was transmitted to the President, who signed the same into law on
May 24, 2005. Thus, came R.A. No. 9337.
July 1, 2005 is the effectivity date of R.A. No. 9337. 5 When said date came, the Court issued a temporary restraining order, effective immediately and
continuing until further orders, enjoining respondents from enforcing and implementing the law.
Oral arguments were held on July 14, 2005. Significantly, during the hearing, the Court speaking through Mr. Justice Artemio V. Panganiban, voiced the
rationale for its issuance of the temporary restraining order on July 1, 2005, to wit:
J. PANGANIBAN : . . . But before I go into the details of your presentation, let me just tell you a little background. You know when the law took effect on
July 1, 2005, the Court issued a TRO at about 5 oclock in the afternoon. But before that, there was a lot of complaints aired on television and on radio.
Some people in a gas station were complaining that the gas prices went up by 10%. Some people were complaining that their electric bill will go up by
10%. Other times people riding in domestic air carrier were complaining that the prices that theyll have to pay would have to go up by 10%. While all
that was being aired, per your presentation and per our own understanding of the law, thats not true. Its not true that the e-vat law necessarily
increased prices by 10% uniformly isnt it?
ATTY. BANIQUED : No, Your Honor.
J. PANGANIBAN : It is not?
ATTY. BANIQUED : Its not, because, Your Honor, there is an Executive Order that granted the Petroleum companies some subsidy . . . interrupted
J. PANGANIBAN : Thats correct . . .
ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . . interrupted
J. PANGANIBAN : . . . mitigating measures . . .
ATTY. BANIQUED : Yes, Your Honor.
J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be the elimination of the Excise Tax and the import duties. That is why, it
is not correct to say that the VAT as to petroleum dealers increased prices by 10%.
J. PANGANIBAN : And therefore, there is no justification for increasing the retail price by 10% to cover the E-Vat tax. If you consider the excise tax and
the import duties, the Net Tax would probably be in the neighborhood of 7%? We are not going into exact figures I am just trying to deliver a point that
different industries, different products, different services are hit differently. So its not correct to say that all prices must go up by 10%.
ATTY. BANIQUED : Youre right, Your Honor.
J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel, are at present imposed a Sales Tax of 3%. When this E-Vat law took
effect the Sales Tax was also removed as a mitigating measure. So, therefore, there is no justification to increase the fares by 10% at best 7%, correct?
ATTY. BANIQUED : I guess so, Your Honor, yes.
J. PANGANIBAN : There are other products that the people were complaining on that first day, were being increased arbitrarily by 10%. And thats one
reason among many others this Court had to issue TRO because of the confusion in the implementation. Thats why we added as an issue in this case,
even if its tangentially taken up by the pleadings of the parties, the confusion in the implementation of the E-vat. Our people were subjected to the
mercy of that confusion of an across the board increase of 10%, which you yourself now admit and I think even the Government will admit is incorrect.
In some cases, it should be 3% only, in some cases it should be 6% depending on these mitigating measures and the location and situation of each
product, of each service, of each company, isnt it?
J. PANGANIBAN : Alright. So thats one reason why we had to issue a TRO pending the clarification of all these and we wish the government will take
time to clarify all these by means of a more detailed implementing rules, in case the law is upheld by this Court. . . . 6
The Court also directed the parties to file their respective Memoranda.
G.R. No. 168056
Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al., filed a petition for prohibition on May 27, 2005. They question the
constitutionality of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108, respectively, of the National Internal Revenue Code
(NIRC). Section 4 imposes a 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on importation of goods, and Section 6 imposes
a 10% VAT on sale of services and use or lease of properties. These questioned provisions contain a uniform provisoauthorizing the President, upon
recommendation of the Secretary of Finance, to raise the VAT rate to 12%, effective January 1, 2006, after any of the following conditions have been
satisfied, to wit:
. . . That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to
twelve percent (12%), after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 %).
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by Congress of its exclusive authority to fix the rate of taxes under
Article VI, Section 28(2) of the 1987 Philippine Constitution.
G.R. No. 168207
On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition for certiorari likewise assailing the constitutionality of Sections 4, 5 and 6 of R.A.
No. 9337.
Aside from questioning the so-called stand-by authority of the President to increase the VAT rate to 12%, on the ground that it amounts to an undue
delegation of legislative power, petitioners also contend that the increase in the VAT rate to 12% contingent on any of the two conditions being satisfied
violates the due process clause embodied in Article III, Section 1 of the Constitution, as it imposes an unfair and additional tax burden on the people, in
that: (1) the 12% increase is ambiguous because it does not state if the rate would be returned to the original 10% if the conditions are no longer
satisfied; (2) the rate is unfair and unreasonable, as the people are unsure of the applicable VAT rate from year to year; and (3) the increase in the VAT
rate, which is supposed to be an incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP of the previous year, should only be
based on fiscal adequacy.
Petitioners further claim that the inclusion of a stand-by authority granted to the President by the Bicameral Conference Committee is a violation of the
"no-amendment rule" upon last reading of a bill laid down in Article VI, Section 26(2) of the Constitution.
G.R. No. 168461
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association of Pilipinas Shell Dealers, Inc., et al., assailing the following
provisions of R.A. No. 9337:
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax on depreciable goods shall be amortized over a 60-month period, if
the acquisition, excluding the VAT components, exceeds One Million Pesos (P1, 000,000.00);
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of input tax to be credited against the output tax; and
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or any of its political subdivisions, instrumentalities or agencies,
including GOCCs, to deduct a 5% final withholding tax on gross payments of goods and services, which are subject to 10% VAT under Sections 106
(sale of goods and properties) and 108 (sale of services and use or lease of properties) of the NIRC.
Petitioners contend that these provisions are unconstitutional for being arbitrary, oppressive, excessive, and confiscatory.
Petitioners argument is premised on the constitutional right of non-deprivation of life, liberty or property without due process of law under Article III,
Section 1 of the Constitution. According to petitioners, the contested sections impose limitations on the amount of input tax that may be claimed.
Petitioners also argue that the input tax partakes the nature of a property that may not be confiscated, appropriated, or limited without due process of
law. Petitioners further contend that like any other property or property right, the input tax credit may be transferred or disposed of, and that by limiting
the same, the government gets to tax a profit or value-added even if there is no profit or value-added.
Petitioners also believe that these provisions violate the constitutional guarantee of equal protection of the law under Article III, Section 1 of the
Constitution, as the limitation on the creditable input tax if: (1) the entity has a high ratio of input tax; or (2) invests in capital equipment; or (3) has
several transactions with the government, is not based on real and substantial differences to meet a valid classification.
Lastly, petitioners contend that the 70% limit is anything but progressive, violative of Article VI, Section 28(1) of the Constitution, and that it is the
smaller businesses with higher input tax to output tax ratio that will suffer the consequences thereof for it wipes out whatever meager margins the
petitioners make.
G.R. No. 168463
Several members of the House of Representatives led by Rep. Francis Joseph G. Escudero filed this petition forcertiorari on June 30, 2005. They
question the constitutionality of R.A. No. 9337 on the following grounds:
1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative power, in violation of Article VI, Section 28(2) of the Constitution;
2) The Bicameral Conference Committee acted without jurisdiction in deleting the no pass on provisions present in Senate Bill No. 1950 and House Bill
No. 3705; and
3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116, 117, 119, 121, 125, 7 148, 151, 236, 237 and 288, which were present
in Senate Bill No. 1950, violates Article VI, Section 24(1) of the Constitution, which provides that all appropriation, revenue or tariff bills shall originate
exclusively in the House of Representatives
G.R. No. 168730

On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and prohibition on July 20, 2005, alleging unconstitutionality of the law on
the ground that the limitation on the creditable input tax in effect allows VAT-registered establishments to retain a portion of the taxes they collect, thus
violating the principle that tax collection and revenue should be solely allocated for public purposes and expenditures. Petitioner Garcia further claims
that allowing these establishments to pass on the tax to the consumers is inequitable, in violation of Article VI, Section 28(1) of the Constitution.
RESPONDENTS COMMENT
The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents. Preliminarily, respondents contend that R.A. No. 9337 enjoys the
presumption of constitutionality and petitioners failed to cast doubt on its validity.
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA
630 (1994), respondents argue that the procedural issues raised by petitioners, i.e., legality of the bicameral proceedings, exclusive origination of
revenue measures and the power of the Senate concomitant thereto, have already been settled. With regard to the issue of undue delegation of
legislative power to the President, respondents contend that the law is complete and leaves no discretion to the President but to increase the rate to
12% once any of the two conditions provided therein arise.
Respondents also refute petitioners argument that the increase to 12%, as well as the 70% limitation on the creditable input tax, the 60-month
amortization on the purchase or importation of capital goods exceedingP1,000,000.00, and the 5% final withholding tax by government agencies, is
arbitrary, oppressive, and confiscatory, and that it violates the constitutional principle on progressive taxation, among others.
Finally, respondents manifest that R.A. No. 9337 is the anchor of the governments fiscal reform agenda. A reform in the value-added system of
taxation is the core revenue measure that will tilt the balance towards a sustainable macroeconomic environment necessary for economic growth.
ISSUES
The Court defined the issues, as follows:
PROCEDURAL ISSUE
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
b. Article VI, Section 26(2)
SUBSTANTIVE ISSUES
1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the following provisions of the Constitution:
a. Article VI, Section 28(1), and
2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A. No. 9337, amending Section
114(C) of the NIRC, violate the following provisions of the Constitution:
b. Article III, Section 1
RULING OF THE COURT
As a prelude, the Court deems it apt to restate the general principles and concepts of value-added tax (VAT), as the confusion and inevitably, litigation,
breeds from a fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease of goods or properties and services. 8 Being an indirect
tax on expenditure, the seller of goods or services may pass on the amount of tax paid to the buyer,9 with the seller acting merely as a tax
collector.10 The burden of VAT is intended to fall on the immediate buyers and ultimately, the end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in, without transferring the burden to
someone else.11 Examples are individual and corporate income taxes, transfer taxes, and residence taxes. 12
In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a different mode. Prior to 1978, the system was a
single-stage tax computed under the "cost deduction method" and was payable only by the original sellers. The single-stage system was subsequently
modified, and a mixture of the "cost deduction method" and "tax credit method" was used to determine the value-added tax payable. 13 Under the "tax
credit method," an entity can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports. 14
It was only in 1987, when President Corazon C. Aquino issued Executive Order No. 273, that the VAT system was rationalized by imposing a multistage tax rate of 0% or 10% on all sales using the "tax credit method." 15
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law,16 R.A. No. 8241 or the Improved VAT Law,17 R.A. No. 8424 or the Tax Reform
Act of 1997,18 and finally, the presently beleaguered R.A. No. 9337, also referred to by respondents as the VAT Reform Act.
The Court will now discuss the issues in logical sequence.
PROCEDURAL ISSUE
I.
Whether R.A. No. 9337 violates the following provisions of the Constitution:
a. Article VI, Section 24, and
A. The Bicameral Conference Committee
Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral Conference Committee exceeded its authority by:
1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of R.A. No. 9337;
2) Deleting entirely the no pass-on provisions found in both the House and Senate bills;
3) Inserting the provision imposing a 70% limit on the amount of input tax to be credited against the output tax; and
4) Including the amendments introduced only by Senate Bill No. 1950 regarding other kinds of taxes in addition to the value-added tax.
Petitioners now beseech the Court to define the powers of the Bicameral Conference Committee.
It should be borne in mind that the power of internal regulation and discipline are intrinsic in any legislative body for, as unerringly elucidated by Justice
Story, "[i]f the power did not exist, it would be utterly impracticable to transact the business of the nation, either at all, or at least with
decency, deliberation, and order."19 Thus, Article VI, Section 16 (3) of the Constitution provides that "each House may determine the rules of its
proceedings." Pursuant to this inherent constitutional power to promulgate and implement its own rules of procedure, the respective rules of each
house of Congress provided for the creation of a Bicameral Conference Committee.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives provides as follows:
Sec. 88. Conference Committee. In the event that the House does not agree with the Senate on the amendment to any bill or joint resolution, the
differences may be settled by the conference committees of both chambers.
In resolving the differences with the Senate, the House panel shall, as much as possible, adhere to and support the House Bill. If the differences with
the Senate are so substantial that they materially impair the House Bill, the panel shall report such fact to the House for the latters appropriate action.
Sec. 89. Conference Committee Reports. . . . Each report shall contain a detailed, sufficiently explicit statement of the changes in or amendments to
the subject measure.
...
The Chairman of the House panel may be interpellated on the Conference Committee Report prior to the voting thereon. The House shall vote on the
Conference Committee Report in the same manner and procedure as it votes on a bill on third and final reading.
Rule XII, Section 35 of the Rules of the Senate states:

Sec. 35. In the event that the Senate does not agree with the House of Representatives on the provision of any bill or joint resolution, the differences
shall be settled by a conference committee of both Houses which shall meet within ten (10) days after their composition. The President shall designate
the members of the Senate Panel in the conference committee with the approval of the Senate.
Each Conference Committee Report shall contain a detailed and sufficiently explicit statement of the changes in, or amendments to the subject
measure, and shall be signed by a majority of the members of each House panel, voting separately.
A comparative presentation of the conflicting House and Senate provisions and a reconciled version thereof with the explanatory statement of the
conference committee shall be attached to the report.
...
The creation of such conference committee was apparently in response to a problem, not addressed by any constitutional provision, where the two
houses of Congress find themselves in disagreement over changes or amendments introduced by the other house in a legislative bill. Given that one of
the most basic powers of the legislative branch is to formulate and implement its own rules of proceedings and to discipline its members, may the Court
then delve into the details of how Congress complies with its internal rules or how it conducts its business of passing legislation? Note that in the
present petitions, the issue is not whether provisions of the rules of both houses creating the bicameral conference committee are unconstitutional, but
whether the bicameral conference committee has strictly complied with the rules of both houses, thereby remaining within the jurisdiction
conferred upon it by Congress.
In the recent case of Farias vs. The Executive Secretary,20 the Court En Banc, unanimously reiterated and emphasized its adherence to the "enrolled
bill doctrine," thus, declining therein petitioners plea for the Court to go behind the enrolled copy of the bill. Assailed in said case was Congresss
creation of two sets of bicameral conference committees, the lack of records of said committees proceedings, the alleged violation of said committees
of the rules of both houses, and the disappearance or deletion of one of the provisions in the compromise bill submitted by the bicameral conference
committee. It was argued that such irregularities in the passage of the law nullified R.A. No. 9006, or the Fair Election Act.
Striking down such argument, the Court held thus:
Under the "enrolled bill doctrine," the signing of a bill by the Speaker of the House and the Senate President and the certification of the Secretaries of
both Houses of Congress that it was passed are conclusive of its due enactment. A review of cases reveals the Courts consistent adherence to the
rule. The Court finds no reason to deviate from the salutary rule in this case where the irregularities alleged by the petitioners mostly
involved the internal rules of Congress, e.g., creation of the 2nd or 3rd Bicameral Conference Committee by the House. This Court is not the
proper forum for the enforcement of these internal rules of Congress, whether House or Senate. Parliamentary rules are merely procedural
and with their observance the courts have no concern. Whatever doubts there may be as to the formal validity of Rep. Act No. 9006 must be
resolved in its favor.The Court reiterates its ruling in Arroyo vs. De Venecia, viz.:
But the cases, both here and abroad, in varying forms of expression, all deny to the courts the power to inquire into allegations that, in
enacting a law, a House of Congress failed to comply with its own rules, in the absence of showing that there was a violation of a
constitutional provision or the rights of private individuals. In Osmea v. Pendatun, it was held: "At any rate, courts have declared that the rules
adopted by deliberative bodies are subject to revocation, modification or waiver at the pleasure of the body adopting them. And it has been said that
"Parliamentary rules are merely procedural, and with their observance, the courts have no concern. They may be waived or disregarded by
the legislative body." Consequently, "mere failure to conform to parliamentary usage will not invalidate the action (taken by a deliberative
body) when the requisite number of members have agreed to a particular measure."21 (Emphasis supplied)
The foregoing declaration is exactly in point with the present cases, where petitioners allege irregularities committed by the conference committee in
introducing changes or deleting provisions in the House and Senate bills. Akin to theFarias case,22 the present petitions also raise an issue regarding
the actions taken by the conference committee on matters regarding Congress compliance with its own internal rules. As stated earlier, one of the most
basic and inherent power of the legislature is the power to formulate rules for its proceedings and the discipline of its members. Congress is the best
judge of how it should conduct its own business expeditiously and in the most orderly manner. It is also the sole
concern of Congress to instill discipline among the members of its conference committee if it believes that said members violated any of its rules of
proceedings. Even the expanded jurisdiction of this Court cannot apply to questions regarding only the internal operation of Congress, thus, the Court
is wont to deny a review of the internal proceedings of a co-equal branch of government.
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs. Secretary of Finance, 23 the Court already made the
pronouncement that "[i]f a change is desired in the practice [of the Bicameral Conference Committee] it must be sought in Congress since
this question is not covered by any constitutional provision but is only an internal rule of each house." 24 To date, Congress has not seen it fit
to make such changes adverted to by the Court. It seems, therefore, that Congress finds the practices of the bicameral conference committee to be
very useful for purposes of prompt and efficient legislative action.
Nevertheless, just to put minds at ease that no blatant irregularities tainted the proceedings of the bicameral conference committees, the Court deems
it necessary to dwell on the issue. The Court observes that there was a necessity for a conference committee because a comparison of the provisions
of House Bill Nos. 3555 and 3705 on one hand, and Senate Bill No. 1950 on the other, reveals that there were indeed disagreements. As pointed out in
the petitions, said disagreements were as follows:
House Bill No. 3555
With regard to "Stand-By Authority" in favor of President
Provides for 12% VAT on every sale of goods or properties (amending Sec. 106 of NIRC); 12% VAT on importation of goods (amending Sec. 107 of NIRC); and 12% VAT on sa
With regard to the "no pass-on" provision
No similar provision
With regard to 70% limit on input tax credit
Provides that the input tax credit for capital goods on which a VAT has been paid shall be equally distributed over 5 years or the depreciable life of such capital goods; the input
for persons engaged in retail trading of goods, the allowable input tax credit shall not exceed 11% of the total amount of goods purchased.
With regard to amendments to be made to NIRC provisions regarding income and excise taxes
Provided for amendments to

several NIRC provisions regarding
corporate income, percentage,
franchise and excise taxes
The disagreements between the provisions in the House bills and the Senate bill were with regard to (1) what rate of VAT is to be imposed; (2) whether
only the VAT imposed on electricity generation, transmission and distribution companies should not be passed on to consumers, as proposed in the
Senate bill, or both the VAT imposed on electricity generation, transmission and distribution companies and the VAT imposed on sale of petroleum
products should not be passed on to consumers, as proposed in the House bill; (3) in what manner input tax credits should be limited; (4) and whether
the NIRC provisions on corporate income taxes, percentage, franchise and excise taxes should be amended.
There being differences and/or disagreements on the foregoing provisions of the House and Senate bills, the Bicameral Conference Committee was
mandated by the rules of both houses of Congress to act on the same by settling said differences and/or disagreements. The Bicameral Conference
Committee acted on the disagreeing provisions by making the following changes:
1. With regard to the disagreement on the rate of VAT to be imposed, it would appear from the Conference Committee Report that the Bicameral
Conference Committee tried to bridge the gap in the difference between the 10% VAT rate proposed by the Senate, and the various rates with 12% as
the highest VAT rate proposed by the House, by striking a compromise whereby the present 10% VAT rate would be retained until certain conditions
arise,i.e., the value-added tax collection as a percentage of gross domestic product (GDP) of the previous year exceeds 2 4/5%, or National
Government deficit as a percentage of GDP of the previous year exceeds 1%, when the President, upon recommendation of the Secretary of
Finance shall raise the rate of VAT to 12% effective January 1, 2006.
2. With regard to the disagreement on whether only the VAT imposed on electricity generation, transmission and distribution companies should not be
passed on to consumers or whether both the VAT imposed on electricity generation, transmission and distribution companies and the VAT imposed on
sale of petroleum products may be passed on to consumers, the Bicameral Conference Committee chose to settle such disagreement by altogether
deleting from its Report any no pass-on provision.
3. With regard to the disagreement on whether input tax credits should be limited or not, the Bicameral Conference Committee decided to adopt the
position of the House by putting a limitation on the amount of input tax that may be credited against the output tax, although it crafted its own language
as to the amount of the limitation on input tax credits and the manner of computing the same by providing thus:
(A) Creditable Input Tax. . . .

Provided, The input tax on goods purchased or imported in a calendar month for use in trade or business for which deduction for depreciation is
allowed under this Code, shall be spread evenly over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition
cost for such goods, excluding the VAT component thereof, exceeds one million Pesos (P1,000,000.00): PROVIDED, however, that if the estimated
useful life of the capital good is less than five (5) years, as used for depreciation purposes, then the input VAT shall be spread over such shorter period:
...
(B) Excess Output or Input Tax. If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VATregistered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters: PROVIDED that the
input tax inclusive of input VAT carried over from the previous quarter that may be credited in every quarter shall not exceed seventy percent (70%) of
the output VAT: PROVIDED, HOWEVER, THAT any input tax attributable to zero-rated sales by a VAT-registered person may at his option be refunded
or credited against other internal revenue taxes, . . .
4. With regard to the amendments to other provisions of the NIRC on corporate income tax, franchise, percentage and excise taxes, the conference
committee decided to include such amendments and basically adopted the provisions found in Senate Bill No. 1950, with some changes as to the rate
of the tax to be imposed.
Under the provisions of both the Rules of the House of Representatives and Senate Rules, the Bicameral Conference Committee is mandated to settle
the differences between the disagreeing provisions in the House bill and the Senate bill. The term "settle" is synonymous to "reconcile" and
"harmonize."25 To reconcile or harmonize disagreeing provisions, the Bicameral Conference Committee may then (a) adopt the specific provisions of
either the House bill or Senate bill, (b) decide that neither provisions in the House bill or the provisions in the Senate bill would
be carried into the final form of the bill, and/or (c) try to arrive at a compromise between the disagreeing provisions.
In the present case, the changes introduced by the Bicameral Conference Committee on disagreeing provisions were meant only to reconcile and
harmonize the disagreeing provisions for it did not inject any idea or intent that is wholly foreign to the subject embraced by the original provisions.
The so-called stand-by authority in favor of the President, whereby the rate of 10% VAT wanted by the Senate is retained until such time that certain
conditions arise when the 12% VAT wanted by the House shall be imposed, appears to be a compromise to try to bridge the difference in the rate of
VAT proposed by the two houses of Congress. Nevertheless, such compromise is still totally within the subject of what rate of VAT should be imposed
on taxpayers.
The no pass-on provision was deleted altogether. In the transcripts of the proceedings of the Bicameral Conference Committee held on May 10, 2005,
Sen. Ralph Recto, Chairman of the Senate Panel, explained the reason for deleting the no pass-on provision in this wise:
. . . the thinking was just to keep the VAT law or the VAT bill simple. And we were thinking that no sector should be a beneficiary of legislative grace,
neither should any sector be discriminated on. The VAT is an indirect tax. It is a pass on-tax. And lets keep it plain and simple. Lets not confuse the
bill and put a no pass-on provision. Two-thirds of the world have a VAT system and in this two-thirds of the globe, I have yet to see a VAT with a no
pass-though provision. So, the thinking of the Senate is basically simple, lets keep the VAT simple. 26 (Emphasis supplied)
Rep. Teodoro Locsin further made the manifestation that the no pass-on provision "never really enjoyed the support of either House." 27
With regard to the amount of input tax to be credited against output tax, the Bicameral Conference Committee came to a compromise on the
percentage rate of the limitation or cap on such input tax credit, but again, the change introduced by the Bicameral Conference Committee was totally
within the intent of both houses to put a cap on input tax that may be
credited against the output tax. From the inception of the subject revenue bill in the House of Representatives, one of the major objectives was to "plug
a glaring loophole in the tax policy and administration by creating vital restrictions on the claiming of input VAT tax credits . . ." and "[b]y introducing
limitations on the claiming of tax credit, we are capping a major leakage that has placed our collection efforts at an apparent disadvantage." 28
As to the amendments to NIRC provisions on taxes other than the value-added tax proposed in Senate Bill No. 1950, since said provisions were
among those referred to it, the conference committee had to act on the same and it basically adopted the version of the Senate.
Thus, all the changes or modifications made by the Bicameral Conference Committee were germane to subjects of the provisions referred
to it for reconciliation. Such being the case, the Court does not see any grave abuse of discretion amounting to lack or excess of jurisdiction committed
by the Bicameral Conference Committee. In the earlier cases of Philippine Judges Association vs. Prado29 and Tolentino vs. Secretary of Finance, 30 the
Court recognized the long-standing legislative practice of giving said conference committee ample latitude for compromising differences between the
Senate and the House. Thus, in the Tolentino case, it was held that:
. . . it is within the power of a conference committee to include in its report an entirely new provision that is not found either in the House bill or in the
Senate bill. If the committee can propose an amendment consisting of one or two provisions, there is no reason why it cannot propose several
provisions, collectively considered as an "amendment in the nature of a substitute," so long as such amendment is germane to the subject of the bills
before the committee. After all, its report was not final but needed the approval of both houses of Congress to become valid as an act of the legislative
department. The charge that in this case the Conference Committee acted as a third legislative chamber is thus without any
basis.31 (Emphasis supplied)
B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on the "No-Amendment Rule"
Article VI, Sec. 26 (2) of the Constitution, states:
No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed copies thereof in its final form
have been distributed to its Members three days before its passage, except when the President certifies to the necessity of its immediate enactment to
meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall be taken
immediately thereafter, and the yeas and nays entered in the Journal.
Petitioners argument that the practice where a bicameral conference committee is allowed to add or delete provisions in the House bill and the Senate
bill after these had passed three readings is in effect a circumvention of the "no amendment rule" (Sec. 26 (2), Art. VI of the 1987 Constitution), fails to
convince the Court to deviate from its ruling in the Tolentino case that:
Nor is there any reason for requiring that the Committees Report in these cases must have undergone three readings in each of the two houses. If that
be the case, there would be no end to negotiation since each house may seek modification of the compromise bill. . . .
Art. VI. 26 (2) must, therefore, be construed as referring only to bills introduced for the first time in either house of Congress, not to the
conference committee report.32 (Emphasis supplied)
The Court reiterates here that the "no-amendment rule" refers only to the procedure to be followed by each house of Congress with regard to
bills initiated in each of said respective houses, before said bill is transmitted to the other house for its concurrence or amendment. Verily, to
construe said provision in a way as to proscribe any further changes to a bill after one house has voted on it would lead to absurdity as this would
mean that the other house of Congress would be deprived of its constitutional power to amend or introduce changes to said bill. Thus, Art. VI, Sec. 26
(2) of the Constitution cannot be taken to mean that the introduction by the Bicameral Conference Committee of amendments and modifications to
disagreeing provisions in bills that have been acted upon by both houses of Congress is prohibited.
C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on Exclusive Origination of Revenue Bills
Coming to the issue of the validity of the amendments made regarding the NIRC provisions on corporate income taxes and percentage, excise taxes.
Petitioners refer to the following provisions, to wit:
Section 27
Rates of Income Tax on Domestic Corporation
28(A)(1)
Tax on Resident Foreign Corporation
28(B)(1)
Inter-corporate Dividends
34(B)(1)
Inter-corporate Dividends
116
Tax on Persons Exempt from VAT
117
Percentage Tax on domestic carriers and keepers of Garage
119
Tax on franchises
121
Tax on banks and Non-Bank Financial Intermediaries
148
Excise Tax on manufactured oils and other fuels
151
Excise Tax on mineral products
236
Registration requirements
237
Issuance of receipts or sales or commercial invoices
288
Disposition of Incremental Revenue
Petitioners claim that the amendments to these provisions of the NIRC did not at all originate from the House. They aver that House Bill No. 3555
proposed amendments only regarding Sections 106, 107, 108, 110 and 114 of the NIRC, while House Bill No. 3705 proposed amendments only to
Sections 106, 107,108, 109, 110 and 111 of the NIRC; thus, the other sections of the NIRC which the Senate amended but which amendments were
not found in the House bills are not intended to be amended by the House of Representatives. Hence, they argue that since the proposed amendments
did not originate from the House, such amendments are a violation of Article VI, Section 24 of the Constitution.
The argument does not hold water.
Article VI, Section 24 of the Constitution reads:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall originate
exclusively in the House of Representatives but the Senate may propose or concur with amendments.
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and 3705 that initiated the move for amending provisions of the NIRC
dealing mainly with the value-added tax. Upon transmittal of said House bills to the Senate, the Senate came out with Senate Bill No. 1950 proposing
amendments not only to NIRC provisions on the value-added tax but also amendments to NIRC provisions on other kinds of taxes. Is the introduction
by the Senate of provisions not dealing directly with the value- added tax, which is the only kind of tax being amended in the House bills, still within the
purview of the constitutional provision authorizing the Senate to propose or concur with amendments to a revenue bill that originated from the House?
The foregoing question had been squarely answered in the Tolentino case, wherein the Court held, thus:
. . . To begin with, it is not the law but the revenue bill which is required by the Constitution to "originate exclusively" in the House of
Representatives. It is important to emphasize this, because a bill originating in the House may undergo such extensive changes in the Senate that the
result may be a rewriting of the whole. . . . At this point, what is important to note is that, as a result of the Senate action, a distinct bill may be
produced. To insist that a revenue statute and not only the bill which initiated the legislative process culminating in the enactment of the
law must substantially be the same as the House bill would be to deny the Senates power not only to "concur with amendments" but also
to "propose amendments." It would be to violate the coequality of legislative power of the two houses of Congress and in fact make the House
superior to the Senate.
Given, then, the power of the Senate to propose amendments, the Senate can propose its own version even with respect to bills which are
required by the Constitution to originate in the House.
...
Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff or tax bills, bills authorizing an increase of the public debt,
private bills and bills of local application must come from the House of Representatives on the theory that, elected as they are from the districts, the
members of the House can be expected to be more sensitive to the local needs and problems. On the other hand, the senators, who are
elected at large, are expected to approach the same problems from the national perspective. Both views are thereby made to bear on the
enactment of such laws.33 (Emphasis supplied)
Since there is no question that the revenue bill exclusively originated in the House of Representatives, the Senate was acting within its
constitutional power to introduce amendments to the House bill when it included provisions in Senate Bill No. 1950 amending corporate income taxes,
percentage, excise and franchise taxes. Verily, Article VI, Section 24 of the Constitution does not contain any prohibition or limitation on the extent of
the amendments that may be introduced by the Senate to the House revenue bill.
Furthermore, the amendments introduced by the Senate to the NIRC provisions that had not been touched in the House bills are still in furtherance of
the intent of the House in initiating the subject revenue bills. The Explanatory Note of House Bill No. 1468, the very first House bill introduced on the
floor, which was later substituted by House Bill No. 3555, stated:
One of the challenges faced by the present administration is the urgent and daunting task of solving the countrys serious financial problems. To do
this, government expenditures must be strictly monitored and controlled and revenues must be significantly increased. This may be easier said than
done, but our fiscal authorities are still optimistic the government will be operating on a balanced budget by the year 2009. In fact, several measures
that will result to significant expenditure savings have been identified by the administration. It is supported with a credible package of revenue
measures that include measures to improve tax administration and control the leakages in revenues from income taxes and the value-added
tax (VAT). (Emphasis supplied)
Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared that:
In the budget message of our President in the year 2005, she reiterated that we all acknowledged that on top of our agenda must be the restoration of
the health of our fiscal system.
In order to considerably lower the consolidated public sector deficit and eventually achieve a balanced budget by the year 2009, we need to seize
windows of opportunities which might seem poignant in the beginning, but in the long run prove effective and beneficial to the overall
status of our economy. One such opportunity is a review of existing tax rates, evaluating the relevance given our present
conditions.34 (Emphasis supplied)
Notably therefore, the main purpose of the bills emanating from the House of Representatives is to bring in sizeable revenues for the government
to supplement our countrys serious financial problems, and improve tax administration and control of the leakages in revenues from income taxes and
value-added taxes. As these house bills were transmitted to the Senate, the latter, approaching the measures from the point of national perspective,
can introduce amendments within the purposes of those bills. It can provide for ways that would soften the impact of the VAT measure on the
consumer,i.e., by distributing the burden across all sectors instead of putting it entirely on the shoulders of the consumers. The sponsorship speech of
Sen. Ralph Recto on why the provisions on income tax on corporation were included is worth quoting:
All in all, the proposal of the Senate Committee on Ways and Means will raise P64.3 billion in additional revenues annually even while by mitigating
prices of power, services and petroleum products.
However, not all of this will be wrung out of VAT. In fact, only P48.7 billion amount is from the VAT on twelve goods and services. The rest of the tab
P10.5 billion- will be picked by corporations.
What we therefore prescribe is a burden sharing between corporate Philippines and the consumer. Why should the latter bear all the pain? Why should
the fiscal salvation be only on the burden of the consumer?
The corporate worlds equity is in form of the increase in the corporate income tax from 32 to 35 percent, but up to 2008 only. This will raise P10.5
billion a year. After that, the rate will slide back, not to its old rate of 32 percent, but two notches lower, to 30 percent.
Clearly, we are telling those with the capacity to pay, corporations, to bear with this emergency provision that will be in effect for 1,200 days, while we
put our fiscal house in order. This fiscal medicine will have an expiry date.
For their assistance, a reward of tax reduction awaits them. We intend to keep the length of their sacrifice brief. We would like to assure them that not
because there is a light at the end of the tunnel, this government will keep on making the tunnel long.
The responsibility will not rest solely on the weary shoulders of the small man. Big business will be there to share the burden. 35
As the Court has said, the Senate can propose amendments and in fact, the amendments made on provisions in the tax on income of corporations are
germane to the purpose of the house bills which is to raise revenues for the government.
Likewise, the Court finds the sections referring to other percentage and excise taxes germane to the reforms to the VAT system, as these sections
would cushion the effects of VAT on consumers. Considering that certain goods and services which were subject to percentage tax and excise tax
would no longer be VAT-exempt, the consumer would be burdened more as they would be paying the VAT in addition to these taxes. Thus, there is a
need to amend these sections to soften the impact of VAT. Again, in his sponsorship speech, Sen. Recto said:
However, for power plants that run on oil, we will reduce to zero the present excise tax on bunker fuel, to lessen the effect of a VAT on this product.
For electric utilities like Meralco, we will wipe out the franchise tax in exchange for a VAT.
And in the case of petroleum, while we will levy the VAT on oil products, so as not to destroy the VAT chain, we will however bring down the excise tax
on socially sensitive products such as diesel, bunker, fuel and kerosene.
...
What do all these exercises point to? These are not contortions of giving to the left hand what was taken from the right. Rather, these sprang from our
concern of softening the impact of VAT, so that the people can cushion the blow of higher prices they will have to pay as a result of VAT. 36
The other sections amended by the Senate pertained to matters of tax administration which are necessary for the implementation of the changes in the
VAT system.
To reiterate, the sections introduced by the Senate are germane to the subject matter and purposes of the house bills, which is to supplement our
countrys fiscal deficit, among others. Thus, the Senate acted within its power to propose those amendments.
SUBSTANTIVE ISSUES
I.
Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 of the NIRC, violate the following provisions of the Constitution:
A. No Undue Delegation of Legislative Power
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et al. contend in common that Sections 4, 5 and 6 of R.A. No. 9337,
amending Sections 106, 107 and 108, respectively, of the NIRC giving the President the stand-by authority to raise the VAT rate from 10% to 12%
when a certain condition is met, constitutes undue delegation of the legislative power to tax.
The assailed provisions read as follows:
SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 106. Value-Added Tax on Sale of Goods or Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax
equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to
be paid by the seller or transferor:provided, that the President, upon the recommendation of the Secretary of Finance, shall, effective January
1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2
4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 %).
SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 107. Value-Added Tax on Importation of Goods.
(A) In General. There shall be levied, assessed and collected on every importation of goods a value-added tax equivalent to ten percent (10%) based
on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges,
such tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That where the customs duties are determined
on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes, if any: provided, further,
that the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax
to twelve percent (12%) after any of the following conditions has been satisfied.
4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 %).
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as follows:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties
(A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived
from the sale or exchange of services: provided, that the President, upon the recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied.
4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 %). (Emphasis supplied)
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT rate is a virtual abdication by Congress of its exclusive
power to tax because such delegation is not within the purview of Section 28 (2), Article VI of the Constitution, which provides:
The Congress may, by law, authorize the President to fix within specified limits, and may impose, tariff rates, import and export quotas, tonnage and
wharfage dues, and other duties or imposts within the framework of the national development program of the government.
They argue that the VAT is a tax levied on the sale, barter or exchange of goods and properties as well as on the sale or exchange of services, which
cannot be included within the purview of tariffs under the exempted delegation as the latter refers to customs duties, tolls or tribute payable upon
merchandise to the government and usually imposed on goods or merchandise imported or exported.
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the President the legislative power to tax is contrary to republicanism.
They insist that accountability, responsibility and transparency should dictate the actions of Congress and they should not pass to the President the
decision to impose taxes. They also argue that the law also effectively nullified the Presidents power of control, which includes the authority to set
aside and nullify the acts of her subordinates like the Secretary of Finance, by mandating the fixing of the tax rate by the President upon the
recommendation of the Secretary of Finance.
Petitioners Pimentel, et al. aver that the President has ample powers to cause, influence or create the conditions provided by the law to bring about
either or both the conditions precedent.
On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation that the imposition of the 12% rate would be subject to the whim
of the Secretary of Finance, an unelected bureaucrat, contrary to the principle of no taxation without representation. They submit that the Secretary of
Finance is not mandated to give a favorable recommendation and he may not even give his recommendation. Moreover, they allege that no guiding
standards are provided in the law on what basis and as to how he will make his recommendation. They claim, nonetheless, that any recommendation
of the Secretary of Finance can easily be brushed aside by the President since the former is a mere alter ego of the latter, such that, ultimately, it is the
President who decides whether to impose the increased tax rate or not.
A brief discourse on the principle of non-delegation of powers is instructive.
The principle of separation of powers ordains that each of the three great branches of government has exclusive cognizance of and is supreme in
matters falling within its own constitutionally allocated sphere. 37 A logical
corollary to the doctrine of separation of powers is the principle of non-delegation of powers, as expressed in the Latin maxim: potestas delegata non
delegari potest which means "what has been delegated, cannot be delegated." 38 This doctrine is based on the ethical principle that such as delegated
power constitutes not only a right but a duty to be performed by the delegate through the instrumentality of his own judgment and not through the
intervening mind of another.39
With respect to the Legislature, Section 1 of Article VI of the Constitution provides that "the Legislative power shall be vested in the Congress of the
Philippines which shall consist of a Senate and a House of Representatives." The powers which Congress is prohibited from delegating are those
which are strictly, or inherently and exclusively, legislative. Purely legislative power, which can never be delegated, has been described as
the authority to make a complete law complete as to the time when it shall take effect and as to whom it shall be applicable and to
determine the expediency of its enactment.40 Thus, the rule is that in order that a court may be justified in holding a statute unconstitutional as a
delegation of legislative power, it must appear that the power involved is purely legislative in nature that is, one appertaining exclusively to the
legislative department. It is the nature of the power, and not the liability of its use or the manner of its exercise, which determines the validity of its
delegation.
Nonetheless, the general rule barring delegation of legislative powers is subject to the following recognized limitations or exceptions:
(1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of the Constitution;
(2) Delegation of emergency powers to the President under Section 23 (2) of Article VI of the Constitution;
(3) Delegation to the people at large;
(4) Delegation to local governments; and
(5) Delegation to administrative bodies.

In every case of permissible delegation, there must be a showing that the delegation itself is valid. It is valid only if the law (a) is complete in itself,
setting forth therein the policy to be executed, carried out, or implemented by the delegate; 41 and (b) fixes a standard the limits of which are
sufficiently determinate and determinable to which the delegate must conform in the performance of his functions. 42 A sufficient standard is one
which defines legislative policy, marks its limits, maps out its boundaries and specifies the public agency to apply it. It indicates the circumstances
under which the legislative command is to be effected. 43 Both tests are intended to prevent a total transference of legislative authority to the delegate,
who is not allowed to step into the shoes of the legislature and exercise a power essentially legislative. 44
In People vs. Vera,45 the Court, through eminent Justice Jose P. Laurel, expounded on the concept and extent of delegation of power in this wise:
In testing whether a statute constitutes an undue delegation of legislative power or not, it is usual to inquire whether the statute was complete in all its
terms and provisions when it left the hands of the legislature so that nothing was left to the judgment of any other appointee or delegate of the
legislature.
...
The true distinction, says Judge Ranney, is between the delegation of power to make the law, which necessarily involves a discretion as to
what it shall be, and conferring an authority or discretion as to its execution, to be exercised under and in pursuance of the law. The first
cannot be done; to the latter no valid objection can be made.
...
It is contended, however, that a legislative act may be made to the effect as law after it leaves the hands of the legislature. It is true that laws may be
made effective on certain contingencies, as by proclamation of the executive or the adoption by the people of a particular community. In Wayman vs.
Southard, the Supreme Court of the United States ruled that the legislature may delegate a power not legislative which it may itself rightfully
exercise. The power to ascertain facts is such a power which may be delegated. There is nothing essentially legislative in ascertaining the
existence of facts or conditions as the basis of the taking into effect of a law. That is a mental process common to all branches of the
government. Notwithstanding the apparent tendency, however, to relax the rule prohibiting delegation of legislative authority on account of the
complexity arising from social and economic forces at work in this modern industrial age, the orthodox pronouncement of Judge Cooley in his work on
Constitutional Limitations finds restatement in Prof. Willoughby's treatise on the Constitution of the United States in the following language speaking
of declaration of legislative power to administrative agencies: The principle which permits the legislature to provide that the administrative agent
may determine when the circumstances are such as require the application of a law is defended upon the ground that at the time this
authority is granted, the rule of public policy, which is the essence of the legislative act, is determined by the legislature. In other words, the
legislature, as it is its duty to do, determines that, under given circumstances, certain executive or administrative action is to be taken, and
that, under other circumstances, different or no action at all is to be taken. What is thus left to the administrative official is not the legislative
determination of what public policy demands, but simply the ascertainment of what the facts of the case require to be done according to the
terms of the law by which he is governed. The efficiency of an Act as a declaration of legislative will must, of course, come from Congress,
but the ascertainment of the contingency upon which the Act shall take effect may be left to such agencies as it may designate. The
legislature, then, may provide that a law shall take effect upon the happening of future specified contingencies leaving to some other person
or body the power to determine when the specified contingency has arisen. (Emphasis supplied).46
In Edu vs. Ericta,47 the Court reiterated:
What cannot be delegated is the authority under the Constitution to make laws and to alter and repeal them; the test is the completeness of the statute
in all its terms and provisions when it leaves the hands of the legislature. To determine whether or not there is an undue delegation of legislative power,
the inquiry must be directed to the scope and definiteness of the measure enacted. The legislative does not abdicate its functions when it
describes what job must be done, who is to do it, and what is the scope of his authority. For a complex economy, that may be the only way in
which the legislative process can go forward. A distinction has rightfully been made between delegation of power to make the laws which
necessarily involves a discretion as to what it shall be, which constitutionally may not be done, and delegation of authority or discretion as
to its execution to be exercised under and in pursuance of the law, to which no valid objection can be made. The Constitution is thus not to be
regarded as denying the legislature the necessary resources of flexibility and practicability. (Emphasis supplied). 48
Clearly, the legislature may delegate to executive officers or bodies the power to determine certain facts or conditions, or the happening of
contingencies, on which the operation of a statute is, by its terms, made to depend, but the legislature must prescribe sufficient standards, policies or
limitations on their authority.49 While the power to tax cannot be delegated to executive agencies, details as to the enforcement and administration of an
exercise of such power may be left to them, including the power to determine the existence of facts on which its operation depends. 50
The rationale for this is that the preliminary ascertainment of facts as basis for the enactment of legislation is not of itself a legislative function, but is
simply ancillary to legislation. Thus, the duty of correlating information and making recommendations is the kind of subsidiary activity which the
legislature may perform through its members, or which it may delegate to others to perform. Intelligent legislation on the complicated problems of
modern society is impossible in the absence of accurate information on the part of the legislators, and any reasonable method of securing such
information is proper.51 The Constitution as a continuously operative charter of government does not require that Congress find for itself
every fact upon which it desires to base legislative action or that it make for itself detailed determinations which it has declared to be prerequisite to
application of legislative policy to particular facts and circumstances impossible for Congress itself properly to investigate. 52
In the present case, the challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and 6 which reads as follows:
That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve
percent (12%), after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 %).
The case before the Court is not a delegation of legislative power. It is simply a delegation of ascertainment of facts upon which enforcement and
administration of the increase rate under the law is contingent. The legislature has made the operation of the 12% rate effective January 1, 2006,
contingent upon a specified fact or condition. It leaves the entire operation or non-operation of the 12% rate upon factual matters outside of the control
of the executive.
No discretion would be exercised by the President. Highlighting the absence of discretion is the fact that the wordshall is used in the common proviso.
The use of the word shall connotes a mandatory order. Its use in a statute denotes an imperative obligation and is inconsistent with the idea of
discretion.53 Where the law is clear and unambiguous, it must be taken to mean exactly what it says, and courts have no choice but to see to it that the
mandate is obeyed.54
Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon the existence of any of the conditions specified by Congress.
This is a duty which cannot be evaded by the President. Inasmuch as the law specifically uses the word shall, the exercise of discretion by the
President does not come into play. It is a clear directive to impose the 12% VAT rate when the specified conditions are present. The time of taking into
effect of the 12% VAT rate is based on the happening of a certain specified contingency, or upon the ascertainment of certain facts or conditions by a
person or body other than the legislature itself.
The Court finds no merit to the contention of petitioners ABAKADA GURO Party List, et al. that the law effectively nullified the Presidents power of
control over the Secretary of Finance by mandating the fixing of the tax rate by the President upon the recommendation of the Secretary of Finance.
The Court cannot also subscribe to the position of petitioners
Pimentel, et al. that the word shall should be interpreted to mean may in view of the phrase "upon the recommendation of the Secretary of Finance."
Neither does the Court find persuasive the submission of petitioners Escudero, et al. that any recommendation by the Secretary of Finance can easily
be brushed aside by the President since the former is a mere alter ego of the latter.
When one speaks of the Secretary of Finance as the alter ego of the President, it simply means that as head of the Department of Finance he is the
assistant and agent of the Chief Executive. The multifarious executive and administrative functions of the Chief Executive are performed by and
through the executive departments, and the acts of the secretaries of such departments, such as the Department of Finance, performed and
promulgated in the regular course of business, are, unless disapproved or reprobated by the Chief Executive, presumptively the acts of the Chief
Executive. The Secretary of Finance, as such, occupies a political position and holds office in an advisory capacity, and, in the language of Thomas
Jefferson, "should be of the President's bosom confidence" and, in the language of Attorney-General Cushing, is "subject to the direction of the
President."55
In the present case, in making his recommendation to the President on the existence of either of the two conditions, the Secretary of Finance is not
acting as the alter ego of the President or even her subordinate. In such instance, he is not subject to the power of control and direction of the
President. He is acting as the agent of the legislative department, to determine and declare the event upon which its expressed will is to take
effect.56 The Secretary of Finance becomes the means or tool by which legislative policy is determined and implemented, considering that he
possesses all the facilities to gather data and information and has a much broader perspective to properly evaluate them. His function is to gather and
collate statistical data and other pertinent information and verify if any of the two conditions laid out by Congress is present. His personality in such
instance is in reality but a projection of that of Congress. Thus, being the agent of Congress and not of the President, the President cannot alter or
modify or nullify, or set aside the findings of the Secretary of Finance and to substitute the judgment of the former for that of the latter.
Congress simply granted the Secretary of Finance the authority to ascertain the existence of a fact, namely, whether by December 31, 2005, the valueadded tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or the national
government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1%). If either of these two instances has
occurred, the Secretary of Finance, by legislative mandate, must submit such information to the President. Then the 12% VAT rate must be imposed by
the President effective January 1, 2006. There is no undue delegation of legislative power but only of the discretion as to the execution of a
law. This is constitutionally permissible.57Congress does not abdicate its functions or unduly delegate power when it describes what job must be
done, who must do it, and what is the scope of his authority; in our complex economy that is frequently the only way in which the legislative process
can go forward.58
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating to the President the legislative power to tax is contrary to the
principle of republicanism, the same deserves scant consideration. Congress did not delegate the power to tax but the mere implementation of the law.
The intent and will to increase the VAT rate to 12% came from Congress and the task of the President is to simply execute the legislative policy. That
Congress chose to do so in such a manner is not within the province of the Court to inquire into, its task being to interpret the law. 59
The insinuation by petitioners Pimentel, et al. that the President has ample powers to cause, influence or create the conditions to bring about either or
both the conditions precedent does not deserve any merit as this argument is highly speculative. The Court does not rule on allegations which are
manifestly conjectural, as these may not exist at all. The Court deals with facts, not fancies; on realities, not appearances. When the Court acts on
appearances instead of realities, justice and law will be short-lived.
B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary Additional Tax Burden
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an unfair and additional tax burden on the people. Petitioners also
argue that the 12% increase, dependent on any of the 2 conditions set forth in the contested provisions, is ambiguous because it does not state if the
VAT rate would be returned to the original 10% if the rates are no longer satisfied. Petitioners also argue that such rate is unfair and unreasonable, as
the people are unsure of the applicable VAT rate from year to year.
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the two conditions set forth therein are satisfied, the President shall
increase the VAT rate to 12%. The provisions of the law are clear. It does not provide for a return to the 10% rate nor does it empower the President to
so revert if, after the rate is increased to 12%, the VAT collection goes below the 2 4/5 of the GDP of the previous year or that the national government
deficit as a percentage of GDP of the previous year does not exceed 1%.
Therefore, no statutory construction or interpretation is needed. Neither can conditions or limitations be introduced where none is provided for.
Rewriting the law is a forbidden ground that only Congress may tread upon. 60
Thus, in the absence of any provision providing for a return to the 10% rate, which in this case the Court finds none, petitioners argument is, at best,
purely speculative. There is no basis for petitioners fear of a fluctuating VAT rate because the law itself does not provide that the rate should go back to
10% if the conditions provided in Sections 4, 5 and 6 are no longer present. The rule is that where the provision of the law is clear and unambiguous,
so that there is no occasion for the court's seeking the legislative intent, the law must be taken as it is, devoid of judicial addition or subtraction. 61
Petitioners also contend that the increase in the VAT rate, which was allegedly an incentive to the President to raise the VAT collection to at least
2 4/5 of the GDP of the previous year, should be based on fiscal adequacy.
Petitioners obviously overlooked that increase in VAT collection is not the only condition. There is another condition,i.e., the national government deficit
as a percentage of GDP of the previous year exceeds one and one-half percent (1 %).
Respondents explained the philosophy behind these alternative conditions:
1. VAT/GDP Ratio > 2.8%
The condition set for increasing VAT rate to 12% have economic or fiscal meaning. If VAT/GDP is less than 2.8%, it means that government has weak
or no capability of implementing the VAT or that VAT is not effective in the function of the tax collection. Therefore, there is no value to increase it to
12% because such action will also be ineffectual.
2. Natl Govt Deficit/GDP >1.5%
The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal condition of government has reached a relatively sound position
or is towards the direction of a balanced budget position. Therefore, there is no need to increase the VAT rate since the fiscal house is in a relatively
healthy position. Otherwise stated, if the ratio is more than 1.5%, there is indeed a need to increase the VAT rate. 62
That the first condition amounts to an incentive to the President to increase the VAT collection does not render it unconstitutional so long as there is a
public purpose for which the law was passed, which in this case, is mainly to raise revenue. In fact, fiscal adequacy dictated the need for a raise in
revenue.
The principle of fiscal adequacy as a characteristic of a sound tax system was originally stated by Adam Smith in hisCanons of Taxation (1776), as:
IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings
into the public treasury of the state.63
It simply means that sources of revenues must be adequate to meet government expenditures and their variations. 64
The dire need for revenue cannot be ignored. Our country is in a quagmire of financial woe. During the Bicameral Conference Committee hearing, then
Finance Secretary Purisima bluntly depicted the countrys gloomy state of economic affairs, thus:
First, let me explain the position that the Philippines finds itself in right now. We are in a position where 90 percent of our revenue is used for debt
service. So, for every peso of revenue that we currently raise, 90 goes to debt service. Thats interest plus amortization of our debt. So clearly, this is
not a sustainable situation. Thats the first fact.
The second fact is that our debt to GDP level is way out of line compared to other peer countries that borrow money from that international financial
markets. Our debt to GDP is approximately equal to our GDP. Again, that shows you that this is not a sustainable situation.
The third thing that Id like to point out is the environment that we are presently operating in is not as benign as what it used to be the past five years.
What do I mean by that?
In the past five years, weve been lucky because we were operating in a period of basically global growth and low interest rates. The past few months,
we have seen an inching up, in fact, a rapid increase in the interest rates in the leading economies of the world. And, therefore, our ability to borrow at
reasonable prices is going to be challenged. In fact, ultimately, the question is our ability to access the financial markets.
When the President made her speech in July last year, the environment was not as bad as it is now, at least based on the forecast of most financial
institutions. So, we were assuming that raising 80 billion would put us in a position where we can then convince them to improve our ability to borrow at
lower rates. But conditions have changed on us because the interest rates have gone up. In fact, just within this room, we tried to access the market for
a billion dollars because for this year alone, the Philippines will have to borrow 4 billion dollars. Of that amount, we have borrowed 1.5 billion. We
issued last January a 25-year bond at 9.7 percent cost. We were trying to access last week and the market was not as favorable and up to now we
have not accessed and we might pull back because the conditions are not very good.
So given this situation, we at the Department of Finance believe that we really need to front-end our deficit reduction. Because it is deficit that is
causing the increase of the debt and we are in what we call a debt spiral. The more debt you have, the more deficit you have because interest and debt
service eats and eats more of your revenue. We need to get out of this debt spiral. And the only way, I think, we can get out of this debt spiral is really
have a front-end adjustment in our revenue base.65
The image portrayed is chilling. Congress passed the law hoping for rescue from an inevitable catastrophe. Whether the law is indeed sufficient to
answer the states economic dilemma is not for the Court to judge. In the Farias case, the Court refused to consider the various arguments raised
therein that dwelt on the wisdom of Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing that:
. . . policy matters are not the concern of the Court. Government policy is within the exclusive dominion of the political branches of the government. It is
not for this Court to look into the wisdom or propriety of legislative determination. Indeed, whether an enactment is wise or unwise, whether it is based
on sound economic theory, whether it is the best means to achieve the desired results, whether, in short, the legislative discretion within its prescribed
limits should be exercised in a particular manner are matters for the judgment of the legislature, and the serious conflict of opinions does not suffice to
bring them within the range of judicial cognizance. 66
In the same vein, the Court in this case will not dawdle on the purpose of Congress or the executive policy, given that it is not for the judiciary to "pass
upon questions of wisdom, justice or expediency of legislation." 67
II.
Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of the NIRC; and Section 12 of R.A. No. 9337, amending Section 114(C)
of the NIRC, violate the following provisions of the Constitution:
b. Article III, Section 1
A. Due Process and Equal Protection Clauses
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of R.A. No. 9337, amending Sections 110 (A)(2), 110 (B), and Section
12 of R.A. No. 9337, amending Section 114 (C) of the NIRC are arbitrary, oppressive, excessive and confiscatory. Their argument is premised on the
constitutional right against deprivation of life, liberty of property without due process of law, as embodied in Article III, Section 1 of the Constitution.
Petitioners also contend that these provisions violate the constitutional guarantee of equal protection of the law.
The doctrine is that where the due process and equal protection clauses are invoked, considering that they are not fixed rules but rather broad
standards, there is a need for proof of such persuasive character as would lead to such a conclusion. Absent such a showing, the presumption of
validity must prevail.68
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a limitation on the amount of input tax that may be credited against the
output tax. It states, in part: "[P]rovided, that the input tax inclusive of the input VAT carried over from the previous quarter that may be credited in every
quarter shall not exceed seventy percent (70%) of the output VAT: "
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value-added tax due from or paid by a VAT-registered person on the
importation of goods or local purchase of good and services, including lease or use of property, in the course of trade or business, from a VATregistered person, and Output Tax is the value-added taxdue on the sale or lease of taxable goods or properties or services by any person registered
or required to register under the law.
Petitioners claim that the contested sections impose limitations on the amount of input tax that may be claimed. In effect, a portion of the input tax that
has already been paid cannot now be credited against the output tax.
Petitioners argument is not absolute. It assumes that the input tax exceeds 70% of the output tax, and therefore, the input tax in excess of 70%
remains uncredited. However, to the extent that the input tax is less than 70% of the output tax, then 100% of such input tax is still creditable.
More importantly, the excess input tax, if any, is retained in a businesss books of accounts and remains creditable in the succeeding quarter/s. This is
explicitly allowed by Section 110(B), which provides that "if the input tax exceeds the output tax, the excess shall be carried over to the succeeding
quarter or quarters." In addition, Section 112(B) allows a VAT-registered person to apply for the issuance of a tax credit certificate or refund for any
unused input taxes, to the extent that such input taxes have not been applied against the output taxes. Such unused input tax may be used in payment
of his other internal revenue taxes.
The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners exaggeratedly contend. Their analysis of the effect of
the 70% limitation is incomplete and one-sided. It ends at the net effect that there will be unapplied/unutilized inputs VAT for a given quarter. It does not
proceed further to the fact that such unapplied/unutilized input tax may be credited in the subsequent periods as allowed by the carry-over provision of
Section 110(B) or that it may later on be refunded through a tax credit certificate under Section 112(B).
Therefore, petitioners argument must be rejected.
On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the 70% limitation on the input tax. According to petitioner,
the limitation on the creditable input tax in effect allows VAT-registered establishments to retain a portion of the taxes they collect, which violates the
principle that tax collection and revenue should be for public purposes and expenditures
As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he buys goods. Output tax meanwhile is the tax due to
the person when he sells goods. In computing the VAT payable, three possible scenarios may arise:
First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the input taxes that he paid and passed on by the suppliers,
then no payment is required;
Second, when the output taxes exceed the input taxes, the person shall be liable for the excess, which has to be paid to the Bureau of Internal
Revenue (BIR);69 and
Third, if the input taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter or quarters. Should the input taxes result
from zero-rated or effectively zero-rated transactions, any excess over the output taxes shall instead be refunded to the taxpayer or credited against
other internal revenue taxes, at the taxpayers option. 70
Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can credit his input tax only up to the extent of 70% of
the output tax. In laymans term, the value-added taxes that a person/taxpayer paid and passed on to him by a seller can only be credited up to 70% of
the value-added taxes that is due to him on a taxable transaction. There is no retention of any tax collection because the person/taxpayer has already
previously paid the input tax to a seller, and the seller will subsequently remit such input tax to the BIR. The party directly liable for the payment of the
tax is the seller.71 What only needs to be done is for the person/taxpayer to apply or credit these input taxes, as evidenced by receipts, against his
output taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input tax partakes the nature of a property that may not be confiscated,
appropriated, or limited without due process of law.
The input tax is not a property or a property right within the constitutional purview of the due process clause. A VAT-registered persons entitlement to
the creditable input tax is a mere statutory privilege.
The distinction between statutory privileges and vested rights must be borne in mind for persons have no vested rights in statutory privileges. The state
may change or take away rights, which were created by the law of the state, although it may not take away property, which was vested by virtue of
such rights.72
Under the previous system of single-stage taxation, taxes paid at every level of distribution are not recoverable from the taxes payable, although it
becomes part of the cost, which is deductible from the gross revenue. When Pres. Aquino issued E.O. No. 273 imposing a 10% multi-stage tax on all
sales, it was then that the crediting of the input tax paid on purchase or importation of goods and services by VAT-registered persons against the output
tax was introduced.73 This was adopted by the Expanded VAT Law (R.A. No. 7716), 74 and The Tax Reform Act of 1997 (R.A. No. 8424).75 The right to
credit input tax as against the output tax is clearly a privilege created by law, a privilege that also the law can remove, or in this case, limit.
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 of R.A. No. 9337, amending Section 110(A) of the NIRC, which
provides:
SEC. 110. Tax Credits.
(A) Creditable Input Tax.
Provided, That the input tax on goods purchased or imported in a calendar month for use in trade or business for which deduction for depreciation is
allowed under this Code, shall be spread evenly over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition
cost for such goods, excluding the VAT component thereof, exceeds One million pesos (P1,000,000.00): Provided, however, That if the estimated
useful life of the capital goods is less than five (5) years, as used for depreciation purposes, then the input VAT shall be spread over such a shorter
period: Provided, finally, That in the case of purchase of services, lease or use of properties, the input tax shall be creditable to the purchaser, lessee or
license upon payment of the compensation, rental, royalty or fee.
The foregoing section imposes a 60-month period within which to amortize the creditable input tax on purchase or importation of capital goods with
acquisition cost of P1 Million pesos, exclusive of the VAT component. Such spread out only poses a delay in the crediting of the input tax. Petitioners
argument is without basis because the taxpayer is not permanently deprived of his privilege to credit the input tax.
It is worth mentioning that Congress admitted that the spread-out of the creditable input tax in this case amounts to a 4-year interest-free loan to the
government.76 In the same breath, Congress also justified its move by saying that the provision was designed to raise an annual revenue of 22.6
billion.77 The legislature also dispelled the fear that the provision will fend off foreign investments, saying that foreign investors have other tax incentives
provided by law, and citing the case of China, where despite a 17.5% non-creditable VAT, foreign investments were not deterred. 78 Again, for whatever
is the purpose of the 60-month amortization, this involves executive economic policy and legislative wisdom in which the Court cannot intervene.
With regard to the 5% creditable withholding tax imposed on payments made by the government for taxable transactions, Section 12 of R.A. No. 9337,
which amended Section 114 of the NIRC, reads:
SEC. 114. Return and Payment of Value-added Tax.
(C) Withholding of Value-added Tax. The Government or any of its political subdivisions, instrumentalities or agencies, including government-owned
or controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods and services which are subject to the valueadded tax imposed in Sections 106 and 108 of this Code, deduct and withhold a final value-added tax at the rate of five percent (5%) of the gross
payment thereof: Provided, That the payment for lease or use of properties or property rights to nonresident owners shall be subject to ten percent
(10%) withholding tax at the time of payment. For purposes of this Section, the payor or person in control of the payment shall be considered as the
withholding agent.
The value-added tax withheld under this Section shall be remitted within ten (10) days following the end of the month the withholding was made.
Section 114(C) merely provides a method of collection, or as stated by respondents, a more simplified VAT withholding system. The government in this
case is constituted as a withholding agent with respect to their payments for goods and services.
Prior to its amendment, Section 114(C) provided for different rates of value-added taxes to be withheld -- 3% on gross payments for purchases of
goods; 6% on gross payments for services supplied by contractors other than by public works contractors; 8.5% on gross payments for services
supplied by public work contractors; or 10% on payment for the lease or use of properties or property rights to nonresident owners. Under the present
Section 114(C), these different rates, except for the 10% on lease or property rights payment to nonresidents, were deleted, and a uniform rate of 5% is
applied.
The Court observes, however, that the law the used the word final. In tax usage, final, as opposed to creditable, means full. Thus, it is provided in
Section 114(C): "final value-added tax at the rate of five percent (5%)."
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform Act of 1997), the concept of final withholding tax on income was
explained, to wit:
SECTION 2.57. Withholding of Tax at Source
(A) Final Withholding Tax. Under the final withholding tax system the amount of income tax withheld by the withholding agent is constituted as full
and final payment of the income tax due from the payee on the said income. The liability for payment of the tax rests primarily on the payor as a
withholding agent. Thus, in case of his failure to withhold the tax or in case of underwithholding, the deficiency tax shall be collected from the
payor/withholding agent.
(B) Creditable Withholding Tax. Under the creditable withholding tax system, taxes withheld on certain income payments are intended to equal or at
least approximate the tax due of the payee on said income. Taxes withheld on income payments covered by the expanded withholding tax (referred
to in Sec. 2.57.2 of these regulations) and compensation income (referred to in Sec. 2.78 also of these regulations) are creditable in nature.
As applied to value-added tax, this means that taxable transactions with the government are subject to a 5% rate, which constitutes as full payment of
the tax payable on the transaction. This represents the net VAT payable of the seller. The other 5% effectively accounts for the standard input VAT
(deemed input VAT), in lieu of the actual input VAT directly or attributable to the taxable transaction. 79
The Court need not explore the rationale behind the provision. It is clear that Congress intended to treat differently taxable transactions with the
government.80 This is supported by the fact that under the old provision, the 5% tax withheld by the government remains creditable against the tax
liability of the seller or contractor, to wit:
(C) Withholding of Creditable Value-added Tax. The Government or any of its political subdivisions, instrumentalities or agencies, including
government-owned or controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods from sellers and services
rendered by contractors which are subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold the value-added
tax due at the rate of three percent (3%) of the gross payment for the purchase of goods and six percent (6%) on gross receipts for services rendered
by contractors on every sale or installment payment which shall be creditable against the value-added tax liability of the seller or contractor:
Provided, however, That in the case of government public works contractors, the withholding rate shall be eight and one-half percent (8.5%): Provided,
further, That the payment for lease or use of properties or property rights to nonresident owners shall be subject to ten percent (10%) withholding tax at
the time of payment. For this purpose, the payor or person in control of the payment shall be considered as the withholding agent.
The valued-added tax withheld under this Section shall be remitted within ten (10) days following the end of the month the withholding was made.
(Emphasis supplied)
As amended, the use of the word final and the deletion of the word creditable exhibits Congresss intention to treat transactions with the government
differently. Since it has not been shown that the class subject to the 5% final withholding tax has been unreasonably narrowed, there is no reason to
invalidate the provision. Petitioners, as petroleum dealers, are not the only ones subjected to the 5% final withholding tax. It applies to all those who
deal with the government.
Moreover, the actual input tax is not totally lost or uncreditable, as petitioners believe. Revenue Regulations No. 14-2005 or the Consolidated ValueAdded Tax Regulations 2005 issued by the BIR, provides that should the actual input tax exceed 5% of gross payments, the excess may form part of
the cost. Equally, should the actual input tax be less than 5%, the difference is treated as income. 81
Petitioners also argue that by imposing a limitation on the creditable input tax, the government gets to tax a profit or value-added even if there is no
profit or value-added.
Petitioners stance is purely hypothetical, argumentative, and again, one-sided. The Court will not engage in a legal joust where premises are what ifs,
arguments, theoretical and facts, uncertain. Any disquisition by the Court on this point will only be, as Shakespeare describes life in Macbeth,82 "full of
sound and fury, signifying nothing."
Whats more, petitioners contention assumes the proposition that there is no profit or value-added. It need not take an astute businessman to know
that it is a matter of exception that a business will sell goods or services without profit or value-added. It cannot be overstressed that a business is
created precisely for profit.
The equal protection clause under the Constitution means that "no person or class of persons shall be deprived of the same protection of laws which is
enjoyed by other persons or other classes in the same place and in like circumstances." 83
The power of the State to make reasonable and natural classifications for the purposes of taxation has long been established. Whether it relates to the
subject of taxation, the kind of property, the rates to be levied, or the amounts to be raised, the methods of assessment, valuation and collection, the
States power is entitled to presumption of validity. As a rule, the judiciary will not interfere with such power absent a clear showing of
unreasonableness, discrimination, or arbitrariness.84
Petitioners point out that the limitation on the creditable input tax if the entity has a high ratio of input tax, or invests in capital equipment, or has several
transactions with the government, is not based on real and substantial differences to meet a valid classification.
The argument is pedantic, if not outright baseless. The law does not make any classification in the subject of taxation, the kind of property, the rates to
be levied or the amounts to be raised, the methods of assessment, valuation and collection. Petitioners alleged distinctions are based on variables that
bear different consequences. While the implementation of the law may yield varying end results depending on ones profit margin and value-added, the
Court cannot go beyond what the legislature has laid down and interfere with the affairs of business.
The equal protection clause does not require the universal application of the laws on all persons or things without distinction. This might in fact
sometimes result in unequal protection. What the clause requires is equality among equals as determined according to a valid classification. By
classification is meant the grouping of persons or things similar to each other in certain particulars and different from all others in these same
particulars.85
Petitioners brought to the Courts attention the introduction of Senate Bill No. 2038 by Sens. S.R. Osmea III and Ma. Ana Consuelo A.S. Madrigal on
June 6, 2005, and House Bill No. 4493 by Rep. Eric D. Singson. The proposed legislation seeks to amend the 70% limitation by increasing the same to
90%. This, according to petitioners, supports their stance that the 70% limitation is arbitrary and confiscatory. On this score, suffice it to say that these
are still proposed legislations. Until Congress amends the law, and absent any unequivocal basis for its unconstitutionality, the 70% limitation stays.
B. Uniformity and Equitability of Taxation
Article VI, Section 28(1) of the Constitution reads:
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.
Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. Different articles may be
taxed at different amounts provided that the rate is uniform on the same class everywhere with all people at all times. 86
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all goods and services. Sections 4, 5 and 6 of R.A. No.
9337, amending Sections 106, 107 and 108, respectively, of the NIRC, provide for a rate of 10% (or 12%) on sale of goods and properties, importation
of goods, and sale of services and use or lease of properties. These same sections also provide for a 0% rate on certain sales and transaction.
Neither does the law make any distinction as to the type of industry or trade that will bear the 70% limitation on the creditable input tax, 5-year
amortization of input tax paid on purchase of capital goods or the 5% final withholding tax by the government. It must be stressed that the rule of
uniform taxation does not deprive Congress of the power to classify subjects of taxation, and only demands uniformity within the particular class. 87
R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or
services with gross annual sales or receipts not exceeding P1,500,000.00.88Also, basic marine and agricultural food products in their original state are
still not subject to the tax,89 thus ensuring that prices at the grassroots level will remain accessible. As was stated in Kapatiran ng mga Naglilingkod sa
Pamahalaan ng Pilipinas, Inc. vs. Tan:90
The disputed sales tax is also equitable. It is imposed only on sales of goods or services by persons engaged in business with an aggregate gross
annual sales exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from its application. Likewise exempt from the tax are
sales of farm and marine products, so that the costs of basic food and other necessities, spared as they are from the incidence of the VAT, are
expected to be relatively lower and within the reach of the general public.
It is admitted that R.A. No. 9337 puts a premium on businesses with low profit margins, and unduly favors those with high profit margins. Congress was
not oblivious to this. Thus, to equalize the weighty burden the law entails, the law, under Section 116, imposed a 3% percentage tax on VAT-exempt
persons under Section 109(v), i.e., transactions with gross annual sales and/or receipts not exceeding P1.5 Million. This acts as a equalizer because in
effect, bigger businesses that qualify for VAT coverage and VAT-exempt taxpayers stand on equal-footing.
Moreover, Congress provided mitigating measures to cushion the impact of the imposition of the tax on those previously exempt. Excise taxes on
petroleum products91 and natural gas92 were reduced. Percentage tax on domestic carriers was removed. 93 Power producers are now exempt from
paying franchise tax.94
Aside from these, Congress also increased the income tax rates of corporations, in order to distribute the burden of taxation. Domestic, foreign, and
non-resident corporations are now subject to a 35% income tax rate, from a previous 32%. 95 Intercorporate dividends of non-resident foreign
corporations are still subject to 15% final withholding tax but the tax credit allowed on the corporations domicile was increased to 20%. 96 The Philippine
Amusement and Gaming Corporation (PAGCOR) is not exempt from income taxes anymore. 97 Even the sale by an artist of his works or services
performed for the production of such works was not spared.
All these were designed to ease, as well as spread out, the burden of taxation, which would otherwise rest largely on the consumers. It cannot
therefore be gainsaid that R.A. No. 9337 is equitable.
C. Progressivity of Taxation
Lastly, petitioners contend that the limitation on the creditable input tax is anything but regressive. It is the smaller business with higher input tax-output
tax ratio that will suffer the consequences.
Progressive taxation is built on the principle of the taxpayers ability to pay. This principle was also lifted from Adam Smiths Canons of Taxation, and it
states:
I. The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities;
that is, in proportion to the revenue which they respectively enjoy under the protection of the state.
Taxation is progressive when its rate goes up depending on the resources of the person affected. 98
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. The principle of progressive taxation has no relation with the VAT
system inasmuch as the VAT paid by the consumer or business for every goods bought or services enjoyed is the same regardless of income. In
other words, the VAT paid eats the same portion of an income, whether big or small. The disparity lies in the income earned by a person or profit
margin marked by a business, such that the higher the income or profit margin, the smaller the portion of the income or profit that is eaten by VAT. A
converso, the lower the income or profit margin, the bigger the part that the VAT eats away. At the end of the day, it is really the lower income group or
businesses with low-profit margins that is always hardest hit.
Nevertheless, the Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it simply provides is that Congress shall
"evolve a progressive system of taxation." The Court stated in the Tolentino case, thus:
The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are regressive. What it simply provides is that Congress
shall evolve a progressive system of taxation. The constitutional provision has been interpreted to mean simply that direct taxes are . . . to be
preferred [and] as much as possible, indirect taxes should be minimized. (E. FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 221 (Second
ed. 1977)) Indeed, the mandate to Congress is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps are the
oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII, 17 (1) of the 1973 Constitution from which the present Art.
VI, 28 (1) was taken. Sales taxes are also regressive.
Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not impossible, to avoid them by imposing such taxes
according to the taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero rating
of certain transactions (R.A. No. 7716, 3, amending 102 (b) of the NIRC), while granting exemptions to other transactions. (R.A. No. 7716, 4
amending 103 of the NIRC)99
CONCLUSION
It has been said that taxes are the lifeblood of the government. In this case, it is just an enema, a first-aid measure to resuscitate an economy in
distress. The Court is neither blind nor is it turning a deaf ear on the plight of the masses. But it does not have the panacea for the malady that the law
seeks to remedy. As in other cases, the Court cannot strike down a law as unconstitutional simply because of its yokes.
Let us not be overly influenced by the plea that for every wrong there is a remedy, and that the judiciary should stand ready to afford relief. There are
undoubtedly many wrongs the judicature may not correct, for instance, those involving political questions. . . .
Let us likewise disabuse our minds from the notion that the judiciary is the repository of remedies for all political or social ills; We should not forget that
the Constitution has judiciously allocated the powers of government to three distinct and separate compartments; and that judicial interpretation has
tended to the preservation of the independence of the three, and a zealous regard of the prerogatives of each, knowing full well that one is not the
guardian of the others and that, for official wrong-doing, each may be brought to account, either by impeachment, trial or by the ballot box. 100
The words of the Court in Vera vs. Avelino101 holds true then, as it still holds true now. All things considered, there is no raison d'tre for the
unconstitutionality of R.A. No. 9337.
WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in G.R. Nos. 168056, 168207, 168461, 168463, and 168730, are
hereby DISMISSED.
There being no constitutional impediment to the full enforcement and implementation of R.A. No. 9337, the temporary restraining order issued by the
Court on July 1, 2005 is LIFTED upon finality of herein decision.
SO ORDERED.
COMMISSIONER OF INTERNAL
REVENUE,
Petitioner,
- versus -
G.R. No. 180042

Present:
Carpio, J., Chairperson,
Brion,
Del Castillo,
Abad, and
Perez, JJ.
IRONCON BUILDERS AND

DEVELOPMENT CORPORATION,
Respondent.
Promulgated:
February 8, 2010
x ---------------------------------------------------------------------------------------- x
DECISION
ABAD, J.:
This addresses the question of whether or not creditable value-added tax (VAT) withheld from a taxpayer in excess of its output VAT liability
may be the subject of a tax refund in place of a tax credit.
The Facts and the Case
On May 10, 2001 respondent Ironcon Builders and Development Corporation (Ironcon) sought the refund by the Bureau of Internal
Revenue (BIR) of its income tax overpayment and excess creditable VAT. When petitioner Commissioner of Internal Revenue (CIR) continued not to
act on its claims, on July 1, 2002 Ironcon filed a petition for review with the Court of Tax Appeals (CTA) in CTA Case 6502, which was raffled to its
Second Division.
After hearing, the Second Division held that in regard to the claim for overpaid income taxes, taxpayers have the option to either carry over
the excess credit or ask for a refund. Here, respondent Ironcon filed two income tax returns for the year 2000, an original and an amended one. In the
original return, Ironcon placed an x mark in a box corresponding to the option To be carried over as tax credit next year/quarter. Although Ironcons
amended return indicated a preference for refund of the overpaid tax, the Second Division ruled that Ironcons original choice is regarded as
irrevocable, pursuant to Section 76 of Republic Act (R.A.) 8424 (the National Internal Revenue Code of 1997 or NIRC). Further, the Second Division
found that Ironcon actually carried over the credit for overpaid income taxes and applied it to the tax due for the year 2001. It, therefore, denied
Ironcons claim for its refund.
As to the claim for VAT refund, the Second Division found that by the end of 2000, Ironcon had excess tax credit of P3,135,990.69 carried
over from 1999, allowable input tax of P15,242,271.43, and 6% creditable VAT of P11,027,758.51, withheld and remitted by its clients. These amounts
were deductible from Ironcons total output VAT liability of P20,073,422.63. Consequently, by the end of 2000 Ironcons actual excess creditable VAT
was P9,332,597.99 only as against its claim for refund of P18,053,715.64.
The CTA held, however, that input VAT payments should first be applied to the reported output VAT liability. Only after this deduction has
been made will the 6% VAT withheld be applied to the amount of VAT payable. Thus, the excess ofP9,332,597.99 mentioned above represents the
excess 6% creditable VAT withheld, not creditable input VAT.
The CTA further ruled that since Ironcon had no more output VAT against which the excess creditable VAT withheld may be applied or
credited, the VAT withheld had been excessively paid. Thus, the Court ruled that the excess amount may be refunded under Section 204(C) in relation
to Section 229 of the NIRC. Before a refund may be granted, however, it must be shown that the claim was not used or carried over to the succeeding
quarters.
Ironcon did not present before the Second Division its VAT returns for the succeeding quarters of 2001. Without this, the Second Division
could not verify whether the tax credit was applied to output VAT liability in 2001. Thus, the Second Division also denied Ironcons claim for refund of
excess creditable VAT.
Ironcon filed a motion for reconsideration, attaching to it its amended quarterly VAT returns for 2001. These were marked in open court as
Exhibits A-1, B-1, C-1, and D-1. The CTA promulgated an Amended Decision on July 31, 2006, admitting the exhibits and ruling that Ironcon
sufficiently proved that its excess creditable VAT withheld was not carried over or applied to any output VAT for 2001. Thus, the Court granted its
application for the refund of unutilized excess creditable VAT of P9,332,597.99.
Petitioner CIR filed a motion for reconsideration of the amended decision, which the Second Division denied, prompting the CIR to elevate
the matter to the CTA En Banc by way of a petition for review in CTA EB 235. The CTA En Bancdenied the petition in a Decision dated August 9,
2007. It also denied the CIRs motion for reconsideration, hence, this petition for review. [1]
Issue Presented
Simply put, the only issue the petition raises is whether or not the CTA erred in granting respondent Ironcons application for refund of its excess
creditable VAT withheld.
The Courts Ruling
Respondent Ironcons excess creditable VAT in this case consists of amounts withheld and remitted to the BIR by Ironcons clients. These
clients were government agencies that applied the 6% withholding rate on their payments to Ironcon pursuant to Section 114 of the NIRC (prior to its
amendment by R.A. 9337). Petitioner CIRs main contention is that, since these amounts were withheld in accordance with what the law provides, they
cannot be regarded as erroneously or illegally collected as contemplated in Sections 204(C) and 229 of the NIRC.
Petitioner CIR also points out that since the NIRC does not specifically grant taxpayers the option to refund excess creditable VAT withheld,
it follows that such refund cannot be allowed. Excess creditable VAT withheld is much unlike excess income taxes withheld. In the latter case,
Sections 76 and 58(D) of the NIRC specifically make the option to seek a refund available to the taxpayer. The CIR submits thus that the only option
available to taxpayers in case of excess creditable VAT withheld is to apply the excess credits to succeeding quarters.
But the amounts involved in this case are creditable withholding taxes, not final taxes subject to withholding. As the CTA correctly points
out, taxes withheld on certain payments under the creditable withholding tax system are but intended to approximate the tax due from the payee. [2] The
withheld taxes remitted to the BIR are treated as deposits or advances on the actual tax liability of the taxpayer, subject to adjustment at the proper
time when the actual tax liability can be fully and finally determined. [3]
For the year 2000, Ironcons actual VAT liability payable may be computed as follows:
Output taxes
Less: allowable input taxes
Less: tax credit (1999)
VAT payable
P 20,073,422.63
P 15,242,271.43
P 4,831,151.20
P 3,135,990.69
P 1,695,160.51
Respondent Ironcons clients had, however, already withheld and remitted P11,027,758.51 to the BIR in compliance with Section 114. As
stated above, this withheld amount is to be treated as advance payment for Ironcons VAT liability payable and, therefore, the difference
of P9,332,597.99 should be treated as Ironcons overpaid taxes.
The ruling in Citibank N.A. v. Court of Appeals, while dealing with excessive income taxes withheld, is also applicable to this case:
Consequently and clearly, the tax withheld during the course of the taxable year, while collected legally under the aforesaid revenue regulation,
became untenable and took on the nature of erroneously collected taxes at the end of the taxable year. [4]
Even if the law does not expressly state that Ironcons excess creditable VAT withheld is refundable, it may be the subject of a claim for
refund as an erroneously collected tax under Sections 204(C) and 229. It should be clarified that this ruling only refers to creditable VAT withheld
pursuant to Section 114 prior to its amendment. After its amendment by R.A. 9337, the amount withheld under Section 114 is now treated as a final
VAT, no longer under the creditable withholding tax system. [5]
The rule is that before a refund may be granted, respondent Ironcon must show that it had not used the creditable amount or carried it over
to succeeding taxable quarters. Originally, the CTAs Second Division said in its January 5, 2006 decision that Ironcons failure to offer in evidence its
quarterly returns for 2001 was fatal to its claim. Ironcon filed a motion for reconsideration, attaching its 2001 returns, and, at the hearing of the motion,
had these returns marked as Exhibits A-1, B-1, C-1, and D-1. Petitioner CIR argues that these Exhibits should be deemed inadmissible
considering that they were offered only after trial had ended and should be treated as forgotten evidence.
Citing BPI-Family Savings Bank v. Court of Appeals,[6] the CTA ruled that once a claim for refund has been clearly established, it may set
aside technicalities in the presentation of evidence. Petitioner CIR points out, however, that the present case is not on all fours with BPI. The latter
case dealt with the refund of creditable income taxes withheld, for which the NIRC specifically grants taxpayers the option to apply for refund of any
excess.
But, considering the CTAs finding in the present case that Ironcon had excess creditable VAT withheld for which it was entitled to a refund,
it makes no sense to deny Ironcon the benefit of the BPI ruling that overlooks technicalities in the presentation of evidence. In BPI, this Court admitted
an exhibit attached to the claimants motion for reconsideration, even if the claimant submitted it only after the trial.
[The claimant] may have failed to strictly comply with the rules of procedure; it may have even been
negligent. These circumstances, however, should not compel the Court to disregard this cold, undisputed fact: that [the
claimant] x x x could not have applied the amount claimed as tax credits. [7]
Substantial justice dictates that the government should not keep money that does not belong to it at the expense of citizens. [8] Since he
ought to know the tax records of all taxpayers, petitioner CIR could have easily disproved the claimants allegations. [9] That he chose not to amounts to
a waiver of that right. [10] Also, the CIR failed in this case to make a timely objection to or comment on respondent Ironcons offer of the documents in
question despite an opportunity to do so. [11] Taking all these circumstances together, it was sufficiently proved that Ironcons excess creditable VAT
withheld was not carried over to succeeding taxable quarters.
WHEREFORE, the Court DENIES the petition and AFFIRMS the Court of Tax Appeals En Bancs decision in CTA EB 235 dated August 9,
2007, its resolution dated October 11, 2007, as well as the amended decision of the Court of Tax Appeals Second Division in CTA Case 6502 dated
July 31, 2006.
SO ORDERED.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 184823
October 6, 2010
COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
AICHI FORGING COMPANY OF ASIA, INC., Respondent.
DECISION
DEL CASTILLO, J.:

A taxpayer is entitled to a refund either by authority of a statute expressly granting such right, privilege, or incentive in his favor, or under the principle
of solutio indebiti requiring the return of taxes erroneously or illegally collected. In both cases, a taxpayer must prove not only his entitlement to a
refund but also his compliance with the procedural due process as non-observance of the prescriptive periods within which to file the administrative
and the judicial claims would result in the denial of his claim.
This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the July 30, 2008 Decision 1 and the October 6, 2008
Resolution2 of the Court of Tax Appeals (CTA) En Banc.
Factual Antecedents
Respondent Aichi Forging Company of Asia, Inc., a corporation duly organized and existing under the laws of the Republic of the Philippines, is
engaged in the manufacturing, producing, and processing of steel and its by-products. 3 It is registered with the Bureau of Internal Revenue (BIR) as a
Value-Added Tax (VAT) entity4 and its products, "close impression die steel forgings" and "tool and dies," are registered with the Board of Investments
(BOI) as a pioneer status.5
On September 30, 2004, respondent filed a claim for refund/credit of input VAT for the period July 1, 2002 to September 30, 2002 in the total amount
of P3,891,123.82 with the petitioner Commissioner of Internal Revenue (CIR), through the Department of Finance (DOF) One-Stop Shop Inter-Agency
Tax Credit and Duty Drawback Center.6
Proceedings before the Second Division of the CTA
On even date, respondent filed a Petition for Review 7 with the CTA for the refund/credit of the same input VAT. The case was docketed as CTA Case
No. 7065 and was raffled to the Second Division of the CTA.
In the Petition for Review, respondent alleged that for the period July 1, 2002 to September 30, 2002, it generated and recorded zero-rated sales in the
amount of P131,791,399.00,8 which was paid pursuant to Section 106(A) (2) (a) (1), (2) and (3) of the National Internal Revenue Code of 1997
(NIRC);9 that for the said period, it incurred and paid input VAT amounting to P3,912,088.14 from purchases and importation attributable to its zerorated sales;10and that in its application for refund/credit filed with the DOF One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center, it only
claimed the amount of P3,891,123.82.11
In response, petitioner filed his Answer 12 raising the following special and affirmative defenses, to wit:
4. Petitioners alleged claim for refund is subject to administrative investigation by the Bureau;
5. Petitioner must prove that it paid VAT input taxes for the period in question;
6. Petitioner must prove that its sales are export sales contemplated under Sections 106(A) (2) (a), and 108(B) (1) of the Tax Code of 1997;
7. Petitioner must prove that the claim was filed within the two (2) year period prescribed in Section 229 of the Tax Code;
8. In an action for refund, the burden of proof is on the taxpayer to establish its right to refund, and failure to sustain the burden is fatal to
the claim for refund; and
9. Claims for refund are construed strictly against the claimant for the same partake of the nature of exemption from taxation. 13
Trial ensued, after which, on January 4, 2008, the Second Division of the CTA rendered a Decision partially granting respondents claim for
refund/credit. Pertinent portions of the Decision read:
For a VAT registered entity whose sales are zero-rated, to validly claim a refund, Section 112 (A) of the NIRC of 1997, as amended, provides:
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero-rated Sales. Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2)
years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax
due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: x x x
Pursuant to the above provision, petitioner must comply with the following requisites: (1) the taxpayer is engaged in sales which are zero-rated or
effectively zero-rated; (2) the taxpayer is VAT-registered; (3) the claim must be filed within two years after the close of the taxable quarter when such
sales were made; and (4) the creditable input tax due or paid must be attributable to such sales, except the transitional input tax, to the extent that such
input tax has not been applied against the output tax.
The Court finds that the first three requirements have been complied [with] by petitioner.
With regard to the first requisite, the evidence presented by petitioner, such as the Sales Invoices (Exhibits "II" to "II-262," "JJ" to "JJ-431," "KK" to "KK394" and "LL") shows that it is engaged in sales which are zero-rated.
The second requisite has likewise been complied with. The Certificate of Registration with OCN 1RC0000148499 (Exhibit "C") with the BIR proves that
petitioner is a registered VAT taxpayer.
In compliance with the third requisite, petitioner filed its administrative claim for refund on September 30, 2004 (Exhibit "N") and the present Petition for
Review on September 30, 2004, both within the two (2) year prescriptive period from the close of the taxable quarter when the sales were made, which
is from September 30, 2002.
As regards, the fourth requirement, the Court finds that there are some documents and claims of petitioner that are baseless and have not been
satisfactorily substantiated.
xxxx
In sum, petitioner has sufficiently proved that it is entitled to a refund or issuance of a tax credit certificate representing unutilized excess input VAT
payments for the period July 1, 2002 to September 30, 2002, which are attributable to its zero-rated sales for the same period, but in the reduced
amount of P3,239,119.25, computed as follows:
Amount of Claimed Input VAT
Less:
Exceptions as found by the ICPA
P 3,891,123.82
Net Creditable Input VAT

Less:
Output VAT Due
Excess Creditable Input VAT
P 3,850,103.45
41,020.37
610,984.20
P 3,239,119.25
WHEREFORE, premises considered, the present Petition for Review is PARTIALLY GRANTED. Accordingly, respondent is hereby ORDERED TO
REFUND OR ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner [in] the reduced amount of THREE MILLION TWO HUNDRED THIRTY NINE
THOUSAND ONE HUNDRED NINETEEN AND 25/100 PESOS (P3,239,119.25), representing the unutilized input VAT incurred for the months of July
to September 2002.
SO ORDERED.14
Dissatisfied with the above-quoted Decision, petitioner filed a Motion for Partial Reconsideration, 15 insisting that the administrative and the judicial
claims were filed beyond the two-year period to claim a tax refund/credit provided for under Sections 112(A) and 229 of the NIRC. He reasoned that
since the year 2004 was a leap year, the filing of the claim for tax refund/credit on September 30, 2004 was beyond the two-year period, which expired
on September 29, 2004.16 He cited as basis Article 13 of the Civil Code,17 which provides that when the law speaks of a year, it is equivalent to 365
days. In addition, petitioner argued that the simultaneous filing of the administrative and the judicial claims contravenes Sections 112 and 229 of the
NIRC.18 According to the petitioner, a prior filing of an administrative claim is a "condition precedent" 19 before a judicial claim can be filed. He explained
that the rationale of such requirement rests not only on the doctrine of exhaustion of administrative remedies but also on the fact that the CTA is an
appellate body which exercises the power of judicial review over administrative actions of the BIR. 20
The Second Division of the CTA, however, denied petitioners Motion for Partial Reconsideration for lack of merit. Petitioner thus elevated the matter to
the CTA En Banc via a Petition for Review.21
Ruling of the CTA En Banc
On July 30, 2008, the CTA En Banc affirmed the Second Divisions Decision allowing the partial tax refund/credit in favor of respondent. However, as to
the reckoning point for counting the two-year period, the CTA En Banc ruled:
Petitioner argues that the administrative and judicial claims were filed beyond the period allowed by law and hence, the honorable Court has no
jurisdiction over the same. In addition, petitioner further contends that respondent's filing of the administrative and judicial [claims] effectively eliminates
the authority of the honorable Court to exercise jurisdiction over the judicial claim.
We are not persuaded.
Section 114 of the 1997 NIRC, and We quote, to wit:
(A) In General. Every person liable to pay the value-added tax imposed under this Title shall file a quarterly return of the amount of his gross sales or
receipts within twenty-five (25) days following the close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered
persons shall pay the value-added tax on a monthly basis.
[x x x x ]
Based on the above-stated provision, a taxpayer has twenty five (25) days from the close of each taxable quarter within which to file a quarterly return
of the amount of his gross sales or receipts. In the case at bar, the taxable quarter involved was for the period of July 1, 2002 to September 30, 2002.
Applying Section 114 of the 1997 NIRC, respondent has until October 25, 2002 within which to file its quarterly return for its gross sales or receipts
[with] which it complied when it filed its VAT Quarterly Return on October 20, 2002.
In relation to this, the reckoning of the two-year period provided under Section 229 of the 1997 NIRC should start from the payment of tax subject claim
for refund. As stated above, respondent filed its VAT Return for the taxable third quarter of 2002 on October 20, 2002. Thus, respondent's
administrative and judicial claims for refund filed on September 30, 2004 were filed on time because AICHI has until October 20, 2004 within which to
file its claim for refund.
In addition, We do not agree with the petitioner's contention that the 1997 NIRC requires the previous filing of an administrative claim for refund prior to
the judicial claim. This should not be the case as the law does not prohibit the simultaneous filing of the administrative and judicial claims for refund.
What is controlling is that both claims for refund must be filed within the two-year prescriptive period.
In sum, the Court En Banc finds no cogent justification to disturb the findings and conclusion spelled out in the assailed January 4, 2008 Decision and
March 13, 2008 Resolution of the CTA Second Division. What the instant petition seeks is for the Court En Banc to view and appreciate the evidence in
their own perspective of things, which unfortunately had already been considered and passed upon.
WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and DISMISSED for lack of merit. Accordingly, the January 4, 2008
Decision and March 13, 2008 Resolution of the CTA Second Division in CTA Case No. 7065 entitled, "AICHI Forging Company of Asia, Inc. petitioner
vs. Commissioner of Internal Revenue, respondent" are hereby AFFIRMED in toto.
SO ORDERED.22
Petitioner sought reconsideration but the CTA En Banc denied23 his Motion for Reconsideration.
Issue
Hence, the present recourse where petitioner interposes the issue of whether respondents judicial and administrative claims for tax refund/credit were
filed within the two-year prescriptive period provided in Sections 112(A) and 229 of
the NIRC.24
Petitioners Arguments
Petitioner maintains that respondents administrative and judicial claims for tax refund/credit were filed in violation of Sections 112(A) and 229 of the
NIRC.25 He posits that pursuant to Article 13 of the Civil Code,26 since the year 2004 was a leap year, the filing of the claim for tax refund/credit on
September 30, 2004 was beyond the two-year period, which expired on September 29, 2004. 27
Petitioner further argues that the CTA En Banc erred in applying Section 114(A) of the NIRC in determining the start of the two-year period as the said
provision pertains to the compliance requirements in the payment of VAT.28 He asserts that it is Section 112, paragraph (A), of the same Code that
should apply because it specifically provides for the period within which a claim for tax refund/ credit should be made. 29
Petitioner likewise puts in issue the fact that the administrative claim with the BIR and the judicial claim with the CTA were filed on the same day. 30 He
opines that the simultaneous filing of the administrative and the judicial claims contravenes Section 229 of the NIRC, which requires the prior filing of
an administrative claim.31 He insists that such procedural requirement is based on the doctrine of exhaustion of administrative remedies and the fact
that the CTA is an appellate body exercising judicial review over administrative actions of the CIR. 32
Respondents Arguments
For its part, respondent claims that it is entitled to a refund/credit of its unutilized input VAT for the period July 1, 2002 to September 30, 2002 as a
matter of right because it has substantially complied with all the requirements provided by law. 33 Respondent likewise defends the CTA En Banc in
applying Section 114(A) of the NIRC in computing the prescriptive period for the claim for tax refund/credit. Respondent believes that Section 112(A) of
the NIRC must be read together with Section 114(A) of the same Code. 34
As to the alleged simultaneous filing of its administrative and judicial claims, respondent contends that it first filed an administrative claim with the OneStop Shop Inter-Agency Tax Credit and Duty Drawback Center of the DOF before it filed a judicial claim with the CTA. 35 To prove this, respondent
points out that its Claimant Information Sheet No. 49702 36 and BIR Form No. 1914 for the third quarter of 2002, 37 which were filed with the DOF, were
attached as Annexes "M" and "N," respectively, to the Petition for Review filed with the CTA. 38 Respondent further contends that the non-observance of
the 120-day period given to the CIR to act on the claim for tax refund/credit in Section 112(D) is not fatal because what is important is that both claims
are filed within the two-year prescriptive period.39 In support thereof, respondent cites Commissioner of Internal Revenue v. Victorias Milling Co.,
Inc.40 where it was ruled that "[i]f, however, the [CIR] takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding
must be started in the [CTA] before the end of the two-year period without awaiting the decision of the [CIR]." 41 Lastly, respondent argues that even if
the period had already lapsed, it may be suspended for reasons of equity considering that it is not a jurisdictional requirement. 42
Our Ruling
The petition has merit.
Unutilized input VAT must be claimed within two years after the close of the taxable quarter when the sales were made
In computing the two-year prescriptive period for claiming a refund/credit of unutilized input VAT, the Second Division of the CTA applied Section 112(A)
of the NIRC, which states:
(A) Zero-rated or Effectively Zero-rated Sales Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2)
due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided,
however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign
currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or
properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it
shall be allocated proportionately on the basis of the volume of sales. (Emphasis supplied.)
The CTA En Banc, on the other hand, took into consideration Sections 114 and 229 of the NIRC, which read:
SEC. 114. Return and Payment of Value-Added Tax.
(A) In General. Every person liable to pay the value-added tax imposed under this Title shall file a quarterly return of the amount of his gross sales or
receipts within twenty-five (25) days following the close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered
persons shall pay the value-added tax on a monthly basis.
Any person, whose registration has been cancelled in accordance with Section 236, shall file a return and pay the tax due thereon within twenty-five
(25) days from the date of cancellation of registration: Provided, That only one consolidated return shall be filed by the taxpayer for his principal place
of business or head office and all branches.
xxxx
SEC. 229. Recovery of tax erroneously or illegally collected.
No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously
or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or
in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of
any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without written claim therefor, refund or
credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.
(Emphasis supplied.)
Hence, the CTA En Banc ruled that the reckoning of the two-year period for filing a claim for refund/credit of unutilized input VAT should start from the
date of payment of tax and not from the close of the taxable quarter when the sales were made. 43
The pivotal question of when to reckon the running of the two-year prescriptive period, however, has already been resolved in Commissioner of Internal
Revenue v. Mirant Pagbilao Corporation, 44 where we ruled that Section 112(A) of the NIRC is the applicable provision in determining the start of the
two-year period for claiming a refund/credit of unutilized input VAT, and that Sections 204(C) and 229 of the NIRC are inapplicable as "both provisions
apply only to instances of erroneous payment or illegal collection of internal revenue taxes." 45 We explained that:
The above proviso [Section 112 (A) of the NIRC] clearly provides in no uncertain terms that unutilized input VAT payments not otherwise used for
any internal revenue tax due the taxpayer must be claimed within two years reckoned from the close of the taxable quarter when the relevant
sales were made pertaining to the input VAT regardless of whether said tax was paid or not. As the CA aptly puts it, albeit it erroneously applied
the aforequoted Sec. 112 (A), "[P]rescriptive period commences from the close of the taxable quarter when the sales were made and not from the time
the input VAT was paid nor from the time the official receipt was issued." Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the
pertinent transaction, said taxpayer only has a year to file a claim for refund or tax credit of the unutilized creditable input VAT. The reckoning frame
would always be the end of the quarter when the pertinent sales or transaction was made, regardless when the input VAT was paid. Be that as it may,
and given that the last creditable input VAT due for the period covering the progress billing of September 6, 1996 is the third quarter of 1996 ending on
September 30, 1996, any claim for unutilized creditable input VAT refund or tax credit for said quarter prescribed two years after September 30, 1996
or, to be precise, on September 30, 1998. Consequently, MPCs claim for refund or tax credit filed on December 10, 1999 had already prescribed.
Reckoning for prescriptive period under
Secs. 204(C) and 229 of the NIRC inapplicable
To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of the NIRC which, for the purpose of refund, prescribes a different
starting point for the two-year prescriptive limit for the filing of a claim therefor. Secs. 204(C) and 229 respectively provide:
Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. The Commissioner may
xxxx
(c) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when
they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use
and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the
Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an
overpayment shall be considered as a written claim for credit or refund.
xxxx
Sec. 229. Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall be maintained in any court for the recovery of any national
internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected
without authority, of any sum alleged to have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have
been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of
any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or
credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.
Notably, the above provisions also set a two-year prescriptive period, reckoned from date of payment of the tax or penalty, for the filing of a claim of
refund or tax credit. Notably too, both provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes.
MPCs creditable input VAT not erroneously paid
For perspective, under Sec. 105 of the NIRC, creditable input VAT is an indirect tax which can be shifted or passed on to the buyer, transferee, or
lessee of the goods, properties, or services of the taxpayer. The fact that the subsequent sale or transaction involves a wholly-tax exempt client,
resulting in a zero-rated or effectively zero-rated transaction, does not, standing alone, deprive the taxpayer of its right to a refund for any unutilized
creditable input VAT, albeit the erroneous, illegal, or wrongful payment angle does not enter the equation.
xxxx
Considering the foregoing discussion, it is clear that Sec. 112 (A) of the NIRC, providing a two-year prescriptive period reckoned from the close
of the taxable quarter when the relevant sales or transactions were made pertaining to the creditable input VAT, applies to the instant case,
and not to the other actions which refer to erroneous payment of taxes. 46 (Emphasis supplied.)
In view of the foregoing, we find that the CTA En Banc erroneously applied Sections 114(A) and 229 of the NIRC in computing the two-year prescriptive
period for claiming refund/credit of unutilized input VAT. To be clear, Section 112 of the NIRC is the pertinent provision for the refund/credit of input VAT.
Thus, the two-year period should be reckoned from the close of the taxable quarter when the sales were made.
The administrative claim was timely filed
Bearing this in mind, we shall now proceed to determine whether the administrative claim was timely filed.
Relying on Article 13 of the Civil Code, 47 which provides that a year is equivalent to 365 days, and taking into account the fact that the year 2004 was a
leap year, petitioner submits that the two-year period to file a claim for tax refund/ credit for the period July 1, 2002 to September 30, 2002 expired on
September 29, 2004.48
We do not agree.
In Commissioner of Internal Revenue v. Primetown Property Group, Inc., 49 we said that as between the Civil Code, which provides that a year is
equivalent to 365 days, and the Administrative Code of 1987, which states that a year is composed of 12 calendar months, it is the latter that must
prevail following the legal maxim, Lex posteriori derogat priori. 50 Thus:
Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987 deal with the same subject matter the
computation of legal periods. Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a leap year. Under the
Administrative Code of 1987, however, a year is composed of 12 calendar months. Needless to state, under the Administrative Code of 1987, the
number of days is irrelevant.
There obviously exists a manifest incompatibility in the manner of
computing legal periods under the Civil Code and the Administrative Code of 1987. For this reason, we hold that Section 31, Chapter VIII, Book I of the
Administrative Code of 1987, being the more recent law, governs the computation of legal periods. Lex posteriori derogat priori.
Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this case, the two-year prescriptive period (reckoned from the time
respondent filed its final adjusted return on April 14, 1998) consisted of 24 calendar months, computed as follows:
Year 1 1st calendar month April 15, 1998 to May 14, 1998
2nd calendar month May 15, 1998 to June 14, 1998
3rd calendar month June 15, 1998 to July 14, 1998
4th calendar month July 15, 1998 to August 14, 1998
5th calendar month August 15, 1998 to September 14, 1998
6th calendar month September 15, 1998 to October 14, 1998
7th calendar month October 15, 1998 to November 14, 1998
8th calendar month November 15, 1998 to December 14, 1998
9th calendar month December 15, 1998 to January 14, 1999
10th calendar month January 15, 1999 to February 14, 1999
11th calendar month February 15, 1999 to March 14, 1999
12th calendar month March 15, 1999 to April 14, 1999
Year 2 13th calendar month April 15, 1999 to May 14, 1999
14th calendar month May 15, 1999 to June 14, 1999
15th calendar month June 15, 1999 to July 14, 1999
16th calendar month July 15, 1999 to August 14, 1999
17th calendar month August 15, 1999 to September 14, 1999
18th calendar month September 15, 1999 to October 14, 1999
19th calendar month October 15, 1999 to November 14, 1999
20th calendar month November 15, 1999 to December 14, 1999
21st calendar month December 15, 1999 to January 14, 2000
22nd calendar month January 15, 2000 to February 14, 2000
23rd calendar month February 15, 2000 to March 14, 2000
24th calendar month March 15, 2000 to April 14, 2000
We therefore hold that respondent's petition (filed on April 14, 2000) was filed on the last day of the 24th calendar month from the day respondent filed
its final adjusted return. Hence, it was filed within the reglementary period. 51
Applying this to the present case, the two-year period to file a claim for tax refund/credit for the period July 1, 2002 to September 30, 2002 expired on
September 30, 2004. Hence, respondents administrative claim was timely filed.
The filing of the judicial claim was premature
However, notwithstanding the timely filing of the administrative claim, we
are constrained to deny respondents claim for tax refund/credit for having been filed in violation of Section 112(D) of the NIRC, which provides that:
xxxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper cases, the Commissioner shall grant a refund or issue the tax
credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the
period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of
the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied.)
Section 112(D) of the NIRC clearly provides that the CIR has "120 days, from the date of the submission of the complete documents in support of the
application [for tax refund/credit]," within which to grant or deny the claim. In case of full or partial denial by the CIR, the taxpayers recourse is to file an
appeal before the CTA within 30 days from receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to act on the application
for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30 days.
In this case, the administrative and the judicial claims were simultaneously filed on September 30, 2004. Obviously, respondent did not wait for the
decision of the CIR or the lapse of the 120-day period. For this reason, we find the filing of the judicial claim with the CTA premature.
Respondents assertion that the non-observance of the 120-day period is not fatal to the filing of a judicial claim as long as both the administrative and
the judicial claims are filed within the two-year prescriptive period 52 has no legal basis.
There is nothing in Section 112 of the NIRC to support respondents view. Subsection (A) of the said provision states that "any VAT-registered person,
whose sales are zero-rated or effectively zero-rated may, within two years after the close of the taxable quarter when the sales were made, apply for
the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales." The phrase "within two (2) years x x x
apply for the issuance of a tax credit certificate or refund" refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA.
This is apparent in the first paragraph of subsection (D) of the same provision, which states that the CIR has "120 days from the submission of
complete documents in support of the application filed in accordance with Subsections (A) and (B)" within which to decide on the claim.
In fact, applying the two-year period to judicial claims would render nugatory Section 112(D) of the NIRC, which already provides for a specific period
within which a taxpayer should appeal the decision or inaction of the CIR. The second paragraph of Section 112(D) of the NIRC envisions two
scenarios: (1) when a decision is issued by the CIR before the lapse of the 120-day period; and (2) when no decision is made after the 120-day period.
In both instances, the taxpayer has 30 days within which to file an appeal with the CTA. As we see it then, the 120-day period is crucial in filing an
appeal with the CTA.
With regard to Commissioner of Internal Revenue v. Victorias Milling, Co., Inc.53 relied upon by respondent, we find the same inapplicable as the tax
provision involved in that case is Section 306, now Section 229 of the NIRC. And as already discussed, Section 229 does not apply to refunds/credits
of input VAT, such as the instant case.
In fine, the premature filing of respondents claim for refund/credit of input VAT before the CTA warrants a dismissal inasmuch as no jurisdiction was
acquired by the CTA.
WHEREFORE, the Petition is hereby GRANTED. The assailed July 30, 2008 Decision and the October 6, 2008 Resolution of the Court of Tax Appeals
are hereby REVERSED and SET ASIDE. The Court of Tax Appeals Second Division is DIRECTED to dismiss CTA Case No. 7065 for having been
prematurely filed.
SO ORDERED.

SUPREME COURT
Manila
EN BANC
G.R. No. 158885
October 2, 2009
FORT BONIFACIO DEVELOPMENT CORPORATION Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, REGIONAL DIRECTOR, REVENUE REGION NO. 8, and CHIEF, ASSESSMENT DIVISION, REVENUE
REGION NO. 8, BIR, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 170680
FORT BONIFACIO DEVELOPMENT CORPORATION Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, REVENUE DISTRICT OFFICER, REVENUE DISTRICT NO. 44, TAGUIG and PATEROS, BUREAU OF
INTERNAL REVENUE. Respondents.
RESOLUTION
LEONARDO-DE CASTRO, J.:
Before us is respondents Motion for Reconsideration of our Decision dated April 2, 2009 which granted the consolidated petitions of petitioner Fort
Bonifacio Development Corporation, the dispositive portion of which reads:
WHEREFORE, the petitions are GRANTED. The assailed decisions of the Court of Tax Appeals and the Court of Appeals are REVERSED and SET
ASIDE. Respondents are hereby (1) restrained from collecting from petitioner the amount of P28,413,783.00 representing the transitional input tax
credit due it for the fourth quarter of 1996; and (2) directed to refund to petitioner the amount of P347,741,695.74 paid as output VAT for the third
quarter of 1997 in light of the persisting transitional input tax credit available to petitioner for the said quarter, or to issue a tax credit corresponding to
such amount. No pronouncement as to costs.
The Motion for Reconsideration raises the following arguments:
I
SECTION 100 OF THE OLD NATIONAL INTERNAL REVENUE CODE (OLD NIRC), AS AMENDED BY REPUBLIC ACT (R.A.) NO. 7716, COULD
NOT HAVE SUPPLIED THE DISTINCTION BETWEEN THE TREATMENT OF REAL PROPERTIES OR REAL ESTATE DEALERS ON THE ONE
HAND, AND THE TREATMENT OF TRANSACTIONS INVOLVING OTHER COMMERCIAL GOODS ON THE OTHER HAND, AS SAID DISTINCTION
IS FOUND IN SECTION 105 AND, SUBSEQUENTLY, REVENUE REGULATIONS NO. 7-95 WHICH DEFINES THE INPUT TAX CREDITABLE TO A
REAL ESTATE DEALER WHO BECOMES SUBJECT TO VAT FOR THE FIRST TIME.
II
SECTION 4.105.1 AND PARAGRAPH (A) (III) OF THE TRANSITORY PROVISIONS OF REVENUE REGULATIONS NO. 7-95 VALIDLY LIMIT THE 8%
TRANSITIONAL INPUT TAX TO THE IMPROVEMENTS ON REAL PROPERTIES.
III
REVENUE REGULATIONS NO. 6-97 DID NOT REPEAL REVENUE REGULATIONS NO. 7-95.
The instant motion for reconsideration lacks merit.
The first VAT law, found in Executive Order (EO) No. 273 [1987], took effect on January 1, 1988. It amended several provisions of the National Internal
Revenue Code of 1986 (Old NIRC). EO 273 likewise accommodated the potential burdens of the shift to the VAT system by allowing newly VATregistered persons to avail of a transitional input tax credit as provided for in Section 105 of the Old NIRC. Section 105 as amended by EO 273 reads:
Sec. 105. Transitional Input Tax Credits. A person who becomes liable to value-added tax or any person who elects to be a VAT-registered person
shall, subject to the filing of an inventory as prescribed by regulations, be allowed input tax on his beginning inventory of goods, materials and supplies
equivalent to 8% of the value of such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher, which
shall be creditable against the output tax.
RA 7716 took effect on January 1, 1996. It amended Section 100 of the Old NIRC by imposing for the first time value-added-tax on sale of real
properties. The amendment reads:
Sec. 100. Value-added-tax on sale of goods or properties. (a) Rate and base of tax. There shall be levied, assessed and collected on every sale,
barter or exchange of goods or properties, a value-added tax equivalent to 10% of the gross selling price or gross value in money of the goods, or
properties sold, bartered or exchanged, such tax to be paid by the seller or transferor.1avvph!1
(1) The term 'goods or properties' shall mean all tangible and intangible objects which are capable of pecuniary estimation and shall include:
(A) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business; xxx
The provisions of Section 105 of the NIRC, on the transitional input tax credit, remain intact despite the enactment of RA 7716. Section 105 however
was amended with the passage of the new National Internal Revenue Code of 1997 (New NIRC), also officially known as Republic Act (RA) 8424. The
provisions on the transitional input tax credit are now embodied in Section 111(A) of the New NIRC, which reads:
Section 111. Transitional/Presumptive Input Tax Credits.
(A) Transitional Input Tax Credits. - A person who becomes liable to value-added tax or any person who elects to be a VAT-registered person shall,
subject to the filing of an inventory according to rules and regulations prescribed by the Secretary of finance, upon recommendation of the
Commissioner, be allowed input tax on his beginning inventory of goods, materials and supplies equivalent for 8% of the value of such inventory or the
actual value-added tax paid on such goods, materials and supplies, whichever is higher, which shall be creditable against the output tax. [Emphasis
ours.]
The Commissioner of Internal Revenue (CIR) disallowed Fort Bonifacio Development Corporations (FBDC) presumptive input tax credit arising from
the land inventory on the basis of Revenue Regulation 7-95 (RR 7-95) and Revenue Memorandum Circular 3-96 (RMC 3-96). Specifically, Section
4.105-1 of RR 7-95 provides:
Sec. 4.105-1. Transitional input tax on beginning inventories. Taxpayers who became VAT-registered persons upon effectivity of RA No. 7716 who
have exceeded the minimum turnover of P500,000.00 or who voluntarily register even if their turnover does not exceed P500,000.00 shall be entitled to
a presumptive input tax on the inventory on hand as of December 31, 1995 on the following: (a) goods purchased for resale in their present condition;
(b) materials purchased for further processing, but which have not yet undergone processing; (c) goods which have been manufactured by the
taxpayer; (d) goods in process and supplies, all of which are for sale or for use in the course of the taxpayers trade or business as a VAT-registered
person.
However, in the case of real estate dealers, the basis of the presumptive input tax shall be the improvements, such as buildings, roads, drainage
systems, and other similar structures, constructed on or after the effectivity of EO 273 (January 1, 1988).
The transitional input tax shall be 8% of the value of the inventory or actual VAT paid, whichever is higher, which amount may be allowed as tax credit
against the output tax of the VAT-registered person.
In the April 2, 2009 Decision sought to be reconsidered, the Court struck down Section 4.105-1 of RR 7-95 for being in conflict with the law. It held that
the CIR had no power to limit the meaning and coverage of the term "goods" in Section 105 of the Old NIRC sans statutory authority or basis and
justification to make such limitation. This it did when it restricted the application of Section 105 in the case of real estate dealers only to improvements
on the real property belonging to their beginning inventory.
A law must not be read in truncated parts; its provisions must be read in relation to the whole law. It is the cardinal rule in statutory construction that a
statutes clauses and phrases must not be taken as detached and isolated expressions, but the whole and every part thereof must be considered in
fixing the meaning of any of its parts in order to produce a harmonious whole. Every part of the statute must be interpreted with reference to the
context, i.e., that every part of the statute must be considered together with other parts of the statute and kept subservient to the general intent of the
whole enactment.1
In construing a statute, courts have to take the thought conveyed by the statute as a whole; construe the constituent parts together; ascertain the
legislative intent from the whole act; consider each and every provision thereof in the light of the general purpose of the statute; and endeavor to make
every part effective, harmonious and sensible. 2
The statutory definition of the term "goods or properties" leaves no room for doubt. It states:
Sec. 100. Value-added tax on sale of goods or properties. (a) Rate and base of tax. xxx.
(1) The term goods or properties shall mean all tangible and intangible objects which are capable of pecuniary estimation and shall include:
(A) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business; xxx.
The amendatory provision of Section 105 of the NIRC, as introduced by RA 7716, states:
Sec. 105. Transitional Input tax Credits. A person who becomes liable to value-added tax or any person who elects to be a VAT-registered person
shall be creditable against the output tax.
The term "goods or properties" by the unambiguous terms of Section 100 includes "real properties held primarily for sale to costumers or held for lease
in the ordinary course of business." Having been defined in Section 100 of the NIRC, the term "goods" as used in Section 105 of the same code could
not have a different meaning. This has been explained in the Decision dated April 2, 2009, thus:
Under Section 105, the beginning inventory of "goods" forms part of the valuation of the transitional input tax credit. Goods, as commonly understood in
the business sense, refers to the product which the VAT-registered person offers for sale to the public. With respect to real estate dealers, it is the real
properties themselves which constitute their "goods." Such real properties are the operating assets of the real estate dealer.
Section 4.100-1 of RR No. 7-95 itself includes in its enumeration of "goods or properties" such "real properties held primarily for sale to customers or
held for lease in the ordinary course of trade or business." Said definition was taken from the very statutory language of Section 100 of the Old NIRC.
By limiting the definition of goods to "improvements" in Section 4.105-1, the BIR not only contravened the definition of "goods" as provided in the Old
NIRC, but also the definition which the same revenue regulation itself has provided.
Section 4.105-1 of RR 7-95 restricted the definition of "goods", viz:
systems, and other similar structures, constructed on or after the effectivity of EO 273 (January 1, 1988).
As mandated by Article 7 of the Civil Code, 3 an administrative rule or regulation cannot contravene the law on which it is based. RR 7-95 is inconsistent
with Section 105 insofar as the definition of the term "goods" is concerned. This is a legislative act beyond the authority of the CIR and the Secretary of
Finance. The rules and regulations that administrative agencies promulgate, which are the product of a delegated legislative power to create new and
additional legal provisions that have the effect of law, should be within the scope of the statutory authority granted by the legislature to the objects and
purposes of the law, and should not be in contradiction to, but in conformity with, the standards prescribed by law.
To be valid, an administrative rule or regulation must conform, not contradict, the provisions of the enabling law. An implementing rule or regulation
cannot modify, expand, or subtract from the law it is intended to implement. Any rule that is not consistent with the statute itself is null and void. 4
While administrative agencies, such as the Bureau of Internal Revenue, may issue regulations to implement statutes, they are without authority to limit
the scope of the statute to less than what it provides, or extend or expand the statute beyond its terms, or in any way modify explicit provisions of the
law. Indeed, a quasi-judicial body or an administrative agency for that matter cannot amend an act of Congress. Hence, in case of a discrepancy
between the basic law and an interpretative or administrative ruling, the basic law prevails. 5
To recapitulate, RR 7-95, insofar as it restricts the definition of "goods" as basis of transitional input tax credit under Section 105 is a nullity.
On January 1, 1997, RR 6-97 was issued by the Commissioner of Internal Revenue. RR 6-97 was basically a reiteration of the same Section 4.105-1 of
RR 7-95, except that the RR 6-97 deleted the following paragraph:
systems, and other similar structures, constructed on or after the effectivity of E.O. 273 (January 1, 1988).
It is clear, therefore, that under RR 6-97, the allowable transitional input tax credit is not limited to improvements on real properties. The particular
provision of RR 7-95 has effectively been repealed by RR 6-97 which is now in consonance with Section 100 of the NIRC, insofar as the definition of
real properties as goods is concerned. The failure to add a specific repealing clause would not necessarily indicate that there was no intent to repeal
RR 7-95. The fact that the aforequoted paragraph was deleted created an irreconcilable inconsistency and repugnancy between the provisions of RR
6-97 and RR 7-95.
We now address the points raised in the dissenting opinion of the Honorable Justice Antonio T. Carpio.
At the outset, it must be stressed that FBDC sought the refund of the total amount of P347,741,695.74 which it had itself paid in cash to the BIR. It is
argued that the transitional input tax credit applies only when taxes were previously paid on the properties in the beginning inventory and that there
should be a law imposing the tax presumed to have been paid. The thesis is anchored on the argument that without any VAT or other input business
tax imposed by law on the real properties at the time of the sale, the 8% transitional input tax cannot be presumed to have been paid.
The language of Section 105 is explicit. It precludes reading into the law that the transitional input tax credit is limited to the amount of VAT previously
paid. When the aforesaid section speaks of "eight percent (8%) of the value of such inventory" followed by the clause "or the actual value-added tax
paid on such goods, materials and supplies," the implication is clear that under the first clause, "eight percent (8%) of the value of such inventory," the
law does not contemplate the payment of any prior tax on such inventory. This is distinguished from the second clause, "the actual value-added tax
paid on the goods, materials and supplies" where actual payment of VAT on the goods, materials and supplies is assumed. Had the intention of the law
been to limit the amount to the actual VAT paid, there would have been no need to explicitly allow a claim based on 8% of the value of such inventory.
The contention that the 8% transitional input tax credit in Section 105 presumes that a previous tax was paid, whether or not it was actually paid,
requires a transaction where a tax has been imposed by law, is utterly without basis in law. The rationale behind the provisions of Section 105 was
aptly elucidated in the Decision sought to be reconsidered, thus:
It is apparent that the transitional input tax credit operates to benefit newly VAT-registered persons, whether or not they previously paid taxes in the
acquisition of their beginning inventory of goods, materials and supplies. During that period of transition from non-VAT to VAT status, the transitional
input tax credit serves to alleviate the impact of the VAT on the taxpayer. At the very beginning, the VAT-registered taxpayer is obliged to remit a
significant portion of the income it derived from its sales as output VAT. The transitional input tax credit mitigates this initial diminution of the taxpayers
income by affording the opportunity to offset the losses incurred through the remittance of the output VAT at a stage when the person is yet unable to
credit input VAT payments.
As pointed out in Our Decision of April 2, 2009, to give Section 105 a restrictive construction that transitional input tax credit applies only when taxes
were previously paid on the properties in the beginning inventory and there is a law imposing the tax which is presumed to have been paid, is to
impose conditions or requisites to the application of the transitional tax input credit which are not found in the law. The courts must not read into the law
what is not there. To do so will violate the principle of separation of powers which prohibits this Court from engaging in judicial legislation. 6
WHEREFORE, premises considered, the Motion for Reconsideration is DENIED WITH FINALITY for lack of merit.
SO ORDERED.

SUPREME COURT
Manila
EN BANC
G.R. No. 173425
September 4, 2012
FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE and REVENUE DISTRICT OFFICER, REVENUE DISTRICT NO. 44, TAGUIG and PATEROS, BUREAU
OF INTERNAL REVENUE, Respondents.
DECISION
DEL CASTILLO, J.:
Courts cannot limit the application or coverage of a law, nor can it impose conditions not provided therein. To do so constitutes judicial legislation.
This Petition for Review on Certiorari under Rule 45 of the Rules of Court assails the July 7, 2006 Decision 1 of the Court of Appeals (CA) in CA-G.R.
SP No. 61436, the dispositive portion of which reads.
WHEREFORE, the instant petition is hereby DISMISSED. ACCORDINGLY, the Decision dated October 12, 2000 of the Court of Tax Appeals in CTA
Case No. 5735, denying petitioners claim for refund in the amount of Three Hundred Fifty-Nine Million Six Hundred Fifty-Two Thousand Nine Pesos
and Forty-Seven Centavos (P 359,652,009.47), is hereby AFFIRMED.
SO ORDERED.2
Factual Antecedents
Petitioner Fort Bonifacio Development Corporation (FBDC) is a duly registered domestic corporation engaged in the development and sale of real
property.3 The Bases Conversion Development Authority (BCDA), a wholly owned government corporation created under Republic Act (RA) No.
7227,4 owns 45% of petitioners issued and outstanding capital stock; while the Bonifacio Land Corporation, a consortium of private domestic
corporations, owns the remaining 55%.5
On February 8, 1995, by virtue of RA 7227 and Executive Order No. 40, 6 dated December 8, 1992, petitioner purchased from the national government
a portion of the Fort Bonifacio reservation, now known as the Fort Bonifacio Global City (Global City). 7
On January 1, 1996, RA 77168 restructured the Value-Added Tax (VAT) system by amending certain provisions of the old National Internal Revenue
Code (NIRC). RA 7716 extended the coverage of VAT to real properties held primarily for sale to customers or held for lease in the ordinary course of
trade or business.9
On September 19, 1996, petitioner submitted to the Bureau of Internal Revenue (BIR) Revenue District No. 44, Taguig and Pateros, an inventory of all
its real properties, the book value of which aggregated P 71,227,503,200.10Based on this value, petitioner claimed that it is entitled to a transitional
input tax credit of P 5,698,200,256,11pursuant to Section 10512 of the old NIRC.
In October 1996, petitioner started selling Global City lots to interested buyers. 13
For the first quarter of 1997, petitioner generated a total amount of P 3,685,356,539.50 from its sales and lease of lots, on which the output VAT
payable was P 368,535,653.95.14 Petitioner paid the output VAT by making cash payments to the BIR totalling P 359,652,009.47 and crediting its
unutilized input tax credit on purchases of goods and services of P 8,883,644.48.15
Realizing that its transitional input tax credit was not applied in computing its output VAT for the first quarter of 1997, petitioner on November 17, 1998
filed with the BIR a claim for refund of the amount of P 359,652,009.47 erroneously paid as output VAT for the said period. 16
Ruling of the Court of Tax Appeals
On February 24, 1999, due to the inaction of the respondent Commissioner of Internal Revenue (CIR), petitioner elevated the matter to the Court of Tax
Appeals (CTA) via a Petition for Review.17
In opposing the claim for refund, respondents interposed the following special and affirmative defenses:
xxxx
8. Under Revenue Regulations No. 7-95, implementing Section 105 of the Tax Code as amended by E.O. 273, the basis of the presumptive input tax,
in the case of real estate dealers, is the improvements, such as buildings, roads, drainage systems, and other similar structures, constructed on or after
January 1, 1988.
9. Petitioner, by submitting its inventory listing of real properties only on September 19, 1996, failed to comply with the aforesaid revenue regulations
mandating that for purposes of availing the presumptive input tax credits under its Transitory Provisions, "an inventory as of December 31, 1995, of
such goods or properties and improvements showing the quantity, description, and amount should be filed with the RDO no later than January 31,
1996. x x x"18
On October 12, 2000, the CTA denied petitioners claim for refund. According to the CTA, "the benefit of transitional input tax credit comes with the
condition that business taxes should have been paid first." 19 In this case, since petitioner acquired the Global City property under a VAT-free sale
transaction, it cannot avail of the transitional input tax credit. 20 The CTA likewise pointed out that under Revenue Regulations No. (RR) 7-95,
implementing Section 105 of the old NIRC, the 8% transitional input tax credit should be based on the value of the improvements on land such as
buildings, roads, drainage system and other similar structures, constructed on or after January 1, 1998, and not on the book value of the real
property.21 Thus, the CTA disposed of the case in this manner:
WHEREFORE, in view of all the foregoing, the claim for refund representing alleged overpaid value-added tax covering the first quarter of 1997 is
hereby DENIED for lack of merit.
SO ORDERED.22
Ruling of the Court of Appeals

Aggrieved, petitioner filed a Petition for Review23 under Rule 43 of the Rules of Court before the CA.
On July 7, 2006, the CA affirmed the decision of the CTA. The CA agreed that petitioner is not entitled to the 8% transitional input tax credit since it did
not pay any VAT when it purchased the Global City property.24 The CA opined that transitional input tax credit is allowed only when business taxes have
been paid and passed-on as part of the purchase price. 25 In arriving at this conclusion, the CA relied heavily on the historical background of transitional
input tax credit.26 As to the validity of RR 7-95, which limited the 8% transitional input tax to the value of the improvements on the land, the CA said that
it is entitled to great weight as it was issued pursuant to Section 245 27 of the old NIRC.28
Issues
Hence, the instant petition with the principal issue of whether petitioner is entitled to a refund of P 359,652,009.47 erroneously paid as output VAT for
the first quarter of 1997, the resolution of which depends on:
3.05.a. Whether Revenue Regulations No. 6-97 effectively repealed or repudiated Revenue Regulations No. 7-95 insofar as the latter limited the
transitional/presumptive input tax credit which may be claimed under Section 105 of the National Internal Revenue Code to the "improvements" on real
properties.
3.05.b. Whether Revenue Regulations No. 7-95 is a valid implementation of Section 105 of the National Internal Revenue Code.
3.05.c. Whether the issuance of Revenue Regulations No. 7-95 by the Bureau of Internal Revenue, and declaration of validity of said Regulations by
the Court of Tax Appeals and Court of Appeals, were in violation of the fundamental principle of separation of powers.
3.05.d. Whether there is basis and necessity to interpret and construe the provisions of Section 105 of the National Internal Revenue Code.
3.05.e. Whether there must have been previous payment of business tax by petitioner on its land before it may claim the input tax credit granted by
Section 105 of the National Internal Revenue Code.
3.05.f. Whether the Court of Appeals and Court of Tax Appeals merely speculated on the purpose of the transitional/presumptive input tax provided for
in Section 105 of the National Internal Revenue Code.
3.05.g. Whether the economic and social objectives in the acquisition of the subject property by petitioner from the Government should be taken into
consideration.29
Petitioners Arguments
Petitioner claims that it is entitled to recover the amount of P 359,652,009.47 erroneously paid as output VAT for the first quarter of 1997 since its
transitional input tax credit of P 5,698,200,256 is more than sufficient to cover its output VAT liability for the said period. 30
Petitioner assails the pronouncement of the CA that prior payment of taxes is required to avail of the 8% transitional input tax credit. 31 Petitioner
contends that there is nothing in Section 105 of the old NIRC to support such conclusion. 32
Petitioner further argues that RR 7-95, which limited the 8% transitional input tax credit to the value of the improvements on the land, is invalid because
it goes against the express provision of Section 105 of the old NIRC, in relation to Section 100 33 of the same Code, as amended by RA 7716.34
Respondents Arguments
Respondents, on the other hand, maintain that petitioner is not entitled to a transitional input tax credit because no taxes were paid in the acquisition of
the Global City property.35 Respondents assert that prior payment of taxes is inherent in the nature of a transitional input tax. 36 Regarding RR 7-95,
respondents insist that it is valid because it was issued by the Secretary of Finance, who is mandated by law to promulgate all needful rules and
regulations for the implementation of Section 105 of the old NIRC. 37
Our Ruling
The petition is meritorious.
The issues before us are no longer new or novel as these have been resolved in the related case of Fort Bonifacio Development Corporation v.
Commissioner of Internal Revenue.38
Prior payment of taxes is not required
for a taxpayer to avail of the 8%
transitional input tax credit
Section 105 of the old NIRC reads:

SEC. 105. Transitional input tax credits. A person who becomes liable to value-added tax or any person who elects to be a VAT-registered person
shall be creditable against the output tax. (Emphasis supplied.)
Contrary to the view of the CTA and the CA, there is nothing in the above-quoted provision to indicate that prior payment of taxes is necessary for the
availment of the 8% transitional input tax credit. Obviously, all that is required is for the taxpayer to file a beginning inventory with the BIR.
To require prior payment of taxes, as proposed in the Dissent is not only tantamount to judicial legislation but would also render nugatory the provision
in Section 105 of the old NIRC that the transitional input tax credit shall be "8% of the value of [the beginning] inventory or the actual [VAT] paid on such
goods, materials and supplies, whichever is higher" because the actual VAT (now 12%) paid on the goods, materials, and supplies would always be
higher than the 8% (now 2%) of the beginning inventory which, following the view of Justice Carpio, would have to exclude all goods, materials, and
supplies where no taxes were paid. Clearly, limiting the value of the beginning inventory only to goods, materials, and supplies, where prior taxes were
paid, was not the intention of the law. Otherwise, it would have specifically stated that the beginning inventory excludes goods, materials, and supplies
where no taxes were paid. As retired Justice Consuelo Ynares-Santiago has pointed out in her Concurring Opinion in the earlier case of Fort Bonifacio:
If the intent of the law were to limit the input tax to cases where actual VAT was paid, it could have simply said that the tax base shall be the actual
value-added tax paid. Instead, the law as framed contemplates a situation where a transitional input tax credit is claimed even if there was no actual
payment of VAT in the underlying transaction. In such cases, the tax base used shall be the value of the beginning inventory of goods, materials and
supplies.39
Moreover, prior payment of taxes is not required to avail of the transitional input tax credit because it is not a tax refund per se but a tax credit. Tax
credit is not synonymous to tax refund. Tax refund is defined as the money that a taxpayer overpaid and is thus returned by the taxing authority. 40 Tax
credit, on the other hand, is an amount subtracted directly from ones total tax liability. 41 It is any amount given to a taxpayer as a subsidy, a refund, or
an incentive to encourage investment. Thus, unlike a tax refund, prior payment of taxes is not a prerequisite to avail of a tax credit. In fact, in
Commissioner of Internal Revenue v. Central Luzon Drug Corp., 42 we declared that prior payment of taxes is not required in order to avail of a tax
credit.43 Pertinent portions of the Decision read:
While a tax liability is essential to the availment or use of any tax credit, prior tax payments are not. On the contrary, for the existence or grant solely of
such credit, neither a tax liability nor a prior tax payment is needed. The Tax Code is in fact replete with provisions granting or allowing tax credits, even
though no taxes have been previously paid.
For example, in computing the estate tax due, Section 86(E) allows a tax credit -- subject to certain limitations -- for estate taxes paid to a foreign
country. Also found in Section 101(C) is a similar provision for donors taxes -- again when paid to a foreign country -- in computing for the donors tax
due. The tax credits in both instances allude to the prior payment of taxes, even if not made to our government.
Under Section 110, a VAT (Value-Added Tax) - registered person engaging in transactions -- whether or not subject to the VAT -- is also allowed a tax
credit that includes a ratable portion of any input tax not directly attributable to either activity. This input tax may either be the VAT on the purchase or
importation of goods or services that is merely due from -- not necessarily paid by -- such VAT-registered person in the course of trade or business; or
the transitional input tax determined in accordance with Section 111(A). The latter type may in fact be an amount equivalent to only eight percent of the
value of a VAT-registered persons beginning inventory of goods, materials and supplies, when such amount -- as computed -- is higher than the actual
VAT paid on the said items. Clearly from this provision, the tax credit refers to an input tax that is either due only or given a value by mere comparison
with the VAT actually paid -- then later prorated. No tax is actually paid prior to the availment of such credit.
In Section 111(B), a one and a half percent input tax credit that is merely presumptive is allowed. For the purchase of primary agricultural products
used as inputs -- either in the processing of sardines, mackerel and milk, or in the manufacture of refined sugar and cooking oil -- and for the contract
price of public works contracts entered into with the government, again, no prior tax payments are needed for the use of the tax credit.
More important, a VAT-registered person whose sales are zero-rated or effectively zero-rated may, under Section 112(A), apply for the issuance of a
tax credit certificate for the amount of creditable input taxes merely due -- again not necessarily paid to -- the government and attributable to such
sales, to the extent that the input taxes have not been applied against output taxes. Where a taxpayer is engaged in zero-rated or effectively zero-rated
sales and also in taxable or exempt sales, the amount of creditable input taxes due that are not directly and entirely attributable to any one of these
transactions shall be proportionately allocated on the basis of the volume of sales. Indeed, in availing of such tax credit for VAT purposes, this provision
-- as well as the one earlier mentioned -- shows that the prior payment of taxes is not a requisite.
It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of a tax credit allowed, even though no prior tax payments are not
required. Specifically, in this provision, the imposition of a final withholding tax rate on cash and/or property dividends received by a nonresident foreign
corporation from a domestic corporation is subjected to the condition that a foreign tax credit will be given by the domiciliary country in an amount
equivalent to taxes that are merely deemed paid. Although true, this provision actually refers to the tax credit as a condition only for the imposition of a
lower tax rate, not as a deduction from the corresponding tax liability. Besides, it is not our government but the domiciliary country that credits against
the income tax payable to the latter by the foreign corporation, the tax to be foregone or spared.
In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as credits, against the income tax imposable under Title II, the
amount of income taxes merely incurred -- not necessarily paid -- by a domestic corporation during a taxable year in any foreign country. Moreover,
Section 34(C)(5) provides that for such taxes incurred but not paid, a tax credit may be allowed, subject to the condition precedent that the taxpayer
shall simply give a bond with sureties satisfactory to and approved by petitioner, in such sum as may be required; and further conditioned upon
payment by the taxpayer of any tax found due, upon petitioners redetermination of it.
In addition to the above-cited provisions in the Tax Code, there are also tax treaties and special laws that grant or allow tax credits, even though no
prior tax payments have been made.
Under the treaties in which the tax credit method is used as a relief to avoid double taxation, income that is taxed in the state of source is also taxable
in the state of residence, but the tax paid in the former is merely allowed as a credit against the tax levied in the latter. Apparently, payment is made to
the state of source, not the state of residence. No tax, therefore, has been previously paid to the latter.
Under special laws that particularly affect businesses, there can also be tax credit incentives. To illustrate, the incentives provided for in Article 48 of
Presidential Decree No. (PD) 1789, as amended by Batas Pambansa Blg. (BP) 391, include tax credits equivalent to either five percent of the net value
earned, or five or ten percent of the net local content of export. In order to avail of such credits under the said law and still achieve its objectives, no
prior tax payments are necessary.
From all the foregoing instances, it is evident that prior tax payments are not indispensable to the availment of a tax credit. Thus, the CA correctly held
that the availment under RA 7432 did not require prior tax payments by private establishments concerned. However, we do not agree with its finding
that the carry-over of tax credits under the said special law to succeeding taxable periods, and even their application against internal revenue taxes, did
not necessitate the existence of a tax liability.
The examples above show that a tax liability is certainly important in the availment or use, not the existence or grant, of a tax credit. Regarding this
matter, a private establishment reporting a net loss in its financial statements is no different from another that presents a net income. Both are entitled
to the tax credit provided for under RA 7432, since the law itself accords that unconditional benefit. However, for the losing establishment to
immediately apply such credit, where no tax is due, will be an improvident usance. 44
In this case, when petitioner realized that its transitional input tax credit was not applied in computing its output VAT for the 1st quarter of 1997, it filed a
claim for refund to recover the output VAT it erroneously or excessively paid for the 1st quarter of 1997. In filing a claim for tax refund, petitioner is
simply applying its transitional input tax credit against the output VAT it has paid. Hence, it is merely availing of the tax credit incentive given by law to
first time VAT taxpayers. As we have said in the earlier case of Fort Bonifacio, the provision on transitional input tax credit was enacted to benefit first
time VAT taxpayers by mitigating the impact of VAT on the taxpayer.45 Thus, contrary to the view of Justice Carpio, the granting of a transitional input
tax credit in favor of petitioner, which would be paid out of the general fund of the government, would be an appropriation authorized by law, specifically
Section 105 of the old NIRC.
The history of the transitional input tax credit likewise does not support the ruling of the CTA and CA. In our Decision dated April 2, 2009, in the related
case of Fort Bonifacio, we explained that:
If indeed the transitional input tax credit is integrally related to previously paid sales taxes, the purported causal link between those two would have
been nonetheless extinguished long ago. Yet Congress has reenacted the transitional input tax credit several times; that fact simply belies the absence
of any relationship between such tax credit and the long-abolished sales taxes.
Obviously then, the purpose behind the transitional input tax credit is not confined to the transition from sales tax to VAT.
There is hardly any constricted definition of "transitional" that will limit its possible meaning to the shift from the sales tax regime to the VAT regime.
Indeed, it could also allude to the transition one undergoes from not being a VAT-registered person to becoming a VAT-registered person. Such
transition does not take place merely by operation of law, E.O. No. 273 or Rep. Act No. 7716 in particular. It could also occur when one decides to start
a business. Section 105 states that the transitional input tax credits become available either to (1) a person who becomes liable to VAT; or (2) any
person who elects to be VAT-registered. The clear language of the law entitles new trades or businesses to avail of the tax credit once they become
VAT-registered. The transitional input tax credit, whether under the Old NIRC or the New NIRC, may be claimed by a newly-VAT registered person such
as when a business as it commences operations. If we view the matter from the perspective of a starting entrepreneur, greater clarity emerges on the
continued utility of the transitional input tax credit.
Following the theory of the CTA, the new enterprise should be able to claim the transitional input tax credit because it has presumably paid taxes, VAT
in particular, in the purchase of the goods, materials and supplies in its beginning inventory. Consequently, as the CTA held below, if the new enterprise
has not paid VAT in its purchases of such goods, materials and supplies, then it should not be able to claim the tax credit. However, it is not always true
that the acquisition of such goods, materials and supplies entail the payment of taxes on the part of the new business. In fact, this could occur as a
matter of course by virtue of the operation of various provisions of the NIRC, and not only on account of a specially legislated exemption.
Let us cite a few examples drawn from the New NIRC. If the goods or properties are not acquired from a person in the course of trade or business, the
transaction would not be subject to VAT under Section 105. The sale would be subject to capital gains taxes under Section 24 (D), but since capital
gains is a tax on passive income it is the seller, not the buyer, who generally would shoulder the tax.
If the goods or properties are acquired through donation, the acquisition would not be subject to VAT but to donors tax under Section 98 instead. It is
the donor who would be liable to pay the donors tax, and the donation would be exempt if the donors total net gifts during the calendar year does not
exceed P 100,000.00.
If the goods or properties are acquired through testate or intestate succession, the transfer would not be subject to VAT but liable instead for estate tax
under Title III of the New NIRC. If the net estate does not exceed P 200,000.00, no estate tax would be assessed.
The interpretation proffered by the CTA would exclude goods and properties which are acquired through sale not in the ordinary course of trade or
business, donation or through succession, from the beginning inventory on which the transitional input tax credit is based. This prospect all but
highlights the ultimate absurdity of the respondents position. Again, nothing in the Old NIRC (or even the New NIRC) speaks of such a possibility or
qualifies the previous payment of VAT or any other taxes on the goods, materials and supplies as a pre-requisite for inclusion in the beginning
inventory.
It is apparent that the transitional input tax credit operates to benefit newly VAT-registered persons, whether or not they previously paid taxes in the
acquisition of their beginning inventory of goods, materials and supplies. During that period of transition from non-VAT to VAT status, the transitional
input tax credit serves to alleviate the impact of the VAT on the taxpayer. At the very beginning, the VAT-registered taxpayer is obliged to remit a
significant portion of the income it derived from its sales as output VAT. The transitional input tax credit mitigates this initial diminution of the taxpayer's
income by affording the opportunity to offset the losses incurred through the remittance of the output VAT at a stage when the person is yet unable to
credit input VAT payments.
There is another point that weighs against the CTAs interpretation. Under Section 105 of the Old NIRC, the rate of the transitional input tax credit is
"8% of the value of such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher." If indeed the
transitional input tax credit is premised on the previous payment of VAT, then it does not make sense to afford the taxpayer the benefit of such credit
based on "8% of the value of such inventory" should the same prove higher than the actual VAT paid. This intent that the CTA alluded to could have
been implemented with ease had the legislature shared such intent by providing the actual VAT paid as the sole basis for the rate of the transitional
input tax credit.46
In view of the foregoing, we find petitioner entitled to the 8% transitional input tax credit provided in Section 105 of the old NIRC. The fact that it
acquired the Global City property under a tax-free transaction makes no difference as prior payment of taxes is not a pre-requisite.
Section 4.105-1 of RR 7-95 is
inconsistent with Section 105 of the old
NIRC
As regards Section 4.105-147 of RR 7-95 which limited the 8% transitional input tax credit to the value of the improvements on the land, the same
contravenes the provision of Section 105 of the old NIRC, in relation to Section 100 of the same Code, as amended by RA 7716, which defines "goods
or properties," to wit:
SEC. 100. Value-added tax on sale of goods or properties. (a) Rate and base of tax. There shall be levied, assessed and collected on every sale,
barter or exchange of goods or properties, a value-added tax equivalent to 10% of the gross selling price or gross value in money of the goods or
properties sold, bartered or exchanged, such tax to be paid by the seller or transferor.
(1) The term "goods or properties" shall mean all tangible and intangible objects which are capable of pecuniary estimation and shall include:
(A) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business; x x x
In fact, in our Resolution dated October 2, 2009, in the related case of Fort Bonifacio, we ruled that Section 4.105-1 of RR 7-95, insofar as it limits the
transitional input tax credit to the value of the improvement of the real properties, is a nullity. 48 Pertinent portions of the Resolution read:
As mandated by Article 7 of the Civil Code, an administrative rule or regulation cannot contravene the law on which it is based. RR 7-95 is inconsistent
with Section 105 insofar as the definition of the term "goods" is concerned. This is a legislative act beyond the authority of the CIR and the Secretary of
Finance. The rules and regulations that administrative agencies promulgate, which are the product of a delegated legislative power to create new and
additional legal provisions that have the effect of law, should be within the scope of the statutory authority granted by the legislature to the objects and
purposes of the law, and should not be in contradiction to, but in conformity with, the standards prescribed by law.
To be valid, an administrative rule or regulation must conform, not contradict, the provisions of the enabling law.1wphi1 An implementing rule or
regulation cannot modify, expand, or subtract from the law it is intended to implement. Any rule that is not consistent with the statute itself is null and
void.
While administrative agencies, such as the Bureau of Internal Revenue, may issue regulations to implement statutes, they are without authority to limit
the scope of the statute to less than what it provides, or extend or expand the statute beyond its terms, or in any way modify explicit provisions of the
law. Indeed, a quasi-judicial body or an administrative agency for that matter cannot amend an act of Congress. Hence, in case of a discrepancy
between the basic law and an interpretative or administrative ruling, the basic law prevails.
To recapitulate, RR 7-95, insofar as it restricts the definition of "goods" as basis of transitional input tax credit under Section 105 is a nullity. 49
As we see it then, the 8% transitional input tax credit should not be limited to the value of the improvements on the real properties but should include
the value of the real properties as well.
In this case, since petitioner is entitled to a transitional input tax credit of P 5,698,200,256, which is more than sufficient to cover its output VAT liability
for the first quarter of 1997, a refund of the amount of P 359,652,009.47 erroneously paid as output VAT for the said quarter is in order.
WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated July 7, 2006 of the Court of Appeals in CA-G.R. SP No. 61436
is REVERSED and SET ASIDE. Respondent Commissioner of Internal Revenue is ordered to refund to petitioner Fort Bonifacio Development
Corporation the amount of P 359,652,009.47 paid as output VAT for the first quarter of 1997 in light of the transitional input tax credit available to
petitioner for the said quarter, or in the alternative, to issue a tax credit certificate corresponding to such amount.
SO ORDERED.

SUPREME COURT
Manila
EN BANC
G.R. No. 187485
February 12, 2013

vs.
SAN ROQUE POWER CORPORATION, Respondent.
X----------------------------X
G.R. No. 196113
TAGANITO MINING CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
x----------------------------x
G.R. No. 197156
PHILEX MINING CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
CARPIO, J.:
The Cases
G.R. No. 187485 is a petitiOn for review1 assailing the Decision2 promulgated on 25 March 2009 as well as the Resolution 3 promulgated on 24 April
2009 by the Court of Tax Appeals En Banc (CTA EB) in CTA EB No. 408. The CTA EB affirmed the 29 November 2007 Amended Decision 4 as well as
the 11 July 2008 Resolution5 of the Second Division of the Court of Tax Appeals (CTA Second Division) in CTA Case No. 6647. The CTA Second
Division ordered the Commissioner of Internal Revenue (Commissioner) to refund or issue a tax credit for P483,797,599.65 to San Roque Power
Corporation (San Roque) for unutilized input value-added tax (VAT) on purchases of capital goods and services for the taxable year 2001.
G.R. No. 196113 is a petition for review6 assailing the Decision7 promulgated on 8 December 2010 as well as the Resolution 8 promulgated on 14 March
2011 by the CTA EB in CTA EB No. 624. In its Decision, the CTA EB reversed the 8 January 2010 Decision 9 as well as the 7 April 2010 Resolution10of
the CTA Second Division and granted the CIRs petition for review in CTA Case No. 7574. The CTA EB dismissed, for having been prematurely filed,
Taganito Mining Corporations (Taganito) judicial claim for P8,365,664.38 tax refund or credit.
G.R. No. 197156 is a petition for review11 assailing the Decision12promulgated on 3 December 2010 as well as the Resolution 13 promulgated on 17 May
2011 by the CTA EB in CTA EB No. 569. The CTA EB affirmed the 20 July 2009 Decision as well as the 10 November 2009 Resolution of the CTA
Second Division in CTA Case No. 7687. The CTA Second Division denied, due to prescription, Philex Mining Corporations (Philex) judicial claim for
P23,956,732.44 tax refund or credit.
On 3 August 2011, the Second Division of this Court resolved 14 to consolidate G.R. No. 197156 with G.R. No. 196113, which were pending in the same
Division, and with G.R. No. 187485, which was assigned to the Court En Banc. The Second Division also resolved to refer G.R. Nos. 197156 and
196113 to the Court En Banc, where G.R. No. 187485, the lower-numbered case, was assigned.
G.R. No. 187485
CIR v. San Roque Power Corporation
The Facts
The CTA EBs narration of the pertinent facts is as follows:
[CIR] is the duly appointed Commissioner of Internal Revenue, empowered, among others, to act upon and approve claims for refund or tax credit, with
office at the Bureau of Internal Revenue ("BIR") National Office Building, Diliman, Quezon City.
[San Roque] is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines with principal office at Barangay
San Roque, San Manuel, Pangasinan. It was incorporated in October 1997 to design, construct, erect, assemble, own, commission and operate powergenerating plants and related facilities pursuant to and under contract with the Government of the Republic of the Philippines, or any subdivision,
instrumentality or agency thereof, or any governmentowned or controlled corporation, or other entity engaged in the development, supply, or
distribution of energy.
As a seller of services, [San Roque] is duly registered with the BIR with TIN/VAT No. 005-017-501. It is likewise registered with the Board of
Investments ("BOI") on a preferred pioneer status, to engage in the design, construction, erection, assembly, as well as to own, commission, and
operate electric power-generating plants and related activities, for which it was issued Certificate of Registration No. 97-356 on February 11, 1998.
On October 11, 1997, [San Roque] entered into a Power Purchase Agreement ("PPA") with the National Power Corporation ("NPC") to develop hydropotential of the Lower Agno River and generate additional power and energy for the Luzon Power Grid, by building the San Roque Multi-Purpose
Project located in San Manuel, Pangasinan. The PPA provides, among others, that [San Roque] shall be responsible for the design, construction,
installation, completion, testing and commissioning of the Power Station and shall operate and maintain the same, subject to NPC instructions. During
the cooperation period of twenty-five (25) years commencing from the completion date of the Power Station, NPC will take and pay for all electricity
available from the Power Station.
On the construction and development of the San Roque Multi- Purpose Project which comprises of the dam, spillway and power plant, [San Roque]
allegedly incurred, excess input VAT in the amount of 559,709,337.54 for taxable year 2001 which it declared in its Quarterly VAT Returns filed for the
same year. [San Roque] duly filed with the BIR separate claims for refund, in the total amount of 559,709,337.54, representing unutilized input taxes
as declared in its VAT returns for taxable year 2001.
However, on March 28, 2003, [San Roque] filed amended Quarterly VAT Returns for the year 2001 since it increased its unutilized input VAT to the
amount of 560,200,283.14. Consequently, [San Roque] filed with the BIR on even date, separate amended claims for refund in the aggregate amount
of 560,200,283.14.
[CIRs] inaction on the subject claims led to the filing by [San Roque] of the Petition for Review with the Court [of Tax Appeals] in Division on April 10,
2003.
Trial of the case ensued and on July 20, 2005, the case was submitted for decision. 15
The Court of Tax Appeals Ruling: Division

The CTA Second Division initially denied San Roques claim. In its Decision 16 dated 8 March 2006, it cited the following as bases for the denial of San
Roques claim: lack of recorded zero-rated or effectively zero-rated sales; failure to submit documents specifically identifying the purchased
goods/services related to the claimed input VAT which were included in its Property, Plant and Equipment account; and failure to prove that the related
construction costs were capitalized in its books of account and subjected to depreciation.
The CTA Second Division required San Roque to show that it complied with the following requirements of Section 112(B) of Republic Act No. 8424 (RA
8424)17 to be entitled to a tax refund or credit of input VAT attributable to capital goods imported or locally purchased: (1) it is a VAT-registered entity; (2)
its input taxes claimed were paid on capital goods duly supported by VAT invoices and/or official receipts; (3) it did not offset or apply the claimed input
VAT payments on capital goods against any output VAT liability; and (4) its claim for refund was filed within the two-year prescriptive period both in the
administrative and judicial levels.
The CTA Second Division found that San Roque complied with the first, third, and fourth requirements, thus:
The fact that [San Roque] is a VAT registered entity is admitted (par. 4, Facts Admitted, Joint Stipulation of Facts, Records, p. 157). It was also
established that the instant claim of 560,200,823.14 is already net of the 11,509.09 output tax declared by [San Roque] in its amended VAT return
for the first quarter of 2001. Moreover, the entire amount of 560,200,823.14 was deducted by [San Roque] from the total available input tax reflected
in its amended VAT returns for the last two quarters of 2001 and first two quarters of 2002 (Exhibits M-6, O-6, OO-1 & QQ-1). This means that the
claimed input taxes of 560,200,823.14 did not form part of the excess input taxes of 83,692,257.83, as of the second quarter of 2002 that was to be
carried-over to the succeeding quarters. Further, [San Roques] claim for refund/tax credit certificate of excess input VAT was filed within the two-year
prescriptive period reckoned from the dates of filing of the corresponding quarterly VAT returns.
For the first, second, third, and fourth quarters of 2001, [San Roque] filed its VAT returns on April 25, 2001, July 25, 2001, October 23, 2001 and
January 24, 2002, respectively (Exhibits "H, J, L, and N"). These returns were all subsequently amended on March 28, 2003 (Exhibits "I, K, M, and O").
On the other hand, [San Roque] originally filed its separate claims for refund on July 10, 2001, October 10, 2001, February 21, 2002, and May 9, 2002
for the first, second, third, and fourth quarters of 2001, respectively, (Exhibits "EE, FF, GG, and HH") and subsequently filed amended claims for all
quarters on March 28, 2003 (Exhibits "II, JJ, KK, and LL"). Moreover, the Petition for Review was filed on April 10, 2003. Counting from the respective
dates when [San Roque] originally filed its VAT returns for the first, second, third and fourth quarters of 2001, the administrative claims for refund
(original and amended) and the Petition for Review fall within the two-year prescriptive period. 18
San Roque filed a Motion for New Trial and/or Reconsideration on 7 April 2006. In its 29 November 2007 Amended Decision, 19 the CTA Second
Division found legal basis to partially grant San Roques claim. The CTA Second Division ordered the Commissioner to refund or issue a tax credit in
favor of San Roque in the amount of 483,797,599.65, which represents San Roques unutilized input VAT on its purchases of capital goods and
services for the taxable year 2001. The CTA based the adjustment in the amount on the findings of the independent certified public accountant. The
following reasons were cited for the disallowed claims: erroneous computation; failure to ascertain whether the related purchases are in the nature of
capital goods; and the purchases pertain to capital goods. Moreover, the reduction of claims was based on the following: the difference between San
Roques claim and that appearing on its books; the official receipts covering the claimed input VAT on purchases of local services are not within the
period of the claim; and the amount of VAT cannot be determined from the submitted official receipts and invoices. The CTA Second Division denied
San Roques claim for refund or tax credit of its unutilized input VAT attributable to its zero-rated or effectively zero-rated sales because San Roque had
no record of such sales for the four quarters of 2001.
The dispositive portion of the CTA Second Divisions 29 November 2007 Amended Decision reads:
WHEREFORE, [San Roques] "Motion for New Trial and/or Reconsideration" is hereby PARTIALLY GRANTED and this Courts Decision promulgated
on March 8, 2006 in the instant case is hereby MODIFIED.
Accordingly, [the CIR] is hereby ORDERED to REFUND or in the alternative, to ISSUE A TAX CREDIT CERTIFICATE in favor of [San Roque] in the
reduced amount of Four Hundred Eighty Three Million Seven Hundred Ninety Seven Thousand Five Hundred Ninety Nine Pesos and Sixty Five
Centavos (483,797,599.65) representing unutilized input VAT on purchases of capital goods and services for the taxable year 2001.
SO ORDERED.20
The Commissioner filed a Motion for Partial Reconsideration on 20 December 2007. The CTA Second Division issued a Resolution dated 11 July 2008
which denied the CIRs motion for lack of merit.
The Court of Tax Appeals Ruling: En Banc
The Commissioner filed a Petition for Review before the CTA EB praying for the denial of San Roques claim for refund or tax credit in its entirety as
well as for the setting aside of the 29 November 2007 Amended Decision and the 11 July 2008 Resolution in CTA Case No. 6647.
The CTA EB dismissed the CIRs petition for review and affirmed the challenged decision and resolution.
The CTA EB cited Commissioner of Internal Revenue v. Toledo Power, Inc. 21 and Revenue Memorandum Circular No. 49-03,22 as its bases for ruling
that San Roques judicial claim was not prematurely filed. The pertinent portions of the Decision state:
More importantly, the Court En Banc has squarely and exhaustively ruled on this issue in this wise:
It is true that Section 112(D) of the abovementioned provision applies to the present case. However, what the petitioner failed to consider is
Section 112(A) of the same provision. The respondent is also covered by the two (2) year prescriptive period. We have repeatedly held that the claim
for refund with the BIR and the subsequent appeal to the Court of Tax Appeals must be filed within the two-year period.
Accordingly, the Supreme Court held in the case of Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal
Revenue that the two-year prescriptive period for filing a claim for input tax is reckoned from the date of the filing of the quarterly VAT return and
payment of the tax due. If the said period is about to expire but the BIR has not yet acted on the application for refund, the taxpayer may
interpose a petition for review with this Court within the two year period.
In the case of Gibbs vs. Collector, the Supreme Court held that if, however, the Collector (now Commissioner) takes time in deciding the claim, and the
period of two years is about to end, the suit or proceeding must be started in the Court of Tax Appeals before the end of the two-year period without
awaiting the decision of the Collector.
Furthermore, in the case of Commissioner of Customs and Commissioner of Internal Revenue vs. The Honorable Court of Tax Appeals and Planters
Products, Inc., the Supreme Court held that the taxpayer need not wait indefinitely for a decision or ruling which may or may not be
forthcoming and which he has no legal right to expect. It is disheartening enough to a taxpayer to keep him waiting for an indefinite period of time
for a ruling or decision of the Collector (now Commissioner) of Internal Revenue on his claim for refund. It would make matters more exasperating for
the taxpayer if we were to close the doors of the courts of justice for such a relief until after the Collector (now Commissioner) of Internal Revenue,
would have, at his personal convenience, given his go signal.
This Court ruled in several cases that once the petition is filed, the Court has already acquired jurisdiction over the claims and the Court is not bound to
wait indefinitely for no reason for whatever action respondent (herein petitioner) may take. At stake are claims for refund and unlike disputed
assessments, no decision of respondent (herein petitioner) is required before one can go to this Court. (Emphasis supplied and citations
omitted)
Lastly, it is apparent from the following provisions of Revenue Memorandum Circular No. 49-03 dated August 18, 2003, that [the CIR] knows that claims
for VAT refund or tax credit filed with the Court [of Tax Appeals] can proceed simultaneously with the ones filed with the BIR and that taxpayers need
not wait for the lapse of the subject 120-day period, to wit:
In response to [the] request of selected taxpayers for adoption of procedures in handling refund cases that are aligned to the statutory requirements
that refund cases should be elevated to the Court of Tax Appeals before the lapse of the period prescribed by law, certain provisions of RMC No. 422003 are hereby amended and new provisions are added thereto.
In consonance therewith, the following amendments are being introduced to RMC No. 42-2003, to wit:
I.) A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as follows:
In cases where the taxpayer has filed a "Petition for Review" with the Court of Tax Appeals involving a claim for refund/TCC that is pending
at the administrative agency (Bureau of Internal Revenue or OSS-DOF), the administrative agency and the tax court may act on the case
separately. While the case is pending in the tax court and at the same time is still under process by the administrative agency, the litigation lawyer of
the BIR, upon receipt of the summons from the tax court, shall request from the head of the investigating/processing office for the docket containing
certified true copies of all the documents pertinent to the claim. The docket shall be presented to the court as evidence for the BIR in its defense on the
tax credit/refund case filed by the taxpayer. In the meantime, the investigating/processing office of the administrative agency shall continue processing
the refund/TCC case until such time that a final decision has been reached by either the CTA or the administrative agency.
If the CTA is able to release its decision ahead of the evaluation of the administrative agency, the latter shall cease from processing the
claim. On the other hand, if the administrative agency is able to process the claim of the taxpayer ahead of the CTA and the taxpayer is amenable to
the findings thereof, the concerned taxpayer must file a motion to withdraw the claim with the CTA. 23 (Emphasis supplied)
G.R. No. 196113
Taganito Mining Corporation v. CIR
The Facts
The CTA Second Divisions narration of the pertinent facts is as follows:
Petitioner, Taganito Mining Corporation, is a corporation duly organized and existing under and by virtue of the laws of the Philippines, with principal
office at 4th Floor, Solid Mills Building, De La Rosa St., Lega[s]pi Village, Makati City. It is duly registered with the Securities and Exchange
Commission with Certificate of Registration No. 138682 issued on March 4, 1987 with the following primary purpose:
To carry on the business, for itself and for others, of mining lode and/or placer mining, developing, exploiting, extracting, milling, concentrating,
converting, smelting, treating, refining, preparing for market, manufacturing, buying, selling, exchanging, shipping, transporting, and otherwise
producing and dealing in nickel, chromite, cobalt, gold, silver, copper, lead, zinc, brass, iron, steel, limestone, and all kinds of ores, metals and their byproducts and which by-products thereof of every kind and description and by whatsoever process the same can be or may hereafter be produced, and
generally and without limit as to amount, to buy, sell, locate, exchange, lease, acquire and deal in lands, mines, and mineral rights and claims and to
conduct all business appertaining thereto, to purchase, locate, lease or otherwise acquire, mining claims and rights, timber rights, water rights,
concessions and mines, buildings, dwellings, plants machinery, spare parts, tools and other properties whatsoever which this corporation may from
time to time find to be to its advantage to mine lands, and to explore, work, exercise, develop or turn to account the same, and to acquire, develop and
utilize water rights in such manner as may be authorized or permitted by law; to purchase, hire, make, construct or otherwise, acquire, provide,
maintain, equip, alter, erect, improve, repair, manage, work and operate private roads, barges, vessels, aircraft and vehicles, private telegraph and
telephone lines, and other communication media, as may be needed by the corporation for its own purpose, and to purchase, import, construct,
machine, fabricate, or otherwise acquire, and maintain and operate bridges, piers, wharves, wells, reservoirs, plumes, watercourses, waterworks,
aqueducts, shafts, tunnels, furnaces, cook ovens, crushing works, gasworks, electric lights and power plants and compressed air plants, chemical
works of all kinds, concentrators, smelters, smelting plants, and refineries, matting plants, warehouses, workshops, factories, dwelling houses, stores,
hotels or other buildings, engines, machinery, spare parts, tools, implements and other works, conveniences and properties of any description in
connection with or which may be directly or indirectly conducive to any of the objects of the corporation, and to contribute to, subsidize or otherwise aid
or take part in any operations;
and is a VAT-registered entity, with Certificate of Registration (BIR Form No. 2303) No. OCN 8RC0000017494. Likewise, [Taganito] is registered with
the Board of Investments (BOI) as an exporter of beneficiated nickel silicate and chromite ores, with BOI Certificate of Registration No. EP-88-306.
Respondent, on the other hand, is the duly appointed Commissioner of Internal Revenue vested with authority to exercise the functions of the said
office, including inter alia, the power to decide refunds of internal revenue taxes, fees and other charges, penalties imposed in relation thereto, or other
matters arising under the National Internal Revenue Code (NIRC) or other laws administered by Bureau of Internal Revenue (BIR) under Section 4 of
the NIRC. He holds office at the BIR National Office Building, Diliman, Quezon City.
[Taganito] filed all its Monthly VAT Declarations and Quarterly Vat Returns for the period January 1, 2005 to December 31, 2005. For easy reference, a
summary of the filing dates of the original and amended Quarterly VAT Returns for taxable year 2005 of [Taganito] is as follows:
Exhibit(s)
L to L-4
Quarter
1st
M to M-3
N to N-4
Q to Q-3
2nd
R to R-4
U to U-4
3rd
V to V-4
Y to Y-4
Z to Z-4
4th
Nature of
the Return
Mode of filing
Filing Date
Original
Electronic
April 15, 2005
Amended
Electronic
July 20, 2005
Amended
Electronic
October 18, 2006
Original
Electronic
July 20, 2005
Amended
Electronic
October 18, 2006
Original
Electronic
October 19, 2005
Amended
Electronic
October 18, 2006
Original
Electronic
January 20, 2006
Amended
Electronic
October 18, 2006
As can be gleaned from its amended Quarterly VAT Returns, [Taganito] reported zero-rated sales amounting to P1,446,854,034.68; input VAT on its
domestic purchases and importations of goods (other than capital goods) and services amounting to P2,314,730.43; and input VAT on its domestic
purchases and importations of capital goods amounting to P6,050,933.95, the details of which are summarized as follows:
Period
Covered
Zero-Rated Sales
Input VAT on
Domestic
Purchases and
Importations
of Goods and
Services
Input VAT on
Domestic
Purchases and
Importations
of Capital
Goods
Total Input VAT
01/01/05 03/31/05
P551,179,871.58
P1,491,880.56
P239,803.22
P1,731,683.78
04/01/05 06/30/05
64,677,530.78
204,364.17
5,811,130.73
6,015,494.90
07/01/05 09/30/05
480,784,287.30
144,887.67
144,887.67
10/01/05 12/31/05
350,212,345.02
473,598.03
473,598.03
P1,446,854,034.68
P2,314,730.43
P6,050,933.95
P8,365,664.38
TOTAL
On November 14, 2006, [Taganito] filed with [the CIR], through BIRs Large Taxpayers Audit and Investigation Division II (LTAID II), a letter dated
November 13, 2006 claiming a tax credit/refund of its supposed input VAT amounting to 8,365,664.38 for the period covering January 1, 2004 to
December 31, 2004. On the same date, [Taganito] likewise filed an Application for Tax Credits/Refunds for the period covering January 1, 2005 to
December 31, 2005 for the same amount.
On November 29, 2006, [Taganito] sent again another letter dated November 29, 2004 to [the CIR], to correct the period of the above claim for tax
credit/refund in the said amount of 8,365,664.38 as actually referring to the period covering January 1, 2005 to December 31, 2005.
As the statutory period within which to file a claim for refund for said input VAT is about to lapse without action on the part of the [CIR], [Taganito] filed
the instant Petition for Review on February 17, 2007.
In his Answer filed on March 28, 2007, [the CIR] interposes the following defenses:
4. [Taganitos] alleged claim for refund is subject to administrative investigation/examination by the Bureau of Internal Revenue (BIR);
5. The amount of 8,365,664.38 being claimed by [Taganito] as alleged unutilized input VAT on domestic purchases of goods and services
and on importation of capital goods for the period January 1, 2005 to December 31, 2005 is not properly documented;
6. [Taganito] must prove that it has complied with the provisions of Sections 112 (A) and (D) and 229 of the National Internal Revenue Code
of 1997 (1997 Tax Code) on the prescriptive period for claiming tax refund/credit;
7. Proof of compliance with the prescribed checklist of requirements to be submitted involving claim for VAT refund pursuant to Revenue
Memorandum Order No. 53-98, otherwise there would be no sufficient compliance with the filing of administrative claim for refund,
the administrative claim thereof being mere proforma, which is a condition sine qua non prior to the filing of judicial claim in
accordance with the provision of Section 229 of the 1997 Tax Code. Further, Section 112 (D) of the Tax Code, as amended, requires
the submission of complete documents in support of the application filed with the BIR before the 120-day audit period shall apply,
and before the taxpayer could avail of judicial remedies as provided for in the law. Hence, [Taganitos] failure to submit proof of
compliance with the above-stated requirements warrants immediate dismissal of the petition for review.
8. [Taganito] must prove that it has complied with the invoicing requirements mentioned in Sections 110 and 113 of the 1997 Tax Code, as
amended, in relation to provisions of Revenue Regulations No. 7-95.
9. In an action for refund/credit, the burden of proof is on the taxpayer to establish its right to refund, and failure to sustain the burden is
fatal to the claim for refund/credit (Asiatic Petroleum Co. vs. Llanes, 49 Phil. 466 cited in Collector of Internal Revenue vs. Manila
Jockey Club, Inc., 98 Phil. 670);
10. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from
taxation (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95) and as such, they are looked upon with disfavor (Western
Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 1211).
SPECIAL AND AFFIRMATIVE DEFENSES
11. The Court of Tax Appeals has no jurisdiction to entertain the instant petition for review for failure on the part of [Taganito] to comply with the
provision of Section 112 (D) of the 1997 Tax Code which provides, thus:
Section 112. Refunds or Tax Credits of Input Tax.
xxx
xxx
xxx
(D) Period within which refund or Tax Credit of Input Taxes shall be Made. In proper cases, the Commissioner shall grant a refund or issue the tax
credit certificate for creditable input taxes within one hundred (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.
In cases of full or partial denial for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period
prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of
the one hundred twenty dayperiod, appeal the decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied.)
12. As stated, [Taganito] filed the administrative claim for refund with the Bureau of Internal Revenue on November 14, 2006. Subsequently on
February 14, 2007, the instant petition was filed. Obviously the 120 days given to the Commissioner to decide on the claim has not yet lapsed when the
petition was filed. The petition was prematurely filed, hence it must be dismissed for lack of jurisdiction.
During trial, [Taganito] presented testimonial and documentary evidence primarily aimed at proving its supposed entitlement to the refund in the amount
of 8,365,664.38, representing input taxes for the period covering January 1, 2005 to December 31, 2005. [The CIR], on the other hand, opted not to
present evidence. Thus, in the Resolution promulgated on January 22, 2009, this case was submitted for decision as of such date, considering
[Taganitos] "Memorandum" filed on January 19, 2009 and [the CIRs] "Memorandum" filed on December 19, 2008. 24
The CTA Second Division partially granted Taganitos claim. In its Decision 25 dated 8 January 2010, the CTA Second Division found that Taganito
complied with the requirements of Section 112(A) of RA 8424, as amended, to be entitled to a tax refund or credit of input VAT attributable to zero-rated
or effectively zero-rated sales.26
The pertinent portions of the CTA Second Divisions Decision read:
Finally, records show that [Taganitos] administrative claim filed on November 14, 2006, which was amended on November 29, 2006, and the Petition
for Review filed with this Court on February 14, 2007 are well within the two-year prescriptive period, reckoned from March 31, 2005, June 30, 2005,
September 30, 2005, and December 31, 2005, respectively, the close of each taxable quarter covering the period January 1, 2005 to December 31,
2005.
In fine, [Taganito] sufficiently proved that it is entitled to a tax credit certificate in the amount of 8,249,883.33 representing unutilized input VAT for the
four taxable quarters of 2005.
WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, [the CIR] is hereby ORDERED to
REFUND to [Taganito] the amount of EIGHT MILLION TWO HUNDRED FORTY NINE THOUSAND EIGHT HUNDRED EIGHTY THREE PESOS AND
THIRTY THREE CENTAVOS (P8,249,883.33) representing its unutilized input taxes attributable to zero-rated sales from January 1, 2005 to December
31, 2005.
SO ORDERED.27
The Commissioner filed a Motion for Partial Reconsideration on 29 January 2010. Taganito, in turn, filed a Comment/Opposition on the Motion for
Partial Reconsideration on 15 February 2010.
In a Resolution28 dated 7 April 2010, the CTA Second Division denied the CIRs motion. The CTA Second Division ruled that the legislature did not
intend that Section 112 (Refunds or Tax Credits of Input Tax) should be read in isolation from Section 229 (Recovery of Tax Erroneously or Illegally
Collected) or vice versa. The CTA Second Division applied the mandatory statute of limitations in seeking judicial recourse prescribed under Section
229 to claims for refund or tax credit under Section 112.
On 29 April 2010, the Commissioner filed a Petition for Review before the CTA EB assailing the 8 January 2010 Decision and the 7 April 2010
Resolution in CTA Case No. 7574 and praying that Taganitos entire claim for refund be denied.
In its 8 December 2010 Decision,29 the CTA EB granted the CIRs petition for review and reversed and set aside the challenged decision and resolution.
The CTA EB declared that Section 112(A) and (B) of the 1997 Tax Code both set forth the reckoning of the two-year prescriptive period for filing a claim
for tax refund or credit over input VAT to be the close of the taxable quarter when the sales were made. The CTA EB also relied on this Courts rulings
in the cases of Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (Aichi) 30 and Commisioner of Internal Revenue v. Mirant
Pagbilao Corporation (Mirant).31 Both Aichi and Mirant ruled that the two-year prescriptive period to file a refund for input VAT arising from zero-rated
sales should be reckoned from the close of the taxable quarter when the sales were made.Aichi further emphasized that the failure to await the
decision of the Commissioner or the lapse of 120-day period prescribed in Section 112(D) amounts to a premature filing.
The CTA EB found that Taganito filed its administrative claim on 14 November 2006, which was well within the period prescribed under Section 112(A)
and (B) of the 1997 Tax Code. However, the CTA EB found that Taganitos judicial claim was prematurely filed. Taganito filed its Petition for Review
before the CTA Second Division on 14 February 2007. The judicial claim was filed after the lapse of only 92 days from the filing of its administrative
claim before the CIR, in violation of the 120-day period prescribed in Section 112(D) of the 1997 Tax Code.
The dispositive portion of the Decision states:
WHEREFORE, the instant Petition for Review is hereby GRANTED. The assailed Decision dated January 8, 2010 and Resolution dated April 7, 2010
of the Special Second Division of this Court are hereby REVERSED and SET ASIDE. Another one is hereby entered DISMISSING the Petition for
Review filed in CTA Case No. 7574 for having been prematurely filed.
SO ORDERED.32
In his dissent,33 Associate Justice Lovell R. Bautista insisted that Taganito timely filed its claim before the CTA. Justice Bautista read Section 112(C) of
the 1997 Tax Code (Period within which Refund or Tax Credit of Input Taxes shall be Made) in conjunction with Section 229 (Recovery of Tax
Erroneously or Illegally Collected). Justice Bautista also relied on this Courts ruling in Atlas Consolidated Mining and Development Corporation v.
Commissioner of Internal Revenue (Atlas),34 which stated that refundable or creditable input VAT and illegally or erroneously collected national internal
revenue tax are the same, insofar as both are monetary amounts which are currently in the hands of the government but must rightfully be returned to
the taxpayer. Justice Bautista concluded:
Being merely permissive, a taxpayer claimant has the option of seeking judicial redress for refund or tax credit of excess or unutilized input tax with this
Court, either within 30 days from receipt of the denial of its claim, or after the lapse of the 120-day period in the event of inaction by the Commissioner,
provided that both administrative and judicial remedies must be undertaken within the 2-year period. 35
Taganito filed its Motion for Reconsideration on 29 December 2010. The Commissioner filed an Opposition on 26 January 2011. The CTA EB denied for
lack of merit Taganitos motion in a Resolution36 dated 14 March 2011. The CTA EB did not see any justifiable reason to depart from this Courts rulings
in Aichi and Mirant.
G.R. No. 197156
Philex Mining Corporation v. CIR
The Facts
The CTA EBs narration of the pertinent facts is as follows:
[Philex] is a corporation duly organized and existing under the laws of the Republic of the Philippines, which is principally engaged in the mining
business, which includes the exploration and operation of mine properties and commercial production and marketing of mine products, with office
address at 27 Philex Building, Fairlaine St., Kapitolyo, Pasig City.
[The CIR], on the other hand, is the head of the Bureau of Internal Revenue ("BIR"), the government entity tasked with the duties/functions of
assessing and collecting all national internal revenue taxes, fees, and charges, and enforcement of all forfeitures, penalties and fines connected
therewith, including the execution of judgments in all cases decided in its favor by [the Court of Tax Appeals] and the ordinary courts, where she can be
served with court processes at the BIR Head Office, BIR Road, Quezon City.
On October 21, 2005, [Philex] filed its Original VAT Return for the third quarter of taxable year 2005 and Amended VAT Return for the same quarter on
December 1, 2005.
On March 20, 2006, [Philex] filed its claim for refund/tax credit of the amount of 23,956,732.44 with the One Stop Shop Center of the Department of
Finance. However, due to [the CIRs] failure to act on such claim, on October 17, 2007, pursuant to Sections 112 and 229 of the NIRC of 1997, as
amended, [Philex] filed a Petition for Review, docketed as C.T.A. Case No. 7687.
In [her] Answer, respondent CIR alleged the following special and affirmative defenses:
4. Claims for refund are strictly construed against the taxpayer as the same partake the nature of an exemption;
5. The taxpayer has the burden to show that the taxes were erroneously or illegally paid. Failure on the part of [Philex] to prove the same is
fatal to its cause of action;
6. [Philex] should prove its legal basis for claiming for the amount being refunded. 37
The CTA Second Division, in its Decision dated 20 July 2009, denied Philexs claim due to prescription. The CTA Second Division ruled that the twoyear prescriptive period specified in Section 112(A) of RA 8424, as amended, applies not only to the filing of the administrative claim with the BIR, but
also to the filing of the judicial claim with the CTA. Since Philexs claim covered the 3rd quarter of 2005, its administrative claim filed on 20 March 2006
was timely filed, while its judicial claim filed on 17 October 2007 was filed late and therefore barred by prescription.
On 10 November 2009, the CTA Second Division denied Philexs Motion for Reconsideration.
Philex filed a Petition for Review before the CTA EB praying for a reversal of the 20 July 2009 Decision and the 10 November 2009 Resolution of the
CTA Second Division in CTA Case No. 7687.
The CTA EB, in its Decision38 dated 3 December 2010, denied Philexs petition and affirmed the CTA Second Divisions Decision and Resolution.
The pertinent portions of the Decision read:
In this case, while there is no dispute that [Philexs] administrative claim for refund was filed within the two-year prescriptive period; however, as to its
judicial claim for refund/credit, records show that on March 20, 2006, [Philex] applied the administrative claim for refund of unutilized input VAT in the
amount of 23,956,732.44 with the One Stop Shop Center of the Department of Finance, per Application No. 52490. From March 20, 2006, which is
also presumably the date [Philex] submitted supporting documents, together with the aforesaid application for refund, the CIR has 120 days, or until
July 18, 2006, within which to decide the claim. Within 30 days from the lapse of the 120-day period, or from July 19, 2006 until August 17, 2006,
[Philex] should have elevated its claim for refund to the CTA. However, [Philex] filed its Petition for Review only on October 17, 2007, which is 426 days
way beyond the 30- day period prescribed by law.
Evidently, the Petition for Review in CTA Case No. 7687 was filed 426 days late. Thus, the Petition for Review in CTA Case No. 7687 should have been
dismissed on the ground that the Petition for Review was filed way beyond the 30-day prescribed period; thus, no jurisdiction was acquired by the CTA
in Division; and not due to prescription.
WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED DUE COURSE, and accordingly, DISMISSED. The assailed
Decision dated July 20, 2009, dismissing the Petition for Review in CTA Case No. 7687 due to prescription, and Resolution dated November 10, 2009
denying [Philexs] Motion for Reconsideration are hereby AFFIRMED, with modification that the dismissal is based on the ground that the Petition for
Review in CTA Case No. 7687 was filed way beyond the 30-day prescribed period to appeal.
SO ORDERED.39
G.R. No. 187485

CIR v. San Roque Power Corporation
The Commissioner raised the following grounds in the Petition for Review:
I. The Court of Tax Appeals En Banc erred in holding that [San Roques] claim for refund was not prematurely filed.
II. The Court of Tax Appeals En Banc erred in affirming the amended decision of the Court of Tax Appeals (Second Division) granting [San
Roques] claim for refund of alleged unutilized input VAT on its purchases of capital goods and services for the taxable year 2001 in the
amount of P483,797,599.65. 40
G.R. No. 196113
Taganito Mining Corporation v. CIR
Taganito raised the following grounds in its Petition for Review:
I. The Court of Tax Appeals En Banc committed serious error and acted with grave abuse of discretion tantamount to lack or excess of
jurisdiction in erroneously applying the Aichi doctrine in violation of [Taganitos] right to due process.
II. The Court of Tax Appeals committed serious error and acted with grave abuse of discretion amounting to lack or excess of jurisdiction in
erroneously interpreting the provisions of Section 112 (D). 41
G.R. No. 197156
Philex Mining Corporation v. CIR
Philex raised the following grounds in its Petition for Review:
I. The CTA En Banc erred in denying the petition due to alleged prescription. The fact is that the petition was filed with the CTA within the
period set by prevailing court rulings at the time it was filed.
II. The CTA En Banc erred in retroactively applying
the Aichi ruling in denying the petition in this instant case. 42
The Courts Ruling
For ready reference, the following are the provisions of the Tax Code applicable to the present cases:
Section 105:
Persons Liable. Any person who, in the course of trade or business, sells, barters, exchanges, leasesgoods or properties, renders services,
and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services. This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity
of Republic Act No. 7716.
xxxx
Section 110(B):
Sec. 110. Tax Credits.
(B) Excess Output or Input Tax. If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VATregistered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters: [Provided,
That the input tax inclusive of input VAT carried over from the previous quarter that may be credited in every quarter shall not exceed seventy percent
(70%) of the output VAT:]43 Provided, however, That any input tax attributable to zero-rated sales by a VAT-registered person may at his option
be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112.
Section 112:44
Sec. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-Rated or Effectively Zero-Rated Sales. Any VAT-registered person, whose sales are zero-rated or effectively zero-rated
may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such
input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2) (a)(1),
(2) and (B) and Section 108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged
in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of
creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately
on the basis of the volume of sales.
(B) Capital Goods.- A VAT registered person may apply for the issuance of a tax credit certificate or refund of input taxes paid on capital
goods imported or locally purchased, to the extent that such input taxes have not been applied against output taxes. The application may
be made only within two (2) years after the close of the taxable quarter when the importation or purchase was made.
(C) Cancellation of VAT Registration. A person whose registration has been cancelled due to retirement from or cessation of business, or
due to changes in or cessation of status under Section 106(C) of this Code may, within two (2) years from the date of cancellation, apply for
the issuance of a tax credit certificate for any unused input tax which may be used in payment of his other internal revenue taxes
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper cases, the Commissioner shall grant a refund or
issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete
documents in support of the application filed in accordance with Subsection (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application
within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the
claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax
Appeals.
(E) Manner of Giving Refund. Refunds shall be made upon warrants drawn by the Commissioner or by his duly authorized
representative without the necessity of being countersigned by the Chairman, Commission on Audit, the provisions of the Administrative
Code of 1987 to the contrary notwithstanding: Provided, that refunds under this paragraph shall be subject to post audit by the Commission
on Audit.
Section 229:
Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall be maintained in any court for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without
authority, or of any sum alleged to have beenexcessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed
with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or
duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless
of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund
or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.
(All emphases supplied)
I. Application of the 120+30 Day Periods
a. G.R. No. 187485 - CIR v. San Roque Power Corporation
On 10 April 2003, a mere 13 days after it filed its amended administrative claim with the Commissioner on 28 March 2003, San Roque filed a Petition
for Review with the CTA docketed as CTA Case No. 6647. From this we gather two crucial facts: first, San Roque did not wait for the 120-day period to
lapse before filing its judicial claim; second, San Roque filed its judicial claim more than four (4) years before the Atlas45 doctrine, which was
promulgated by the Court on 8 June 2007.
Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given by law to the Commissioner to decide whether to grant or
deny San Roques application for tax refund or credit. It is indisputable that compliance with the 120-day waiting period is mandatory and
jurisdictional. The waiting period, originally fixed at 60 days only, was part of the provisions of the first VAT law, Executive Order No. 273, which took
effect on 1 January 1988. The waiting period was extended to 120 days effective 1 January 1998 under RA 8424 or the Tax Reform Act of 1997. Thus,
the waiting period has been in our statute books for more than fifteen (15) yearsbefore San Roque filed its judicial claim.
Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates the doctrine of exhaustion of administrative remedies
and renders the petition premature and thus without a cause of action, with the effect that the CTA does not acquire jurisdiction over the taxpayers
petition. Philippine jurisprudence is replete with cases upholding and reiterating these doctrinal principles. 46
The charter of the CTA expressly provides that its jurisdiction is to review on appeal "decisions of the Commissioner of Internal Revenue in cases
involving x x x refunds of internal revenue taxes." 47 When a taxpayer prematurely files a judicial claim for tax refund or credit with the CTA without
waiting for the decision of the Commissioner, there is no "decision" of the Commissioner to review and thus the CTA as a court of special jurisdiction
has no jurisdiction over the appeal. The charter of the CTA also expressly provides that if the Commissioner fails to decide within "a specific period"
required by law, such "inaction shall be deemed a denial"48 of the application for tax refund or credit. It is the Commissioners decision, or inaction
"deemed a denial," that the taxpayer can take to the CTA for review. Without a decision or an "inaction x x x deemed a denial" of the Commissioner, the
CTA has no jurisdiction over a petition for review.49
San Roques failure to comply with the 120-day mandatory period renders its petition for review with the CTA void. Article 5 of the Civil Code provides,
"Acts executed against provisions of mandatory or prohibitory laws shall be void, except when the law itself authorizes their validity." San Roques void
petition for review cannot be legitimized by the CTA or this Court because Article 5 of the Civil Code states that such void petition cannot be legitimized
"except when the law itself authorizes [its] validity." There is no law authorizing the petitions validity.
It is hornbook doctrine that a person committing a void act contrary to a mandatory provision of law cannot claim or acquire any right from his void act.
A right cannot spring in favor of a person from his own void or illegal act. This doctrine is repeated in Article 2254 of the Civil Code, which states, "No
vested or acquired right can arise from acts or omissions which are against the law or which infringe upon the rights of others." 50 For violating a
mandatory provision of law in filing its petition with the CTA, San Roque cannot claim any right arising from such void petition. Thus, San Roques
petition with the CTA is a mere scrap of paper.
This Court cannot brush aside the grave issue of the mandatory and jurisdictional nature of the 120-day period just because the Commissioner merely
asserts that the case was prematurely filed with the CTA and does not question the entitlement of San Roque to the refund. The mere fact that a
taxpayer has undisputed excess input VAT, or that the tax was admittedly illegally, erroneously or excessively collected from him, does not entitle him
as a matter of right to a tax refund or credit. Strict compliance with the mandatory and jurisdictional conditions prescribed by law to claim such tax
refund or credit is essential and necessary for such claim to prosper. Well-settled is the rule that tax refunds or credits, just like tax exemptions,
are strictly construed against the taxpayer.51 The burden is on the taxpayer to show that he has strictly complied with the conditions for the grant of
the tax refund or credit.
This Court cannot disregard mandatory and jurisdictional conditions mandated by law simply because the Commissioner chose not to contest the
numerical correctness of the claim for tax refund or credit of the taxpayer. Non-compliance with mandatory periods, non-observance of prescriptive
periods, and non-adherence to exhaustion of administrative remedies bar a taxpayers claim for tax refund or credit, whether or not the Commissioner
questions the numerical correctness of the claim of the taxpayer. This Court should not establish the precedent that non-compliance with mandatory
and jurisdictional conditions can be excused if the claim is otherwise meritorious, particularly in claims for tax refunds or credit. Such precedent will
render meaningless compliance with mandatory and jurisdictional requirements, for then every tax refund case will have to be decided on the
numerical correctness of the amounts claimed, regardless of non-compliance with mandatory and jurisdictional conditions.
San Roque cannot also claim being misled, misguided or confused by the Atlas doctrine because San Roque filed its petition for review with the
CTA more than four years before Atlas was promulgated. The Atlas doctrine did not exist at the time San Roque failed to comply with the 120- day
period. Thus, San Roque cannot invoke theAtlas doctrine as an excuse for its failure to wait for the 120-day period to lapse. In any event,
the Atlas doctrine merely stated that the two-year prescriptive period should be counted from the date of payment of the output VAT, not from the close
of the taxable quarter when the sales involving the input VAT were made. The Atlas doctrine does not interpret, expressly or impliedly, the
120+3052 day periods.
In fact, Section 106(b) and (e) of the Tax Code of 1977 as amended, which was the law cited by the Court in Atlasas the applicable provision of the law
did not yet provide for the 30-day period for the taxpayer to appeal to the CTA from the decision or inaction of the Commissioner. 53 Thus,
the Atlas doctrine cannot be invoked by anyone to disregard compliance with the 30-day mandatory and jurisdictional period. Also, the
difference between theAtlas doctrine on one hand, and the Mirant54 doctrine on the other hand, is a mere 20 days. The Atlas doctrine counts the twoyear prescriptive period from the date of payment of the output VAT, which means within 20 days after the close of the taxable quarter. The output VAT
at that time must be paid at the time of filing of the quarterly tax returns, which were to be filed "within 20 days following the end of each quarter."
Thus, in Atlas, the three tax refund claims listed below were deemed timely filed because the administrative claims filed with the Commissioner, and
the petitions for review filed with the CTA, were all filed within two years from the date of payment of the output VAT, following Section 229:
Period Covered
Date of Filing Return

& Payment of Tax
Date of Filing
Administrative Claim
Date of Filing
Petition With CTA
2nd Quarter, 1990

Close of Quarter
30 June 1990
20 July 1990
21 August 1990
20 July 1992
3rd Quarter, 1990

Close of Quarter
30 September 1990
18 October 1990
21 November 1990
9 October 1992
4th Quarter, 1990

Close of Quarter
31 December 1990
20 January 1991
19 February 1991
14 January 1993
Atlas paid the output VAT at the time it filed the quarterly tax returns on the 20th, 18th, and 20th day after the close of the taxable quarter. Had the
twoyear prescriptive period been counted from the "close of the taxable quarter" as expressly stated in the law, the tax refund claims of Atlas would
have already prescribed. In contrast, the Mirantdoctrine counts the two-year prescriptive period from the "close of the taxable quarter when the sales
were made" as expressly stated in the law, which means the last day of the taxable quarter. The 20-day difference55 between the Atlas doctrine and
the later Mirant doctrine is not material to San Roques claim for tax refund.
Whether the Atlas doctrine or the Mirant doctrine is applied to San Roque is immaterial because what is at issue in the present case is San Roques
non-compliance with the 120-day mandatory and jurisdictional period, which is counted from the date it filed its administrative claim with the
Commissioner. The 120-day period may extend beyond the two-year prescriptive period, as long as the administrative claim is filed within the two-year
prescriptive period. However, San Roques fatal mistake is that it did not wait for the Commissioner to decide within the 120-day period, a mandatory
period whether the Atlas or the Mirant doctrine is applied.
At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods were already in the law. Section 112(C) 56 expressly
grants the Commissioner 120 days within which to decide the taxpayers claim. The law is clear, plain, and unequivocal: "x x x the Commissioner shall
grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of
complete documents." Following the verba legis doctrine, this law must be applied exactly as worded since it is clear, plain, and unequivocal. The
taxpayer cannot simply file a petition with the CTA without waiting for the Commissioners decision within the 120-day mandatory and jurisdictional
period. The CTA will have no jurisdiction because there will be no "decision" or "deemed a denial" decision of the Commissioner for the CTA to review.
In San Roques case, it filed its petition with the CTA a mere 13 days after it filed its administrative claim with the Commissioner. Indisputably, San
Roque knowingly violated the mandatory 120-day period, and it cannot blame anyone but itself.
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction of the Commissioner, thus:
x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one
hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied)
This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law should be applied exactly as worded since it is clear,
plain, and unequivocal. As this law states, the taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30 days from
receipt of the Commissioners decision, or if the Commissioner does not act on the taxpayers claim within the 120-day period, the taxpayer may
appeal to the CTA within 30 days from the expiration of the 120-day period.
b. G.R. No. 196113 - Taganito Mining Corporation v. CIR
Like San Roque, Taganito also filed its petition for review with the CTA without waiting for the 120-day period to lapse. Also, like San Roque, Taganito
filed its judicial claim before the promulgation of the Atlas doctrine. Taganito filed a Petition for Review on 14 February 2007 with the CTA. This is
almost four months before the adoption of theAtlas doctrine on 8 June 2007. Taganito is similarly situated as San Roque - both cannot claim being
misled, misguided, or confused by the Atlas doctrine.
However, Taganito can invoke BIR Ruling No. DA-489-03 57 dated 10 December 2003, which expressly ruled that the "taxpayer-claimant need not
wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review." Taganito filed its judicial
claim after the issuance of BIR Ruling No. DA-489-03 but before the adoption of the Aichi doctrine. Thus, as will be explained later, Taganito is deemed
to have filed its judicial claim with the CTA on time.
c. G.R. No. 197156 Philex Mining Corporation v. CIR

Philex (1) filed on 21 October 2005 its original VAT Return for the third quarter of taxable year 2005; (2) filed on 20 March 2006 its administrative claim
for refund or credit; (3) filed on 17 October 2007 its Petition for Review with the CTA. The close of the third taxable quarter in 2005 is 30 September
2005, which is the reckoning date in computing the two-year prescriptive period under Section 112(A).
Philex timely filed its administrative claim on 20 March 2006, within the two-year prescriptive period. Even if the two-year prescriptive period is
computed from the date of payment of the output VAT under Section 229, Philex still filed its administrative claim on time. Thus, the Atlas doctrine is
immaterial in this case. The Commissioner had until 17 July 2006, the last day of the 120-day period, to decide Philexs claim. Since the
Commissioner did not act on Philexs claim on or before 17 July 2006, Philex had until 17 August 2006, the last day of the 30-day period, to file its
judicial claim. The CTA EB held that 17 August 2006 was indeed the last day for Philex to file its judicial claim. However, Philex filed its Petition
for Review with the CTA only on 17 October 2007, or four hundred twenty-six (426) days after the last day of filing. In short, Philex was late by one
year and 61 days in filing its judicial claim. As the CTA EB correctly found:
Evidently, the Petition for Review in C.T.A. Case No. 7687 was filed 426 days late. Thus, the Petition for Review in C.T.A. Case No. 7687 should
have been dismissed on the ground that the Petition for Review was filed way beyond the 30-day prescribed period; thus, no jurisdiction was acquired
by the CTA Division; x x x58 (Emphasis supplied)
Unlike San Roque and Taganito, Philexs case is not one of premature filing but of late filing. Philex did not file any petition with the CTA within the 120day period. Philex did not also file any petition with the CTA within 30 days after the expiration of the 120-day period. Philex filed its judicial claim long
after the expiration of the 120-day period, in fact 426 days after the lapse of the 120-day period. In any event, whether governed by jurisprudence
before, during, or after the Atlas case, Philexs judicial claim will have to be rejected because of late filing. Whether the two-year prescriptive
period is counted from the date of payment of the output VAT following the Atlas doctrine, or from the close of the taxable quarter when the sales
attributable to the input VAT were made following the Mirantand Aichi doctrines, Philexs judicial claim was indisputably filed late.
The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the Commissioner on Philexs claim during the 120-day
period is, by express provision of law, "deemed a denial" of Philexs claim. Philex had 30 days from the expiration of the 120-day period to file its
judicial claim with the CTA. Philexs failure to do so rendered the "deemed a denial" decision of the Commissioner final and inappealable. The right to
appeal to the CTA from a decision or "deemed a denial" decision of the Commissioner is merely a statutory privilege, not a constitutional right. The
exercise of such statutory privilege requires strict compliance with the conditions attached by the statute for its exercise. 59 Philex failed to comply with
the statutory conditions and must thus bear the consequences.
II. Prescriptive Periods under Section 112(A) and (C)
There are three compelling reasons why the 30-day period need not necessarily fall within the two-year prescriptive period, as long as the
administrative claim is filed within the two-year prescriptive period.
First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer "may, within two (2) yearsafter the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of the creditable input tax due or paid to
such sales." In short, the law states that the taxpayer may apply with the Commissioner for a refund or credit "within two (2) years," which
means at anytime within two years. Thus, the application for refund or credit may be filed by the taxpayer with the Commissioner on the
last day of the two-year prescriptive period and it will still strictly comply with the law. The twoyear prescriptive period is a grace period in
favor of the taxpayer and he can avail of the full period before his right to apply for a tax refund or credit is barred by prescription.
Second, Section 112(C) provides that the Commissioner shall decide the application for refund or credit "within one hundred twenty (120)
days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A)." The
reference in Section 112(C) of the submission of documents "in support of the application filed in accordance with Subsection A" means that
the application in Section 112(A) is the administrative claim that the Commissioner must decide within the 120-day period. In short, the twoyear prescriptive period in Section 112(A) refers to the period within which the taxpayer can file an administrative claim for tax refund or
credit. Stated otherwise, the two-year prescriptive period does not refer to the filing of the judicial claim with the CTA but to the
filing of the administrative claim with the Commissioner. As held in Aichi, the "phrase within two years x x x apply for the issuance of a
tax credit or refund refers to applications for refund/credit with the CIR and not to appeals made to the CTA."
Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive period (equivalent to 730 days 60), then the
taxpayer must file his administrative claim for refund or credit within the first 610 days of the two-year prescriptive period. Otherwise, the
filing of the administrative claim beyond the first 610 days will result in the appeal to the CTA being filed beyond the two-year
prescriptive period. Thus, if the taxpayer files his administrative claim on the 611th day, the Commissioner, with his 120-day period, will
have until the 731st day to decide the claim. If the Commissioner decides only on the 731st day, or does not decide at all, the taxpayer can
no longer file his judicial claim with the CTA because the two-year prescriptive period (equivalent to 730 days) has lapsed. The 30-day
period granted by law to the taxpayer to file an appeal before the CTA becomes utterly useless, even if the taxpayer complied with the law
by filing his administrative claim within the two-year prescriptive period.
The theory that the 30-day period must fall within the two-year prescriptive period adds a condition that is not found in the law. It results in truncating
120 days from the 730 days that the law grants the taxpayer for filing his administrative claim with the Commissioner. This Court cannot interpret a law
to defeat, wholly or even partly, a remedy that the law expressly grants in clear, plain, and unequivocal language.
Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language. The taxpayer can file his administrative claim for
refund or credit at anytime within the two-year prescriptive period. If he files his claim on the last day of the two-year prescriptive period, his claim is
still filed on time. The Commissioner will have 120 days from such filing to decide the claim. If the Commissioner decides the claim on the 120th day, or
does not decide it on that day, the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only the plain meaning but also the only
logical interpretation of Section 112(A) and (C).
III. "Excess" Input VAT and "Excessively" Collected Tax
The input VAT is not "excessively" collected as understood under Section 229 because at the time the input VAT is collected the amount paid is
correct and proper. The input VAT is a tax liability of, and legally paid by, a VAT-registered seller 61 of goods, properties or services used as input by
another VAT-registered person in the sale of his own goods, properties, or services. This tax liability is true even if the seller passes on the input VAT to
the buyer as part of the purchase price. The second VAT-registered person, who is not legally liable for the input VAT, is the one who applies the input
VAT as credit for his own output VAT.62 If the input VAT is in fact "excessively" collected as understood under Section 229, then it is the first VATregistered person - the taxpayer who is legally liable and who is deemed to have legally paid for the input VAT - who can ask for a tax refund or credit
under Section 229 as an ordinary refund or credit outside of the VAT System. In such event, the second VAT-registered taxpayer will have no input
VAT to offset against his own output VAT.
In a claim for refund or credit of "excess" input VAT under Section 110(B) and Section 112(A), the input VAT is not "excessively" collected as
understood under Section 229. At the time of payment of the input VAT the amount paid is the correct and proper amount. Under the VAT System, there
is no claim or issue that the input VAT is "excessively" collected, that is, that the input VAT paid is more than what is legally due. The person legally
liable for the input VAT cannot claim that he overpaid the input VAT by the mere existence of an "excess" input VAT. The term "excess" input VAT simply
means that the input VAT available as credit exceeds the output VAT, not that the input VAT is excessively collected because it is more than what is
legally due. Thus, the taxpayer who legally paid the input VAT cannot claim for refund or credit of the input VAT as "excessively" collected under
Section 229.
Under Section 229, the prescriptive period for filing a judicial claim for refund is two years from the date of payment of the tax "erroneously, x x x
illegally, x x x excessively or in any manner wrongfully collected." The prescriptive period is reckoned from the date the person liable for the tax pays
the tax. Thus, if the input VAT is in fact "excessively" collected, that is, the person liable for the tax actually pays more than what is legally due, the
taxpayer must file a judicial claim for refund within two years from his date of payment. Only the person legally liable to pay the tax can file the
judicial claim for refund. The person to whom the tax is passed on as part of the purchase price has no personality to file the judicial claim
under Section 229.63
Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for "excess" input VAT is two years from the close of the
taxable quarter when the sale was made by the person legally liable to pay theoutput VAT. This prescriptive period has no relation to the date of
payment of the "excess" input VAT. The "excess" input VAT may have been paid for more than two years but this does not bar the filing of a judicial
claim for "excess" VAT under Section 112(A), which has a different reckoning period from Section 229. Moreover, the person claiming the refund or
credit of the input VAT is not the person who legally paid the input VAT. Such person seeking the VAT refund or credit does not claim that the input VAT
was "excessively" collected from him, or that he paid an input VAT that is more than what is legally due. He is not the taxpayer who legally paid the
input VAT.
As its name implies, the Value-Added Tax system is a tax on the value added by the taxpayer in the chain of transactions. For simplicity and efficiency
in tax collection, the VAT is imposed not just on the value added by the taxpayer, but on the entire selling price of his goods, properties or services.
However, the taxpayer is allowed a refund or credit on the VAT previously paid by those who sold him the inputs for his goods, properties, or services.
The net effect is that the taxpayer pays the VAT only on the value that he adds to the goods, properties, or services that he actually sells.
Under Section 110(B), a taxpayer can apply his input VAT only against his output VAT. The only exception is when the taxpayer is expressly "zero-rated
or effectively zero-rated" under the law, like companies generating power through renewable sources of energy. 64 Thus, a non zero-rated VATregistered taxpayer who has no output VAT because he has no sales cannot claim a tax refund or credit of his unused input VAT under the VAT
System. Even if the taxpayer has sales but his input VAT exceeds his output VAT, he cannot seek a tax refund or credit of his "excess" input VAT under
the VAT System. He can only carry-over and apply his "excess" input VAT against his future output VAT. If such "excess" input VAT is an
"excessively" collected tax, the taxpayer should be able to seek a refund or credit for such "excess" input VAT whether or not he has output VAT. The
VAT System does not allow such refund or credit. Such "excess" input VAT is not an "excessively" collected tax under Section 229. The "excess" input
VAT is a correctly and properly collected tax. However, such "excess" input VAT can be applied against the output VAT because the VAT is a tax
imposed only on the value added by the taxpayer. If the input VAT is in fact "excessively" collected under Section 229, then it is the person legally liable
to pay the input VAT, not the person to whom the tax was passed on as part of the purchase price and claiming credit for the input VAT under the VAT
System, who can file the judicial claim under Section 229.
Any suggestion that the "excess" input VAT under the VAT System is an "excessively" collected tax under Section 229 may lead taxpayers to file a
claim for refund or credit for such "excess" input VAT under Section 229 as an ordinary tax refund or credit outside of the VAT System. Under Section
229, mere payment of a tax beyond what is legally due can be claimed as a refund or credit. There is no requirement under Section 229 for an output
VAT or subsequent sale of goods, properties, or services using materials subject to input VAT.
From the plain text of Section 229, it is clear that what can be refunded or credited is a tax that is "erroneously, x x x illegally, x x x excessively or in any
manner wrongfully collected." In short, there must be a wrongful paymentbecause what is paid, or part of it, is not legally due. As the Court held
in Mirant, Section 229 should "apply only to instances of erroneous payment or illegal collection of internal revenue taxes." Erroneous or
wrongful payment includes excessive payment because they all refer to payment of taxes not legally due. Under the VAT System, there is no claim
or issue that the "excess" input VAT is "excessively or in any manner wrongfully collected." In fact, if the "excess" input VAT is an "excessively"
collected tax under Section 229, then the taxpayer claiming to apply such "excessively" collected input VAT to offset his output VAT may have no legal
basis to make such offsetting. The person legally liable to pay the input VAT can claim a refund or credit for such "excessively" collected tax, and thus
there will no longer be any "excess" input VAT. This will upend the present VAT System as we know it.
IV. Effectivity and Scope of the Atlas , Mirant and Aichi Doctrines
The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the two-year prescriptive period under Section 229, should
be effective only from its promulgation on 8 June 2007 until its abandonment on 12 September 2008 in Mirant. The Atlas doctrine was limited to
the reckoning of the two-year prescriptive period from the date of payment of the output VAT. Prior to the Atlas doctrine, the two-year prescriptive period
for claiming refund or credit of input VAT should be governed by Section 112(A) following the verba legis rule. The Mirant ruling, which abandoned
the Atlas doctrine, adopted the verba legis rule, thus applying Section 112(A) in computing the two-year prescriptive period in claiming refund or credit
of input VAT.
The Atlas doctrine has no relevance to the 120+30 day periods under Section 112(C) because the application of the 120+30 day periods was not in
issue in Atlas. The application of the 120+30 day periods was first raised in Aichi, which adopted the verba legis rule in holding that the 120+30 day
periods are mandatory and jurisdictional. The language of Section 112(C) is plain, clear, and unambiguous. When Section 112(C) states that "the
Commissioner shall grant a refund or issue the tax credit within one hundred twenty (120) days from the date of submission of complete documents,"
the law clearly gives the Commissioner 120 days within which to decide the taxpayers claim. Resort to the courts prior to the expiration of the 120-day
period is a patent violation of the doctrine of exhaustion of administrative remedies, a ground for dismissing the judicial suit due to prematurity.
Philippine jurisprudence is awash with cases affirming and reiterating the doctrine of exhaustion of administrative remedies. 65 Such doctrine is basic
and elementary.
When Section 112(C) states that "the taxpayer affected may, within thirty (30) days from receipt of the decision denying the claim or after the expiration
of the one hundred twenty-day period, appeal the decision or the unacted claim with the Court of Tax Appeals," the law does not make the 120+30 day
periods optional just because the law uses the word "may." The word "may" simply means that the taxpayer may or may not appeal the decision of
the Commissioner within 30 days from receipt of the decision, or within 30 days from the expiration of the 120-day period. Certainly, by no stretch of the
imagination can the word "may" be construed as making the 120+30 day periods optional, allowing the taxpayer to file a judicial claim one day after
filing the administrative claim with the Commissioner.
The old rule66 that the taxpayer may file the judicial claim, without waiting for the Commissioners decision if the two-year prescriptive period is about to
expire, cannot apply because that rule was adopted before the enactment of the 30-day period. The 30-day period was adopted precisely to do
away with the old rule, so that under the VAT System the taxpayer will always have 30 days to file the judicial claim even if the Commissioner
acts only on the 120th day, or does not act at all during the 120-day period. With the 30-day period always available to the taxpayer, the taxpayer
can no longer file a judicial claim for refund or credit of input VAT without waiting for the Commissioner to decide until the expiration of the 120-day
period.
To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against the taxpayer. One of the conditions for a judicial
claim of refund or credit under the VAT System is compliance with the 120+30 day mandatory and jurisdictional periods. Thus, strict compliance with
the 120+30 day periods is necessary for such a claim to prosper, whether before, during, or after the effectivity of the Atlas doctrine, except for the
period from the issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010 when the Aichi doctrine was adopted, which again
reinstated the 120+30 day periods as mandatory and jurisdictional.
V. Revenue Memorandum Circular No. 49-03 (RMC 49-03) dated 15 April 2003
There is nothing in RMC 49-03 that states, expressly or impliedly, that the taxpayer need not wait for the 120-day period to expire before filing a judicial
claim with the CTA. RMC 49-03 merely authorizes the BIR to continue processing the administrative claim even after the taxpayer has filed its judicial
claim, without saying that the taxpayer can file its judicial claim before the expiration of the 120-day period. RMC 49-03 states: "In cases where the
taxpayer has filed a Petition for Review with the Court of Tax Appeals involving a claim for refund/TCC that is pending at the administrative agency
(either the Bureau of Internal Revenue or the One- Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance), the
administrative agency and the court may act on the case separately." Thus, if the taxpayer files its judicial claim before the expiration of the 120-day
period, the BIR will nevertheless continue to act on the administrative claim because such premature filing cannot divest the Commissioner of his
statutory power and jurisdiction to decide the administrative claim within the 120-day period.
On the other hand, if the taxpayer files its judicial claim after the 120- day period, the Commissioner can still continue to evaluate the administrative
claim. There is nothing new in this because even after the expiration of the 120-day period, the Commissioner should still evaluate internally the
administrative claim for purposes of opposing the taxpayers judicial claim, or even for purposes of determining if the BIR should actually concede to
the taxpayers judicial claim. The internal administrative evaluation of the taxpayers claim must necessarily continue to enable the BIR to oppose
intelligently the judicial claim or, if the facts and the law warrant otherwise, for the BIR to concede to the judicial claim, resulting in the termination of the
judicial proceedings.
What is important, as far as the present cases are concerned, is that the mere filing by a taxpayer of a judicial claim with the CTA before the
expiration of the 120-day period cannot operate to divest the Commissioner of his jurisdiction to decide an administrative claim within the
120-day mandatory period,unless the Commissioner has clearly given cause for equitable estoppel to apply as expressly recognized in
Section 246 of the Tax Code.67
VI. BIR Ruling No. DA-489-03 dated 10 December 2003
BIR Ruling No. DA-489-03 does provide a valid claim for equitable estoppel under Section 246 of the Tax Code. BIR Ruling No. DA-48903 expressly states that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the
CTA by way of Petition for Review." Prior to this ruling, the BIR held, as shown by its position in the Court of Appeals, 68 that the expiration of the 120day period is mandatory and jurisdictional before a judicial claim can be filed.
There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA does not acquire jurisdiction over a judicial claim that is
filed before the expiration of the 120-day period. There are, however, two exceptions to this rule. The first exception is if the Commissioner, through a
specific ruling, misleads a particular taxpayer to prematurely file a judicial claim with the CTA. Such specific ruling is applicable only to such particular
taxpayer. The second exception is where the Commissioner, through a general interpretative rule issued under Section 4 of the Tax Code, misleads all
taxpayers into filing prematurely judicial claims with the CTA. In these cases, the Commissioner cannot be allowed to later on question the CTAs
assumption of jurisdiction over such claim since equitable estoppel has set in as expressly authorized under Section 246 of the Tax Code.
Section 4 of the Tax Code, a new provision introduced by RA 8424, expressly grants to the Commissioner the power to interpret tax laws, thus:
Sec. 4. Power of the Commissioner To Interpret Tax Laws and To Decide Tax Cases. The power to interpret the provisions of this Code and other
tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other
matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner,
subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.
Since the Commissioner has exclusive and original jurisdiction to interpret tax laws, taxpayers acting in good faith should not be made to suffer for
adhering to general interpretative rules of the Commissioner interpreting tax laws, should such interpretation later turn out to be erroneous and be
reversed by the Commissioner or this Court. Indeed, Section 246 of the Tax Code expressly provides that a reversal of a BIR regulation or ruling
cannot adversely prejudice a taxpayer who in good faith relied on the BIR regulation or ruling prior to its reversal. Section 246 provides as follows:
Sec. 246. Non-Retroactivity of Rulings. Any revocation, modification or reversal of any of the rules and regulations promulgated in accordance with
the preceding Sections or any of the rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the
revocation, modification or reversal will be prejudicial to the taxpayers, except in the following cases:
(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of
Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is
based; or
(c) Where the taxpayer acted in bad faith. (Emphasis supplied)
Thus, a general interpretative rule issued by the Commissioner may be relied upon by taxpayers from the time the rule is issued up to its reversal by
the Commissioner or this Court. Section 246 is not limited to a reversal only by the Commissioner because this Section expressly states,
"Any revocation, modification or reversal" without specifying who made the revocation, modification or reversal. Hence, a reversal by this Court is
covered under Section 246.
Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a difficult question of law. The abandonment of
the Atlas doctrine by Mirant and Aichi69 is proof that the reckoning of the prescriptive periods for input VAT tax refund or credit is a difficult question of
law. The abandonment of the Atlasdoctrine did not result in Atlas, or other taxpayers similarly situated, being made to return the tax refund or credit
they received or could have received under Atlas prior to its abandonment. This Court is applying Mirant and Aichiprospectively. Absent fraud, bad faith
or misrepresentation, the reversal by this Court of a general interpretative rule issued by the Commissioner, like the reversal of a specific BIR ruling
under Section 246, should also apply prospectively. As held by this Court in CIR v. Philippine Health Care Providers, Inc.:70
In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this Court held that under Section 246 of the 1997 Tax Code, the Commissioner of Internal
Revenue is precluded from adopting a position contrary to one previously taken where injustice would result to the taxpayer . Hence, where
an assessment for deficiency withholding income taxes was made, three years after a new BIR Circular reversed a previous one upon which the
taxpayer had relied upon, such an assessment was prejudicial to the taxpayer. To rule otherwise, opined the Court, would be contrary to the tenets of
good faith, equity, and fair play.
This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting Corp.1wphi1 in the later cases of Commissioner of Internal Revenue v.
Borroughs, Ltd., Commissioner of Internal Revenue v. Mega Gen. Mdsg. Corp.,Commissioner of Internal Revenue v. Telefunken Semiconductor
(Phils.) Inc., and Commissioner of Internal Revenue v. Court of Appeals. The rule is that the BIR rulings have no retroactive effect where a grossly
unfair deal would result to the prejudice of the taxpayer, as in this case.
More recently, in Commissioner of Internal Revenue v. Benguet Corporation, wherein the taxpayer was entitled to tax refunds or credits based on the
BIRs own issuances but later was suddenly saddled with deficiency taxes due to its subsequent ruling changing the category of the taxpayers
transactions for the purpose of paying its VAT, this Court ruled that applying such ruling retroactively would be prejudicial to the taxpayer. (Emphasis
supplied)
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable to all taxpayers or a specific ruling applicable only
to a particular taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, not by a particular taxpayer, but by a
government agency tasked with processing tax refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of
the Department of Finance. This government agency is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus, while this
government agency mentions in its query to the Commissioner the administrative claim of Lazi Bay Resources Development, Inc., the agency was in
fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay Resources Development, Inc., where the taxpayer did not wait for the
lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its
issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010, where this Court held that the 120+30 day periods are
mandatory and jurisdictional
However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four reasons: first, it is admittedly an erroneous interpretation of the
law; second, prior to its issuance, the BIR held that the 120-day period was mandatory and jurisdictional, which is the correct interpretation of the
law; third, prior to its issuance, no taxpayer can claim that it was misled by the BIR into filing a judicial claim prematurely; and fourth, a claim for tax
refund or credit, like a claim for tax exemption, is strictly construed against the taxpayer.
San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its judicial claim prematurely on 10 April 2003, before the
issuance of BIR Ruling No. DA-489-03 on 10 December 2003. To repeat, San Roque cannot claim that it was misled by the BIR into filing its judicial
claim prematurely because BIR Ruling No. DA-489-03 was issued only after San Roque filed its judicial claim. At the time San Roque filed its judicial
claim, the law as applied and administered by the BIR was that the Commissioner had 120 days to act on administrative claims. This was in fact the
position of the BIR prior to the issuance of BIR Ruling No. DA-489-03. Indeed, San Roque never claimed the benefit of BIR Ruling No. DA-489-03
or RMC 49-03, whether in this Court, the CTA, or before the Commissioner.
Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the issuance of BIR Ruling No. DA-489-03 on 10 December 2003.
Truly, Taganito can claim that in filing its judicial claim prematurely without waiting for the 120-day period to expire, it was misled by BIR Ruling No. DA489-03. Thus, Taganito can claim the benefit of BIR Ruling No. DA-489-03, which shields the filing of its judicial claim from the vice of prematurity.
Philexs situation is not a case of premature filing of its judicial claim but of late filing, indeed very late filing. BIR Ruling No. DA-489-03 allowed
premature filing of a judicial claim, which means non-exhaustion of the 120-day period for the Commissioner to act on an administrative claim. Philex
cannot claim the benefit of BIR Ruling No. DA-489-03 because Philex did not file its judicial claim prematurely but filed it long after the lapse of the 30day periodfollowing the expiration of the 120-day period. In fact, Philex filed its judicial claim 426 days after the lapse of the 30-day period.
VII. Existing Jurisprudence
There is no basis whatsoever to the claim that in five cases this Court had already made a ruling that the filing dates of the administrative and judicial
claims are inconsequential, as long as they are within the two-year prescriptive period. The effect of the claim of the dissenting opinions is that San
Roques failure to wait for the 120-day mandatory period to lapse is inconsequential, thus allowing San Roque to claim the tax refund or credit.
However, the five cases cited by the dissenting opinions do not support even remotely the claim that this Court had already made such a ruling. None
of these five cases mention, cite, discuss, rule or even hint that compliance with the 120-day mandatory period is inconsequential as long as
the administrative and judicial claims are filed within the two-year prescriptive period.
In CIR v. Toshiba Information Equipment (Phils.), Inc.,71 the issue was whether any output VAT was actually passed on to Toshiba that it could claim as
input VAT subject to tax credit or refund. The Commissioner argued that "although Toshiba may be a VAT-registered taxpayer, it is not engaged in a
VAT-taxable business." The Commissioner cited Section 4.106-1 of Revenue Regulations No. 75 that "refund of input taxes on capital goods shall be
allowed only to the extent that such capital goods are used in VAT-taxable business." In the words of the Court, "Ultimately, however, the issue still to
be resolved herein shall be whether respondent Toshiba is entitled to the tax credit/refund of its input VAT on its purchases of capital goods and
services, to which this Court answers in the affirmative." Nowhere in this case did the Court discuss, state, or rule that the filing dates of the
administrative and judicial claims are inconsequential, as long as they are within the two-year prescriptive period.
In Intel Technology Philippines, Inc. v. CIR,72 the Court stated: "The issues to be resolved in the instant case are (1) whether the absence of the BIR
authority to print or the absence of the TIN-V in petitioners export sales invoices operates to forfeit its entitlement to a tax refund/credit of its unutilized
input VAT attributable to its zero-rated sales; and (2) whether petitioners failure to indicate "TIN-V" in its sales invoices automatically invalidates its
claim for a tax credit certification." Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the administrative and judicial
claims are inconsequential, as long as they are within the two-year prescriptive period.
In AT&T Communications Services Philippines, Inc. v. CIR,73 the Court stated: "x x x the CTA First Division, conceding that petitioners transactions fall
under the classification of zero-rated sales, nevertheless denied petitioners claim for lack of substantiation, x x x." The Court quoted the ruling of
the First Division that "valid VAT official receipts, and not mere sale invoices, should have been submitted" by petitioner to substantiate its claim.
The Court further stated: "x x x the CTA En Banc, x x x affirmed x x x the CTA First Division," and "petitioners motion for reconsideration having been
denied x x x, the present petition for review was filed." Clearly, the sole issue in this case is whether petitioner complied with the substantiation
requirements in claiming for tax refund or credit. Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the
In CIR v. Ironcon Builders and Development Corporation,74 the Court put the issue in this manner: "Simply put, the sole issue the petition raises is
whether or not the CTA erred in granting respondent Ironcons application for refund of its excess creditable VAT withheld." The Commissioner argued
that "since the NIRC does not specifically grant taxpayers the option to refund excess creditable VAT withheld, it follows that such refund cannot be
allowed." Thus, this case is solely about whether the taxpayer has the right under the NIRC to ask for a cash refund of excesscreditable VAT withheld.
Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the administrative and judicial claims are inconsequential, as
long as they are within the two-year prescriptive period.
In CIR v. Cebu Toyo Corporation,75 the issue was whether Cebu Toyo was exempt or subject to VAT. Compliance with the 120-day period was never an
issue in Cebu Toyo. As the Court explained:
Both the Commissioner of Internal Revenue and the Office of the Solicitor General argue that respondent Cebu Toyo Corporation, as a PEZAregistered enterprise, is exempt from national and local taxes, including VAT, under Section 24 of Rep. Act No. 7916 and Section 109 of the NIRC.
Thus, they contend that respondent Cebu Toyo Corporation is not entitled to any refund or credit on input taxes it previously paid as provided under
Section 4.103-1 of Revenue Regulations No. 7-95, notwithstanding its registration as a VAT taxpayer. For petitioner claims that said registration was
erroneous and did not confer upon the respondent any right to claim recognition of the input tax credit.
The respondent counters that it availed of the income tax holiday under E.O. No. 226 for four years from August 7, 1995 making it exempt from income
tax but not from other taxes such as VAT. Hence, according to respondent, its export sales are not exempt from VAT, contrary to petitioners
claim, but its export sales is subject to 0% VAT. Moreover, it argues that it was able to establish through a report certified by an independent
Certified Public Accountant that the input taxes it incurred from April 1, 1996 to December 31, 1997 were directly attributable to its export sales. Since it
did not have any output tax against which said input taxes may be offset, it had the option to file a claim for refund/tax credit of its unutilized input taxes.
Considering the submission of the parties and the evidence on record, we find the petition bereft of merit.
Petitioners contention that respondent is not entitled to refund for being exempt from VAT is untenable. This argument turns a blind eye to the
fiscal incentives granted to PEZA-registered enterprises under Section 23 of Rep. Act No. 7916. Note that under said statute, the respondent had two
options with respect to its tax burden. It could avail of an income tax holiday pursuant to provisions of E.O. No. 226, thus exempt it from income taxes
for a number of years but not from other internal revenue taxes such as VAT; or it could avail of the tax exemptions on all taxes, including VAT under
P.D. No. 66 and pay only the preferential tax rate of 5% under Rep. Act No. 7916. Both the Court of Appeals and the Court of Tax Appeals found that
respondent availed of the income tax holiday for four (4) years starting from August 7, 1995, as clearly reflected in its 1996 and 1997 Annual Corporate
Income Tax Returns, where respondent specified that it was availing of the tax relief under E.O. No. 226. Hence, respondent is not exempt from VAT
and it correctly registered itself as a VAT taxpayer. In fine, it is engaged in taxable rather than exempt transactions. (Emphasis supplied)
Clearly, the issue in Cebu Toyo was whether the taxpayer was exempt from VAT or subject to VAT at 0% tax rate. If subject to 0% VAT rate, the
taxpayer could claim a refund or credit of its input VAT. Again, nowhere in this case did the Court discuss, state, or rule that the filing dates of the
While this Court stated in the narration of facts in Cebu Toyo that the taxpayer "did not bother to wait for the Resolution of its (administrative) claim by
the CIR" before filing its judicial claim with the CTA, this issue was not raised before the Court. Certainly, this statement of the Court is not a binding
precedent that the taxpayer need not wait for the 120-day period to lapse.
Any issue, whether raised or not by the parties, but not passed upon by the Court, does not have any value as precedent. As this Court has
explained as early as 1926:
It is contended, however, that the question before us was answered and resolved against the contention of the appellant in the case of Bautista vs.
Fajardo (38 Phil. 624). In that case no question was raised nor was it even suggested that said section 216 did not apply to a public officer. That
question was not discussed nor referred to by any of the parties interested in that case. It has been frequently decided that the fact that a statute has
been accepted as valid, and invoked and applied for many years in cases where its validity was not raised or passed on, does not prevent a court from
later passing on its validity, where that question is squarely and properly raised and presented. Where a question passes the Court sub silentio, the
case in which the question was so passed is not binding on the Court (McGirr vs. Hamilton and Abreu, 30 Phil. 563), nor should it be
considered as a precedent. (U.S. vs. Noriega and Tobias, 31 Phil. 310; Chicote vs. Acasio, 31 Phil. 401; U.S. vs. More, 3 Cranch [U.S.] 159,
172; U.S. vs. Sanges, 144 U.S. 310, 319; Cross vs. Burke, 146 U.S. 82.) For the reasons given in the case of McGirr vs. Hamilton and Abreu, supra,
the decision in the case of Bautista vs. Fajardo, supra, can have no binding force in the interpretation of the question presented here. 76 (Emphasis
supplied)
In Cebu Toyo, the nature of the 120-day period, whether it is mandatory or optional, was not even raised as an issue by any of the parties. The Court
never passed upon this issue. Thus, Cebu Toyo does not constitute binding precedent on the nature of the 120-day period.
There is also the claim that there are numerous CTA decisions allegedly supporting the argument that the filing dates of the administrative and judicial
claims are inconsequential, as long as they are within the two-year prescriptive period. Suffice it to state that CTA decisions do not constitute
precedents, and do not bind this Court or the public. That is why CTA decisions are appealable to this Court, which may affirm, reverse or modify the
CTA decisions as the facts and the law may warrant. Only decisions of this Court constitute binding precedents, forming part of the Philippine legal
system.77 As held by this Court in The Philippine Veterans Affairs Office v. Segundo:78
x x x Let it be admonished that decisions of the Supreme Court "applying or interpreting the laws or the Constitution . . . form part of the legal system of
the Philippines," and, as it were, "laws" by their own right because they interpret what the laws say or mean. Unlike rulings of the lower courts,
which bind the parties to specific cases alone, our judgments are universal in their scope and application, and equally mandatory in
character. Let it be warned that to defy our decisions is to court contempt. (Emphasis supplied)
The same basic doctrine was reiterated by this Court in De Mesa v. Pepsi Cola Products Phils., Inc.:79
The principle of stare decisis et non quieta movere is entrenched in Article 8 of the Civil Code, to wit:
ART. 8. Judicial decisions applying or interpreting the laws or the Constitution shall form a part of the legal system of the Philippines.
It enjoins adherence to judicial precedents. It requires our courts to follow a rule already established in a final decision of the Supreme Court.
That decision becomes a judicial precedent to be followed in subsequent cases by all courts in the land. The doctrine of stare decisis is based on the
principle that once a question of law has been examined and decided, it should be deemed settled and closed to further argument. (Emphasis
supplied)
VIII. Revenue Regulations No. 7-95 Effective 1 January 1996
Section 4.106-2(c) of Revenue Regulations No. 7-95, by its own express terms, applies only if the taxpayer files the judicial claim "after" the lapse of
the 60-day period, a period with which San Roque failed to comply. Under Section 4.106-2(c), the 60-day period is still mandatory and
jurisdictional.
Moreover, it is a hornbook principle that a prior administrative regulation can never prevail over a later contrary law, more so in this case where the
later law was enacted precisely to amend the prior administrative regulation and the law it implements.
The laws and regulation involved are as follows:
1977 Tax Code, as amended by Republic Act No. 7716 (1994)
Sec. 106. Refunds or tax credits of creditable input tax.
(a) x x x x
(d) Period within which refund or tax credit of input tax shall be made - In proper cases, the Commissioner shall grant a refund or issue the
tax credit for creditable input taxes within sixty (60) days from the date of submission of complete documents in support of the application
filed in accordance with subparagraphs (a) and (b) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the
failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may,
within thirty (30) days from receipt of the decision denying the claim or after the expiration of the sixty-day period, appeal the
decision or the unacted claim with the Court of Tax Appeals.
Revenue Regulations No. 7-95 (1996)
Section 4.106-2. Procedures for claiming refunds or tax credits of input tax (a) x x x
xxxx
(c) Period within which refund or tax credit of input taxes shall be made. In proper cases, the Commissioner shall grant a tax credit/refund for
creditable input taxes within sixty (60) days from the date of submission of complete documents in support of the application filed in accordance with
subparagraphs (a) and (b) above.
In case of full or partial denial of the claim for tax credit/refund as decided by the Commissioner of Internal Revenue, the taxpayer may appeal to the
Court of Tax Appeals within thirty (30) days from the receipt of said denial, otherwise the decision will become final. However, if no action on the claim
for tax credit/refund has been taken by the Commissioner of Internal Revenue after the sixty (60) day period from the date of submission of
the application but before the lapse of the two (2) year period from the date of filing of the VAT return for the taxable quarter, the taxpayer
may appeal to the Court of Tax Appeals.
xxxx
1997 Tax Code
Section 112. Refunds or Tax Credits of Input Tax
(A) x x x
xxxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be made. In proper cases, the Commissioner shall grant the refund or issue the tax
credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of
the application filed in accordance with Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application
within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or
after the expiration of the hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals .
There can be no dispute that under Section 106(d) of the 1977 Tax Code, as amended by RA 7716, the Commissioner has a 60-day period to act on
the administrative claim. This 60-day period is mandatory and jurisdictional.
Did Section 4.106-2(c) of Revenue Regulations No. 7-95 change this, so that the 60-day period is no longer mandatory and jurisdictional? The obvious
answer is no.
Section 4.106-2(c) itself expressly states that if, "after the sixty (60) day period," the Commissioner fails to act on the administrative claim, the
taxpayer may file the judicial claim even "before the lapse of the two (2) year period."Thus, under Section 4.106-2(c) the 60-day period is still
mandatory and jurisdictional.
Section 4.106-2(c) did not change Section 106(d) as amended by RA 7716, but merely implemented it, for two reasons. First, Section 4.106-2(c) still
expressly requires compliance with the 60-day period. This cannot be disputed.1wphi1
Second, under the novel amendment introduced by RA 7716, mere inaction by the Commissioner during the 60-day period is deemed a denial of the
claim. Thus, Section 4.106-2(c) states that "if no action on the claim for tax refund/credit has been taken by the Commissioner after the sixty (60) day
period," the taxpayer "may" already file the judicial claim even long before the lapse of the two-year prescriptive period. Prior to the amendment by RA
7716, the taxpayer had to wait until the two-year prescriptive period was about to expire if the Commissioner did not act on the claim.80 With the
amendment by RA 7716, the taxpayer need not wait until the two-year prescriptive period is about to expire before filing the judicial claim because
mere inaction by the Commissioner during the 60-day period is deemed a denial of the claim. This is the meaning of the phrase "but before the
lapse of the two (2) year period" in Section 4.106-2(c). As Section 4.106- 2(c) reiterates that the judicial claim can be filed only "after the sixty (60)
day period," this period remains mandatory and jurisdictional. Clearly, Section 4.106-2(c) did not amend Section 106(d) but merely faithfully
implemented it.
Even assuming, for the sake of argument, that Section 4.106-2(c) of Revenue Regulations No. 7-95, an administrative issuance, amended Section
106(d) of the Tax Code to make the period given to the Commissioner non-mandatory, still the 1997 Tax Code, a much later law, reinstated the original
intent and provision of Section 106(d) by extending the 60-day period to 120 days and re-adopting the original wordings of Section 106(d). Thus,
Section 4.106-2(c), a mere administrative issuance, becomes inconsistent with Section 112(D), a later law. Obviously, the later law prevails over a prior
inconsistent administrative issuance.
Section 112(D) of the 1997 Tax Code is clear, unequivocal, and categorical that the Commissioner has 120 days to act on an administrative claim. The
taxpayer can file the judicial claim (1) only within thirty days after the Commissioner partially or fully denies the claim within the 120- day period,
or (2) only within thirty days from the expiration of the 120- day period if the Commissioner does not act within the 120-day period.
There can be no dispute that upon effectivity of the 1997 Tax Code on 1 January 1998, or more than five yearsbefore San Roque filed its
administrative claim on 28 March 2003, the law has been clear: the 120- day period is mandatory and jurisdictional. San Roques claim, having been
filed administratively on 28 March 2003, is governed by the 1997 Tax Code, not the 1977 Tax Code. Since San Roque filed its judicial claim before the
expiration of the 120-day mandatory and jurisdictional period, San Roques claim cannot prosper.
San Roque cannot also invoke Section 4.106-2(c), which expressly provides that the taxpayer can only file the judicial claim "after" the lapse of the 60day period from the filing of the administrative claim. San Roque filed its judicial claim just 13 days after filing its administrative claim. To recall,
San Roque filed its judicial claim on 10 April 2003, a mere 13 days after it filed its administrative claim.
Even if, contrary to all principles of statutory construction as well as plain common sense, we gratuitously apply now Section 4.106-2(c) of Revenue
Regulations No. 7-95, still San Roque cannot recover any refund or credit because San Roque did not wait for the 60-day period to lapse,
contrary to the express requirement in Section 4.106-2(c). In short, San Roque does not even comply with Section 4.106-2(c). A claim for tax
refund or credit is strictly construed against the taxpayer, who must prove that his claim clearly complies with all the conditions for granting the tax
refund or credit. San Roque did not comply with the express condition for such statutory grant.
A final word. Taxes are the lifeblood of the nation. The Philippines has been struggling to improve its tax efficiency collection for the longest time with
minimal success. Consequently, the Philippines has suffered the economic adversities arising from poor tax collections, forcing the government to
continue borrowing to fund the budget deficits. This Court cannot turn a blind eye to this economic malaise by being unduly liberal to taxpayers who do
not comply with statutory requirements for tax refunds or credits. The tax refund claims in the present cases are not a pittance. Many other companies
stand to gain if this Court were to rule otherwise. The dissenting opinions will turn on its head the well-settled doctrine that tax refunds are strictly
construed against the taxpayer.
WHEREFORE, the Court hereby (1) GRANTS the petition of the Commissioner of Internal Revenue in G.R. No. 187485 to DENY the P483,797,599.65
tax refund or credit claim of San Roque Power Corporation; (2) GRANTS the petition of Taganito Mining Corporation in G.R. No. 196113 for a tax
refund or credit of P8,365,664.38; and (3)DENIES the petition of Philex Mining Corporation in G.R. No. 197156 for a tax refund or credit of
P23,956,732.44.
SO ORDERED.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 191498
January 15, 2014

vs.
MINDANAO II GEOTHERMAL PARTNERSHIP, Respondent.
DECISION
SERENO, CJ:
This Rule 45 Petition1 requires this Court to address the question of timeliness with respect to petitioner's administrative and judicial claims for refund
and credit of accumulated unutilized input Value Added Tax (VAT) under Section 112(A) and Section 112(D) of the 1997 Tax Code. Petitioner Mindanao
II Geothermal Partnership (Mindanao II) assails the Decision 2 and Resolution3 of the Court of Tax Appeals En Banc (CTA En Banc) in CTA En Banc
Case No. 448, affirming the Decision in CTA Case No. 7507 of the CTA Second Division. 4 The latter ordered the refund or issuance of a tax credit
certificate in the amount of P6,791,845.24 representing unutilized input VAT incurred for the second, third, and fourth quarters of taxable year 2004 in
favor of herein respondent, Mindanao II.
FACTS
Mindanao II is a partnership registered with the Securities and Exchange Commission. 5 It is engaged in the business of power generation and sale of
electricity to the National Power Corporation (NAPOCOR) 6 and is accredited by the Department of Energy.7
Mindanao II filed its Quarterly VAT Returns for the second, third and fourth quarters of taxable year 2004 on the following dates: 8
Date filed
Quarter
Taxable Year
12 July 2005
2nd
2004
22 October 2004
12 July 2005
3rd
2004
25 January 2005
12 July 2005
4th
2004
Original
Amended
26 July 2004
On 6 October 2005, Mindanao II filed with the Bureau of Internal Revenue (BIR) an application for the refund or credit of accumulated unutilized
creditable input taxes.9 In support of the administrative claim for refund or credit, Mindanao II alleged, among others, that it is registered with the BIR as
a value-added taxpayer10 and all its sales are zero-rated under the EPIRA law.11 It further stated that for the second, third, and fourth quarters of taxable
year 2004, it paid input VAT in the aggregate amount of P7,167,005.84, which were directly attributable to the zero-rated sales. The input taxes had not
been applied against output tax.
Pursuant to Section 112(D) of the 1997 Tax Code, the Commissioner of Internal Revenue (CIR) had a period of 120 days, or until 3 February 2006, to
act on the claim. The administrative claim, however, remained unresolved on 3 February 2006.
Under the same provision, Mindanao II could treat the inaction of the CIR as a denial of its claim, in which case, the former would have 30 days to file
an appeal to the CTA, that is, on 5 March 2006. Mindanao II, however, did not file an appeal within the 30-day period.
Apparently, Mindanao II believed that a judicial claim must be filed within the two-year prescriptive period provided under Section 112(A) and that such
time frame was to be reckoned from the filing of its Quarterly VAT Returns for the second, third, and fourth quarters of taxable year 2004, that is, from
26 July 2004, 22 October 2004, and 25 January 2005, respectively. Thus, on 21 July 2006, Mindanao II, claiming inaction on the part of the CIR and
that the two-year prescriptive period was about to expire, filed a Petition for Review with the CTA docketed as CTA Case No. 6133. 12
On 8 June 2007, while the application for refund or credit of unutilized input VAT of Mindanao II was pending before the CTA Second Division, this
Court promulgated Atlas Consolidated Mining and Development Corporation v. CIR 13(Atlas). Atlas held that the two-year prescriptive period for the filing
of a claim for an input VAT refund or credit is to be reckoned from the date of filing of the corresponding quarterly VAT return and payment of the tax.
On 12 August 2008, the CTA Second Division rendered a Decision 14 ordering the CIR to grant a refund or a tax credit certificate, but only in the reduced
amount of P6,791,845.24, representing unutilized input VAT incurred for the second, third and fourth quarters of taxable year 2004. 15
In support of its ruling, the CTA Second Division held that Mindanao II complied with the twin requisites for VAT zero-rating under the EPIRA law: first, it
is a generation company, and second, it derived sales from power generation. It also ruled that Mindanao II satisfied the requirements for the grant of a
refund/credit under Section 112 of the Tax Code: (1) there must be zero-rated or effectively zero-rated sales; (2) input taxes must have been incurred or
paid; (3) the creditable input tax due or paid must be attributable to zero-rated sales or effectively zero-rated sales; (4) the input VAT payments must
not have been applied against any output liability; and (5) the claim must be filed within the two-year prescriptive period. 16
As to the second requisite, however, the input tax claim to the extent of P375,160.60 corresponding to purchases of services from Mitsubishi
Corporation was disallowed, since it was not substantiated by official receipts. 17
As regards to the fifth requirement in section 112 of the Tax Code, the tax court, citing Atlas, counted from 26 July 2004, 22 October 2004, and 25
January 2005 the dates when Mindanao II filed its Quarterly VAT Returns for the second, third, and fourth quarters of taxable year 2004, respectively
and determined that both the administrative claim filed on 6 October 2005 and the judicial claim filed on 21 July 2006 fell within the two-year
prescriptive period.18
On 1 September 2008, the CIR filed a Motion for Partial Reconsideration, 19 pointing out that prescription had already set in, since the appeal to the CTA
was filed only on 21 July 2006, which was way beyond the last day to appeal 5 March 2006. 20 As legal basis for this argument, the CIR relied on
Section 112(D) of the 1997 Tax Code.21
Meanwhile, on 12 September 2008, this Court promulgated CIR v. Mirant Pagbilao Corporation (Mirant). 22 Mirant fixed the reckoning date of the twoyear prescriptive period for the application for refund or credit of unutilized input VAT at the close of the taxable quarter when the relevant sales were
made , as stated in Section 112(A).23
On 3 December 2008, the CTA Second Division denied the CIRs Motion for Partial Reconsideration. 24 The tax court stood by its reliance on Atlas25 and
on its finding that both the administrative and judicial claims of Mindanao II were timely filed. 26
On 7 January 2009, the CIR elevated the matter to the CTA En Banc via a Petition for Review. 27 Apart from the contention that the judicial claim of
Mindanao II was filed beyond the 30-day period fixed by Section 112(D) of the 1997 Tax Code, 28 the CIR argued that Mindanao II erroneously fixed 26
July 2004, the date when the return for the second quarter was filed, as the date from which to reckon the two-year prescriptive period for filing an
application for refund or credit of unutilized input VAT under Section 112(A). As the two-year prescriptive period ended on 30 June 2006, the Petition for
Review of Mindanao II was filed out of time on 21 July 2006. 29 The CIR invoked the recently promulgated Mirant to support this theory.
On 11 November 2009, the CTA En Banc rendered its Decision denying the CIRs Petition for Review. 30 On the question whether the application for
refund was timely filed, it held that the CTA Second Division correctly applied the Atlas ruling. 31 It reasoned that Atlas remained to be the controlling
doctrine. Mirant was a new doctrine and, as such, the latter should not apply retroactively to Mindanao II who had relied on the old doctrine of Atlas and
had acted on the faith thereof. 32
As to the issue of compliance with the 30-day period for appeal to the CTA, the CTA En Banc held that this was a requirement only when the CIR
actually denies the taxpayers claim. But in cases of CIR inaction, the 30-day period is not a mandatory requirement; the judicial claim is seasonably
filed as long as it is filed after the lapse of the 120-day waiting period but within two years from the date of filing of the return. 33
The CIR filed a Motion for Partial Reconsideration 34 of the Decision, but it was denied for lack of merit. 35
Dissatisfied, the CIR filed this Rule 45 Petition, raising the following arguments in support of its appeal:
I.
THE CTA 2ND DIVISION LACKED JURISDICTION TO TAKE COGNIZANCE OF THE CASE.
II.
THE COURT A QUOS RELIANCE ON THE RULING IN ATLAS IS MISPLACED. 36
ISSUES
The resolution of this case hinges on the question of compliance with the following time requirements for the grant of a claim for refund or credit of
unutilized input VAT: (1) the two-year prescriptive period for filing an application for refund or credit of unutilized input VAT; and (2) the 120+30 day
period for filing an appeal with the CTA.
THE COURTS RULING
We deny Mindanao IIs claim for refund or credit of unutilized input VAT on the ground that its judicial claims were filed out of time, even as we hold that
its application for refund was filed on time.
I.
MINDANAO IIS APPLICATION FOR
REFUND WAS FILED ON TIME
We find no error in the conclusion of the tax courts that the application for refund or credit of unutilized input VAT was timely filed. The problem lies with
their bases for the conclusion as to: (1) what should be filed within the prescriptive period; and (2) the date from which to reckon the prescriptive period.
We thus take a different route to reach the same conclusion, initially focusing our discussion on what should be filed within the two-year prescriptive
period.
A. The Judicial Claim Need Not Be Filed Within the Two-Year Prescriptive Period
Section 112(A) provides:
(A) Zero-rated or Effectively Zero-rated Sales Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2)
due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided,
however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108(B)(1) and (2), the acceptable foreign currency
exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP):
Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or
properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it
shall be allocated proportionately on the basis of the volume of sales.
Both the CTA Second Division and CTA En Banc decisions held that the phrase "apply for the issuance of a tax credit certificate or refund" in Section
112(A) is construed to refer to both the administrative claim filed with the CIR and the judicial claim filed with the CTA. This view, however, has no legal
basis.
In Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (Aichi), we dispelled the misconception that both the administrative and
judicial claims must be filed within the two-year prescriptive period: 37
There is nothing in Section 112 of the NIRC to support respondents view. Subsection (A) of the said provision states that "any VAT-registered person,
whose sales are zero-rated or effectively zero-rated may, within two years after the close of the taxable quarter when the sales were made, apply for
the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales." The phrase "within two (2) years x x x
apply for the issuance of a tax credit certificate or refund" refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA.
This is apparent in the first paragraph of subsection (D) of the same provision, which states that the CIR has "120 days from the submission of
complete documents in support of the application filed in accordance with Subsections (A) and (B)" within which to decide on the claim.
In fact, applying the two-year period to judicial claims would render nugatory Section 112 (D) of the NIRC, which already provides for a specific period
within which a taxpayer should appeal the decision or inaction of the CIR. The second paragraph of Section 112 (D) of the NIRC envisions two
scenarios: (1) when a decision is issued by the CIR before the lapse of the 120-day period; and (2) when no decision is made after the 120-day period.
In both instances, the taxpayer has 30 days within which to file an appeal with the CTA. As we see it then, the 120-day period is crucial in filing an
appeal with the CTA. (Emphasis supplied)
The message of Aichi is clear: it is only the administrative claim that must be filed within the two-year prescriptive period; the judicial claim need not fall
within the two-year prescriptive period.
Having disposed of this question, we proceed to the date for reckoning the prescriptive period under Section 112(A).
B. Reckoning Date is the Close of the Taxable Quarter When the Relevant Sales Were Made.
The other flaw in the reasoning of the tax courts is their reliance on the Atlas ruling, which fixed the reckoning point to the date of filing the return and
payment of the tax.
The CIRs Stand
The CIRs stand is that Atlas is not applicable to the case at hand as it involves Section 230 of the 1977 Tax Code, which contemplates recovery of tax
payments erroneously or illegally collected. On the other hand, this case deals with claims for tax refund or credit of unutilized input VAT for the second,
third, and fourth quarters of 2004, which are covered by Section 112 of the 1977 Tax Code. 38
The CIR further contends that Mindanao II cannot claim good faith reliance on the Atlas doctrine since the case was decided only on 8 June 2007, two
years after Mindanao II filed its claim for refund or credit with the CIR and one year after it filed a Petition for Review with the CTA on 21 July 2006. 39
In lieu of Atlas, the CIR proposes that it is the Court's ruling in Mirant that should apply to this case despite the fact that the latter was promulgated on
12 September 2008, after Mindanao II had filed its administrative claim in 2005. 40It argues that Mirant can be applied retroactively to this case, since
the decision merely interprets Section 112, a provision that was already effective when Mindanao II filed its claims for tax refund or credit.
The Taxpayers Defense

On the other hand, Mindanao II counters that Atlas, decided by the Third Division of this Court, could not have been superseded by Mirant, a Second
Division Decision of this Court. A doctrine laid down by the Supreme Court in a Division may be modified or reversed only through a decision of the
Court sitting en banc.41
Mindanao II further contends that when it filed its Petition for Review, the prevailing rule in the CTA reckons the two-year prescriptive period from the
date of the filing of the VAT return.42 Finally, after building its case on Atlas, Mindanao II assails the CIRs reliance on the Mirant doctrine stating that it
cannot be applied retroactively to this case, lest it violate the rock-solid rule that a judicial ruling cannot be given retroactive effect if it will impair vested
rights.43
Section 112(A) is the Applicable Rule
The issue posed is not novel. In the recent case of Commissioner of Internal Revenue v. San Roque Power Corporation 44 (San Roque), this Court
resolved the threshold question of when to reckon the two-year prescriptive period for filing an administrative claim for refund or credit of unutilized
input VAT under the 1997 Tax Code in view of our pronouncements in Atlas and Mirant. In that case, we delineated the scope and effectivity of the Atlas
and Mirant doctrines as follows:
The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the two-year prescriptive period under Section 229, should
be effective only from its promulgation on 8 June 2007 until its abandonment on 12 September 2008 in Mirant. The Atlas doctrine was limited to the
reckoning of the two-year prescriptive period from the date of payment of the output VAT. Prior to the Atlas doctrine, the two-year prescriptive period for
claiming refund or credit of input VAT should be governed by Section 112(A) following the verba legis rule. The Mirant ruling, which abandoned the
Atlas doctrine, adopted the verba legis rule, thus applying Section 112(A) in computing the two-year prescriptive period in claiming refund or credit of
input VAT. (Emphases supplied)
Furthermore, San Roque distinguished between Section 112 and Section 229 of the 1997 Tax Code:
The input VAT is not "excessively" collected as understood under Section 229 because at the time the input VAT is collected the amount paid is correct
and proper. The input VAT is a tax liability of, and legally paid by, a VAT-registered seller of goods, properties or services used as input by another VAT-
registered person in the sale of his own goods, properties, or services. This tax liability is true even if the seller passes on the input VAT to the buyer as
part of the purchase price. The second VAT-registered person, who is not legally liable for the input VAT, is the one who applies the input VAT as credit
for his own output VAT. If the input VAT is in fact "excessively" collected as understood under Section 229, then it is the first VAT-registered person
the taxpayer who is legally liable and who is deemed to have legally paid for the input VAT who can ask for a tax refund or credit under Section 229
as an ordinary refund or credit outside of the VAT System. In such event, the second VAT-registered taxpayer will have no input VAT to offset against
his own output VAT.
In a claim for refund or credit of "excess" input VAT under Section 110(B) and Section 112(A), the input VAT is not "excessively" collected as
understood under Section 229. At the time of payment of the input VAT the amount paid is the correct and proper amount. Under the VAT System, there
is no claim or issue that the input VAT is "excessively" collected, that is, that the input VAT paid is more than what is legally due. The person legally
liable for the input VAT cannot claim that he overpaid the input VAT by the mere existence of an "excess" input VAT. The term "excess" input VAT simply
means that the input VAT available as credit exceeds the output VAT, not that the input VAT is excessively collected because it is more than what is
legally due. Thus, the taxpayer who legally paid the input VAT cannot claim for refund or credit of the input VAT as "excessively" collected under
Section 229.
Under Section 229, the prescriptive period for filing a judicial claim for refund is two years from the date of payment of the tax "erroneously, . . . illegally,
. . . excessively or in any manner wrongfully collected." The prescriptive period is reckoned from the date the person liable for the tax pays the tax.
Thus, if the input VAT is in fact "excessively" collected, that is, the person liable for the tax actually pays more than what is legally due, the taxpayer
must file a judicial claim for refund within two years from his date of payment. Only the person legally liable to pay the tax can file the judicial claim for
refund. The person to whom the tax is passed on as part of the purchase price has no personality to file the judicial claim under Section 229.
Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for "excess" input VAT is two years from the close of the
taxable quarter when the sale was made by the person legally liable to pay the output VAT. This prescriptive period has no relation to the date of
payment of the "excess" input VAT. The "excess" input VAT may have been paid for more than two years but this does not bar the filing of a judicial
claim for "excess" VAT under Section 112(A), which has a different reckoning period from Section 229. Moreover, the person claiming the refund or
credit of the input VAT is not the person who legally paid the input VAT. Such person seeking the VAT refund or credit does not claim that the input VAT
was "excessively" collected from him, or that he paid an input VAT that is more than what is legally due. He is not the taxpayer who legally paid the
input VAT.
As its name implies, the Value-Added Tax system is a tax on the value added by the taxpayer in the chain of transactions. For simplicity and efficiency
in tax collection, the VAT is imposed not just on the value added by the taxpayer, but on the entire selling price of his goods, properties or services.
However, the taxpayer is allowed a refund or credit on the VAT previously paid by those who sold him the inputs for his goods, properties, or services.
The net effect is that the taxpayer pays the VAT only on the value that he adds to the goods, properties, or services that he actually sells.
Under Section 110(B), a taxpayer can apply his input VAT only against his output VAT. The only exception is when the taxpayer is expressly "zero-rated
or effectively zero-rated" under the law, like companies generating power through renewable sources of energy. Thus, a non zero-rated VAT-registered
taxpayer who has no output VAT because he has no sales cannot claim a tax refund or credit of his unused input VAT under the VAT System. Even if
the taxpayer has sales but his input VAT exceeds his output VAT, he cannot seek a tax refund or credit of his "excess" input VAT under the VAT System.
He can only carry-over and apply his "excess" input VAT against his future output VAT. If such "excess" input VAT is an "excessively" collected tax, the
taxpayer should be able to seek a refund or credit for such "excess" input VAT whether or not he has output VAT. The VAT System does not allow such
refund or credit. Such "excess" input VAT is not an "excessively" collected tax under Section 229. The "excess" input VAT is a correctly and properly
collected tax. However, such "excess" input VAT can be applied against the output VAT because the VAT is a tax imposed only on the value added by
the taxpayer. If the input VAT is in fact "excessively" collected under Section 229, then it is the person legally liable to pay the input VAT, not the person
to whom the tax was passed on as part of the purchase price and claiming credit for the input VAT under the VAT System, who can file the judicial claim
under Section 229.
Any suggestion that the "excess" input VAT under the VAT System is an "excessively" collected tax under Section 229 may lead taxpayers to file a
claim for refund or credit for such "excess" input VAT under Section 229 as an ordinary tax refund or credit outside of the VAT System. Under Section
229, mere payment of a tax beyond what is legally due can be claimed as a refund or credit. There is no requirement under Section 229 for an output
VAT or subsequent sale of goods, properties, or services using materials subject to input VAT.
From the plain text of Section 229, it is clear that what can be refunded or credited is a tax that is "erroneously . . . illegally, . . . excessively or in any
manner wrongfully collected." In short, there must be a wrongful payment because what is paid, or part of it, is not legally due. As the Court held in
Mirant, Section 229 should "apply only to instances of erroneous payment or illegal collection of internal revenue taxes." Erroneous or wrongful
payment includes excessive payment because they all refer to payment of taxes not legally due. Under the VAT System, there is no claim or issue that
the "excess" input VAT is "excessively or in any manner wrongfully collected." In fact, if the "excess" input VAT is an "excessively" collected tax under
Section 229, then the taxpayer claiming to apply such "excessively" collected input VAT to offset his output VAT may have no legal basis to make such
offsetting. The person legally liable to pay the input VAT can claim a refund or credit for such "excessively" collected tax, and thus there will no longer
be any "excess" input VAT. This will upend the present VAT System as we know it. 45
Two things are clear from the above quoted San Roque disquisitions. First, when it comes to recovery of unutilized input VAT, Section 112, and not
Section 229 of the 1997 Tax Code, is the governing law. Second, prior to 8 June 2007, the applicable rule is neither Atlas nor Mirant, but Section
112(A).
We present the rules laid down by San Roque in determining the proper reckoning date of the two-year prescriptive period through the following
timeline:
Thus, the task at hand is to determine the applicable period for this case.
In this case, Mindanao II filed its administrative claims for refund or credit for the second, third and fourth quarters of 2004 on 6 October 2005. The
case thus falls within the first period as indicated in the above timeline. In other words, it is covered by the rule prior to the advent of either Atlas or
Mirant.
Accordingly, the proper reckoning date in this case, as provided by Section 112(A) of the 1997 Tax Code, is the close of the taxable quarter when the
relevant sales were made.
C. The Administrative Claims Were Timely Filed
We sum up our conclusions so far: (1) it is only the administrative claim that must be filed within the two-year prescriptive period; and (2) the two-year
prescriptive period begins to run from the close of the taxable quarter when the relevant sales were made.
Bearing these in mind, we now proceed to determine whether Mindanao II's administrative claims for the second, third, and fourth quarters of 2004
were timely filed.
Second Quarter
Since the zero-rated sales were made in the second quarter of 2004, the date of reckoning the two-year prescriptive period is the close of the second
quarter, which is on 30 June 2004. Applying Section 112(A), Mindanao II had two years from 30 June 2004, or until 30 June 2006 to file an
administrative claim with the CIR. Mindanao II filed its administrative claim on 6 October 2005, which is within the two-year prescriptive period. The
administrative claim for the second quarter of 2004 was thus timely filed. For clarity, we present the rules laid down by San Roque in determining the
proper reckoning date of the two-year prescriptive period through the following timeline:
Third Quarter
As regards the claim for the third quarter of 2004, the two-year prescriptive period started to run on 30 September 2004, the close of the taxable
quarter. It ended on 30 September 2006, pursuant to Section 112(A) of the 1997 Tax Code. Mindanao II filed its administrative claim on 6 October
2005. Thus, since the administrative claim was filed well within the two-year prescriptive period, the administrative claim for the third quarter of 2004
was timely filed. (See timeline below)
Fourth Quarter
Here, the two-year prescriptive period is counted starting from the close of the fourth quarter which is on 31 December 2004. The last day of the
prescriptive period for filing an application for tax refund/credit with the CIR was on 31 December 2006. Mindanao II filed its administrative claim with
the CIR on 6 October 2005. Hence, the claims were filed on time, pursuant to Section 112(A) of the 1997 Tax Code. (See timeline below)
II.
MINDANAO IIS JUDICIAL CLAIMS WERE FILED OUT OF TIME
Notwithstanding the timely filing of the administrative claims, we find that the CTA En Banc erred in holding that Mindanao IIs judicial claims were
timely filed.
A. 30-Day Period Also Applies to Appeals from Inaction
Section 112(D) of the 1997 Tax Code states the time requirements for filing a judicial claim for refund or tax credit of input VAT:
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper cases, the Commissioner shall grant a refund or issue the tax
credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsection (A) and (B) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure
on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the
receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the
Court of Tax Appeals. (Emphases supplied)
Section 112(D) speaks of two periods: the period of 120 days, which serves as a waiting period to give time for the CIR to act on the administrative
claim for refund or credit, and the period of 30 days, which refers to the period for interposing an appeal with the CTA. It is with the 30-day period that
there is an issue in this case.
The CTA En Bancs holding is that, since the word "or" a disjunctive term that signifies dissociation and independence of one thing from another is
used in Section 112(D), the taxpayer is given two options: 1) file an appeal within 30 days from the CIRs denial of the administrative claim; or 2) file an
appeal with the CTA after expiration of the 120-day period, in which case the 30-day appeal period does not apply. The judicial claim is seasonably filed
so long as it is filed after the lapse of the 120-day waiting period but before the lapse of the two-year prescriptive period under Section 112(A). 46
We do not agree.
The 30-day period applies not only to instances of actual denial by the CIR of the claim for refund or tax credit, but to cases of inaction by the CIR as
well. This is the correct interpretation of the law, as held in San Roque: 47
Section 112(C)48 also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction of the Commissioner, thus:
x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred
twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.
receipt of the Commissioner's decision, or if the Commissioner does not act on the taxpayer's claim within the 120-day period, the taxpayer may appeal
to the CTA within 30 days from the expiration of the 120-day period. (Emphasis supplied)
The San Roque pronouncement is clear. The taxpayer can file the appeal in one of two ways: (1) file the judicial claim within thirty days after the
Commissioner denies the claim within the 120-day period, or (2) file the judicial claim within thirty days from the expiration of the 120-day period if the
Commissioner does not act within the 120-day period.
B. The Judicial Claim Was Belatedly Filed
In this case, the facts are not up for debate. Mindanao II filed its administrative claim for refund or credit for the second, third, and fourth quarters of
2004 on 6 October 2005. The CIR, therefore, had a period of 120 days, or until 3 February 2006, to act on the claim. The CIR, however, failed to do so.
Mindanao II then could treat the inaction as a denial and appeal it to the CTA within 30 days from 3 February 2006, or until 5 March 2006.
Mindanao II, however, filed a Petition for Review only on 21 July 2006, 138 days after the lapse of the 30-day period on 5 March 2006. The judicial
claim was therefore filed late. (See timeline below.)
C. The 30-Day Period to Appeal is Mandatory and Jurisdictional

However, what is up for debate is the nature of the 30-day time requirement. The CIR posits that it is mandatory. Mindanao II contends that the
requirement of judicial recourse within 30 days is only directory and permissive, as indicated by the use of the word "may" in Section 112(D). 49
The answer is found in San Roque. There, we declared that the 30-day period to appeal is both mandatory and jurisdictional:
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction of the Commissioner, thus:
x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred
twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals. (Emphasis supplied)
receipt of the Commissioner's decision, or if the Commissioner does not act on the taxpayer's claim within the 120-day period, the taxpayer may appeal
to the CTA within 30 days from the expiration of the 120-day period.
xxxx
Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language. The taxpayer can file his administrative claim for
refund or credit at anytime within the two-year prescriptive period. If he files his claim on the last day of the two-year prescriptive period, his claim is still
filed on time. The Commissioner will have 120 days from such filing to decide the claim. If the Commissioner decides the claim on the 120th day, or
does not decide it on that day, the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only the plain meaning but also the only
logical interpretation of Section 112(A) and (C).
xxxx
When Section 112(C) states that "the taxpayer affected may, within thirty (30) days from receipt of the decision denying the claim or after the expiration
of the one hundred twenty-day period, appeal the decision or the unacted claim with the Court of Tax Appeals," the law does not make the 120+30 day
periods optional just because the law uses the word " may." The word "may" simply means that the taxpayer may or may not appeal the decision of the
Commissioner within 30 days from receipt of the decision, or within 30 days from the expiration of the 120-day period. x x x. 50
D. Exception to the mandatory and jurisdictional nature of the 120+30 day period not applicable
Nevertheless, San Roque provides an exception to the mandatory and jurisdictional nature of the 120+30 day period BIR Ruling No. DA-489-03
dated 10 December 2003. The BIR ruling declares that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek
judicial relief with the CTA by way of Petition for Review."
Although Mindanao II has not invoked the BIR ruling, we deem it prudent as well as necessary to dwell on this issue to determine whether this case
falls under the exception.
For this question, we come back to San Roque, which provides that BIR Ruling No. DA-489-03 is a general interpretative rule; thus, taxpayers can rely
on it from the time of its issuance on 10 December 2003 until its reversal by this Court in Aichi on 6 October 2010, when the 120+30 day periods were
held to be mandatory and jurisdictional. The Court reasoned as follows:
Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a difficult question of law. The abandonment of
the Atlas doctrine by Mirant and Aichi is proof that the reckoning of the prescriptive periods for input VAT tax refund or credit is a difficult question of law.
The abandonment of the Atlas doctrine did not result in Atlas, or other taxpayers similarly situated, being made to return the tax refund or credit they
received or could have received under Atlas prior to its abandonment. This Court is applying Mirant and Aichi prospectively. Absent fraud, bad faith or
misrepresentation, the reversal by this Court of a general interpretative rule issued by the Commissioner, like the reversal of a specific BIR ruling under
Section 246, should also apply prospectively. x x x.
xxxx
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable to all taxpayers or a specific ruling applicable only
to a particular taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made, not by a particular taxpayer, but by a
government agency tasked with processing tax refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the
Department of Finance . This government agency is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus, while this
government agency mentions in its query to the Commissioner the administrative claim of Lazi Bay Resources Development, Inc., the agency was in
fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay Resources Development, Inc., where the taxpayer did not wait for the
lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its
issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010, where this Court held that the 120+30 day periods are
mandatory and jurisdictional.51
Thus, in San Roque, the Court applied this exception to Taganito Mining Corporation (Taganito), one of the taxpayers in San Roque. Taganito filed its
judicial claim on 14 February 2007, after the BIR ruling took effect on 10 December 2003 and before the promulgation of Mirant. The Court stated:
Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the issuance of BIR Ruling No. DA-489-03 on 10 December 2003.
Truly, Taganito can claim that in filing its judicial claim prematurely without waiting for the 120-day period to expire, it was misled by BIR Ruling No. DA489-03. Thus, Taganito can claim the benefit of BIR Ruling No. DA-489-03, which shields the filing of its judicial claim from the vice of prematurity. 52
San Roque was also careful to point out that the BIR ruling does not retroactively apply to premature judicial claims filed before the issuance of the BIR
ruling:
However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four reasons: first, it is admittedly an erroneous interpretation of the law;
second, prior to its issuance, the BIR held that the 120-day period was mandatory and jurisdictional, which is the correct interpretation of the law; third,
prior to its issuance, no taxpayer can claim that it was misled by the BIR into filing a judicial claim prematurely; and fourth, a claim for tax refund or
credit, like a claim for tax exemption, is strictly construed against the taxpayer.53
Thus, San Roque held that taxpayer San Roque Power Corporation, could not seek refuge in the BIR ruling as it jumped the gun when it filed its judicial
claim on 10 April 2003, prior to the issuance of the BIR ruling on 10 December 2003.1wphi1 The Court stated:
San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its judicial claim prematurely on 10 April 2003, before the
issuance of BIR Ruling No. DA-489-03 on 10 December 2003. To repeat, San Roque cannot claim that it was misled by the BIR into filing its judicial
claim prematurely because BIR Ruling No. DA-489-03 was issued only after San Roque filed its judicial claim. At the time San Roque filed its judicial
claim, the law as applied and administered by the BIR was that the Commissioner had 120 days to act on administrative claims. This was in fact the
position of the BIR prior to the issuance of BIR Ruling No. DA-489-03. Indeed, San Roque never claimed the benefit of BIR Ruling No. DA-489-03 or
RMC 49-03, whether in this Court, the CTA, or before the Commissioner.54
San Roque likewise ruled out the application of the BIR ruling to cases of late filing. The Court held that the BIR ruling, as an exception to the
mandatory and jurisdictional nature of the 120+30 day periods, is limited to premature filing and does not extend to late filing of a judicial claim. Thus,
the Court found that since Philex Mining Corporation, the other party in the consolidated case San Roque, filed its claim 426 days after the lapse of the
30-day period, it could not avail itself of the benefit of the BIR ruling:
Philexs situation is not a case of premature filing of its judicial claim but of late filing, indeed
Very late filing. BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim, which means non-exhaustion of the 120-day period for the
Commissioner to act on an administrative claim. Philex cannot claim the benefit of BIR Ruling No. DA-489-03 because Philex did not file its judicial
claim prematurely but filed it long after the lapse of the 30-day period following the expiration of the 120-day period. In fact, Philex filed its judicial claim
426 days after the lapse of the 30-day period.55
We sum up the rules established by San Roque on the mandatory and jurisdictional nature of the 30-day period to appeal through the following
timeline:
Bearing in mind the foregoing rules for the timely filing of a judicial claim for refund or credit of unutilized input VAT, we rule on the present case of
Mindanao II as follows:
We find that Mindanao IIs situation is similar to that of Philex in San Roque.
As mentioned above, Mindanao II filed its judicial claim with the CTA on 21 July 2006. This was after the issuance of BIR Ruling No. DA-489-03 on 10
December 2003, but before its reversal on 5 October 2010. However, while the BIR ruling was in effect when Mindanao II filed its judicial claim, the rule
cannot be properly invoked. The BIR ruling, as discussed earlier, contemplates premature filing. The situation of Mindanao II is one of late filing. To
repeat, its judicial claim was filed on 21 July 2006 long after 5 March 2006, the last day of the 30-day period for appeal. In fact, it filed its judicial claim
138 days after the lapse of the 30-day period. (See timeline below)
E. Undersigned dissented in San Roque to the retroactive application of the mandatory and jurisdictional nature of the 120+30 day period.
It is worthy to note that in San Roque, this ponente registered her dissent to the retroactive application of the mandatory and jurisdictional nature of the
120+30 day period provided under Section 112(D) of the Tax Code which, in her view, is unfair to taxpayers. It has been the view of this ponente that
the mandatory nature of 120+30 day period must be completely applied prospectively or, at the earliest, only upon the finality of Aichi in order to create
stability and consistency in our tax laws. Nevertheless, this ponente is mindful of the fact that judicial precedents cannot be ignored. Hence, the
majority view expressed in San Roque must be applied.
SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR CLAIMING REFUND OR CREDIT OF INPUT VAT
The lessons of this case may be summed up as follows:
A. Two-Year Prescriptive Period
1. It is only the administrative claim that must be filed within the two-year prescriptive period. (Aichi) 2. The proper reckoning date for the
two-year prescriptive period is the close of the taxable quarter when the relevant sales were made. (San Roque)
3. The only other rule is the Atlas ruling, which applied only from 8 June 2007 to 12 September 2008. Atlas states that the two-year
prescriptive period for filing a claim for tax refund or credit of unutilized input VAT payments should be counted from the date of filing of the
VAT return and payment of the tax. (San Roque)
B. 120+30 Day Period
1. The taxpayer can file an appeal in one of two ways: (1) file the judicial claim within thirty days after the Commissioner denies the claim
within the 120-day period, or (2) file the judicial claim within thirty days from the expiration of the 120-day period if the Commissioner does
not act within the 120-day period.
2. The 30-day period always applies, whether there is a denial or inaction on the part of the CIR.
3. As a general rule, the 3 0-day period to appeal is both mandatory and jurisdictional. (Aichi and San Roque)
4. As an exception to the general rule, premature filing is allowed only if filed between 10 December 2003 and 5 October 2010, when BIR
Ruling No. DA-489-03 was still in force. (San Roque)
5. Late filing is absolutely prohibited, even during the time when BIR Ruling No. DA-489-03 was in force. (San Roque)
SUMMARY AND CONCLUSION
In sum, our finding is that the three administrative claims for the refund or credit of unutilized input VAT were all timely filed, while the corresponding
judicial claims were belatedly filed.
The foregoing considered, the CT A lost jurisdiction over Mindanao Ils claims for refund or credit.1wphi1 The CTA EB erred in granting these claims.
WHEREFORE, we GRANT the Petition. The assailed Court of Tax Appeals En Banc Decision dated 11 November 2009 and Resolution dated 3 March
2010 of the in CTA EB Case No. 448 (CTA Case No. 7507) are hereby REVERSED and SET ASIDE. A new ruling is entered DENYING respondent s
claim for a tax refund or credit ofP6,791,845.24.
SO ORDERED.

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Republic of the Philippines

March 30, 2000

COMMISSIONER OF INTERNAL REVENUE, petitioner,

20% interest per annum

Compromise penalty for late payment

Republic of the Philippines

G.R. No. 168730

Rule XII, Section 35 of the Rules of the Senate states:

House Bill No. 3555

With regard to "Stand-By Authority" in favor of President

With regard to the "no pass-on" provision

With regard to 70% limit on input tax credit

Provided for amendments to

(A) Creditable Input Tax. . . .

Rates of Income Tax on Domestic Corporation

Tax on Resident Foreign Corporation

Tax on Persons Exempt from VAT

Percentage Tax on domestic carriers and keepers of Garage

Tax on banks and Non-Bank Financial Intermediaries

Excise Tax on manufactured oils and other fuels

Excise Tax on mineral products

Issuance of receipts or sales or commercial invoices

Disposition of Incremental Revenue

(5) Delegation to administrative bodies.

G.R. No. 180042

IRONCON BUILDERS AND

The Facts and the Case

The Courts Ruling

Republic of the Philippines

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

DEL CASTILLO, J.:

Net Creditable Input VAT

Republic of the Philippines

FORT BONIFACIO DEVELOPMENT CORPORATION Petitioner,

FORT BONIFACIO DEVELOPMENT CORPORATION Petitioner,

Republic of the Philippines

FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner,

Ruling of the Court of Appeals

Section 105 of the old NIRC reads:

Republic of the Philippines

February 12, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

The Court of Tax Appeals Ruling: Division

April 15, 2005

July 20, 2005

October 18, 2006

July 20, 2005

October 18, 2006

October 19, 2005

October 18, 2006

January 20, 2006

October 18, 2006

Total Input VAT

G.R. No. 187485

Date of Filing Return

2nd Quarter, 1990

3rd Quarter, 1990

4th Quarter, 1990

c. G.R. No. 197156 Philex Mining Corporation v. CIR

Republic of the Philippines

January 15, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

The Taxpayers Defense