CIR v.

San Roque Power Corp

Facts:

San Roque Power Corp is incorporated in the Philippines to design, construct, erect, assemble, own,
commission and operate power-generating plants and related facilities pursuant to and under contract
with the Government of the Republic of the Philippines. San Roque entered into a Power Purchase
Agreement ("PPA") with the National Power Corporation ("NPC") to develop hydro-potential of the
Lower Agno River and generate additional power and energy for the Luzon Power Grid, by building the
San Roque Multi-Purpose Project located in San Manuel, Pangasinan.

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 was amended to 560,200,283.14 which was filed with
the BIR for refund in March 28, 2003.

CIRs inaction on the subject claims led to the filing by San Roque of the Petition for Review with the
Court [of Tax Appeals] in Division on April 10, 2003.

The Court of Tax Appeals Ruling: Division

CTA Second Division found legal basis to partially grant San Roques claim. 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.

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 because the corporation filed to the CTA only after 13 days after the corporation filed
administratively to the BIR not following the 120-30 days period. The CTA EB dismissed the CIRs petition
for review and affirmed the challenged decision and resolution.

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 consonance therewith, the following amendments are being introduced to RMC No. 42-2003

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. 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.

Issue:

W/N the claim of San Roque of refund was not prematurely filed
Ruling:

1997 Tax Code

Sec. 112. Refunds or Tax Credits of Input Tax.

(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 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

Yes. 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.

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. San Roques failure to comply
with the 120-day mandatory period renders its petition for review with the CTA void. Well-settled is the
rule that tax refunds or credits, just like tax exemptions, are strictly construed against the taxpayer.

CIR v. San Roque Power Corp. (Motion for Reconsideration)

Doctrine of Operative Fact

The doctrine of operative fact is an exception to the general rule, such that a judicial declaration of
invalidity may not necessarily obliterate all the effects and consequences of a void act prior to such
declaration.

Facts:

San Roque prays that the rule established in our 12 February 2013 Decision be given only a prospective
effect, arguing that "the manner by which the Bureau of Internal Revenue (BIR) and the Court of Tax
Appeals(CTA) actually treated the 120 + 30 day periods constitutes an operative fact the effects and
consequences of which cannot be erased or undone.

Issue:

W/N the Doctrine of Operative Fact is applicable in this case.

Ruling:
No. Clearly, for the operative fact doctrine to apply, there must be a "legislative or executive measure,"
meaning a law or executive issuance, that is invalidated by the court. From the passage of such law or
promulgation of such executive issuance until its invalidation by the court, the effects of the law or
executive issuance, when relied upon by the public in good faith, may have to be recognized as valid. In
the present case, however, there is no such law or executive issuance that has been invalidated by the
Court except BIR Ruling No. DA-489-03 (a taxpayer-claimant need not wait for the lapse of the 120-day
period before it could seek judicial relief with the CTA by way of Petition for Review)

To justify the application of the doctrine of operative fact as an exemption, San Roque asserts that "the
BIR and the CTA in actual practice did not observe and did not require refund seekers to comply with
the120+30 day periods." This is glaring error because an administrative practice is neither a law nor an
executive issuance.

Before the issuance of BIR Ruling No. DA-489-03 on 10 December 2003, there was no administrative
practice by the BIR that supported simultaneous filing of claims. Prior to BIR Ruling No. DA-489-03, the
BIR considered the 120+30 day periods mandatory and jurisdictional.

At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods
were already in the law. Section112(D) expressly grants the Commissioner 120 days within which to
decide the taxpayers claim while Section 112(D) also expressly grants the taxpayer a 30-day period to
appeal to the CTA the decision or inaction of the Commissioner.

San Roques argument must, therefore, fail. The doctrine of operative fact is an argument for the
application of equity and fair play. In the present case, we applied the doctrine of operative fact when
we recognized simultaneous filing during the period between 10 December 2003, when BIR Ruling No.
DA-489-03 was issued, and 6 October 2010, when this Court declaring the 120+30 day periods
mandatory and jurisdictional, thus reversing BIR Ruling No. DA-489-03.

Section 246 of the Tax Code shows how the doctrine of operative fact should be applied. However, CTA
or CA rulings are not the executive issuances covered by Section 246 of the Tax Code, which adopts the
operative fact doctrine. CTA or CA decisions are specific rulings applicable only to the parties to the case
and not to the general public. CTA or CA decisions, unlike those of this Court, do not form part of the law
of the land. Decisions of lower courts do not have any value as precedents. Therefore, the cases cited by
San Roque to bolster its claim against the application of the 120+30 day period requirement do not have
any value as precedents in the present case.