Tax-Cases 12.15.18

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 191498 January 15, 2014
COMMISSIONER OF INTERNAL REVENUE, Petitioner,

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 Decision2 and Resolution3 of the Court
of Tax Appeals En Banc (CTA En Banc) in CTA En Banc Case No. 448, affirming the Decision in
CTA Case No. 7507 of the CTA Second Division.4 The latter ordered the refund or issuance of a tax
credit certificate in the amount of ₱6,791,845.24 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
Original Amended
26 July 2004 12 July 2005 2nd 2004
22 October 2004 12 July 2005 3rd 2004
25 January 2005 12 July 2005 4th 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 ₱7,167,005.84, which were directly attributable to the zero-rated sales. The input taxes
had not been applied against output tax.
Pursuant to Section 112(D) of the 1997 Tax Code, the Commissioner of Internal Revenue (CIR) had
a period of 120 days, or until 3 February 2006, to act on the claim. The administrative claim,
however, remained unresolved on 3 February 2006.
Under the same provision, Mindanao II could treat the inaction of the CIR as a denial of its claim, in
which case, the former would have 30 days to file an appeal to the CTA, that is, on 5 March 2006.
Mindanao II, however, did not file an appeal within the 30-day period.
Apparently, Mindanao II believed that a judicial claim must be filed within the two-year prescriptive
period provided under Section 112(A) and that such time frame was to be reckoned from the filing of
its Quarterly VAT Returns for the second, third, and fourth quarters of taxable year 2004, that is,
from 26 July 2004, 22 October 2004, and 25 January 2005, respectively. Thus, on 21 July 2006,
Mindanao II, claiming inaction on the part of the CIR and that the two-year prescriptive period was
about to expire, filed a Petition for Review with the CTA docketed as CTA Case No. 6133.12
On 8 June 2007, while the application for refund or credit of unutilized input VAT of Mindanao II was
pending before the CTA Second Division, this Court promulgated Atlas Consolidated Mining and
Development Corporation v. CIR13(Atlas). Atlas held that the 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 Decision14 ordering the CIR to grant a
refund or a tax credit certificate, but only in the reduced amount of ₱6,791,845.24, 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 ₱375,160.60 corresponding
to purchases of services from Mitsubishi Corporation was disallowed, since it was not substantiated
by official receipts.17
As regards to the fifth requirement in section 112 of the Tax Code, the tax court, citing Atlas, counted
from 26 July 2004, 22 October 2004, and 25 January 2005 – the dates when Mindanao II filed its
Quarterly VAT Returns for the second, third, and fourth quarters of taxable year 2004, respectively –
and determined that both the administrative claim filed on 6 October 2005 and the judicial claim filed
on 21 July 2006 fell within the two-year prescriptive period.18
On 1 September 2008, the CIR filed a Motion for Partial Reconsideration,19 pointing out that
prescription had already set in, since the appeal to the CTA was filed only on 21 July 2006, which
was way beyond the last day to appeal – 5 March 2006.20 As legal basis for this argument, the CIR
relied on Section 112(D) of the 1997 Tax Code.21
Meanwhile, on 12 September 2008, this Court promulgated CIR v. Mirant Pagbilao Corporation
(Mirant).22 Mirant fixed the reckoning date of the two-year prescriptive period for the application for
refund or credit of unutilized input VAT at the close of the taxable quarter when the relevant sales
were made , as stated in Section 112(A).23
On 3 December 2008, the CTA Second Division denied the CIR’s 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 CIR’s 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 taxpayer’s claim. But in cases of
CIR inaction, the 30-day period is not a mandatory requirement; the judicial claim is seasonably filed
as long as it is filed after the lapse of the 120-day waiting period but within two years from the date of
filing of the return.33
The CIR filed a Motion for Partial Reconsideration34 of the Decision, but it was denied for lack of
merit.35
Dissatisfied, the CIR filed this Rule 45 Petition, raising the following arguments in support of its
appeal:
I.
THE CTA 2ND DIVISION LACKED JURISDICTION TO TAKE COGNIZANCE OF THE CASE.
II.
THE COURT A QUO’S 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 COURT’S RULING

We deny Mindanao II’s 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 II’S 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:
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.
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 respondent’s view. Subsection (A) of the said
provision states that "any VAT-registered person, whose sales are zero-rated or effectively zero-
rated may, within two years after the close of the taxable quarter when the sales were made, apply
for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to
such sales." The phrase "within two (2) years x x x apply for the issuance of a tax credit certificate or
refund" refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA.
This is apparent in the first paragraph of subsection (D) of the same provision, which states that the
CIR has "120 days from the submission of complete documents in support of the application filed in
accordance with Subsections (A) and (B)" within which to decide on the claim.
In fact, applying the two-year period to judicial claims would render nugatory Section 112 (D) of the
NIRC, which already provides for a specific period within which a taxpayer should appeal the
decision or inaction of the CIR. The second paragraph of Section 112 (D) of the NIRC envisions two
scenarios: (1) when a decision is issued by the CIR before the lapse of the 120-day period; and (2)
when no decision is made after the 120-day period. In both instances, the taxpayer has 30 days
within which to file an appeal with the CTA. As we see it then, the 120-day period is crucial in filing
an appeal with the CTA. (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 CIR’s Stand
The CIR’s 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 Taxpayer’s 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 CIR’s reliance on the Mirant doctrine stating that it
cannot be applied retroactively to this case, lest it violate the rock-solid rule that a judicial ruling
cannot be given retroactive effect if it will impair vested rights.43
Section 112(A) is the Applicable Rule
The issue posed is not novel. In the recent case of Commissioner of Internal Revenue v. San Roque
Power Corporation44 (San Roque), this Court resolved the threshold question of when to reckon the
two-year prescriptive period for filing an administrative claim for refund or credit of unutilized input
VAT under the 1997 Tax Code in view of our pronouncements in Atlas and Mirant. In that case, we
delineated the scope and effectivity of the Atlas and Mirant doctrines as follows:
The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the two-
year prescriptive period under Section 229, should be effective only from its promulgation on 8 June
2007 until its abandonment on 12 September 2008 in Mirant. The Atlas doctrine was limited to the
reckoning of the two-year prescriptive period from the date of payment of the output VAT. Prior to
the Atlas doctrine, the two-year prescriptive period for claiming refund or credit of input VAT should
be governed by Section 112(A) following the verba legis rule. The Mirant ruling, which abandoned
the Atlas doctrine, adopted the verba legis rule, thus applying Section 112(A) in computing the two-
year prescriptive period in claiming refund or credit of input VAT. (Emphases supplied)
Furthermore, San Roque distinguished between Section 112 and Section 229 of the 1997 Tax Code:
The input VAT is not "excessively" collected as understood under Section 229 because at the time
the input VAT is collected the amount paid is correct and proper. The input VAT is a tax liability of,
and legally paid by, a VAT-registered seller of goods, properties or services used as input by another
VAT-registered person in the sale of his own goods, properties, or services. This tax liability is true
even if the seller passes on the input VAT to the buyer as part of the purchase price. The second
VAT-registered person, who is not legally liable for the input VAT, is the one who applies the input
VAT as credit for his own output VAT. If the 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 II’S 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 II’s 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 Banc’s 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 CIR’s 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.
This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law
should be applied exactly as worded since it is clear, plain, and unequivocal. As this law states, the
taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30 days from
receipt of the Commissioner's decision, or if the Commissioner does not act on the taxpayer's claim
within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of
the 120-day period. (Emphasis supplied)
The San Roque pronouncement is clear. The taxpayer can file the appeal in one of two ways: (1) file
the judicial claim within thirty days after the Commissioner denies the claim within the 120-day
period, or (2) file the judicial claim within thirty days from the expiration of the 120-day period if the
Commissioner does not act within the 120-day period.
B. The Judicial Claim Was Belatedly Filed

In this case, the facts are not up for debate. Mindanao II filed its administrative claim for refund or
credit for the second, third, and fourth quarters of 2004 on 6 October 2005. The CIR, therefore, had
a period of 120 days, or until 3 February 2006, to act on the claim. The CIR, however, failed to do
so. Mindanao II then could treat the inaction as a denial and appeal it to the CTA within 30 days from
3 February 2006, or until 5 March 2006.
Mindanao II, however, filed a Petition for Review only on 21 July 2006, 138 days after the lapse of
the 30-day period on 5 March 2006. The judicial claim was therefore filed late. (See timeline below.)
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)
This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law
should be applied exactly as worded since it is clear, plain, and unequivocal. As this law states, the
taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30 days from
receipt of the Commissioner's decision, or if the Commissioner does not act on the taxpayer's claim
within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of
the 120-day period.
xxxx
Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language.
The taxpayer can file his administrative claim for refund or credit at anytime within the two-year
prescriptive period. If he files his claim on the last day of the two-year prescriptive period, his claim is
still filed on time. The Commissioner will have 120 days from such filing to decide the claim. If the
Commissioner decides the claim on the 120th day, or does not decide it on that day, the taxpayer
still has 30 days to file his judicial claim with the CTA. This is not only the plain meaning but also the
only logical interpretation of Section 112(A) and (C).
xxxx
When Section 112(C) states that "the taxpayer affected may, within thirty (30) days from receipt of
the decision denying the claim or after the expiration of the one hundred 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.
DA-489-03. Thus, Taganito can claim the benefit of BIR Ruling No. DA-489-03, which shields the
filing of its judicial claim from the vice of prematurity.52
San Roque was also careful to point out that the BIR ruling does not retroactively apply to premature
judicial claims filed before the issuance of the BIR ruling:
However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four reasons: first, it is
admittedly an erroneous interpretation of the law; second, prior to its issuance, the BIR held that the
120-day period was mandatory and jurisdictional, which is the correct interpretation of the law; third,
prior to its issuance, no taxpayer can claim that it was misled by the BIR into filing a judicial claim
prematurely; and fourth, a claim for tax refund or credit, like a claim for tax exemption, is strictly
construed against the taxpayer.53
Thus, San Roque held that taxpayer San Roque Power Corporation, could not seek refuge in the
BIR ruling as it jumped the gun when it filed its judicial claim on 10 April 2003, prior to the issuance
of the BIR ruling on 10 December 2003. The Court stated:
1âwphi1
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:
Philex’s situation is not a case of premature filing of its judicial claim but of late filing, indeed
Very late filing. BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim, which means
non-exhaustion of the 120-day period for the Commissioner to act on an administrative claim. Philex
cannot claim the benefit of BIR Ruling No. DA-489-03 because Philex did not file its judicial claim
prematurely but filed it long after the lapse of the 30-day period following the expiration of the 120-
day period. In fact, Philex filed its judicial claim 426 days after the lapse of the 30-day period.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 II’s 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 Il’s claims for refund or
credit. The CTA EB erred in granting these claims.
1âwphi1
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 of ₱6,791,845.24.
SO ORDERED.
MARIA LOURDES P. A. SERENO

Chief Justice, Chairperson
WE CONCUR:
TERESITA J. LEONARDO-DE CASTRO

Associate Justice
LUCAS P. BERSAMIN MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice
BIENVENIDO L. REYES
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the opinion
of the Court’s Division.
SECOND DIVISION
COMMISSIONER OF INTERNAL G.R. No. 180042

REVENUE,
Petitioner, Present:
Carpio, J., Chairperson,
- versus - Brion,
Del Castillo,
Abad, and
Perez, JJ.
IRONCON BUILDERS AND
DEVELOPMENT CORPORATION, Promulgated:
Respondent.
February 8, 2010
x ---------------------------------------------------------------------------------------- x
DECISION
ABAD, J.:
This addresses the question of whether or not creditable value-added tax

(VAT) withheld from a taxpayer in excess of its output VAT liability may be the
subject of a tax refund in place of a tax credit.
The Facts and the Case

On May 10, 2001 respondent Ironcon Builders and Development Corporation
(Ironcon) sought the refund by the Bureau of Internal Revenue (BIR) of its income
tax overpayment and excess creditable VAT. When petitioner Commissioner of
Internal Revenue (CIR) continued not to act on its claims, on July 1, 2002 Ironcon
filed a petition for review with the Court of Tax Appeals (CTA) in CTA Case 6502,
which was raffled to its Second Division.
After hearing, the Second Division held that in regard to the claim for overpaid
income taxes, taxpayers have the option to either carry over the excess credit or ask
for a refund. Here, respondent Ironcon filed two income tax returns for the year
2000, an original and an amended one. In the original return, Ironcon placed an x
mark in a box corresponding to the option To be carried over as tax credit next
year/quarter. Although Ironcons amended return indicated a preference for refund of
the overpaid tax, the Second Division ruled that Ironcons original choice is regarded
as irrevocable, pursuant to Section 76 of Republic Act (R.A.) 8424 (the National
Internal Revenue Code of 1997 or NIRC). Further, the Second Division found that
Ironcon actually carried over the credit for overpaid income taxes and applied it to
the tax due for the year 2001. It, therefore, denied Ironcons claim for its refund.
As to the claim for VAT refund, the Second Division found that by the end of
2000, Ironcon had excess tax credit of P3,135,990.69 carried over from 1999,
allowable input tax 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
of P9,332,597.99 mentioned above represents the excess 6% creditable VAT
withheld, not creditable input VAT.
The CTA further ruled that since Ironcon had no more output VAT against
which the excess creditable VAT withheld may be applied or credited, the VAT
withheld had been excessively paid. Thus, the Court ruled that the excess amount
may be refunded under Section 204(C) in relation to Section 229 of the
NIRC. Before a refund may be granted, however, it must be shown that the claim
was not used or carried over to the succeeding quarters.
Ironcon did not present before the Second Division its VAT returns for the
succeeding quarters of 2001. Without this, the Second Division could not verify
whether the tax credit was applied to output VAT liability in 2001. Thus, the Second
Division also denied Ironcons claim for refund of excess creditable VAT.
Ironcon filed a motion for reconsideration, attaching to it its amended

quarterly VAT returns for 2001. These were marked in open court as Exhibits A-1,
B-1, C-1, and D-1.The CTA promulgated an Amended Decision on July 31, 2006,
admitting the exhibits and ruling that Ironcon sufficiently proved that its excess
creditable VAT withheld was not carried over or applied to any output VAT for
2001. Thus, the Court granted its application for the refund of unutilized excess
creditable VAT of P9,332,597.99.
Petitioner CIR filed a motion for reconsideration of the amended decision,

which the Second Division denied, prompting the CIR to elevate the matter to the
CTA En Bancby way of a petition for review in CTA EB 235. The CTA En
Banc denied the petition in a Decision dated August 9, 2007. It also denied the CIRs
motion for reconsideration, hence, this petition for review.[1]
Issue Presented
Simply put, the only issue the petition raises is whether or not the CTA erred in
granting respondent Ironcons application for refund of its excess creditable VAT
withheld.
The Courts Ruling
Respondent Ironcons excess creditable VAT in this case consists of amounts

withheld and remitted to the BIR by Ironcons clients. These clients were government
agencies that applied the 6% withholding rate on their payments to Ironcon pursuant
to Section 114 of the NIRC (prior to its amendment by R.A. 9337). Petitioner CIRs
main contention is that, since these amounts were withheld in accordance with what
the law provides, they cannot be regarded as erroneously or illegally collected as
contemplated in Sections 204(C) and 229 of the NIRC.
Petitioner CIR also points out that since the NIRC does not specifically grant
taxpayers the option to refund excess creditable VAT withheld, it follows that such
refund cannot be allowed. Excess creditable VAT withheld is much unlike excess
income taxes withheld. In the latter case, Sections 76 and 58(D) of the NIRC
specifically make the option to seek a refund available to the taxpayer. The CIR
submits thus that the only option available to taxpayers in case of excess creditable
VAT withheld is to apply the excess credits to succeeding quarters.
But the amounts involved in this case are creditable withholding taxes, not
final taxes subject to withholding. As the CTA correctly points out, taxes withheld
on certain payments under the creditable withholding tax system are but intended to
approximate the tax due from the payee.[2] The withheld taxes remitted to the BIR
are treated as deposits or advances on the actual tax liability of the taxpayer, subject
to adjustment at the proper time when the actual tax liability can be fully and finally
determined.[3]
For the year 2000, Ironcons actual VAT liability payable may be computed as
follows:
Output taxes P 20,073,422.63

Less: allowable input taxes P 15,242,271.43
P 4,831,151.20
Less: tax credit (1999) P 3,135,990.69
VAT payable P 1,695,160.51
Respondent Ironcons clients had, however, already withheld and

remitted P11,027,758.51 to the BIR in compliance with Section 114. As stated
above, this withheld amount is to be treated as advance payment for Ironcons VAT
liability payable and, therefore, the difference of P9,332,597.99 should be treated as
Ironcons overpaid taxes.
The ruling in Citibank N.A. v. Court of Appeals, while dealing with excessive
income taxes withheld, is also applicable to this case: Consequently and clearly, the
tax withheld during the course of the taxable year, while collected legally under the
aforesaid revenue regulation, became untenable and took on the nature of
erroneously collected taxes at the end of the taxable year.[4]
Even if the law does not expressly state that Ironcons excess creditable VAT
withheld is refundable, it may be the subject of a claim for refund as an erroneously
collected tax under Sections 204(C) and 229. It should be clarified that this ruling
only refers to creditable VAT withheld pursuant to Section 114 prior to its
amendment. After its amendment by R.A. 9337, the amount withheld under Section
114 is now treated as a final VAT, no longer under the creditable withholding tax
system.[5]
The rule is that before a refund may be granted, respondent Ironcon must show
that it had not used the creditable amount or carried it over to succeeding taxable
quarters.Originally, the CTAs Second Division said in its January 5, 2006 decision
that Ironcons failure to offer in evidence its quarterly returns for 2001 was fatal to
its claim. Ironcon filed a motion for reconsideration, attaching its 2001 returns, and,
at the hearing of the motion, had these returns marked as Exhibits A-1, B-1, C-1, and
D-1. Petitioner CIR argues that these Exhibits should be deemed inadmissible
considering that they were offered only after trial had ended and should be treated
as forgotten evidence.
Citing BPI-Family Savings Bank v. Court of Appeals,[6] the CTA ruled that
once a claim for refund has been clearly established, it may set aside technicalities
in the presentation of evidence. Petitioner CIR points out, however, that the present
case is not on all fours with BPI. The latter case dealt with the refund of creditable
income taxes withheld, for which the NIRC specifically grants taxpayers the option
to apply for refund of any excess.
But, considering the CTAs finding in the present case that Ironcon had excess
creditable VAT withheld for which it was entitled to a refund, it makes no sense to
deny Ironcon the benefit of the BPI ruling that overlooks technicalities in the
presentation of evidence. In BPI, this Court admitted an exhibit attached to the
claimants motion for reconsideration, even if the claimant submitted it only after the
trial.
[The claimant] may have failed to strictly comply with the rules of
procedure; it may have even been negligent. These circumstances,
however, should not compel the Court to disregard this cold, undisputed
fact: that [the claimant] x x x could not have applied the amount claimed
as tax credits.[7]
Substantial justice dictates that the government should not keep money that
does not belong to it at the expense of citizens.[8] Since he ought to know the tax
records of all taxpayers, petitioner CIR could have easily disproved the claimants
allegations.[9] That he chose not to amounts to a waiver of that right.[10] Also, the CIR
failed in this case to make a timely objection to or comment on respondent Ironcons
offer of the documents in question despite an opportunity to do so.[11] Taking all
these circumstances together, it was sufficiently proved that Ironcons excess
creditable VAT withheld was not carried over to succeeding taxable quarters.
WHEREFORE, the Court DENIES the petition and AFFIRMS the Court of
Tax Appeals En Bancs decision in CTA EB 235 dated August 9, 2007, its resolution
dated October 11, 2007, as well as the amended decision of the Court of Tax Appeals
Second Division in CTA Case 6502 dated July 31, 2006.
SO ORDERED.
ROBERTO A. ABAD
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
ARTURO D. BRION MARIANO C. DEL CASTILLO

JOSE P. PEREZ
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairpersons Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the opinion
of the Courts Division.
REYNATO S. PUNO
Chief Justice
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 205055 July 18, 2014
COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
TEAM SUAL CORPORATION (formerly MIRANT SUAL CORPORATION), Respondent.
DECISION
CARPIO, J.:
The Case
This is a petition for review1 assailing the Decision2 promulgated oh 27 July 2012 as well as the
Resolution3promulgated on 6 December 2012 by the Court of Tax. Appeals En Banc (CTA EB) in
CTA EB No. 768. The CTA EB affirmed the 5 April 2011 Amended Decision4 of the Special First
Division of the Court of Tax. Appeals (CTA Special First Division) in CTA Case No. 7470. The CTA
Special First Division granted the claim for refund or issuance of tax. credit certificate filed by
respondent Team Sual Corporation (TSC).5
The Facts
TSC is a value-added tax (VAT) payer duly registered with the Bureau of Internal Revenue (BIR). It
is principally engaged in the business of electric power generation and the sale of electric power to
National Power Corporation (NPC) under a Build-Operate-Transfer (BOT) Scheme.
On 19 December 2003, TSC applied for the VAT zero-rating of its sale of electric power to NPC for
the taxable year 2004. TSC’s application was subsequently approved by the BIR.
On 26 April 2004, 26 July 2004, 25 October 2004 and 25 January 2005, TSC filed its quarterly VAT
returns for the four quarters of 2004 with the BIR, through the Electronic Filing and Payment Scheme
(EFPS). On 26 July 2004 and on 3 August 2005, TSC filed its amended quarterly VAT returns for the
first and fourth quarters of 2004, respectively.
The quarterly VAT returns for the four quarters of 2004 provide:
Zero-Rated Sales/ Excess Input

Exh. Taxable Sales Output VAT Input VAT
Receipts VAT
D ₱3,698,654,169.48 P0.00 P0.00 ₱13,134,435.00 ₱13,134,435.00
E 3,653,185,715.68 202,558.14 20,255.81 31,973,996.35 31,953,740.54
F 3,744,693,428.11 465,744.07 46,574.41 19,967,007.14 19,920,432.73
H 3,819,303,147.15 1,044,107.15 104,410.71 38,227,189.38 38,122,778.67
Total ₱14,915,836,460.42 ₱1,712,409.36 ₱171,240.93 ₱103,302,627.87 ₱103,131,386.94
On 21 December 2005, TSC filed an administrative claim for refund of its input VAT, which it
incurredfor the four quarters of 2004.
On 24 April 2006, due to the BIR’s inaction, TSC filed a petition for review with the Court of Tax
Appeals (CTA). TSC prayed for the refund or issuance of tax credit certificate for its alleged
unutilized input VAT for year 2004.
The Court of Tax Appeals’ Ruling: Division
In its 4 March 2010 Decision,6 the CTA Special First Division ruled that TSC’s sale of electric power
toNPC was effectively zero-rated. The CTA Special First Division found that TSC complied with the
five requirements to be entitled to a refund orissuance of tax credit certificate on its input VAT, to wit:
1. That there must be zero-rated or effectively zero-rated sales;
2. That input taxes were incurred or paid;
3. That such input taxes are attributable to zero-rated sales or effectively zero-rated sales;
4. That the input taxes were not applied against any output VAT liability; and
5. That the claim for refund was filed within the two-year prescriptive period.7
The CTA Special First Division found that TSC is entitled to a refund or issuance of tax credit
certificate in the amount of ₱78,009,891.568 input VAT, upon disallowance of the amounts of: (1)
₱568,628,238.98 for being sales of electric power to Mirant Philippines Energy Corporation, Mirant
Philippines Industrial Power Corporation, and Mirant Philippines Industrial Power II Corporation; (2)
₱2,430,229,567.30 zero-rated sales to NPC for not being properly supported by VAT official
receipts; and (3) ₱5,490,632.64 input VAT for failure to meet the substantiation requirement. The
CTA Special First Division likewise ruled that both the administrative and the judicial claims of TSC
were filed within the two-year prescriptive period.
The dispositive portion of the CTA Special First Division’s 4 March 2010 Decision reads:
WHEREFORE, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly,
respondent is hereby ORDERED to REFUND or to ISSUE A TAX CREDIT CERTIFICATE in the
amount ofSEVENTY EIGHT MILLION NINE THOUSAND EIGHT HUNDRED NINETY ONE PESOS
AND 56/100 (₱78,009,891.56) to petitioner, representing unutilized excess input VAT attributable to
its effectively zero-rated sales to NPC for the four quarters of taxable year 2004. SO ORDERED.9
On 19 May 2010, the CTA Special First Division granted the motion for partial new trial filed by TSC
and allowed it to present in evidence the correct official receipts supporting the ₱2,430,229,567.30
zero-rated sales made to NPC. The CTA Special First Division likewise held in abeyance the
resolution of the motion for reconsideration filed by both parties.
In an Amended Decision dated 5 April 2011, the CTA Special First Division found that TSC is
entitled to a modified amount of ₱96,846,234.31 input VAT,10 upon: (1) allowing the amount of
₱2,430,229,567.30 zero-rated sales made to NPC; (2) disallowing the amount of ₱7,232,794.92
zero-rated sales because its official receipt was dated outside the period of claim; and (3) allowing
the amount of ₱3,094,606.10 input VAT for being properly substantiated.
The dispositive portion of the CTA Special First Division’s 5 April 2011 Amended Decision reads:
WHEREFORE, premises considered, respondent’s "Motion for Partial Reconsideration" is
herebyDENIED for lack of merit while petitioner’s "Motion for Partial Reconsideration" is hereby
PARTIALLY GRANTED.
Accordingly, petitioner’s claim for refund or issuance of tax credit certificate representing unutilized
input VAT for taxable year 2004 is GRANTED in the total adjusted amount of NINETY SIX MILLION
EIGHT HUNDRED FORTY SIX THOUSAND AND TWO HUNDRED THIRTY FOUR PESOS AND
31/100 (₱96,846,234.31) or an additional EIGHTEEN MILLION EIGHT HUNDRED THIRTY SIX
THOUSAND AND THREE HUNDRED FORTY TWO PESOS AND 75/100 (₱18,836,342.75) on its
previously granted claim of SEVENTY EIGHT MILLION NINE THOUSAND EIGHT HUNDRED
NINETY ONE PESOS AND 56/100 (₱78,009,891.56).
SO ORDERED.11
Thus, the Commissioner of Internal Revenue (CIR) filed a petition for review with the CTA EB.
The Court of Tax Appeals’ Ruling: En Banc
In a Decision dated 27 July 2012, the CTA EB found that TSC submitted the relevant documents
applicable to its claim. According to the CTA EB, the submitted documents constituted compliance
with the requirements of Revenue Memorandum Order No. (RMO) 53-98. Thus, the CTA EB ruled
that the judicial claim was not prematurely filed.
The dispositive portion of the CTA EB’s 27 July 2012 Decision reads:
WHEREFORE, premises considered, the present Petition for Review is hereby DENIED DUE
COURSE, and, accordingly DISMISSED for lack of merit. The Amended Decision dated April 5,
2011 is hereby AFFIRMED.
SO ORDERED.12
In a Resolution dated 6 December2012, the CTA EB denied the motion for reconsideration filed by
the CIR for lack of merit. Hence, this petition.
The Issue
The CIR raises this sole issue for resolution:
THE [CTA EB] GRAVELY ERRED IN DENYING DUE COURSE TO [CIR]’S PETITION FOR
REVIEW IN [CTA] EB NO. 768 AND IN AFFIRMING THE DECISION OF ITS SPECIAL FIRST
DIVISION THAT [TSC] IS ENTITLED TO A REFUND OR TAX CREDIT CERTIFICATE IN THE
AMOUNT OF ₱96,846,234.31 BECAUSE IT WAS ABLE TO SUBMIT THE LEGALLY REQUIRED
DOCUMENTS IN ITS APPLICATION FOR REFUND.13
The Ruling of the Court
The petition lacks merit.
The relevant portions of Section 112 of the National Internal Revenue Code (NIRC), which provide
the requirements to enable the taxpayer to claim a refund or credit ofits input tax, state:
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 oreffectively zero-rated may, within two (2) years after the close of the taxable quarter when
the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax
due or paid attributable to such sales, except transitional input tax, to the extent that such input tax
has not been applied against output tax: Provided, however,That in the case of zerorated sales
under Section 106(A)(2)(a)(1), (2) and (B) and Section 108(B)(1) and (2), the acceptable foreign
currency exchange proceeds thereof had been duly accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas(BSP): Provided, further, That where the taxpayer is
engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or
properties or services, and the amount of creditable input tax due or paid cannot be directly and
entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of
the volume of sales
xxxx
(C) 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) 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 taxpayeraffected
may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration
ofthe one hundred twenty-day period, appeal the decision or the unacted claim with the Court of Tax
Appeals.14
Under Section 112(C) of the NIRC,the CIR has 120 days to decide the taxpayer’s claim from the
date of submission of complete documents in support of the application filed in accordance with
Section 112(A) of the NIRC. In Intel Technology v. Commissioner of Internal Revenue,15 we ruled
that once the taxpayer has established by sufficient evidence that it is entitled to a refund or
issuance of a tax credit certificate, in accordance with the requirements of Section 112(A) of the
NIRC, its claim should be granted.
In Atlas Consolidated Mining v. Commissioner of Internal Revenue,16 we held that applications for
refund orcredit of input tax with the BIR must comply with the appropriate revenue regulations. Thus,
applications must be in accordance with Section 2 of Revenue Regulations No. 3-88 (RR 3-88),
amending Section 16 of Revenue Regulations No. 5-87, to wit:
SECTION 2. Section 16 of Revenue Regulations 5-87 is hereby amended to read as follows:

SECTION 16. Refunds or tax credits of input tax. – 1âwphi 1
xxxx
(c) Claims for tax credits/refunds. – Application for Tax Credit/Refund of Value-Added Tax Paid (BIR
Form No. 2552) shall be filed with the Revenue District Officeof the city or municipality where the
principal place of business of the applicant is located or directly with the Commissioner, Attention:
VAT Division.
A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be
submitted together with the application. The original copy of the said invoice/receipt, however, shall
be presented for cancellation prior to the issuance of the Tax Credit Certificate or refund. In addition,
the following documents shall be attached whenever applicable:
xxxx
3. Effectively zero-rated sale of goods and services.
i) photocopy of approved application for zero-rate if filing for the first time.
ii) sales invoice or receipt showing name of the person or entity to whom the sale of goods or
services were delivered, date of delivery, amount of consideration, and description of goods
or services delivered.
iii) evidence of actual receipt of goods or services.
xxxx
5. In applicable cases, where the applicant’s zero-rated transactions are regulated by certain
government agencies, a statement therefrom showing the amount and description of sale of goods
and services, name of persons or entities (except in case of exports) to whom the goods or services
were sold, and date of transaction shall also be submitted.
In all cases, the amount of refund or tax credit that may be granted shall be limited to the amount of
the value-added tax (VAT) paid directly and entirely attributable to the zero-rated transaction during
the period covered by the application for credit or refund.
Where the applicant is engaged in zero-rated and other taxable and exempt sales of goods and
services, and the VAT paid (inputs) on purchases of goods and services cannot be directly attributed
to any of the aforementioned transactions, the following formula shall be used to determine the
creditable or refundable input tax for zero-rated sale:
Amount of Zero-rated Sale
Total Sales
Total Amount of Input Taxes
Amount Creditable/Refundable
xxxx
We likewise applied RR 3-88 in AT&T Communications Services Philippines, Inc. v. Commissioner

of Internal Revenue,17 and held that only preponderance of evidence as applied in ordinary civil
cases is needed to substantiate a claim for tax refund.
In the present case, the CTA Special First Division found that TSC complied with the requirements of
Section 112(A) of the NIRC and granted its claim for refund or credit of ₱78,009,891.56 input VAT.
Upon a partial new trial, the CTA Special First Division increased the amount to ₱96,846,234.31.
Upon appeal, the CTA EB concluded that TSC submitted the relevant documents to substantiate its
claim for refund or credit of input tax, to wit:
1. BIR Certificate of Registration (Annex "A", Petition for Review, CTA Case No. 7470, vol. 1,
p. 13);
2. Quarterly VAT returns for the first,second, third and fourth quarters of 2004 (Exhibits "D",
"E", "F", "G", & "H");
3. Summary of Input Tax Payments for the first, second, third and fourth quarters of 2004
showing details of purchases of goods and service as well as the corresponding input tax
paid(Exhibits "D" to "D-3", "E" to "E-5-b", "F" to "F-4-b", "H-3" to "H-4-c");
4. VAT official receipts and invoicesfor the first, second, third and fourth quarters of 2004
(Exhibits"QQ"-7" to "QQ-21-d", "RR-17", "SS-1" to "SS-19" & "TT-1" to TT-18");
5. Approved Certificate for Zero-Rate (Exhibit "A"); and
6. Application for Tax Credit/Refund (BIR Form 1914) (Exhibit "B-3")18
We adopt the above-mentioned findings of fact of the CTA Special First Division, as affirmed by the
CTA EB. Whether TSC complied with the substantiation requirements of Section 112 of the NIRC
and RR 3-88 is a question of fact,19 which could only be answeredafter reviewing, examining,
evaluating, or weighing all over again the probative value of the evidence before the CTA, which this
Court does nothave reason to do in the present petition for review on certiorari. The findings of fact
of the CTA are not to be disturbed unless clearly shown to be unsupported by substantial
evidence.20 Since by the very nature of its functions, the CTA has developed an expertise on this
subject, the Court will not set aside lightly the conclusions reached by them, unless there has been
an abuse or improvident exercise of authority.21
The CIR, however, insists that TSC failed to submit the complete documents enumerated in RMO
53-98. Thus, the 120-day period given for it to decide allegedly did not commence.
The CIR’s reliance on RMO 53-98 is misplaced. There is nothing in Section 112 of the NIRC, RR 3-
88 or RMO 53-98 itself that requires submission of the complete documents enumerated in RMO 53-
98 for a grant of a refund or credit of input VAT. The subject of RMO 53-98 states that it is a
"Checklist of Documents to be Submitted by a Taxpayer upon Auditof his Tax Liabilities x x x." In this
case, TSC was applying for a grant of refund or credit of its input tax. There was no allegation of an
audit being conducted by the CIR. Even assuming that RMO 53-98 applies, it specifically states that
some documents are required to be submitted by the taxpayer "if applicable."22
Moreover, if TSC indeed failed to submit the complete documents in support of its application, the
CIR could have informed TSC of its failure, consistent with Revenue Memorandum Circular No.
(RMC) 42-03.23 However, the CIR did not inform TSC of the document it failed to submit, even up to
the present petition. The CIR likewise raised the issue of TSC’s alleged failure to submit the
complete documents only in its motion for reconsideration of the CTA Special First Division’s 4
March 2010 Decision. Accordingly, we affirm the CTA EB’s finding that TSC filed its administrative
claim on 21 December 2005, and submitted the complete documents in support of its application for
refund or credit of its input tax at the same time.
Under Section 112(C) of the NIRC, incase of failure on the part of the CIR to act on the application,
the taxpayer affected may, within 30 days after the expiration of the 120-day period, appeal the
unacted claim with the CTA. The charter of the CTA24 also expressly provides that if the
Commissioner fails to decide within "a specific period" required by law, such "inaction shall be
deemed a denial" of the application for tax refund or credit. In Commissioner of Internal Revenue v.
San Roque Power Corporation,25 we emphasized that compliance with the 120-day waiting period is
mandatory and jurisdictional. In this case, when TSC filed its administrative claim on 21 December
2005, the CIR had a period of 120 days, or until 20 April 2006, to act on the claim. However, the CIR
failed to act on TSC's claim within this 120-day period. Thus, TSC filed its petition for review with the
CTA on 24 April 2006 or within 30 days after the expiration of the 120-day period. Accordingly, we
do not find merit in the CIR' s argument that the judicial claim was prematurely filed.
WHEREFORE, we DENY the petition for lack of merit. The Decision and Resolution of the Court of
Tax Appeals, dated 27 July 2012 and 6 December 2012, respectively, are AFFIRMED.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
WE CONCUR:
ARTURO D. BRION
Associate Justice
MARIANO C. DEL CASTILLO JOSE PORTUGAL PEREZ

ESTELA M. PERLAS-BERNABE
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

Chief Justice
SUPREME COURT
Manila
FIRST DIVISION
G.R. Nos. 198729-30 January 15, 2014
CBK POWER COMPANY LIMITED, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
SERENO, CJ:
This is a Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure filed
by CBK Power Company Limited (petitioner). The Petition assails the Decision2 dated 27 June 2011
and Resolution3 dated 16 September 2011 of the Court of Tax Appeals En Banc (CTA En Banc in
C.T.A. EB Nos. 658 and 659. The assailed Decision and Resolution reversed and set aside the
Decision4 dated 3 March 2010 and Resolution5 dated 6 July 2010 rendered by the CTA Special
Second Division in C.T.A. Case No. 7621, which partly granted the claim of petitioner for the
issuance of a tax credit certificate representing the latter's alleged unutilized input taxes on local
purchases of goods and services attributable to effectively zero-rated sales to National Power
Corporation (NPC) for the second and third quarters of 2005.
The Facts
Petitioner is engaged, among others, in the operation, maintenance, and management of the
Kalayaan II pumped-storage hydroelectric power plant, the new Caliraya Spillway, Caliraya,
Botocan; and the Kalayaan I hydroelectric power plants and their related facilities located in the
Province of Laguna.6
On 29 December 2004, petitioner filed an Application for VAT Zero-Rate with the Bureau of Internal
Revenue (BIR) in accordance with Section 108(B)(3) of the National Internal Revenue Code (NIRC)
of 1997, as amended. The application was duly approved by the BIR. Thus, petitioner ’s sale of
electr icity to the NPC from 1 January 2005 to 31 October 2005 was declared to be entitled to the
benefit of effectively zero-rated value added tax (VAT).7
Petitioner filed its administrative claims for the issuance of tax credit certificates for its alleged
unutilized input taxes on its purchase of capital goods and alleged unutilized input taxes on its local
purchases and/or importation of goods and services, other than capital goods, pursuant to Sections
112(A) and (B) of the NIRC of 1997, as amended, with BIR Revenue District Office (RDO) No. 55 of
Laguna, as follows:8
Period Covered Date Of Filing
1st quarter of 2005 30-Jun-05

2nd quarter of 2005 15-Sep-05
3rd quarter of 2005 28-Oct-05
Alleging inaction of the Commissioner of Internal Revenue (CIR), petitioner filed a Petition for
Review with the CTA on 18 April 2007.
THE CTA SPECIAL SECOND DIVISION RULING
After trial on the merits, the CTA Special Second Division rendered a Decision on 3 March 2010.
Applying Commissioner of Internal Revenue v. Mirant Pagbilao Corporation (Mirant),9 the court
a quo ruled that petitioner had until the following dates within which to file both administrative and
judicial claims:
Taxable Quarter Last Day to

File Claim for
2005 Close of the quarter Refund
1st quarter 31-Mar-05 31-Mar-07
2nd quarter 30-Jun-05 30-Jun-07
3rd quarter 30-Sep-05 30-Sep-07
Accordingly, petitioner timely filed its administrative claims for the three quarters of 2005. However,
considering that the judicial claim was filed on 18 April 2007, the CTA Division denied the claim for
the first quarter of 2005 for having been filed out of time.
After an evaluation of petitioner’s claim for the second and third quarters of 2005, the court a quo
partly granted the claim and ordered the issuance of a tax credit certificate in favor of petitioner in
the reduced amount of ₱27,170,123.36.
The parties filed their respective Motions for Partial Reconsideration, which were both denied by the
CTA Division.
THE CTA EN BANC RULING
On appeal, relying on Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.
(Aichi),10 the CTA En Banc ruled that petitioner’s judicial claim for the first, second, and third quarters
of 2005 were belatedly filed.
The CTA Special Second Division Decision and Resolution were reversed and set aside, and the
Petition for Review filed in CTA Case No. 7621 was dismissed. Petitioner’s Motion for
Reconsideration was likewise denied for lack of merit.
Hence, this Petition.ISSUE
Petitioner’s assigned errors boil down to the principal issue of the applicable prescriptive period on
its claim for refund of unutilized input VAT for the first to third quarters of 2005.11
THE COURT’S RULING

The pertinent provision of the NIRC at the time when petitioner filed its claim for refund provides:
SEC. 112. Refunds or Tax Credits of Input Tax. –
(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or refund
of creditable input tax due or paid attributable to such sales, except transitional input tax, to
the extent that such input tax has not been applied against output tax: Provided, however,
That in the case of zero-rated sales under Section 106(A)(2)(a)(1),(2) and (B) and Section
108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been
duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or exempt sale of goods or properties or
services, and the amount of creditable input tax due or paid cannot be directly and entirely
attributed to any one of the transactions, it shall be allocated proportionately on the basis of
the volume of sales.
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.
Petitioner’s sales to NPC are effectively zero-rated
As aptly ruled by the CTA Special Second Division, petitioner’s sales to NPC are effectively subject
to zero percent (0%) VAT. The NPC is an entity with a special charter, which categorically exempts it
from the payment of any tax, whether direct or indirect, including VAT. Thus, services rendered to
NPC by a VAT-registered entity are effectively zero-rated. In fact, the BIR itself approved the
application for zero-rating on 29 December 2004, filed by petitioner for its sales to NPC covering
January to October 2005.12 As a consequence, petitioner claims for the refund of the alleged excess
input tax attributable to its effectively zero-rated sales to NPC.
In Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of Internal

Revenue,13 this Court ruled:
Under the 1997 NIRC, if at the end of a taxable quarter the seller charges output taxes equal to the
input taxes that his suppliers passed on to him, no payment is required of him. It is when his output
taxes exceed his input taxes that he has to pay the excess to the BIR. If the input taxes exceed the
output taxes, however, the excess payment shall be carried over to the succeeding quarter or
quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions or from
the acquisition of capital goods, any excess over the output taxes shall instead be refunded to the
taxpayer.
The crux of the controversy arose from the proper application of the prescriptive periods set forth in
Section 112 of the NIRC of 1997, as amended, and the interpretation of the applicable
jurisprudence.
Although the ponente in this case expressed a different view on the mandatory application of the
120+30 day period as prescribed in Section 112, with the finality of the Court’s pronouncement on
the consolidated tax cases Commissioner of Internal Revenue v. San Roque Power Corporation,
Taganito Mining Corporation v. Commissioner of Internal Revenue, and Philex Mining Corporation v.
Commissioner of Internal Revenue14 (hereby collectively referred as San Roque), we are constrained
to apply the dispositions therein to the facts herein which are similar.
Administrative Claim
Section 112(A) provides that after the close of the taxable quarter when the sales were made, there
is a two-year prescriptive period within which a VAT-registered person whose sales are zero-rated or
effectively zero-rated may apply for the issuance of a tax credit certificate or refund of creditable
input tax.
Our VAT Law provides for a mechanism that would allow VAT-registered persons to recover the
excess input taxes over the output taxes they had paid in relation to their sales. For the refund or
credit of excess or unutilized input tax, Section 112 is the governing law. Given the distinctive nature
of creditable input tax, the law under Section 112 (A) provides for a different reckoning point for the
two-year prescriptive period, specifically for the refund or credit of that tax only.
We agree with petitioner that Mirant was not yet in existence when their administrative claim was
filed in 2005; thus, it should not retroactively be applied to the instant case.
However, the fact remains that Section 112 is the controlling provision for the refund or credit of
input tax during the time that petitioner filed its claim with which they ought to comply. It must be
emphasized that the Court merely clarified in Mirant that Sections 204 and 229, which prescribed a
different starting point for the two-year prescriptive limit for filing a claim for a refund or credit of
excess input tax, were not applicable. Input tax is neither an erroneously paid nor an illegally
collected internal revenue tax.15
Section 112(A) is clear that for VAT-registered persons whose sales are zero-rated or effectively
zero-rated, a claim for the refund or credit of creditable input tax that is due or paid, and that is
attributable to zero-rated or effectively zero-rated sales, must be filed within two years after the close
of the taxable quarter when such sales were made. The reckoning frame would always be the end of
the quarter when the pertinent sale or transactions were made, regardless of when the input VAT
was paid.16
Pursuant to Section 112(A), petitioner’s administrative claims were filed well within the two-year
period from the close of the taxable quarter when the effectively zero-rated sales were made, to wit:
Period Covered Close of the Last day to File Administrative Date of Filing
Taxable Claim
Quarter
1st quarter 2005 31-Mar-05 31-Mar-07 30-Jun-05
2nd quarter 2005 30-Jun-05 30-Jun-07 15-Sep-05
3rd quarter 2005 30-Sep-05 30-Sep-07 28-Oct-05
Judicial Claim
Section 112(D) further provides that the CIR has to decide on an administrative claim within one
hundred twenty (120) days from the date of submission of complete documents in support thereof.
Bearing in mind that the burden to prove entitlement to a tax refund is on the taxpayer, it is
presumed that in order to discharge its burden, petitioner had attached complete supporting
documents necessary to prove its entitlement to a refund in its application, absent any evidence to
the contrary.
Thereafter, the taxpayer affected by the CIR’s decision or inaction may appeal to the CTA within 30
days from the receipt of the decision or from the expiration of the 120-day period within which the
claim has not been acted upon.
Considering further that the 30-day period to appeal to the CTA is dependent on the 120-day period,
compliance with both periods is jurisdictional. The period of 120 days is a prerequisite for the
commencement of the 30-day period to appeal to the CTA.
Prescinding from San Roque in the consolidated case Mindanao II Geothermal Partnership v.
Commissioner of Internal Revenue and Mindanao I Geothermal Partnership v. Commissioner of
Internal Revenue,17 this Court has ruled thus:
Notwithstanding a strict construction of any claim for tax exemption or refund, the Court in San
Roque recognized that BIR Ruling No. DA-489-03 constitutes equitable estoppel in favor of
taxpayers. BIR Ruling No. DA-489-03 expressly states that the "taxpayer-claimant need not wait for
the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for
Review." This Court discussed BIR Ruling No. DA-489-03 and its effect on taxpayers, thus:
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 asked 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
1âwphi1
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. (Emphasis supplied)
In applying the foregoing to the instant case, we consider the following pertinent dates:
1âw phi1
Period Covered Administrative Expiration of Last day to file Judicial Claim

Claim Filed 120-days Judicial Claim Filed
1st quarter 2005 30-Jun-05 28-Oct-05 27-Nov-05 18-Apr-07

2nd quarter 2005 15-Sep-05 13-Jan-06 13-Feb-06
3rd quarter 2005 28-Oct-05 26-Feb-06 28-Mar-06
It must be emphasized that this is not a case of premature filing of a judicial claim. Although
petitioner did not file its judicial claim with the CTA prior to the expiration of the 120-day waiting
period, it failed to observe the 30-day prescriptive period to appeal to the CTA counted from the
lapse of the 120-day period.
Petitioner is similarly situated as Philex in the same case, San Roque,18 in which this Court ruled:
Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late filing. Philex
did not file any petition with the CTA within the 120-day period. Philex did not also file any petition
with the CTA within 30 days after the expiration of the 120-day period. Philex filed its judicial claim
long after the expiration of the 120-day period, in fact 426 days after the lapse of the 120-day period.
In any event, whether governed by jurisprudence before, during, or after the Atlas case, Philex’s
judicial claim will have to be rejected because of late filing. Whether the two-year prescriptive period
is counted from the date of payment of the output VAT following the Atlas doctrine, or from the close
of the taxable quarter when the sales attributable to the input VAT were made following the Mirant
and Aichi doctrines, Philex’s judicial claim was indisputably filed late.
The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the
Commissioner on Philex’s claim during the 120-day period is, by express provision of law, "deemed
a denial" of Philex’s claim. Philex had 30 days from the expiration of the 120-day period to file its
judicial claim with the CTA. Philex’s failure to do so rendered the "deemed a denial" decision of the
Commissioner final and inappealable. The right to appeal to the CTA from a decision or "deemed a
denial" decision of the Commissioner is merely a statutory privilege, not a constitutional right. The
exercise of such statutory privilege requires strict compliance with the conditions attached by the
statute for its exercise. Philex failed to comply with the statutory conditions and must thus bear the
consequences. (Emphases in the original)
Likewise, while petitioner filed its administrative and judicial claims during the period of applicability
of BIR Ruling No. DA-489-03, it cannot claim the benefit of the exception period as it did not file its
judicial claim prematurely, but did so long after the lapse of the 30-day period following the expiration
of the 120-day period. Again, 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,19 but not its late filing.
As this Court enunciated in San Roque , petitioner cannot rely on Atlas either, since the latter case
was promulgated only on 8 June 2007. Moreover, the doctrine in Atlas which reckons the two-year
period from the date of filing of the return and payment of the tax, does not interpret − expressly or
impliedly − the 120+30 day periods.20 Simply stated, Atlas referred only to the reckoning of the
prescriptive period for filing an administrative claim.
For failure of petitioner to comply with the 120+30 day mandatory and jurisdictional period, petitioner
lost its right to claim a refund or credit of its alleged excess input VAT.
With regard to petitioner’s argument that Aichi should not be applied retroactively, we reiterate that
even without that ruling, the law is explicit on the mandatory and jurisdictional nature of the 120+30
day period.
Also devoid of merit is the applicability of the principle of solutio indebiti to the present case.
According to this principle, if something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it arises. In that situation, a creditor-debtor
relationship is created under a quasi-contract, whereby the payor becomes the creditor who then
has the right to demand the return of payment made by mistake, and the person who has no right to
receive the payment becomes obligated to return it.21 The quasi-contract of solutio indebiti is based
on the ancient principle that no one shall enrich oneself unjustly at the expense of another.22
There is solutio indebiti when:
(1) Payment is made when there exists no binding relation between the payor, who has no
duty to pay, and the person who received the payment; and
(2) Payment is made through mistake, and not through liberality or some other cause.23
Though the principle of solutio indebiti may be applicable to some instances of claims for a refund,
the elements thereof are wanting in this case.
First, there exists a binding relation between petitioner and the CIR, the former being a taxpayer
obligated to pay VAT.
Second, the payment of input tax was not made through mistake, since petitioner was legally
obligated to pay for that liability. The entitlement to a refund or credit of excess input tax is solely
based on the distinctive nature of the VAT system. At the time of payment of the input VAT, the
amount paid was correct and proper.24
Finally, equity, which has been aptly described as "a justice outside legality," is applied only in the
absence of, and never against, statutory law or judicial rules of procedure.25 Section 112 is a positive
rule that should preempt and prevail over all abstract arguments based only on equity. Well-settled is
the rule that tax refunds or credits, just like tax exemptions, are strictly construed against the
taxpayer.26 The burden is on the taxpayer to show strict compliance with the conditions for the grant
of the tax refund or credit.27
WHEREFORE, premises considered, the instant Petition is DENIED.
SO ORDERED.
Chief Justice, Chairperson
WE CONCUR:
TERESITA J. LEONARDO-DE CASTRO

Associate Justice
LUCAS P. BERSAMIN MARTIN S. VILLARAMA, JR.

BIENVENIDO L. REYES
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the opinion
of the Court’s Division.

Chief Justice

Supreme Court
Manila
SECOND DIVISION
WESTERN MINDANAO POWER G. R. No. 181136
CORPORATION,
Petitioner,
Present:
CARPIO, J., Chairperson,

BRION,
- versus -
PEREZ,
SERENO, and
REYES, JJ.
COMMISSIONER OF INTERNAL
Promulgated:
REVENUE,
Respondent.
June 13, 2012
x--------------------------------------------------x
DECISION
SERENO, J.:
This is a Petition for Review under Rule 45 seeking the reversal of the 15
November 2007 Decision and 9 January 2008 Resolution of the Court of Tax Appeals
(CTA) En Banc in C.T.A. EB No. 272,[1] which upheld the Court of Tax Appeals Second
Divisions denial of the Petition for refund of unutilized input Value Added Tax (VAT)
on the ground that the Official Receipts of petitioner Western Mindanao Power
Corporation (WMPC) did not contain the phrase zero-rated, as required under
Revenue Regulations No. 7-95 (RR 7-95).
Petitioner WMPC is a domestic corporation engaged in the production and
sale of electricity. It is registered with the Bureau of Internal Revenue (BIR) as a VAT
taxpayer. Petitioner alleges that it sells electricity solely to the National Power
Corporation (NPC), which is in turn exempt from the payment of all forms of taxes,
duties, fees and imposts, pursuant to Section 13[2] of Republic Act (R.A.) No. 6395
(An Act Revising the Charter of the National Power Corporation). In view thereof
and pursuant to Section 108(B) (3) of the National Internal Revenue Code
(NIRC),[3] petitioners power generation services to NPC is zero-rated.
Under Section 112(A) of the NIRC,[4] a VAT-registered taxpayer may, within

two years after the close of the taxable quarter, apply for the issuance of a tax
credit or refund of creditable input tax due or paid and attributable to zero-rated
or effectively zero-rated sales. Hence, on 20 June 2000 and 13 June 2001, WMPC
filed with the Commissioner of Internal Revenue (CIR) applications for a tax credit
certificate of its input VAT covering the taxable
rd th [5]
3 and 4 quarters of 1999 (amounting to ₱3,675,026.67) and all the taxable
quarters of 2000 (amounting to ₱5,649,256.81).[6]
Noting that the CIR was not acting on its application, and fearing that its claim
would soon be barred by prescription, WMPC on 28 September 2001 filed with the
Court of Tax Appeals (CTA) in Division a Petition for Review docketed as C.T.A. Case
No. 6335, seeking refund/tax credit certificates for the total amount of
₱9,324,283.30.
The CIR filed its Comment on the CTA Petition, arguing that WMPC was not
entitled to the latters claim for a tax refund in view of its failure to comply with the
invoicing requirements under Section 113 of the NIRC in relation to Section 4.108-
1 of RR 7-95, which provides:
SECTION 4.108-1. Invoicing Requirements All VAT-registered persons shall, for every sale
or lease of goods or properties or services, issue duly registered receipts or sales or
commercial invoices which must show:
1. the name, TIN and address of seller;
2. date of transaction;
3. quantity, unit cost and description of merchandise or nature of service;
4. the name, TIN, business style, if any, and address of the VAT-registered purchaser,
customer or client;
5. the word zero rated imprinted on the invoice covering zero-rated sales; and
6. the invoice value or consideration.
In the case of sale of real property subject to VAT and where the zonal or market
value is higher than the actual consideration, the VAT shall be separately indicated in the
invoice or receipt.
Only VAT-registered persons are required to print their TIN followed by the word
VAT in their invoice or receipts and this shall be considered as a VAT Invoice. All purchases
covered by invoices other than VAT Invoice" shall not give rise to any input tax.
If the taxable person is also engaged in exempt operations, he should issue

separate invoices or receipts for the taxable and exempt operations. A VAT Invoice shall
be issued only for sales of goods, properties or services subject to VAT imposed in Sections
100 and 102 of the Code.
The invoice or receipt shall be prepared at least in duplicate, the original to be

given to the buyer and the duplicate to be retained by the seller as part of his accounting
records. (Underscoring supplied.)
WMPC countered that the invoicing and accounting requirements laid down
in RR 7-95 were merely compliance requirements, which were not indispensable to
establish the claim for refund of excess and unutilized input VAT. Also, Section 113
of the NIRC prevailing at the time the sales transactions were made did not expressly
state that failure to comply with all the invoicing requirements would result in the
disallowance of a tax credit refund. [7] The express requirement that the term zero-
rated sale shall be written or printed prominently on the VAT invoice or official
receipt for sales subject to zero percent (0%) VAT appeared in Section 113 of the
NIRC only after it was amended by Section 11 of R.A. 9337.[8] This amendment
cannot be applied retroactively, considering that it took effect only on 1 July 2005,
or long after petitioner filed its claim for a tax refund, and considering further that
the RR 7-95 is punitive in nature. Further, since there was no statutory requirement
for imprinting the phrase zero-rated on official receipts prior to 1 July 2005, the RR
7-95 constituted undue expansion of the scope of the legislation it sought to
implement.
CTA Second Division Decision
On 1 September 2006, the CTA Second Division dismissed[9] the Petition. It

held that while petitioner submitted in evidence its Quarterly VAT Returns for the
periods applied for, the same do not reflect any zero-rated or effectively zero-rated
sales allegedly incurred during said periods. The spaces provided for such amounts
were left blank, which only shows that there existed no zero-rated or effectively
zero-rated sales for the 3rd and 4th quarters of 1999 and the four quarters of
2000.[10] Moreover, it found that petitioners VAT Invoices and Official Receipts did
not contain on their face the phrase zero-rated, contrary to Section 4.108-1 of RR
7-95.
Petitioner moved for reconsideration, but the motion was denied by the CTA
in Division in its Resolution dated 30 January 2007.[11]
CTA En Banc Decision
On 13 March 2007, WMPC appealed to the CTA En Banc, which on 15

November 2007 issued a Decision dismissing the appeal and affirming the CTA
ruling. The CTA En Banc held that the receipts and evidence presented by petitioner
failed to fully substantiate the existence of the latters effectively zero-rated sales
to NPC for the 3rd and 4thquarters of taxable year 1999 and the four quarters of
taxable year 2000. The CTA En Banc quoted the CTA Second Division finding that
the Quarterly VAT Returns that petitioner adduced in evidence did not reflect any
zero-rated or effectively zero-rated sales allegedly incurred during the said period,
to wit:
Petitioner submitted in evidence its Quarterly Value Added Tax

Returns for the 3rd and 4th quarters of 1999 and the four quarters of 2000
to prove that it had duly reported the input taxes paid on its domestic
purchases of goods and services (Exhibits E to J). However, a closer
examination of the returns clearly shows that the same do not reflect any
zero-rated or effectively zero-rated sales allegedly incurred during the said
periods. The spaces provided for such amounts were left blank, which only
shows that there existed no zero-rated or effectively zero-rated sales for
the 3rd and 4th quarters of 1999 and the four quarters of 2000.
In addition, the CTA En Banc noted that petitioners Official Receipts and
VAT Invoices did not have the word zero-rated imprinted/stamped thereon, contrary
to the clear mandate of Section 4.108-1 of RR 7-95.
CTA Presiding Justice Ernesto Acosta filed a Concurring and Dissenting

Opinion. Justice Acosta disagreed with the majoritys view regarding the supposed
mandatory requirement of imprinting the term zero-rated on official receipts or
invoices. He opined that Section 113 in relation to Section 237[12] of the NIRC does
not require the imprinting of the phrase zero-rated on an invoice or official receipt
for the document to be considered valid for the purpose of claiming a refund or an
issuance of a tax credit certificate. Hence, the absence of the term zero-rated in an
invoice or official receipt does not affect its admissibility or competency as evidence
in support of a refund claim. Also, assuming that stamping the term zero-rated on an
invoice or official receipt is a requirement of the current NIRC, the denial of a refund
claim is not the imposable penalty for failure to comply with that requirement.
Nevertheless, Justice Acosta agreed with the decision to deny the claim due
to petitioners failure to prove the input taxes it paid on its domestic purchases of
goods and services during the period involved.
WMPC filed a Motion for Reconsideration, which was denied by the CTA En
Banc in a Resolution dated 9 January 2008.[13]
Hence, the present Petition.
Issue
Whether the CTA En Banc seriously erred in dismissing the claim of petitioner
for a refund or tax credit on input tax on the ground that the latters Official Receipts
do not contain the phrase zero-rated
Our Ruling
We deny the Petition.
Being a derogation of the sovereign authority, a statute granting tax

exemption is strictly construed against the person or entity claiming the
exemption. When based on such statute, a claim for tax refund partakes of the
nature of an exemption. Hence, the same rule of strict interpretation against the
taxpayer-claimant applies to the claim.[14]
In the present case, petitioners claim for a refund or tax credit of input VAT
is anchored on Section 112(A) of the NIRC, viz:
Section 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 of 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.
Thus, a taxpayer engaged in zero-rated or effectively zero-rated sale may

apply for the issuance of a tax credit certificate, or refund of creditable input tax due
or paid, attributable to the sale.
In a claim for tax refund or tax credit, the applicant must prove not only
entitlement to the grant of the claim under substantive law. It must also show
satisfaction of all the documentary and evidentiary requirements for an
administrative claim for a refund or tax credit.[15] Hence, the mere fact that
petitioners application for zero-rating has been approved by the CIR does not, by
itself, justify the grant of a refund or tax credit. The taxpayer claiming the refund
must further comply with the invoicing and accounting requirements mandated by
the NIRC, as well as by revenue regulations implementing them. [16]
Under the NIRC, a creditable input tax should be evidenced by a VAT invoice
or official receipt,[17] which may only be considered as such when it complies with
the requirements of RR 7-95, particularly Section 4.108-1. This section requires,
among others, that (i)f the sale is subject to zero percent (0%) value-added tax, the
term zero-rated sale shall be written or printed prominently on the invoice or receipt.
We are not persuaded by petitioners argument that RR 7-95 constitutes undue

expansion of the scope of the legislation it seeks to implement on the ground that the
statutory requirement for imprinting the phrase zero-rated on VAT official receipts
appears only in Republic Act No. 9337. This law took effect on 1 July 2005, or long
after petitioner had filed its claim for a refund.
RR 7-95, which took effect on 1 January 1996, proceeds from the rule-making
authority granted to the Secretary of Finance by the NIRC for the efficient
enforcement of the same Tax Code and its amendments.
In Panasonic Communications Imaging Corporation of the Philippines v.
Commissioner of Internal Revenue,[18] we ruled that this provision is reasonable and
is in accord with the efficient collection of VAT from the covered sales of goods and
services. Moreover, we have held in Kepco Philippines Corporation v.
Commissioner of Internal Revenue[19] that the subsequent incorporation of Section
4.108-1 of RR 7-95 in Section 113 (B) (2) (c) of R.A. 9337 actually confirmed the
validity of the imprinting requirement on VAT invoices or official receipts a case
falling under the principle of legislative approval of administrative interpretation by
reenactment.
In fact, this Court has consistently held as fatal the failure to print the word
zero-rated on the VAT invoices or official receipts in claims for a refund or credit of
input VAT on zero-rated sales, even if the claims were made prior to the effectivity
of R.A. 9337.[20] Clearly then, the present Petition must be denied.
In addition, it is notable that the CTA Second Division and the CTA En Banc,
including Presiding Justice Acosta in his Concurring and Dissenting Opinion, both
found that petitioner failed to sufficiently substantiate the existence of its effectively
zero-rated sales to NPC for the 3rd and 4th quarters of taxable year 1999, as well as
all four quarters of taxable year 2000. It must also be noted that the CTA is a highly
specialized court dedicated exclusively to the study and consideration of revenue-
related problems, in which it has necessarily developed an expertise. [21] Hence, its
factual findings, when supported by substantial evidence, will not be disturbed on
appeal.[22] We find no sufficient reason to exempt the present case from this general
rule.
WHEREFORE, premises considered, we DENY the Petition and AFFIRM the

Decision dated 15 November 2007 and Resolution dated 9 January 2008 of the
Court of Tax Appeals En Banc in CTA EB No. 272.
SO ORDERED.

Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Senior Associate Justice
Chairperson
ARTURO D. BRION JOSE PORTUGAL PEREZ

BIENVENIDO L. REYES
Associate Justice
CERTIFICATION
I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
ANTONIO T. CARPIO
Senior Associate Justice
(Per Section 12, R.A. 296,
The Judiciary Act of 1948, as amended)

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
Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 61436, the dispositive portion of which
reads.
WHEREFORE, the instant petition is hereby DISMISSED. ACCORDINGLY, the Decision dated
October 12, 2000 of the Court of Tax Appeals in CTA Case No. 5735, denying petitioner’s claim for
refund in the amount of Three Hundred Fifty-Nine Million Six Hundred Fifty-Two Thousand Nine
Pesos and Forty-Seven Centavos (₱ 359,652,009.47), is hereby AFFIRMED.
SO ORDERED.2
Factual Antecedents
Petitioner Fort Bonifacio Development Corporation (FBDC) is a duly registered domestic corporation
engaged in the development and sale of real property.3 The Bases Conversion Development
Authority (BCDA), a wholly owned government corporation created under Republic Act (RA) No.
7227,4 owns 45% of petitioner’s issued and outstanding capital stock; while the Bonifacio Land
Corporation, a consortium of private domestic corporations, owns the remaining 55%.5
On February 8, 1995, by virtue of RA 7227 and Executive Order No. 40,6 dated December 8, 1992,
petitioner purchased from the national government a portion of the Fort Bonifacio reservation, now
known as the Fort Bonifacio Global City (Global City).7
On January 1, 1996, RA 77168 restructured the Value-Added Tax (VAT) system by amending certain
provisions of the old National Internal Revenue Code (NIRC). RA 7716 extended the coverage of
VAT to real properties held primarily for sale to customers or held for lease in the ordinary course of
trade or business.9
On September 19, 1996, petitioner submitted to the Bureau of Internal Revenue (BIR) Revenue
District No. 44, Taguig and Pateros, an inventory of all its real properties, the book value of which
aggregated ₱ 71,227,503,200.10Based on this value, petitioner claimed that it is entitled to a
transitional input tax credit of ₱ 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 ₱ 3,685,356,539.50 from its sales
and lease of lots, on which the output VAT payable was ₱ 368,535,653.95.14 Petitioner paid the
output VAT by making cash payments to the BIR totalling ₱ 359,652,009.47 and crediting its
unutilized input tax credit on purchases of goods and services of ₱ 8,883,644.48.15
Realizing that its transitional input tax credit was not applied in computing its output VAT for the first
quarter of 1997, petitioner on November 17, 1998 filed with the BIR a claim for refund of the amount
of ₱ 359,652,009.47 erroneously paid as output VAT for the said period.16
Ruling of the Court of Tax Appeals
On February 24, 1999, due to the inaction of the respondent Commissioner of Internal Revenue
(CIR), petitioner elevated the matter to the Court of Tax Appeals (CTA) via a Petition for Review.17
In opposing the claim for refund, respondents interposed the following special and affirmative
defenses:
xxxx
8. Under Revenue Regulations No. 7-95, implementing Section 105 of the Tax Code as amended by
E.O. 273, the basis of the presumptive input tax, in the case of real estate dealers, is the
improvements, such as buildings, roads, drainage systems, and other similar structures, constructed
on or after January 1, 1988.
9. Petitioner, by submitting its inventory listing of real properties only on September 19, 1996, failed
to comply with the aforesaid revenue regulations mandating that for purposes of availing the
presumptive input tax credits under its Transitory Provisions, "an inventory as of December 31,
1995, of such goods or properties and improvements showing the quantity, description, and amount
should be filed with the RDO no later than January 31, 1996. x x x"18
On October 12, 2000, the CTA denied petitioner’s claim for refund. According to the CTA, "the
benefit of transitional input tax credit comes with the condition that business taxes should have been
paid first."19 In this case, since petitioner acquired the Global City property under a VAT-free sale
transaction, it cannot avail of the transitional input tax credit.20 The CTA likewise pointed out that
under Revenue Regulations No. (RR) 7-95, implementing Section 105 of the old NIRC, the 8%
transitional input tax credit should be based on the value of the improvements on land such as
buildings, roads, drainage system and other similar structures, constructed on or after January 1,
1998, and not on the book value of the real property.21 Thus, the CTA disposed of the case in this
manner:
WHEREFORE, in view of all the foregoing, the claim for refund representing alleged overpaid value-
added tax covering the first quarter of 1997 is hereby DENIED for lack of merit.
SO ORDERED.22
Ruling of the Court of Appeals
Aggrieved, petitioner filed a Petition for Review23 under Rule 43 of the Rules of Court before the CA.
On July 7, 2006, the CA affirmed the decision of the CTA. The CA agreed that petitioner is not
entitled to the 8% transitional input tax credit since it did not pay any VAT when it purchased the
Global City property.24 The CA opined that transitional input tax credit is allowed only when business
taxes have been paid and passed-on as part of the purchase price.25 In arriving at this conclusion, the
CA relied heavily on the historical background of transitional input tax credit.26 As to the validity of RR
7-95, which limited the 8% transitional input tax to the value of the improvements on the land, the CA
said that it is entitled to great weight as it was issued pursuant to Section 24527 of the old NIRC.28
Issues
Hence, the instant petition with the principal issue of whether petitioner is entitled to a refund of ₱
359,652,009.47 erroneously paid as output VAT for the first quarter of 1997, the resolution of which
depends on:
3.05.a. Whether Revenue Regulations No. 6-97 effectively repealed or repudiated Revenue
Regulations No. 7-95 insofar as the latter limited the transitional/presumptive input tax credit which
may be claimed under Section 105 of the National Internal Revenue Code to the "improvements" on
real properties.
3.05.b. Whether Revenue Regulations No. 7-95 is a valid implementation of Section 105 of the
National Internal Revenue Code.
3.05.c. Whether the issuance of Revenue Regulations No. 7-95 by the Bureau of Internal Revenue,
and declaration of validity of said Regulations by the Court of Tax Appeals and Court of Appeals,
were in violation of the fundamental principle of separation of powers.
3.05.d. Whether there is basis and necessity to interpret and construe the provisions of Section 105
of the National Internal Revenue Code.
3.05.e. Whether there must have been previous payment of business tax by petitioner on its land
before it may claim the input tax credit granted by Section 105 of the National Internal Revenue
Code.
3.05.f. Whether the Court of Appeals and Court of Tax Appeals merely speculated on the purpose of
the transitional/presumptive input tax provided for in Section 105 of the National Internal Revenue
Code.
3.05.g. Whether the economic and social objectives in the acquisition of the subject property by
petitioner from the Government should be taken into consideration.29
Petitioner’s Arguments
Petitioner claims that it is entitled to recover the amount of ₱ 359,652,009.47 erroneously paid as
output VAT for the first quarter of 1997 since its transitional input tax credit of ₱ 5,698,200,256 is
more than sufficient to cover its output VAT liability for the said period.30
Petitioner assails the pronouncement of the CA that prior payment of taxes is required to avail of the
8% transitional input tax credit.31 Petitioner contends that there is nothing in Section 105 of the old
NIRC to support such conclusion.32
Petitioner further argues that RR 7-95, which limited the 8% transitional input tax credit to the value
of the improvements on the land, is invalid because it goes against the express provision of Section
105 of the old NIRC, in relation to Section 10033 of the same Code, as amended by RA 7716.34
Respondents’ Arguments
Respondents, on the other hand, maintain that petitioner is not entitled to a transitional input tax
credit because no taxes were paid in the acquisition of the Global City property.35 Respondents assert
that prior payment of taxes is inherent in the nature of a transitional input tax.36 Regarding RR 7-95,
respondents insist that it is valid because it was issued by the Secretary of Finance, who is
mandated by law to promulgate all needful rules and regulations for the implementation of Section
105 of the old NIRC.37
Our Ruling
The petition is meritorious.

The issues before us are no longer new or novel as these have been resolved in the related case
of Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue.38
Prior payment of taxes is not required

for a taxpayer to avail of the 8%
transitional input tax credit
Section 105 of the old NIRC reads:
SEC. 105. Transitional input tax credits. – A person who becomes liable to value-added tax or any
person who elects to be a VAT-registered person shall, subject to the filing of an inventory as
prescribed by regulations, be allowed input tax on his beginning inventory of goods, materials and
supplies equivalent to 8% of the value of such inventory or the actual value-added tax paid on such
goods, materials and supplies, whichever is higher, which shall be creditable against the output tax.
(Emphasis supplied.)
Contrary to the view of the CTA and the CA, there is nothing in the above-quoted provision to
indicate that prior payment of taxes is necessary for the availment of the 8% transitional input tax
credit. Obviously, all that is required is for the taxpayer to file a beginning inventory with the BIR.
To require prior payment of taxes, as proposed in the Dissent is not only tantamount to judicial
legislation but would also render nugatory the provision in Section 105 of the old NIRC that the
transitional input tax credit shall be "8% of the value of [the beginning] inventory or the actual [VAT]
paid on such goods, materials and supplies, whichever is higher" because the actual VAT (now
12%) paid on the goods, materials, and supplies would always be higher than the 8% (now 2%) of
the beginning inventory which, following the view of Justice Carpio, would have to exclude all goods,
materials, and supplies where no taxes were paid. Clearly, limiting the value of the beginning
inventory only to goods, materials, and supplies, where prior taxes were paid, was not the intention
of the law. Otherwise, it would have specifically stated that the beginning inventory excludes goods,
materials, and supplies where no taxes were paid. As retired Justice Consuelo Ynares-Santiago has
pointed out in her Concurring Opinion in the earlier case of Fort Bonifacio:
If the intent of the law were to limit the input tax to cases where actual VAT was paid, it could have
simply said that the tax base shall be the actual value-added tax paid. Instead, the law as framed
contemplates a situation where a transitional input tax credit is claimed even if there was no actual
payment of VAT in the underlying transaction. In such cases, the tax base used shall be the value of
the beginning inventory of goods, materials and supplies.39
Moreover, prior payment of taxes is not required to avail of the transitional input tax credit because it
is not a tax refund per se but a tax credit. Tax credit is not synonymous to tax refund. Tax refund is
defined as the money that a taxpayer overpaid and is thus returned by the taxing authority.40 Tax
credit, on the other hand, is an amount subtracted directly from one’s total tax liability.41 It is any
amount given to a taxpayer as a subsidy, a refund, or an incentive to encourage investment. Thus,
unlike a tax refund, prior payment of taxes is not a prerequisite to avail of a tax credit. In fact, in
Commissioner of Internal Revenue v. Central Luzon Drug Corp.,42 we declared that prior payment of
taxes is not required in order to avail of a tax credit.43 Pertinent portions of the Decision read:
While a tax liability is essential to the availment or use of any tax credit, prior tax payments are not.
On the contrary, for the existence or grant solely of such credit, neither a tax liability nor a prior tax
payment is needed. The Tax Code is in fact replete with provisions granting or allowing tax credits,
even though no taxes have been previously paid.
For example, in computing the estate tax due, Section 86(E) allows a tax credit -- subject to certain
limitations -- for estate taxes paid to a foreign country. Also found in Section 101(C) is a similar
provision for donor’s taxes -- again when paid to a foreign country -- in computing for the donor’s tax
due. The tax credits in both instances allude to the prior payment of taxes, even if not made to our
government.
Under Section 110, a VAT (Value-Added Tax) - registered person engaging in transactions --
whether or not subject to the VAT -- is also allowed a tax credit that includes a ratable portion of any
input tax not directly attributable to either activity. This input tax may either be the VAT on the
purchase or importation of goods or services that is merely due from -- not necessarily paid by --
such VAT-registered person in the course of trade or business; or the transitional input tax
determined in accordance with Section 111(A). The latter type may in fact be an amount equivalent
to only eight percent of the value of a VAT-registered person’s beginning inventory of goods,
materials and supplies, when such amount -- as computed -- is higher than the actual VAT paid on
the said items. Clearly from this provision, the tax credit refers to an input tax that is either due only
or given a value by mere comparison with the VAT actually paid -- then later prorated. No tax is
actually paid prior to the availment of such credit.
In Section 111(B), a one and a half percent input tax credit that is merely presumptive is allowed. For
the purchase of primary agricultural products used as inputs -- either in the processing of sardines,
mackerel and milk, or in the manufacture of refined sugar and cooking oil -- and for the contract price
of public works contracts entered into with the government, again, no prior tax payments are needed
for the use of the tax credit.
More important, a VAT-registered person whose sales are zero-rated or effectively zero-rated may,
under Section 112(A), apply for the issuance of a tax credit certificate for the amount of creditable
input taxes merely due -- again not necessarily paid to -- the government and attributable to such
sales, to the extent that the input taxes have not been applied against output taxes. Where a
taxpayer is engaged in zero-rated or effectively zero-rated sales and also in taxable or exempt sales,
the amount of creditable input taxes due that are not directly and entirely attributable to any one of
these transactions shall be proportionately allocated on the basis of the volume of sales. Indeed, in
availing of such tax credit for VAT purposes, this provision -- as well as the one earlier mentioned --
shows that the prior payment of taxes is not a requisite.
It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of a tax credit
allowed, even though no prior tax payments are not required. Specifically, in this provision, the
imposition of a final withholding tax rate on cash and/or property dividends received by a nonresident
foreign corporation from a domestic corporation is subjected to the condition that a foreign tax credit
will be given by the domiciliary country in an amount equivalent to taxes that are merely deemed
paid. Although true, this provision actually refers to the tax credit as a condition only for the
imposition of a lower tax rate, not as a deduction from the corresponding tax liability. Besides, it is
not our government but the domiciliary country that credits against the income tax payable to the
latter by the foreign corporation, the tax to be foregone or spared.
In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as credits,

against the income tax imposable under Title II, the amount of income taxes merely incurred -- not
necessarily paid -- by a domestic corporation during a taxable year in any foreign country. Moreover,
Section 34(C)(5) provides that for such taxes incurred but not paid, a tax credit may be allowed,
subject to the condition precedent that the taxpayer shall simply give a bond with sureties
satisfactory to and approved by petitioner, in such sum as may be required; and further conditioned
upon payment by the taxpayer of any tax found due, upon petitioner’s redetermination of it.
In addition to the above-cited provisions in the Tax Code, there are also tax treaties and special laws
that grant or allow tax credits, even though no prior tax payments have been made.
Under the treaties in which the tax credit method is used as a relief to avoid double taxation, income
that is taxed in the state of source is also taxable in the state of residence, but the tax paid in the
former is merely allowed as a credit against the tax levied in the latter. Apparently, payment is made
to the state of source, not the state of residence. No tax, therefore, has been previously paid to the
latter.
Under special laws that particularly affect businesses, there can also be tax credit incentives. To
illustrate, the incentives provided for in Article 48 of Presidential Decree No. (PD) 1789, as amended
by Batas Pambansa Blg. (BP) 391, include tax credits equivalent to either five percent of the net
value earned, or five or ten percent of the net local content of export. In order to avail of such credits
under the said law and still achieve its objectives, no prior tax payments are necessary.
From all the foregoing instances, it is evident that prior tax payments are not indispensable to the
availment of a tax credit. Thus, the CA correctly held that the availment under RA 7432 did not
require prior tax payments by private establishments concerned. However, we do not agree with its
finding that the carry-over of tax credits under the said special law to succeeding taxable periods,
and even their application against internal revenue taxes, did not necessitate the existence of a tax
liability.
The examples above show that a tax liability is certainly important in the availment or use, not the
existence or grant, of a tax credit. Regarding this matter, a private establishment reporting a net loss
in its financial statements is no different from another that presents a net income. Both are entitled to
the tax credit provided for under RA 7432, since the law itself accords that unconditional benefit.
However, for the losing establishment to immediately apply such credit, where no tax is due, will be
an improvident usance.44
In this case, when petitioner realized that its transitional input tax credit was not applied in computing
its output VAT for the 1st quarter of 1997, it filed a claim for refund to recover the output VAT it
erroneously or excessively paid for the 1st quarter of 1997. In filing a claim for tax refund, petitioner
is simply applying its transitional input tax credit against the output VAT it has paid. Hence, it is
merely availing of the tax credit incentive given by law to first time VAT taxpayers. As we have said
in the earlier case of Fort Bonifacio, the provision on transitional input tax credit was enacted to
benefit first time VAT taxpayers by mitigating the impact of VAT on the taxpayer.45 Thus, contrary to
the view of Justice Carpio, the granting of a transitional input tax credit in favor of petitioner, which
would be paid out of the general fund of the government, would be an appropriation authorized by
law, specifically Section 105 of the old NIRC.
The history of the transitional input tax credit likewise does not support the ruling of the CTA and CA.
In our Decision dated April 2, 2009, in the related case of Fort Bonifacio, we explained that:
If indeed the transitional input tax credit is integrally related to previously paid sales taxes, the
purported causal link between those two would have been nonetheless extinguished long ago. Yet
Congress has reenacted the transitional input tax credit several times; that fact simply belies the
absence of any relationship between such tax credit and the long-abolished sales taxes.
Obviously then, the purpose behind the transitional input tax credit is not confined to the transition
from sales tax to VAT.
There is hardly any constricted definition of "transitional" that will limit its possible meaning to the
shift from the sales tax regime to the VAT regime. Indeed, it could also allude to the transition one
undergoes from not being a VAT-registered person to becoming a VAT-registered person. Such
transition does not take place merely by operation of law, E.O. No. 273 or Rep. Act No. 7716 in
particular. It could also occur when one decides to start a business. Section 105 states that the
transitional input tax credits become available either to (1) a person who becomes liable to VAT; or
(2) any person who elects to be VAT-registered. The clear language of the law entitles new trades or
businesses to avail of the tax credit once they become VAT-registered. The transitional input tax
credit, whether under the Old NIRC or the New NIRC, may be claimed by a newly-VAT registered
person such as when a business as it commences operations. If we view the matter from the
perspective of a starting entrepreneur, greater clarity emerges on the continued utility of the
transitional input tax credit.
Following the theory of the CTA, the new enterprise should be able to claim the transitional input tax
credit because it has presumably paid taxes, VAT in particular, in the purchase of the goods,
materials and supplies in its beginning inventory. Consequently, as the CTA held below, if the new
enterprise has not paid VAT in its purchases of such goods, materials and supplies, then it should
not be able to claim the tax credit. However, it is not always true that the acquisition of such goods,
materials and supplies entail the payment of taxes on the part of the new business. In fact, this could
occur as a matter of course by virtue of the operation of various provisions of the NIRC, and not only
on account of a specially legislated exemption.
Let us cite a few examples drawn from the New NIRC. If the goods or properties are not acquired
from a person in the course of trade or business, the transaction would not be subject to VAT under
Section 105. The sale would be subject to capital gains taxes under Section 24 (D), but since capital
gains is a tax on passive income it is the seller, not the buyer, who generally would shoulder the tax.
If the goods or properties are acquired through donation, the acquisition would not be subject to VAT
but to donor’s tax under Section 98 instead. It is the donor who would be liable to pay the donor’s
tax, and the donation would be exempt if the donor’s total net gifts during the calendar year does not
exceed ₱ 100,000.00.
If the goods or properties are acquired through testate or intestate succession, the transfer would not
be subject to VAT but liable instead for estate tax under Title III of the New NIRC. If the net estate
does not exceed ₱ 200,000.00, no estate tax would be assessed.
The interpretation proffered by the CTA would exclude goods and properties which are acquired
through sale not in the ordinary course of trade or business, donation or through succession, from
the beginning inventory on which the transitional input tax credit is based. This prospect all but
highlights the ultimate absurdity of the respondents’ position. Again, nothing in the Old NIRC (or
even the New NIRC) speaks of such a possibility or qualifies the previous payment of VAT or any
other taxes on the goods, materials and supplies as a pre-requisite for inclusion in the beginning
inventory.
It is apparent that the transitional input tax credit operates to benefit newly VAT-registered persons,
whether or not they previously paid taxes in the acquisition of their beginning inventory of goods,
materials and supplies. During that period of transition from non-VAT to VAT status, the transitional
input tax credit serves to alleviate the impact of the VAT on the taxpayer. At the very beginning, the
VAT-registered taxpayer is obliged to remit a significant portion of the income it derived from its
sales as output VAT. The transitional input tax credit mitigates this initial diminution of the taxpayer's
income by affording the opportunity to offset the losses incurred through the remittance of the output
VAT at a stage when the person is yet unable to credit input VAT payments.
There is another point that weighs against the CTA’s interpretation. Under Section 105 of the Old
NIRC, the rate of the transitional input tax credit is "8% of the value of such inventory or the actual
value-added tax paid on such goods, materials and supplies, whichever is higher." If indeed the
transitional input tax credit is premised on the previous payment of VAT, then it does not make
sense to afford the taxpayer the benefit of such credit based on "8% of the value of such inventory"
should the same prove higher than the actual VAT paid. This intent that the CTA alluded to could
have been implemented with ease had the legislature shared such intent by providing the actual
VAT paid as the sole basis for the rate of the transitional input tax credit.46
In view of the foregoing, we find petitioner entitled to the 8% transitional input tax credit provided in
Section 105 of the old NIRC. The fact that it acquired the Global City property under a tax-free
transaction makes no difference as prior payment of taxes is not a pre-requisite.
Section 4.105-1 of RR 7-95 is

inconsistent with Section 105 of the old
NIRC
As regards Section 4.105-147 of RR 7-95 which limited the 8% transitional input tax credit to the value
of the improvements on the land, the same contravenes the provision of Section 105 of the old
NIRC, in relation to Section 100 of the same Code, as amended by RA 7716, which defines "goods
or properties," to wit:
SEC. 100. Value-added tax on sale of goods or properties. – (a) Rate and base of tax. – There shall
be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-
added tax equivalent to 10% of the gross selling price or gross value in money of the goods or
properties sold, bartered or exchanged, such tax to be paid by the seller or transferor.
(1) The term "goods or properties" shall mean all tangible and intangible objects which are capable
of pecuniary estimation and shall include:
(A) Real properties held primarily for sale to customers or held for lease in the
ordinary course of trade or business; x x x
In fact, in our Resolution dated October 2, 2009, in the related case of Fort Bonifacio, we ruled that
Section 4.105-1 of RR 7-95, insofar as it limits the transitional input tax credit to the value of the
improvement of the real properties, is a nullity.48 Pertinent portions of the Resolution read:
As mandated by Article 7 of the Civil Code, an administrative rule or regulation cannot 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
1âw phi 1
is intended to implement. Any rule that is not consistent with the statute itself is null and void.
While administrative agencies, such as the Bureau of Internal Revenue, may issue regulations to
implement statutes, they are without authority to limit the scope of the statute to less than what it
provides, or extend or expand the statute beyond its terms, or in any way modify explicit provisions
of the law. Indeed, a quasi-judicial body or an administrative agency for that matter cannot amend an
act of Congress. Hence, in case of a discrepancy between the basic law and an interpretative or
administrative ruling, the basic law prevails.
To recapitulate, RR 7-95, insofar as it restricts the definition of "goods" as basis of transitional input
tax credit under Section 105 is a nullity.49
As we see it then, the 8% transitional input tax credit should not be limited to the value of the
improvements on the real properties but should include the value of the real properties as well.
In this case, since petitioner is entitled to a transitional input tax credit of ₱ 5,698,200,256, which is
more than sufficient to cover its output VAT liability for the first quarter of 1997, a refund of the
amount of ₱ 359,652,009.47 erroneously paid as output VAT for the said quarter is in order.
WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated July 7, 2006 of the
Court of Appeals in CA-G.R. SP No. 61436 is REVERSED and SET ASIDE. Respondent
Commissioner of Internal Revenue is ordered to refund to petitioner Fort Bonifacio Development
Corporation the amount of ₱ 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.
MARIANO C. DEL CASTILLO

Associate Justice
WE CONCUR:

Chief Justice
ANTONIO T. CARPIO PRESBITERO J. VELASCO, JR.

TERESITA J. LEONARDO-DE CASTRO ARTURO D. BRION

DIOSDADO M. PERALTA LUCAS P. BERSAMIN

ROBERTO A. ABAD MARTIN S. VILLARAMA, JR.

JOSE PORTUGAL PEREZ JOSE CATRAL MENDOZA

BIENVENDIO L. REYES ESTELA M. PERLAS-BERNABE
CERTIFICATION
I certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court.

Chief Justice
Footnotes
1
Rollo, pp. 317-333; penned by Associate Justice Monina Arevalo-Zenarosa and concurred
in by Associate Justices Renato C. Dacudao and Rosmari D. Carandang.
2
Id. at 332.
3
Id. at 318.
4
BASES CONVERSION AND DEVELOPMENT ACT OF 1992.
5
Rollo, p. 318.
6
IMPLEMENTING THE PROVISIONS OF REPUBLIC ACT NO. 7227 AUTHORIZING THE
BASES CONVERSION AND DEVELOPMENT AUTHORITY (BCDA) TO RAISE FUNDS
THROUGH THE SALE OF METRO MANILA MILITARY CAMPS TRANSFERRED TO BCDA
TO FORM PART OF ITS CAPITALIZATION AND TO BE USED FOR THE PURPOSES
STATED IN SAID ACT.
7
Rollo, p. 319.
8
AN ACT RESTRUCTURING THE VALUE ADDED TAX (VAT) SYSTEM, WIDENING ITS
TAX BASE AND ENHANCING ITS ADMINISTRATION AND FOR THESE PURPOSES
AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES.
9
Section 2 of Republic Act No. 7716 provides:
Sec. 2. Section 100 of the National Internal Revenue Code, as amended, is hereby further
amended to read as follows:
"Section 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."
xxxx
10
Rollo, p. 320.
11
CTA rollo, p. 4.
Now Section 111(A) of the NATIONAL INTERNAL REVENUE CODE OF 1997 which
12
provides:
SEC 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 to two percent (2%)
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. [As amended by Republic Act No. 9337- An Act Amending Sections 27,
28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151,
236, 237 and 288 of the National Internal Revenue Code of 1997, as amended, and
for other purposes.
13
Rollo, p. 319.
14
Id. at 320.
15
Id. at 320-321.
16
CTA rollo, p. 5.
17
Id. at 1-12.
18
Id. at 44.
19
Rollo, p. 148.
20
Id. at 149.
21
Id. at 149-150.
22
Id. at 150.
23
CA rollo, pp. 7-66.
24
Rollo, p. 330.
25
Id. at 329.
26
Id. at 325-328.
SEC. 245. Authority of Secretary of Finance to promulgate rules and regulations. — The
27
Secretary of Finance, upon recommendation of the Commissioner, shall promulgate all

needful rules and regulations for the effective enforcement of the provisions of this Code. x x
x (Now Section 244 of the National Internal Revenue Code of 1997.)
28
Rollo, pp. 331-332.
29
Id. at 23-24.
30
Id. at 82.
31
Id. at 84.
32
Id. at 87.
33
Now Section 106 of the National Internal Revenue Code of 1997.
34
Rollo, pp. 47-61.
35
Id. at 367.
36
Id. at 357.
37
Id. at 378.
38
G.R. Nos. 158885 & 170680, April 2, 2009, 583 SCRA 168.
39
Id. at 201.
40
Garner, Black’s Law Dictionary, 7th Edition, p. 1475.
41
Id. at 1473.
42
496 Phil. 307 (2005).
43
Id. at 322.
44
Id. at 322-325.
45
Supra note 38 at 192-193.
46
Id. at 190-193.
47
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
₱ 500,000.00 or who voluntarily register even if their turnover does not exceed ₱
500,000.00 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 taxpayer’s 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. x x x (Emphasis supplied.)
Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue, G.R. Nos.

48
158885 & 170680, October 2, 2009, 602 SCRA 159.
49
Id. at 166-167.
The Lawphil Project - Arellano Law Foundation
DISSENTING OPINION
CARPIO, J.:
I dissent. I reiterate my view that petitioner is not entitled to a refund or credit of any input VAT, as
explained in my dissenting opinions in Fort Bonifacio Development Corporation v. Commissioner of
Internal Revenue,1 involving an input VAT refund of ₱ 347,741,695.74 and raising the same legal
issue as that raised in the present case.
The majority grants petitioner an 8o/o transitional input VAT refund or credit of ₱ 359,652,009.47 in
relation to petitioner's output VAT for the first quarter of 1997. Petitioner argues that there is nothing
in Section 105 of the old National Internal Revenue Code (NIRC) to support the Court of Appeals'
conclusion that prior payment of VAT is required to avail of a refund or credit of the 8% transitional
input VAT.
Petitioner's argument has no merit.

It is hornbook doctrine that a taxpayer cannot claim a refund or credit of a tax that was never paid
because the law never imposed the tax in the first place, as in the present case. A tax refund or
credit assumes a tax was previously paid, which means there was a law that imposed the tax. The
source of the tax refund or credit is the tax that was previously paid, and this previously paid tax is
simply being returned to the taxpayer due to double, excessive, erroneous, advance or creditable tax
payment.
Without such previous tax payment as source, the tax refund or credit will be an expenditure of
public funds for the exclusive benefit of a specific private individual or entity. This violates the
fundamental principle, as ruled by this Court in several cases,2 that public funds can be used only for
a public purpose. Section 4(2) of the Government Auditing Code of the
Philippines mandates that "Government funds or property shall be spent or used solely for public
purposes." Any tax refund or credit in favor of a specific taxpayer for a tax that was never paid will
have to be sourced from government funds. This is clearly an expenditure of public funds for a
private purpose. Congress cannot validly enact a law transferring government funds, raised through
taxation, to the pocket of a private individual or entity. A well-recognized inherent limitation on the
constitutional power of the State to levy taxes is that taxes can only be used for a public purpose.3
Even if only a tax credit is granted, it will still be an expenditure of public funds for the benefit of a
private purpose in the absence of a prior tax payment as source of the tax credit. The tax due from a
taxpayer is a public fund. If the taxpayer is allowed to keep a part of the tax as a tax credit even in
the absence of a prior tax payment as source, it is in fact giving a public fund to a private person for
a private benefit. This is a clear violation of the constitutional doctrine that taxes can only be used for
a public purpose.
Moreover, such refund or credit without prior tax payment is an expenditure of public funds without
an appropriation law. This violates Section 29(1), Article VI of the Constitution, which mandates that
"No money shall be paid out of the Treasury except in pursuance of an appropriation made by law."
Without any previous tax payment as source, a tax refund or credit will be paid out of the general
funds of the government, a payment that requires an appropriation law. The Tax Code, particularly
its provisions on the VAT, is a revenue measure, not an appropriation law.
The VAT is a tax on transactions. The VAT is levied on the value that is added to goods and
services at every link in the chain of transactions. However, a tax credit is allowed for taxes
previously paid when the same goods and services are sold further in the chain of transactions. The
purpose of this tax crediting system is to prevent double taxation in the subsequent sale of the same
product and services that were already previously taxed. Taxes previously paid are thus allowed as
input VAT credits, which may be deducted from the output VAT liability.
The VAT is paid by the seller of goods and services, but the amount of the VAT is passed on to the
buyer as part of the purchase price. Thus, the tax burden actually falls on the buyer who is allowed
by law a tax credit or refund in the subsequent sale of the same goods and services. The 8%
transitional input VAT was introduced to ease the transition from the old VAT to the expanded VAT
system that included more goods and services, requiring new documentation not required under the
old VAT system. To simplify the transition, the law allows an 8% presumptive input VAT on goods
and services newly covered by the expanded VAT system. In short, the law grants the taxpayer an
8% input VAT without need of substantiating the same, on the legal presumption that the VAT
imposed by law prior to the expanded VAT system had been paid, regardless of whether it was
actually paid.
Under the VAT system, a tax refund or credit requires that a previous tax was paid by a taxpayer, or
in the case of the transitional input tax, that the tax imposed by law is presumed to have been paid.
Not a single centavo of VAT was paid, or could have been paid, by anyone in the sale by the
National Government to petitioner of the Global City land for two basic reasons. First, the National
Government is not subject to any tax, including VAT, when the law authorizes it to sell government
property like the Global City land. Second, in 1995 the old VAT law did not yet impose VAT on the
sale of land and thus no VAT on the sale of land could have been paid by anyone.
Petitioner bought the Global City land from the National Government in 1995, and this sale was of
course exempt from any kind of tax, including VAT. The National Government did not pass on to
petitioner any previous sales tax or VAT as part of the purchase price of the Global City land. Thus,
petitioner is not entitled to claim any transitional input VAT refund or credit when petitioner
subsequently sells the Global City land. In short, since petitioner will not be subject to double
taxation on its subsequent sale of the Global City land, petitioner is not entitled to a tax refund or
credit under the VAT system.
Section 105 of the old NIRC provides that a taxpayer is "allowed input tax on his beginning inventory
x x x equivalent to 8% x x x, or the actual value-added tax paid x x x, whichever is higher." The 8%
transitional input VAT in Section 105 assumes that a previous tax was imposed by law, whether or
not it was actually paid. This is clear from the phrase "or the actual value-added tax paid, whichever
is higher," which necessarily means that the VAT was already imposed on the previous sale. The
law creates a presumption of payment of the transitional input VAT without need of substantiating
the same, provided the VAT is imposed on the previous sale. Thus, in order to be entitled to a tax
refund or credit, petitioner must point to the existence of a law imposing the tax for which a refund or
credit is sought. Since land was not yet subject to VAT or any other input business tax at the time of
the sale of the Global City land in 1995, the 8% transitional input VAT could never be presumed to
have been paid. Hence, petitioner’s argument must fail since the transitional input VAT requires a
transaction where a tax has been imposed by law.
Moreover, the ponente insists that no prior payment of tax is required to avail of the transitional input
tax since it is not a tax refund per se but a tax credit. The ponente claims that in filing a claim for tax
refund the petitioner is simply applying its transitional input tax credit against the output VAT it has
paid.
I disagree.
Availing of a tax credit and filing for a tax refund are alternative options allowed by the Tax Code.
The choice of one option precludes the other. A taxpayer may either (1) apply for a tax refund by
filing for a written claim with the BIR within the prescriptive period, or (2) avail of a tax credit subject
to verification and approval by the BIR. A claim for tax credit requires that a person who becomes
liable to VAT for the first time must submit a list of his inventories existing on the date of
commencement of his status as a VAT-registered taxable person. Both claims for a tax refund and
credit are in the nature of a claim for exemption and should be construed in strictissimi juris against
the person or entity claiming it. The burden of proof to establish the factual basis or the sufficiency
and competency of the supporting documents of the claim for tax refund or tax credit rests on the
claimant.
In the present case, petitioner actually filed with the BIR a claim for tax refund in the amount of ₱
347,741,695.74. In filing a claim for tax refund, petitioner has the burden to show that prior tax
payments were made, or at the very least, that there is an existing law imposing the input tax.
Similarly, in a claim for input tax credit, a VAT taxpayer must submit his beginning inventory showing
previously paid business taxes on his purchase of goods, materials and supplies. In both claims,
prior tax payments should have been made. Thus, in claiming for a tax refund or credit, prior tax
payment must be clearly established and duly proven by a VAT taxpayer in order to be entitled to the
claim. In a claim for transitional input tax credit, as in the present case, the VAT taxpayer must point
to a law imposing the input VAT, without need of proving such input VAT was actually paid.Petitioner
further argues that RR 7-95 is invalid since the Revenue Regulation (1) limits the 8% transitional
input VAT to the value of the improvements on the land, and (2) violates the express provision of
Section 105 of the old NIRC, in relation to Section 100, as amended by RA 7716.
Petitioner’s contention must again fail.
Section 4.105-1 of RR 7-954 and its Transitory Provisions5 provide that the basis of the 8% transitional
input VAT is the value of the improvements on the land and not the value of the taxpayer’s land or
real properties. This Revenue Regulation finds statutory basis in Section 105 of the old NIRC, which
provides that input VAT is allowed on the taxpayer’s "beginning inventory of goods, materials and
supplies." Thus, the presumptive input VAT refers to the input VAT paid on "goods, materials or
supplies" sold by suppliers to the taxpayer, which the taxpayer used to introduce improvements on
the land.
Under RA 7716 or the Expanded Value-Added Tax Law, the VAT was expanded to include land or
real properties held primarily for sale to customers or held for lease in the ordinary course of trade or
business. Before this law was enacted, only improvements on land were subject to VAT. Since the
Global City land was not yet subject to VAT at the time of the sale in 1995, the Global City land
cannot be considered as part of the beginning inventory under Section 105. Clearly, the 8%
transitional input tax credit should only be applied to improvements on the land but not to the land
itself.
There is no dispute that if the National Government sells today a parcel of land, the sale is
completely tax-exempt. The sale is not subject to VAT, and the buyer cannot claim any input VAT
from the sale. Stated otherwise, a taxpayer like petitioner cannot claim any input VAT on its
purchase today of land from the National Government, even when VAT on land for real estate
dealers is already in effect. With greater reason, petitioner cannot claim any input VAT for its 1995
purchase of government land when VAT on land was still non-existent and petitioner, as a real
estate dealer, was still not subject to VAT on its sale of land. In short, if petitioner cannot claim a tax
refund or credit if the same transaction happened today when there is already a VAT on sales of
land by real estate developers, then with more reason petitioner cannot claim a tax refund or credit
when the transaction happened in 1995 when there was still no VAT on sales of land by real estate
developers.
In sum, granting 80/0 transitional input VAT in the amount of ₱ 359,652,009.47 to petitioner is
fraught with grave legal infirmities, namely: ( 1) violation of Section 4(2) of the Government Auditing
Code of the Philippines, which mandates that public funds shall be used only for a public purpose;
(2) violation of Section 29( 1 ), Article VI of the Constitution, which mandates that no money in the
National Treasury, which includes tax collections, shall be spent unless there is an appropriation law
authorizing such expenditure; and (3) violation of the fundamental concept of the VAT system, as
found in Section 1 05 of the old NIRC, that before there can be a VAT refund or credit there must be
a previously paid input VAT that can be deducted from the output VAT because the purpose of the
VAT crediting system is to prevent double taxation.
Accordingly, I vote to DENY the petition and AFFIRM the 7 July 2006 Decision of the Court of
Appeals in CA-G.R. SP No. 61436.
ANTONIO T. CARPIO
Associate Justice
Footnotes
G.R. Nos. 158885 & 170680, 2 April 2009, 583 SCRA 168; G.R. Nos. 158885 & 170680, 2
1
October 2009, 602 SCRA 159.
2
Francisco v. Toll Regulatory Board, G.R. No. 166910, 19 October 2010, 633 SCRA 470; Ya
p v. Commission on Audit, G.R. No. 158562, 23 April 2010, 619 SCRA 154; Strategic
Alliance Development Corporation v. Radstock Securities Limited, G.R. No. 178158, 4
December 2009, 607 SCRA 412; Pascual v. Secretary of Public Works, 110 Phil. 331 (1960).
3
Planters Product, Inc. v. Fertiphil Corporation, G.R. No. 166006, 14 March 2008, 548 SCRA
485; Pascual v. Secretary of Public Works, 110 Phil. 331 (1960).
4
SEC. 4.105-1. Transitional input tax on beginning inventories. – x x x
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 E.O. 273 (1 January 1988).
xxx
5
TRANSITORY PROVISIONS. x x x
(b) Presumptive Input Tax Credits – x x x
(iii) For real estate dealers, the presumptive input tax of 8% of the book value of
improvements constructed on or after January 1, 1988 (the effectivity of E.O. 273)
shall be allowed. x x x
The Lawphil Project - Arellano Law Foundation
CONCURRING OPINION
ABAD, J.:
I fully concur in Justice Mariano C. Del Castillo's ponencia and disagree with Justice Antonio T.
Carpio's points of dissent. In 1992 Congress enacted Republic Act (R.A.) 7227 creating the Bases
Conversion Development Authority (BCDA) for the purpose of raising funds through the sale to
private investors of military lands in Metro Manila. To do this, the BCDA established the Fort
Bonifacio Development Corp. (FBDC), a registered corporation, to enable the latter to develop the
214-hectare military camp in Fort Bonifacio, Taguig, for mix residential and commercial purposes.
On February 8, 1995 the Government of the Republic of the Philippines ceded the land by deed of
absolute sale to FBDC for ₱ 71.2 billion. Subsequently, cashing in on the sale, BCDA sold at a
public bidding 55o/o of its shares in FBDC to private investors, retaining ownership of the remaining
45%.
In October 1996, after the National Internal Revenue Code (NIRC) subjected the sale and lease of
real properties to VAT, FBDC began selling and leasing lots in Fort Bonifacio. FBDC filed its first
VAT return covering those sales and leases and subsequently made cash payments for output VAT
due. After which, FBDC filed a claim for refund representing transitional input tax credit based on
8o/o of the value of its beginning inventory of lands or actual value-added tax paid on its goods,
whichever is higher, that Section 105 of the NIRC grants to first-time VAT payers like FBDC.
Because of the inaction of the Commissioner of Internal Revenue (CIR) on its claim for refund,
FBDC filed a petition for review before the Court of Tax Appeals (CTA), which court denied the
petition. On appeal, the Court of
Appeals (CA) affirmed the denial. Both the CTA and the CA premised their actions on the fact that
FBDC paid no tax on the Government’s sale of the lands to it as to entitle it to the transitional input
tax credit. Likewise, citing Revenue Regulations 7-95, which implemented Section 105 of the NIRC,
the CTA and the CA ruled that such tax credit given to real estate dealers is essentially based on the
value of improvements they made on their land holdings after January 1, 1988, rather than on the
book value of the same as FBDC proposed.
FBDC subsequently appealed the CA decision to this Court by petition for review in G.R. 158885,
"Fort Bonifacio Development Corporation v. Commissioner of Internal Revenue." Meantime, similar
actions involving subsequent FBDC sales subject to VAT, including the present action, took the
same route—CTA, CA, and lastly this Court—because of the CIR’s refusal to honor FBDC’s claim to
transitional input tax credit.
On April 2, 2009 the Court En Banc rendered judgment in G.R. 158885,1 declaring FBDC entitled to
the transitional input tax credit that Section 105 of the NIRC granted. In the same decision, the Court
also disposed of G.R. 170680, "Fort Bonifacio Development Corporation v. Commissioner of Internal
Revenue," which was consolidated with G.R. 158885. The Court directed the CIR in that case to
refund to FBDC the VAT which it paid for the third quarter of 1997. Justice Tinga penned the
decision with the concurrence of Justices Martinez, Corona, Nazario, Velasco, Jr., De Castro,
Peralta, and Santiago. Justices Carpio, Quisumbing, Morales, and Brion dissented. Chief Justice
Puno and Justice Nachura took no part.
The CIR filed a motion for reconsideration but the Court denied the same with finality on October 2,
2009.2 Justice De Castro penned the resolution of denial with the concurrence of Justices Santiago,
Corona, Nazario, Velasco, Jr., Nachura, Peralta, Bersamin, Del Castillo, and Abad. Justices Carpio
and Morales dissented. Chief Justice Puno took no part. Justices Quisumbing and Brion were on
leave.
Since the Court’s April 2, 2009 decision and October 2, 2009 resolution in G.R. 158885 and G.R.
170680 had long become final and executory, they should foreclose the identical issue in the present
cases (G.R. 173425 and G.R. 181092) of whether or not FBDC is entitled to the transitional input tax
credit granted in Section 105 of the NIRC. Indeed, the rulings in those previous cases may be
regarded as the law of the case and can no longer be changed.
Justice Del Castillo’s ponencia in the present case reiterates the Court’s rulings on exactly the same
issue between the same parties. But Justice Carpio’s dissent would have the Court flip from its
landmark ruling, take FBDC’s tax credit back, and hold that the Court grossly erred in allowing
FBDC, still 45% government-owned, to get an earlier refund of the VAT payments it made from the
sale of Fort Bonifacio lands.
A value added tax is a form of indirect sales tax paid on products and services at each stage of
production or distribution, based on the value added at that stage and included in the cost to the
ultimate consumer.3
To illustrate how VAT works, take a lumber store that sells a piece of lumber to a carpentry shop for
₱ 100.00. The lumber store must pay a 12% VAT or ₱ 12.00 on such sale but it may charge the
carpentry shop ₱ 112.00 for the piece of lumber, passing on to the latter the burden of paying the ₱
12.00 VAT.
When the carpentry shop makes a wooden stool out of that lumber and sells the stool to a furniture
retailer for ₱ 150.00 (which would now consists of the ₱ 100.00 cost of the lumber, the ₱ 50.00 cost
of shaping the lumber into a stool, and profit), the carpentry shop must pay a 12% VAT of ₱ 6.00 on
the ₱ 50.00 value it added to the piece of lumber that it made into a stool. But it may charge the
furniture retailer the VAT of ₱ 12.00 passed on to it by the lumber store as well as the VAT of ₱ 6.00
that the carpentry shop itself has to pay. Its buyer, the furniture retailer, will pay ₱ 150.00, the price
of the wooden stool, and ₱ 18.00 (₱ 12.00 + ₱ 6.00), the passed-on VAT due on the same.
When the furniture retailer sells the wooden stool to a customer for ₱ 200.00, it would have added to
its ₱ 150.00 acquisition cost of the stool its mark-up of ₱ 50.00 to cover its overhead and profit. The
furniture retailer must, however, pay an additional 12% VAT of ₱ 6.00 on the ₱ 50.00 add-on value
of the stool. But it could charge its customer all the accumulated VAT payments: the ₱ 12.00 paid by
the lumber store, the ₱ 6.00 paid by the carpentry shop, and the other ₱ 6.00 due from the furniture
retailer, for a total of ₱ 24.00. The customer will pay ₱ 200.00 for the stool and ₱ 24.00 in passed-on
12% VAT.
Now, would the furniture retailer pay to the BIR the ₱ 24.00 VAT that it passed on to its customer
and collected from him at the store’s counter? Not all of the ₱ 24.00. The furniture retailer could
claim a credit for the ₱ 12.00 and the ₱ 6.00 in input VAT payments that the lumber store and the
carpentry shop passed on to it and that it paid for when it bought the wooden stool. The furniture
retailer would just have to pay to the BIR the output VAT of ₱ 6.00 covering its ₱ 50.00 mark-up.
This payment rounds out the 12% VAT due on the final sale of the stool for ₱ 200.00.
When the VAT law first took effect, it would have been unfair for a furniture retailer to pay all of the
10% VAT (the old rate) on the wooden stools in its inventory at that time and not be able to claim
deduction for any tax on sale that the lumber store and the carpentry shop presumably passed on to
it when it bought those wooden stools. To remedy this unfairness, Section 105 of the NIRC granted
those who must pay VAT for the first time a transitional input tax credit of 8% of the value of the
inventory of goods they have or actual value-added tax paid on such goods when the VAT law took
effect. The furniture retailer would thus have to pay only a 2% VAT on the wooden stools in that
inventory, given the transitional input VAT tax credit of 8% allowed it under the old 10% VAT rate.
In the case before the Court, FBDC had an inventory of Fort Bonifacio lots when the VAT law was
made to cover the sale of real properties for the first time. FBDC registered as new VAT payer and
submitted to the BIR an inventory of its lots. FBDC sought to apply the 8% transitional input tax
credit that Section 105 grants first-time VAT payers like it but the CIR would not allow it. The
dissenting opinion of Justice Carpio echoes the CIR’s reason for such disallowance. When the
Government sold the Fort Bonifacio lands to FBDC, the Government paid no sales tax whatsoever
on that sale. Consequently, it could not have passed on to FBDC what could be the basis for the 8%
transitional input tax credit that Section 105 provides.
The reasoning appears sound at first glance. But Section 105 grants all first-time VAT payers such
transitional input tax credit of 8% without any precondition. It does not say that a taxpayer has to
prove that the seller, from whom he bought the goods or the lands, paid sales taxes on them.
Consequently, the CIR has no authority to insist that sales tax should have been paid beforehand on
FBDC’s inventory of lands before it could claim the 8% transitional input tax credit. The Court’s
decision in G.R. 158885 and G.R. 170680 more than amply explains this point and such explanation
need not be repeated here.
But there is a point that has apparently been missed. When the Government sold the military lands
to FBDC for development into mixed residential and commercial uses, the presumption is that in
fixing their price the Government took into account the price that private lands similarly situated
would have fetched in the market place at that time. The clear intent was to privatize ownership of
those former military lands. It would make no sense for the Government to sell the same to intended
private investors at a price lesser than the price of comparable private lands. The presumption is that
the sale did not give undue benefit to the buyers in violation of the anti-graft and corrupt practices
act.
Moreover, there is one clear evidence that the former military lands were sold to private investors at
market price. After the Government sold the lands to FBDC, then wholly owned by BCDA, the latter
sold 55% of its shares in FBDC to private investors in a public bidding where many competed. Since
FBDC had no assets other than the lands it bought from the Government, the bidding was
essentially for those lands. There can be no better way of determining the market price of such lands
than a well-publicized bidding for them, joined in by interested bona fide bidders.
Thus, since the Government sold its lands to investors at market price like they were private lands,
the price FBDC paid to it already factored in the cost of sales tax that prices of ordinary private lands
included. This means that FBDC, which bought the lands at private-land price, should be allowed
like other real estate dealers holding private lands to claim the 8% transitional input tax credit that
Section 105 grants with no precondition to first-time VAT payers. Otherwise, FBDC would be put at a
gross disadvantage compared to other real estate dealers. It will have to sell at higher prices than
market price, to cover the 10% VAT that the BIR insists it should pay. Whereas its competitors will
pay only a 2% VAT, given the 8% transitional input tax credit of Section 105. To deny such tax credit
to FBDC would amount to a denial of its rights to fairness aqd to equal protection.
The Court was correct in allowing FBDC the right to be refunded the VAT that it already paid,
applying instead to the VAT tax due on its sales the transitional input VAT that Section 105 provides.
Justice Carpio also argues that ifFBDC will be given a tax refund, it would be sourced from public
funds, which violates Section 4(2) of the Govenm1ent Auditing Code that govemment funds or
property cannot be used in order to benefit private individuals or entities. They shall only be spent or
used solely for public purposes.
But the records show that FBDC actually paid to the BIR the amounts for which it seeks a BIR tax
refund. The CIR does not deny this fact. FBDC was forced to pay cash on the VAT due on its sales
because the BIR refused to apply the 8% transitional input VAT tax credits that the law allowed it.
Since such tax credits were sufficient to cover the VAT due, FBDC is entitled to a refund of the VAT
it already paid. And, contrary to the dissenting opinion, if FBDC will be given a tax refund, it would be
sourced, not from public funds, but from the VAT payments which FBDC itself paid to the BIR.
Like the previous cases before the Court, the BIR has the option to refund what FBDC paid it with
equivalent tax credits. Such tax credits have never been regarded as needing appropriation out of
government funds. Indeed, FBDC concedes in its prayers that it may get its refund in the form of a
Tax Credit Certificate.
For the above reasons, I concur with Justice Del Castillo's ponencia.
ROBERTO A. ABAD
Associate Justice
Footnotes
1
Fort Bonifacio Development Corp. v. Commissioner of Internal Revenue, 583 SCRA 168.
2
Fort Bonifacio Development Corp. v. Commissioner of Internal Revenue, G.R. Nos. 158885
and 170680, 602 SCRA 159.
3
Webster’s New World College Dictionary, Third edition, p. 1474.

Tax-Cases 12.15.18

Caricato da

Informazioni sul documento

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Tax-Cases 12.15.18

Caricato da

Copyright:

Formati disponibili

Republic of the Philippines

G.R. No. 191498 January 15, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

22 October 2004 12 July 2005 3rd 2004

25 January 2005 12 July 2005 4th 2004

THE COURT A QUO’S RELIANCE ON THE RULING IN ATLAS IS MISPLACED.36

THE COURT’S RULING

MINDANAO II’S APPLICATION FOR

Section 112(A) provides:

SEC. 112. Refunds or Tax Credits of Input Tax. —

The CIR’s Stand

The Taxpayer’s Defense

Section 112(A) is the Applicable Rule

C. The Administrative Claims Were Timely Filed

MINDANAO II’S JUDICIAL CLAIMS WERE FILED OUT OF TIME

A. 30-Day Period Also Applies to Appeals from Inaction

B. The Judicial Claim Was Belatedly Filed

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

Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly

SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR CLAIMING REFUND OR CREDIT OF

The lessons of this case may be summed up as follows:

A. Two-Year Prescriptive Period

B. 120+30 Day Period

SUMMARY AND CONCLUSION

MARIA LOURDES P. A. SERENO

TERESITA J. LEONARDO-DE CASTRO

LUCAS P. BERSAMIN MARTIN S. VILLARAMA, JR.

MARIA LOURDES P. A. SERENO

COMMISSIONER OF INTERNAL G.R. No. 180042

This addresses the question of whether or not creditable value-added tax

The Facts and the Case

Ironcon filed a motion for reconsideration, attaching to it its amended

Petitioner CIR filed a motion for reconsideration of the amended decision,

The Courts Ruling

Respondent Ironcons excess creditable VAT in this case consists of amounts

Output taxes P 20,073,422.63

Respondent Ironcons clients had, however, already withheld and

ARTURO D. BRION MARIANO C. DEL CASTILLO

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

Zero-Rated Sales/ Excess Input

The Court of Tax Appeals’ Ruling: Division

1. That there must be zero-rated or effectively zero-rated sales;

2. That input taxes were incurred or paid;

The Court of Tax Appeals’ Ruling: En Banc

The CIR raises this sole issue for resolution:

The Ruling of the Court

The petition lacks merit.

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

SECTION 2. Section 16 of Revenue Regulations 5-87 is hereby amended to read as follows:

iii) evidence of actual receipt of goods or services.

Amount of Zero-rated Sale

Total Amount of Input Taxes

We likewise applied RR 3-88 in AT&T Communications Services Philippines, Inc. v. Commissioner

5. Approved Certificate for Zero-Rate (Exhibit "A"); and

6. Application for Tax Credit/Refund (BIR Form 1914) (Exhibit "B-3")18

MARIANO C. DEL CASTILLO JOSE PORTUGAL PEREZ

MARIA LOURDES P. A. SERENO

G.R. Nos. 198729-30 January 15, 2014

CBK POWER COMPANY LIMITED, Petitioner,

Period Covered Date Of Filing

1st quarter of 2005 30-Jun-05

THE CTA SPECIAL SECOND DIVISION RULING

Taxable Quarter Last Day to