SUMMARY OF SIGNIFICANT CTA DECISIONS (AUGUST 2012)

REFUND/ISSUANCE OF TAX CREDIT CERTIFICATE

A. Refund of Erroneous Payment of Net Input Tax

1. Refund claim under Section 229 of the Tax Code does not require proof of
compliance with the invoicing requirements.

The VAT return of the taxpayer shows that its total output tax due is P41,965,071.76. On the
other hand, the same return shows that its input tax is P50,057,254.70. Thus, there was a
net input tax of P8,092,192.94. Since this is an excess input tax, taxpayer should not have
paid anything. Erroneously, however, taxpayer paid the same amount to the BIR. Realizing
its mistake, it filed a claim for refund.

The CTA initially denied the claim on the ground that the taxpayer-claimant failed to prove its
compliance with the invoicing requirements, specifically its failure to present VAT receipts
and/or invoices to substantiate its input taxes. Upon the filing of a motion for reconsideration
by the taxpayer, the CTA issued an amended decision. According to the CTA, there is a
distinction between Section 112(A) of the 1997 Tax Code and Sections 204(C) and 229 of
the same Code. Section 112(A) of the Tax Code applies to claims for unutilized input tax
refund, whereas
Sections 204(C) and 229 of the same Code apply to instances of erroneous payment or
illegal collection of internal revenue taxes. In the instant case, taxpayer does not seek to
refund its unutilized input VAT per se under Section 112, but its erroneous payment of input
VAT pursuant to Section 229. Nothing in Section 229 requires compliance with the invoicing
requirements before taxpayer could claim a refund for its erroneous payment of tax.
(Ericsson Telecommunications, Inc. vs. Commissioner of Internal Revenue, CTA Case
No. 8027, August 2, 2012)

B. Refund of Input Taxes By Reason of Cancellation of Registration

2. An application for refund/tax credit certificate on the basis of the cancellation of

VAT registration filed before the effectivity of the cancellation is premature.

On April 15, 2010, taxpayer filed with the BIR a request for cancellation of its BIR
Registration/TIN and issuance of Tax Clearance Certificate, together with a claim for refund
or issuance of tax credit certificate (TCC) for its unutilized input taxes. The CTA ruled that
since the taxpayer’s claim for refund is due to cessation of business, the applicable provision
is Section 112(B) of the 1997 Tax Code, which states that a person whose registration has
been cancelled due to retirement from or cessation of business, may within two years, from
the date of cancellation apply for the issuance of TCC. Also, under Section 236(F)(1) and
(2)(B) of the 1997 Tax Code, the registration of any person who ceases to be liable to a tax
type shall be cancelled upon filing with the Revenue District Office an application for
registration information update. The cancellation of registration will be effective from the first
day of the following month.

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Applying these provisions, the CTA ruled that the taxpayer’s cancellation of registration
became effective only on May 1, 2010, considering that it filed its application for cancellation
on April 15, 2010. So the earliest date that the taxpayer can file a claim for refund or TCC
was on May 1, 2010. As of April 15, 2010, its VAT registration was not yet cancelled. Since
the application for refund/TCC was incorporated in the application for cancellation of BIR
Registration/TIN, which was filed on April 15, 2010, the claim for refund was premature.
(Mindanao I Geothermal Partnership vs. Commissioner of Internal Revenue, CTA
Case No. 8247, August 10, 2012)

3. The cancellation of VAT registration commences from the first day of the month
following the application, under Section 236 of the Tax Code.

On November 15, 2007, the Board of Directors
business of its effective December 31, 2007.
recommence any form of business. On July 1,
Registration Information Update. On July 7, 2008,
unused input taxes as of December 31, 2007.
of taxpayer approved the cessation of
From December 31, 2007, it did not
2008, taxpayer filed an Application for
it filed with the BIR a claim for refund of

According to the CTA, the prevailing rule on claims for tax refund on account of cessation of
business is Section 112(B) of the 1997 Tax Code, which states that a person whose
registration has been cancelled due to retirement from or cessation of business, may within
two years, from the date of cancellation apply for the issuance of TCC for any unused input
tax. Also, under Section 236(F)(1) and (2)(B) of the 1997 Tax Code, the registration of any
person who ceases to be liable to a tax type shall be cancelled upon filing with the Revenue
District Office an application for registration information update. The cancellation of
registration will be effective from the first day of the following month.

Applying these provisions, the CTA ruled that the effectivity date of taxpayer’s formal
cessation of business is reckoned from the 1st day of the following month where the
Application for Registration Information Update was filed on July 1, 2008, and that is, on
August 1, 2008. Counting two years from August 1, 2008, taxpayer may apply for issuance
of TCC. Such being the case, taxpayer’s administrative claim for refund is premature
considering that the two-year period under Section 112(B) in relation to Section 236 has not
yet commenced to run. (Associated Swedish Steels Phils., Inc. vs. Commissioner of
Internal Revenue, CTA EB No. 854, August 23, 2012)

C. Refund of Input Taxes Related to Zero-Rated Sales

4. Failure to observe the 120-30 day period under Section 112 (C) of the NIRC of
1997, as amended, results to prematurity of claim which warrants a dismissal as
the Court acquires no jurisdiction.

Taxpayer filed a claim for refund of input taxes related to zero-rated sales with the BIR on
March 30, 2009, covering the four quarters of 2007. Thereafter, it filed separate petitions for
review with the CTA on March 31, 2009, June 30, 2009 and August 12, 2009, covering the
first quarter of 2009, 2nd quarter of 2009, and 3rd and 4th quarters of 2009, respectively.

The judicial claim for refund should be filed within 30 days from receipt of the decision of the
BIR or upon the expiration of 120 days in case of inaction by the BIR. Counting 120 days
March 30, 2009, the day when the administrative claim was filed, the BIR had until June 28,
2009 to decide on the administrative claim. Since the BIR failed to act on the administrative
claim, the taxpayer had 30 days from July 29, 2009 or until August 27, 2009 to appeal the
inaction of the BIR. The judicial claim filed on March 31, 2009 was filed barely 1 day after the
filing of the administrative claim. On the other hand, the judicial claim filed on June 30, 2009

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was field 28 days prior to the lapse of the 120-day period. The CTA ruled that both claims
were prematurely filed since taxpayer did not wait for the lapse of 120 days before filing the
appeal with the CTA. The premature filing warrants a dismissal inasmuch as no jurisdiction
was acquired by the Court. (Mindanao II Geothermal Partnership vs. Commissioner of
Internal Revenue, CTA Case Nos. 7899 and 7942, August 1, 20121)

5. If the taxpayer opts to appeal, such claim must be filed within the 30-day period
from receipt of the denial or the expiration of the 120-day period.

On January 10, 2007, taxpayer filed a claim for refund with the One Stop Shop Inter-Agency
Tax Credit and Duty Drawback Center of the Department of Finance, covering the unutilized
input value-added tax for the third quarter of 2006. No action was taken on the application.
Hence, taxpayer filed its judicial claim on October 6, 2008.

The Court ruled that judicial claim must be filed within thirty (30) days from the receipt of the
Commissioner of Internal Revenue’s decision denying the claim or after the expiration of the
120-day period. Since the administrative claim was filed on January 10, 2007, the BIR had
until May 10, 2007 within which to decide. Counting 30 days from May 10, 2007, the
taxpayer had until June 9, 2007 (actually June 12, 2007 since June 9 was Saturday and
Monday was holiday) to appeal. Hence, the petition for review filed only on October 6, 2008
was beyond the reglementary period to appeal. (Philex Mining Corporation vs.
Commissioner of Internal Revenue, C.T.A. EB No. 728, August 31, 2012)

6. In a claim for refund of input taxes related to zero-rated sales of services to

foreign clients, claimant should present VAT zero-rated official receipts.

Taxpayer provides services to clients engaged in business outside the Philippines. Since the
fees are VAT zero-rated, taxpayer applied for the refund of input taxes related to these VAT
zero-rated receipts. Among other documents, taxpayer presented invoices but not official
receipts. Applying the case of Commissioner of Internal Revenue vs. Burmeister and Wain
Scandanavian Contractor Mindanao, Inc. (512 SCRA 135), the CTA stated that in order for
the supply of services to be VAT zero-rated, the following requisites must be present:

1) the services must be other than processing, manufacturing, or repacking of goods;

2) payment for such services must be in acceptable foreign currency accounted for in
accordance with the BSP rules and regulations; and
3) the recipient of such services is doing business outside the Philippines.

In relation to No. 2, the CTA also said that the taxpayer must prove its compliance with the
substantiation and invoicing requirements under Section 113 of the Tax Code, which
provides that a VAT-registered person shall issue a VAT official receipt for every lease of
goods or properties and for every sale, barter or exchange of services. On this basis, the
CTA ruled that since taxpayer is engaged in sale of services, its transactions should be
properly supported by VAT official receipts. Since taxpayer presented invoices and not
official receipts to prove its sale of services to foreign clients, taxpayer cannot claim such
sales as VAT zero-rated. Accordingly, the claim for refund was denied. (Galileo Asia, LLC –
Philippine Branch vs. Commissioner of Internal Revenue, CTA Case No. 8134, August
22, 2012)

1
The same decision was made in the case of Harte Hanks Philippines, Inc. vs. Commissioner of Internal
Revenue, CTA EB No. 813, August 16, 2012

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D. Refund of Input Taxes on Petroleum Products

7. Section 135 of the Tax Code cannot be used as the basis for any claim for refund
of excise tax paid on imported petroleum products subsequently sold to exempt
entities.

Taxpayer sold petroleum products to Clark Development Corporation (CDC), a duly

registered Clark Special Economic Zone (CSEZ) enterprise. The petroleum products sold to
CDC were imported by taxpayer, for which excise taxes due thereon were paid upon
importation. Since CDC enjoys exemption from payment of direct and indirect taxes under
Section 135(C) of the Tax Code, taxpayer did not pass or shift to CDC the excise taxes it
paid on the imported petroleum products. Thus, taxpayer filed for refund or issuance of TCC
for the taxes paid on the imported petroleum products which were subsequently sold to
CDC.

Taxpayer cites Section 135(C) of the Tax Code as the basis of its claim. Said section
provides that petroleum products sold to entities which are by law exempt from direct
and indirect taxes are exempt from excise taxes. The CTA, however, ruled that there is
nothing in the provision that explicitly grants the taxpayer, as seller of imported petroleum
products, exemption from the payment of excise taxes. Citing the case of Philippine
Acetylene Co., Inc. vs. CIR, G.R. No. 188497, April 25, 2012, the CTA said that a tax
exemption being enjoyed by the buyer cannot be the basis of a claim for tax exemption by
the importer of the goods for any tax due to it as importer. The excise tax imposed on
importation of petroleum products under section 131 of the Tax Code is the direct liability of
the importer who cannot thus invoke the tax exemption granted to its buyers who, by law,
are legally exempted from the payment of direct and indirect taxes. (Chevron Philippines,
Inc. vs. Commissioner of Internal Revenue, CTA Case No. 8022, August 30, 2012)

E. Refund of Excess Income/Withholding Tax

8. The irrevocability rule in Section 76 of the Tax Code applies only to the option to
carry-over the excess income tax payment, and not to the claim for refund or
issuance of a TCC.

Taxpayer filed its income tax return (ITR) for the year 2004, showing excess income tax
payment (coming from creditable withholding taxes). In the same ITR, taxpayer indicated its
option for the excess by marking the box “to be issued a tax credit certificate”. In the
quarterly income tax returns, however, of the following year 2005, taxpayer actually carried
over the excess income tax payment. These quarterly income tax returns were subsequently
amended to exclude the 2004 excess income tax payment as carry-over. Taxpayer applied
for a refund of the 2004 excess income tax payment.

Citing Section 76 of the 1997 Tax Code, the CTA said that in case of overpayment of taxes,
the taxpayer has two options, namely, first, to carry-over such excess credits; and second, to
claim for a refund of the same or the issuance of a tax credit certificate. The CTA further
stated that the irrevocability rule in Section 76 of the Tax Code applies only to the option to
carry-over the excess income tax payment, and not to the claim for refund or issuance of a
TCC. Nowhere in Section 76 was it stated that the option to claim refund or TCC, once
chosen, is irrevocable. While taxpayer indicated in the 2004 annual ITR the option to be
issued a TCC, the same was negated when it actually carried over the excess tax payment
to the taxable year 2005. (United Coconut Planters Bank vs. Commissioner of Internal
Revenue, CTA EB Case No. 725, August 23, 2012)

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Note: In the dissenting opinion of Justice Fabon-Victorino, citing the cases of Philam Asset
Management, Inc. vs. Commissioner of Internal Revenue, 514 Phil. 147 (2005) and CIR vs.
McGeorge Food Industries, Inc., G.R. No. 174157, October 20, 2010, the Justice said that
the options of a corporate taxpayer are alternative in nature and the choice of one precludes
the other. The controlling factor for the operation of the irrevocability rule is that the taxpayer
chose an option; and once it had already done so, it could no longer make another one.

TAX ASSESSMENT

9. The erroneous payment of final withholding tax cannot be used to offset or be

treated as advance tax payment, and cannot be used against the succeeding final
withholding tax.

Taxpayer was assessed by the BIR for the year 1999. The deficiency tax assessment
includes, among others, final withholding tax on dividends. In 1997, on the basis of a
recommendation to declare dividends of P8M, taxpayer paid the 15% final withholding tax
due of P1.2M. However, the Board of Directors did not approve the recommendation and
decided to defer the declaration of dividends. In 1999, P24M dividend was declared with
15% final withholding tax due of P3.6M. Taxpayer treated the P1.2M tax paid in 1997 as
advance tax payment. Accordingly, this was credited against the P3.6M tax due on the
P24M declaration. Hence, taxpayer paid only the amount of P2.4M (P3.6M – P1.2M).

The CTA Division allowed the credit. Upon appeal to the CTA En Banc, the latter said that
the taxpayer erroneously paid final withholding tax in 1997, but instead of filing or claiming
for refund, it offset and credited the same against the final withholding tax on dividend
declared in 1999, which should not be allowed. Under the final withholding tax system, the
amount of income tax withheld by withholding agent is constituted as full and final payment
of the income tax due on the said income. It is not creditable. In case of overpayment or
erroneous payment, the withholding agent has the right to file a claim for refund. The right of
the taxpayer to file for refund does not entitle the same to credit or offset to other taxes.2
[Commissioner of Internal Revenue vs. Goulds Pumps (Phils.) Incorporated, August
22, 20120]

2
This assessment, however, was cancelled on the ground of prescription

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