VAT Jurisprudence

VAT CASES ADVANCE TAXATION LAW REVIEW 2016
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 Decision 2 and
Resolution3 of the Court of Tax Appeals En Banc (CTA En Banc) in CTA En
Banc Case No. 448, affirming the Decision in CTA Case No. 7507 of the CTA
Second Division.4 The latter ordered the refund or issuance of a tax credit
certificate in the amount of P6,791,845.24 representing unutilized input VAT
incurred for the second, third, and fourth quarters of taxable year 2004 in
favor of herein respondent, Mindanao II.
FACTS
Mindanao II is a partnership registered with the Securities and Exchange
Commission.5 It is engaged in the business of power generation and sale of
electricity to the National Power Corporation (NAPOCOR) 6 and is accredited
by the Department of Energy.7
Mindanao II filed its Quarterly VAT Returns for the second, third and fourth
quarters of taxable year 2004 on the following dates: 8
Date filed
Original
Amended
Quarter
Taxable Year
1
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 P7,167,005.84, which were directly attributable to the zero-rated sales.
The input taxes had not been applied against output tax.
Pursuant to Section 112(D) of the 1997 Tax Code, the Commissioner of
Internal Revenue (CIR) had a period of 120 days, or until 3 February 2006, to
act on the claim. The administrative claim, however, remained unresolved
on 3 February 2006.
Under the same provision, Mindanao II could treat the inaction of the CIR as
a denial of its claim, in which case, the former would have 30 days to file an
appeal to the CTA, that is, on 5 March 2006. Mindanao II, however, did not
file an appeal within the 30-day period.
Apparently, Mindanao II believed that a judicial claim must be filed within
the two-year prescriptive period provided under Section 112(A) and that
such time frame was to be reckoned from the filing of its Quarterly VAT
Returns for the second, third, and fourth quarters of taxable year 2004, that
is, from 26 July 2004, 22 October 2004, and 25 January 2005, respectively.
Thus, on 21 July 2006, Mindanao II, claiming inaction on the part of the CIR
and that the two-year prescriptive period was about to expire, filed a
Petition for Review with the CTA docketed as CTA Case No. 6133. 12
On 8 June 2007, while the application for refund or credit of unutilized input
VAT of Mindanao II was pending before the CTA Second Division, this Court
promulgated Atlas Consolidated Mining and Development Corporation v.
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.
2
On 12 August 2008, the CTA Second Division rendered a Decision 14 ordering

the CIR to grant a refund or a tax credit certificate, but only in the reduced
amount of P6,791,845.24, representing unutilized input VAT incurred for the
second, third and fourth quarters of taxable year 2004. 15
In support of its ruling, the CTA Second Division held that Mindanao II
complied with the twin requisites for VAT zero-rating under the EPIRA law:
first, it is a generation company, and second, it derived sales from power
generation. It also ruled that Mindanao II satisfied the requirements for the
grant of a refund/credit under Section 112 of the Tax Code: (1) there must
be zero-rated or effectively zero-rated sales; (2) input taxes must have been
incurred or paid; (3) the creditable input tax due or paid must be
attributable to zero-rated sales or effectively zero-rated sales; (4) the input
VAT payments must not have been applied against any output liability; and
(5) the claim must be filed within the two-year prescriptive period. 16
As to the second requisite, however, the input tax claim to the extent
of P375,160.60 corresponding to purchases of services from Mitsubishi
Corporation was disallowed, since it was not substantiated by official
receipts.17
As regards to the fifth requirement in section 112 of the Tax Code, the tax
court, citing Atlas, counted from 26 July 2004, 22 October 2004, and 25
January 2005 the dates when Mindanao II filed its Quarterly VAT Returns
for the second, third, and fourth quarters of taxable year 2004, respectively
and determined that both the administrative claim filed on 6 October 2005
and the judicial claim filed on 21 July 2006 fell within the two-year
prescriptive period.18
On 1 September 2008, the CIR filed a Motion for Partial
Reconsideration,19 pointing out that prescription had already set in, since
the appeal to the CTA was filed only on 21 July 2006, which was way beyond
the last day to appeal 5 March 2006.20 As legal basis for this argument, the
CIR relied on Section 112(D) of the 1997 Tax Code. 21
Meanwhile, on 12 September 2008, this Court promulgated CIR v. Mirant
Pagbilao Corporation (Mirant).22 Mirant fixed the reckoning date of the twoyear prescriptive period for the application for refund or credit of unutilized
input VAT at the close of the taxable quarter when the relevant sales were
made , as stated in Section 112(A).23
On 3 December 2008, the CTA Second Division denied the CIRs Motion for
Partial Reconsideration.24 The tax court stood by its reliance on Atlas 25 and
3
on its finding that both the administrative and judicial claims of Mindanao II
were timely filed.26
On 7 January 2009, the CIR elevated the matter to the CTA En Banc via a
Petition for Review.27 Apart from the contention that the judicial claim of
Mindanao II was filed beyond the 30-day period fixed by Section 112(D) of
the 1997 Tax Code,28 the CIR argued that Mindanao II erroneously fixed 26
July 2004, the date when the return for the second quarter was filed, as the
date from which to reckon the two-year prescriptive period for filing an
application for refund or credit of unutilized input VAT under Section 112(A).
As the two-year prescriptive period ended on 30 June 2006, the Petition for
Review of Mindanao II was filed out of time on 21 July 2006. 29 The CIR
invoked the recently promulgated Mirant to support this theory.
On 11 November 2009, the CTA En Banc rendered its Decision denying the
CIRs Petition for Review.30 On the question whether the application for
refund was timely filed, it held that the CTA Second Division correctly
applied the Atlas ruling.31 It reasoned that Atlas remained to be the
controlling doctrine. Mirant was a new doctrine and, as such, the latter
should not apply retroactively to Mindanao II who had relied on the old
doctrine of Atlas and had acted on the faith thereof. 32
As to the issue of compliance with the 30-day period for appeal to the CTA,
the CTA En Banc held that this was a requirement only when the CIR
actually denies the taxpayers claim. But in cases of CIR inaction, the 30-day
period is not a mandatory requirement; the judicial claim is seasonably filed
as long as it is filed after the lapse of the 120-day waiting period but within
two years from the date of filing of the return. 33
The CIR filed a Motion for Partial Reconsideration 34 of the Decision, but it
was denied for lack of merit.35
Dissatisfied, the CIR filed this Rule 45 Petition, raising the following
arguments in support of its appeal:
I.
THE CTA 2ND DIVISION LACKED JURISDICTION TO TAKE COGNIZANCE OF
THE CASE.
II.
THE COURT A QUOS RELIANCE ON THE RULING IN ATLAS IS MISPLACED. 36
4
ISSUES
The resolution of this case hinges on the question of compliance with the
following time requirements for the grant of a claim for refund or credit of
unutilized input VAT: (1) the two-year prescriptive period for filing an
application for refund or credit of unutilized input VAT; and (2) the 120+30
day period for filing an appeal with the CTA.
THE COURTS RULING
We deny Mindanao IIs claim for refund or credit of unutilized input VAT on
the ground that its judicial claims were filed out of time, even as we hold
that its application for refund was filed on time.
I.
MINDANAO IIS APPLICATION FOR
REFUND WAS FILED ON TIME
We find no error in the conclusion of the tax courts that the application for
refund or credit of unutilized input VAT was timely filed. The problem lies
with their bases for the conclusion as to: (1) what should be filed within the
prescriptive period; and (2) the date from which to reckon the prescriptive
period.
We thus take a different route to reach the same conclusion, initially
focusing our discussion on what should be filed within the two-year
prescriptive period.
A. The Judicial Claim Need Not Be Filed Within the Two-Year Prescriptive
Period
Section 112(A) provides:
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
5
foreign currency exchange proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP): Provided, further, That where the taxpayer is engaged in zero-rated
or effectively zero-rated sale and also in taxable or exempt sale of goods or
properties or services, and the amount of creditable input tax due or paid
cannot be directly and entirely attributed to any one of the transactions, it
shall be allocated proportionately on the basis of the volume of sales.
Both the CTA Second Division and CTA En Banc decisions held that the
phrase "apply for the issuance of a tax credit certificate or refund" in
Section 112(A) is construed to refer to both the administrative claim filed
with the CIR and the judicial claim filed with the CTA. This view, however,
has no legal basis.
In Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.
(Aichi), we dispelled the misconception that both the administrative and
judicial claims must be filed within the two-year prescriptive period: 37
There is nothing in Section 112 of the NIRC to support respondents view.
Subsection (A) of the said provision states that "any VAT-registered person,
whose sales are zero-rated or effectively zero-rated may, within two years
after the close of the taxable quarter when the sales were made, apply for
the issuance of a tax credit certificate or refund of creditable input tax due
or paid attributable to such sales." The phrase "within two (2) years x x x
apply for the issuance of a tax credit certificate or refund" refers to
applications for refund/credit filed with the CIR and not to appeals made to
the CTA. This is apparent in the first paragraph of subsection (D) of the
same provision, which states that the CIR has "120 days from the
submission of complete documents in support of the application filed in
accordance with Subsections (A) and (B)" within which to decide on the
claim.
In fact, applying the two-year period to judicial claims would render
nugatory Section 112 (D) of the NIRC, which already provides for a specific
period within which a taxpayer should appeal the decision or inaction of the
CIR. The second paragraph of Section 112 (D) of the NIRC envisions two
scenarios: (1) when a decision is issued by the CIR before the lapse of the
120-day period; and (2) when no decision is made after the 120-day period.
In both instances, the taxpayer has 30 days within which to file an appeal
with the CTA. As we see it then, the 120-day period is crucial in filing an
appeal with the CTA. (Emphasis supplied)
6
The message of Aichi is clear: it is only the administrative claim that must
be filed within the two-year prescriptive period; the judicial claim need not
fall within the two-year prescriptive period.
Having disposed of this question, we proceed to the date for reckoning the
prescriptive period under Section 112(A).
B. Reckoning Date is the Close of the Taxable Quarter When the Relevant
Sales Were Made.
The other flaw in the reasoning of the tax courts is their reliance on the
Atlas ruling, which fixed the reckoning point to the date of filing the return
and payment of the tax.
The CIRs Stand
The CIRs stand is that Atlas is not applicable to the case at hand as it
involves Section 230 of the 1977 Tax Code, which contemplates recovery of
tax payments erroneously or illegally collected. On the other hand, this case
deals with claims for tax refund or credit of unutilized input VAT for the
second, third, and fourth quarters of 2004, which are covered by Section
112 of the 1977 Tax Code.38
The CIR further contends that Mindanao II cannot claim good faith reliance
on the Atlas doctrine since the case was decided only on 8 June 2007, two
years after Mindanao II filed its claim for refund or credit with the CIR and
one year after it filed a Petition for Review with the CTA on 21 July 2006. 39
In lieu of Atlas, the CIR proposes that it is the Court's ruling in Mirant that
should apply to this case despite the fact that the latter was promulgated on
12 September 2008, after Mindanao II had filed its administrative claim in
2005.40It argues that Mirant can be applied retroactively to this case, since
the decision merely interprets Section 112, a provision that was already
effective when Mindanao II filed its claims for tax refund or credit.
The Taxpayers Defense
On the other hand, Mindanao II counters that Atlas, decided by the Third
Division of this Court, could not have been superseded by Mirant, a Second
Division Decision of this Court. A doctrine laid down by the Supreme Court in
a Division may be modified or reversed only through a decision of the Court
sitting en banc.41
7
Mindanao II further contends that when it filed its Petition for Review, the
prevailing rule in the CTA reckons the two-year prescriptive period from the
date of the filing of the VAT return.42 Finally, after building its case on Atlas,
Mindanao II assails the CIRs reliance on the Mirant doctrine stating that it
cannot be applied retroactively to this case, lest it violate the rock-solid rule
that a judicial ruling cannot be given retroactive effect if it will impair vested
rights.43
Section 112(A) is the Applicable Rule
The issue posed is not novel. In the recent case of Commissioner of Internal
Revenue v. San Roque Power 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
8
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
9
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
10
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
11
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
12
As regards the claim for the third quarter of 2004, the two-year prescriptive
period started to run on 30 September 2004, the close of the taxable
quarter. It ended on 30 September 2006, pursuant to Section 112(A) of the
1997 Tax Code. Mindanao II filed its administrative claim on 6 October 2005.
Thus, since the administrative claim was filed well within the two-year
prescriptive period, the administrative claim for the third quarter of 2004
was timely filed. (See timeline below)
Fourth Quarter
Here, the two-year prescriptive period is counted starting from the close of
the fourth quarter which is on 31 December 2004. The last day of the
prescriptive period for filing an application for tax refund/credit with the CIR
was on 31 December 2006. Mindanao II filed its administrative claim with
the CIR on 6 October 2005. Hence, the claims were filed on time, pursuant
to Section 112(A) of the 1997 Tax Code. (See timeline below)
II.
MINDANAO IIS JUDICIAL CLAIMS WERE FILED OUT OF TIME
13
Notwithstanding the timely filing of the administrative claims, we find that

the CTA En Banc erred in holding that Mindanao IIs judicial claims were
timely filed.
A. 30-Day Period Also Applies to Appeals from Inaction
Section 112(D) of the 1997 Tax Code states the time requirements for filing
a judicial claim for refund or tax credit of input VAT:
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made.
In proper cases, the Commissioner shall grant a refund or issue the tax
credit certificate for creditable input taxes within one hundred twenty (120)
days from the date of submission of complete documents in support of the
application filed in accordance with Subsection (A) and (B) hereof. In case of
full or partial denial of the claim for tax refund or tax credit, or the failure on
the part of the Commissioner to act on the application within the period
prescribed above, the taxpayer affected may, within thirty (30) days from
the receipt of the decision denying the claim or after the expiration of the
one hundred twenty day-period, appeal the decision or the unacted claim
with the Court of Tax Appeals. (Emphases supplied)
Section 112(D) speaks of two periods: the period of 120 days, which serves
as a waiting period to give time for the CIR to act on the administrative
claim for refund or credit, and the period of 30 days, which refers to the
period for interposing an appeal with the CTA. It is with the 30-day period
that there is an issue in this case.
The CTA En Bancs holding is that, since the word "or" a disjunctive term
that signifies dissociation and independence of one thing from another is
used in Section 112(D), the taxpayer is given two options: 1) file an appeal
within 30 days from the CIRs denial of the administrative claim; or 2) file an
appeal with the CTA after expiration of the 120-day period, in which case
the 30-day appeal period does not apply. The judicial claim is seasonably
filed so long as it is filed after the lapse of the 120-day waiting period but
before the lapse of the two-year prescriptive period under Section 112(A). 46
We do not agree.
The 30-day period applies not only to instances of actual denial by the CIR
of the claim for refund or tax credit, but to cases of inaction by the CIR as
well. This is the correct interpretation of the law, as held in San Roque: 47
14
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.)
15
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,
16
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 "taxpayerclaimant 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
17
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:
18
However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for
four reasons: first, it is admittedly an erroneous interpretation of the law;
second, prior to its issuance, the BIR held that the 120-day period was
mandatory and jurisdictional, which is the correct interpretation of the law;
third, prior to its issuance, no taxpayer can claim that it was misled by the
BIR into filing a judicial claim prematurely; and fourth, a claim for tax refund
or credit, like a claim for tax exemption, is strictly construed against the
taxpayer.53
Thus, San Roque held that taxpayer San Roque Power Corporation, could not
seek refuge in the BIR ruling as it jumped the gun when it filed its judicial
claim on 10 April 2003, prior to the issuance of the BIR ruling on 10
December 2003.1wphi1 The Court stated:
San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03
because it filed its judicial claim prematurely on 10 April 2003, before the
issuance of BIR Ruling No. DA-489-03 on 10 December 2003. To repeat, San
Roque cannot claim that it was misled by the BIR into filing its judicial claim
prematurely because BIR Ruling No. DA-489-03 was issued only after San
Roque filed its judicial claim. At the time San Roque filed its judicial claim,
the law as applied and administered by the BIR was that the Commissioner
had 120 days to act on administrative claims. This was in fact the position of
the BIR prior to the issuance of BIR Ruling No. DA-489-03. Indeed, San
Roque never claimed the benefit of BIR Ruling No. DA-489-03 or RMC 49-03,
whether in this Court, the CTA, or before the Commissioner. 54
San Roque likewise ruled out the application of the BIR ruling to cases of
late filing. The Court held that the BIR ruling, as an exception to the
mandatory and jurisdictional nature of the 120+30 day periods, is limited to
premature filing and does not extend to late filing of a judicial claim. Thus,
the Court found that since Philex Mining Corporation, the other party in the
consolidated case San Roque, filed its claim 426 days after the lapse of the
30-day period, it could not avail itself of the benefit of the BIR ruling:
Philexs situation is not a case of premature filing of its judicial claim but of
late filing, indeed
Very late filing. BIR Ruling No. DA-489-03 allowed premature filing of a
judicial claim, which means non-exhaustion of the 120-day period for the
Commissioner to act on an administrative claim. Philex cannot claim the
benefit of BIR Ruling No. DA-489-03 because Philex did not file its judicial
claim prematurely but filed it long after the lapse of the 30-day period
19
following the expiration of the 120-day period. In fact, Philex filed its judicial
claim 426 days after the lapse of the 30-day period. 55
We sum up the rules established by San Roque on the mandatory and
jurisdictional nature of the 30-day period to appeal through the following
timeline:
Bearing in mind the foregoing rules for the timely filing of a judicial claim for
refund or credit of unutilized input VAT, we rule on the present case of
Mindanao II as follows:
We find that Mindanao IIs situation is similar to that of Philex in San Roque.
As mentioned above, Mindanao II filed its judicial claim with the CTA on 21
July 2006. This was after the issuance of BIR Ruling No. DA-489-03 on 10
December 2003, but before its reversal on 5 October 2010. However, while
the BIR ruling was in effect when Mindanao II filed its judicial claim, the rule
cannot be properly invoked. The BIR ruling, as discussed earlier,
contemplates premature filing. The situation of Mindanao II is one of late
filing. To repeat, its judicial claim was filed on 21 July 2006 long after 5
March 2006, the last day of the 30-day period for appeal. In fact, it filed its
judicial claim 138 days after the lapse of the 30-day period. (See timeline
below)
20
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 twoyear 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.
21
3. As a general rule, the 3 0-day period to appeal is both mandatory

and jurisdictional. (Aichi and San Roque)
4. As an exception to the general rule, premature filing is allowed only
if filed between 10 December 2003 and 5 October 2010, when BIR
Ruling No. DA-489-03 was still in force. (San Roque)
5. Late filing is absolutely prohibited, even during the time when BIR
Ruling No. DA-489-03 was in force. (San Roque)
SUMMARY AND CONCLUSION
In sum, our finding is that the three administrative claims for the refund or
credit of unutilized input VAT were all timely filed, while the corresponding
judicial claims were belatedly filed.
The foregoing considered, the CT A lost jurisdiction over Mindanao Ils
claims for refund or credit.1wphi1 The CTA EB erred in granting these
claims.
WHEREFORE, we GRANT the Petition. The assailed Court of Tax Appeals En
Banc Decision dated 11 November 2009 and Resolution dated 3 March 2010
of the in CTA EB Case No. 448 (CTA Case No. 7507) are hereby REVERSED
and SET ASIDE. A new ruling is entered DENYING respondent s claim for a
tax refund or credit ofP6,791,845.24.
SO ORDERED.
ECOND DIVISION
COMMISSIONER OF
INTERNAL REVENUE,
Petitioner,
- versus -
G.R. No. 178697

Present:
CARPIO, J., Chairperson,
LEONARDO-DE CASTRO,*
PERALTA,
ABAD, and
MENDOZA, JJ.
22
SONY PHILIPPINES,
Promulgated:
INC.,
November 17, 2010
Respondent.
X ---------------------------------------------------------------------------------------X
DECISION
MENDOZA, J.:
This petition for review on certiorari seeks to set aside the May 17,
2007 Decision and the July 5, 2007 Resolution of the Court of Tax Appeals En
Banc[1] (CTA-EB), in C.T.A. EB No. 90, affirming the October 26, 2004
Decision of the CTA-First Division [2] which, in turn, partially granted the
petition for review of respondent Sony Philippines, Inc. (Sony). The CTA-First
Division decision cancelled the deficiency assessment issued by petitioner
Commissioner of Internal Revenue (CIR) against Sony for Value Added
Tax (VAT) but upheld the deficiency assessment for expanded withholding
tax (EWT) in the amount of P1,035,879.70 and the penalties for late
remittance of internal revenue taxes in the amount of P1,269, 593.90.[3]
THE FACTS:
On November 24, 1998, the CIR issued Letter of Authority No.
000019734 (LOA 19734) authorizing certain revenue officers to examine
Sonys books of accounts and other accounting records regarding revenue
taxes forthe period 1997 and unverified prior years. On December 6,
1999, a preliminary assessment for 1997 deficiency taxes and penalties was
issued by the CIR which Sony protested. Thereafter, acting on the protest,
the CIR issued final assessment notices, the formal letter of demand and the
details of discrepancies.[4] Said details of the deficiency taxes and penalties
for late remittance of internal revenue taxes are as follows:
DEFICIENCY VALUE -ADDED
TAX (VAT)
(Assessment No. ST-VAT-970124-2000)
Basic Tax Due
P 7,958,700.
23
00
Add: Penalties
Interest up to 3-31-2000
Compromise
3,157,31
P
4.41
25,000.0
0
Deficiency VAT Due
3,182,314.
41
11,141,014
P
.41
DEFICIENCY EXPANDED
WITHHOLDING TAX (EWT)
(Assessment No. ST-EWT-970125-2000)
Basic Tax Due
Add: Penalties
Compromise
P
550,485.
P
82
25,000.0
0
Deficiency EWT Due
DEFICIENCY OF VAT ON
ROYALTY PAYMENTS
(Assessment No. ST-LR1-970126-2000)
Basic Tax Due
Add: Penalties
Surcharge
Compromise
Penalties Due
1,416,976.
90
575,485.82
1,992,462.
P
72
P
359,177.
P
80
87,580.3
4
16,000.0
0
462,758.14
P 462,758.14
LATE REMITTANCE OF FINAL

24
WITHHOLDING TAX
Basic Tax Due
Add: Penalties
Surcharge
Compromise
P
1,729,69
P
0.71
508,783.
07
50,000.0
0
Penalties Due
LATE REMITTANCE OF
INCOME PAYMENTS
Basic Tax Due
Add: Penalties
25 % Surcharge
Compromise
Penalties Due
GRAND TOTAL
2,288,473.
78
2,288,473.
78
P
P 8,865.34
58.29
2,000.00
P
10,923.60
10,923.60
15,895,63
P
2.65[5]
Sony sought re-evaluation of the aforementioned assessment by filing

a protest on February 2, 2000. Sony submitted relevant documents in
support of its protest on the 16th of that same month.[6]
25
On October 24, 2000, within 30 days after the lapse of 180 days from
submission of the said supporting documents to the CIR, Sony filed a
petition for review before the CTA.[7]
After trial, the CTA-First Division disallowed the deficiency VAT
assessment because the subsidized advertising expense paid by Sony which
was duly covered by a VAT invoice resulted in an input VAT credit. As
regards the EWT, the CTA-First Division maintained the deficiency EWT
assessment on Sonys motor vehicles and on professional fees paid to
general professional partnerships. It also assessed the amounts paid to
sales agents as commissions with five percent (5%) EWT pursuant to
Section 1(g) of Revenue Regulations No. 6-85. The CTA-First Division,
however, disallowed the EWT assessment on rental expense since it found
that the total rental deposit of P10,523,821.99 was incurred from January to
March 1998 which was again beyond the coverage of LOA 19734. Except for
the compromise penalties, the CTA-First Division also upheld the penalties
for the late payment of VAT on royalties, for late remittance of final
withholding tax on royalty as of December 1997 and for the late remittance
of EWT by some of Sonys branches.[8] In sum, the CTA-First Division partly
granted Sonys petition by cancelling the deficiency VAT assessment but
upheld a modified deficiency EWT assessment as well as the
penalties. Thus, the dispositive portion reads:
WHEREFORE, the petition for review is hereby PARTIALLY
GRANTED. Respondent is ORDERED to CANCEL and WITHDRAW
the deficiency assessment for value-added tax for 1997 for lack of
merit. However, the deficiency assessments for expanded
withholding tax and penalties for late remittance of internal
revenue taxes are UPHELD.
Accordingly, petitioner is DIRECTED to PAY the respondent
the deficiency expanded withholding tax in the amount
of P1,035,879.70 and the following penalties for late remittance of
internal revenue taxes in the sum ofP1,269,593.90:
1.
2.
3.
VAT on Royalty P 429,242.07

Withholding Tax on Royalty 831,428.20
EWT of Petitioners Branches 8,923.63
Total P 1,269,593.90
26
Plus 20% delinquency interest from January 17, 2000 until fully
paid pursuant to Section 249(C)(3) of the 1997 Tax Code.
SO ORDERED.[9]
The CIR sought a reconsideration of the above decision and submitted

the following grounds in support thereof:
A.
The Honorable Court committed reversible error in holding

that petitioner is not liable for the deficiency VAT in the
amount of P11,141,014.41;
B.
The Honorable court committed reversible error in holding

that the commission expense in the amount of
P2,894,797.00 should be subjected to 5% withholding tax
instead of the 10% tax rate;
C.
The Honorable Court committed a reversible error in

holding that the withholding tax assessment with respect to
the 5% withholding tax on rental deposit in the amount
of P10,523,821.99 should be cancelled; and
D. The Honorable Court committed reversible error in holding

that the remittance of final withholding tax on royalties
covering the period January to March 1998 was filed on time.
[10]
On April 28, 2005, the CTA-First Division denied the motion for
reconsideration. Unfazed, the CIR filed a petition for review with the CTA-EB
raising identical issues:
1.
Whether or not respondent (Sony) is liable for the

deficiency VAT in the amount of P11,141,014.41;
2.
Whether or not the commission expense in the amount

of P2,894,797.00 should be subjected to 10% withholding tax
instead of the 5% tax rate;
3.
Whether or not the withholding assessment with respect to

the 5% withholding tax on rental deposit in the amount
of P10,523,821.99 is proper; and
27
4.
Whether or not the remittance of final withholding tax on

royalties covering the period January to March 1998 was filed
outside of time.[11]
Finding no cogent reason to reverse the decision of the CTA-First

Division, the CTA-EB dismissed CIRs petition on May 17, 2007. CIRs motion
for reconsideration was denied by the CTA-EB on July 5, 2007.
The CIR is now before this Court via this petition for review relying on
the very same grounds it raised before the CTA-First Division and the CTAEB. The said grounds are reproduced below:
GROUNDS FOR THE ALLOWANCE OF THE PETITION
I
THE CTA EN BANC ERRED IN RULING THAT
RESPONDENT IS NOT LIABLE FOR DEFICIENCY VAT IN THE
AMOUNT OF PHP11,141,014.41.
II
AS
TO
RESPONDENTS
DEFICIENCY
EXPANDED
WITHHOLDING TAX IN THE AMOUNT OF PHP1,992,462.72:
A.
THE CTA EN BANC ERRED IN RULING THAT THE

COMMISSION
EXPENSE
IN
THE
AMOUNT
OF
PHP2,894,797.00
SHOULD
BE
SUBJECTED
TO
A
WITHHOLDING TAX OF 5% INSTEAD OF THE 10% TAX
RATE.
B.
THE CTA EN BANC ERRED IN RULING THAT THE

ASSESSMENT WITH RESPECT TO THE 5% WITHHOLDING
TAX ON RENTAL DEPOSIT IN THE AMOUNT OF
PHP10,523,821.99 IS NOT PROPER.
III
28
THE CTA EN BANC ERRED IN RULING THAT THE FINAL

WITHHOLDING TAX ON ROYALTIES COVERING THE PERIOD
JANUARY TO MARCH 1998 WAS FILED ON TIME.[12]
Upon filing of Sonys comment, the Court ordered the CIR to file its
reply thereto. The CIR subsequently filed a manifestation informing the
Court that it would no longer file a reply. Thus, on December 3, 2008, the
Court resolved to give due course to the petition and to decide the case on
the basis of the pleadings filed.[13]
The Court finds no merit in the petition.
The CIR insists that LOA 19734, although it states the period 1997 and
unverified prior years, should be understood to mean the fiscal year ending
in March 31, 1998.[14] The Court cannot agree.
Based on Section 13 of the Tax Code, a Letter of Authority or LOA is the
authority given to the appropriate revenue officer assigned to perform
assessment functions. It empowers or enables said revenue officer to
examine the books of account and other accounting records of a taxpayer
for the purpose of collecting the correct amount of tax. [15] The very provision
of the Tax Code that the CIR relies on is unequivocal with regard to its power
to grant authority to examine and assess a taxpayer.
SEC. 6. Power of the Commissioner to Make
Assessments and Prescribe Additional Requirements for
Tax Administration and Enforcement.
(A)Examination of Returns and Determination of tax Due.
After a return has been filed as required under the provisions of
this Code, the Commissioner or his duly authorized
representative may authorize the examination of any
taxpayer and the assessment of the correct amount of
tax: Provided, however, That failure to file a return shall not
prevent the Commissioner from authorizing the examination
of any taxpayer. x x x [Emphases supplied]
Clearly, there must be a grant of authority before any revenue officer
can conduct an examination or assessment. Equally important is that the
29
revenue officer so authorized must not go beyond the authority given. In the
absence of such an authority, the assessment or examination is a nullity.
As earlier stated, LOA 19734 covered the period 1997 and unverified
prior years. For said reason, the CIR acting through its revenue officers went
beyond the scope of their authority because the deficiency VAT assessment
they arrived at was based on records from January to March 1998 or using
the fiscal year which ended in March 31, 1998. As pointed out by the CTAFirst Division in its April 28, 2005 Resolution, the CIR knew which period
should be covered by the investigation. Thus, if CIR wanted or intended the
investigation to include the year 1998, it should have done so by including it
in the LOA or issuing another LOA.
Upon review, the CTA-EB even added that the coverage of LOA 19734,
particularly the phrase and unverified prior years, violated Section C of
Revenue Memorandum Order No. 43-90 dated September 20, 1990, the
pertinent portion of which reads:
3. A Letter of Authority should cover a taxable period not
exceeding one taxable year. The practice of issuing L/As
covering audit of unverified prior years is hereby prohibited. If
the audit of a taxpayer shall include more than one taxable
period, the other periods or years shall be specifically indicated
in the L/A.[16] [Emphasis supplied]
On this point alone, the deficiency VAT assessment should have been
disallowed. Be that as it may, the CIRs argument, that Sonys advertising
expense could not be considered as an input VAT credit because the same
was eventually reimbursed by Sony International Singapore (SIS), is also
erroneous.
The CIR contends that since Sonys advertising expense was
reimbursed by SIS, the former never incurred any advertising expense. As a
result, Sony is not entitled to a tax credit. At most, the CIR continues, the
said advertising expense should be for the account of SIS, and not Sony. [17]
The Court is not persuaded. As aptly found by the CTA-First Division
and later affirmed by the CTA-EB, Sonys deficiency VAT assessment
stemmed from the CIRs disallowance of the input VAT credits that should
have been realized from the advertising expense of the latter. [18] It is evident
30
under Section 110[19] of the 1997 Tax Code that an advertising expense duly
covered by a VAT invoice is a legitimate business expense. This is confirmed
by no less than CIRs own witness, Revenue Officer Antonio Aluquin. [20] There
is also no denying that Sony incurred advertising expense. Aluquin testified
that advertising companies issued invoices in the name of Sony and the
latter paid for the same.[21] Indubitably, Sony incurred and paid for
advertising expense/ services. Where the money came from is another
matter all together but will definitely not change said fact.
The CIR further argues that Sony itself admitted that the
reimbursement from SIS was income and, thus, taxable. In support of this,
the CIR cited a portion of Sonys protest filed before it:
The fact that due to adverse economic conditions, SonySingapore has granted to our client a subsidy equivalent to the
latters advertising expenses will not affect the validity of the input
taxes from such expenses. Thus, at the most, this is an additional
income of our client subject to income tax. We submit further that
our client is not subject to VAT on the subsidy income as this was
not derived from the sale of goods or services. [22]
Insofar as the above-mentioned subsidy may be considered as income
and, therefore, subject to income tax, the Court agrees. However, the Court
does not agree that the same subsidy should be subject to the 10% VAT. To
begin with, the said subsidy termed by the CIR as reimbursement was not
even exclusively earmarked for Sonys advertising expense for it was but an
assistance or aid in view of Sonys dire or adverse economic conditions, and
was only equivalent to the latters (Sonys) advertising expenses.
Section 106 of the Tax Code explains when VAT may be imposed or
exacted. Thus:
SEC. 106. Value-added
Properties.
Tax
on
Sale
of
Goods
or
(A) Rate and Base of Tax. There shall be levied, assessed and
collected on every sale, barter or exchange of goods or
properties, value-added tax equivalent to ten percent (10%) of
the gross selling price or gross value in money of the goods or
31
properties sold, bartered or exchanged, such tax to be paid by the

seller or transferor.
Thus, there must be a sale, barter or exchange of goods or properties

before any VAT may be levied. Certainly, there was no such sale, barter or
exchange in the subsidy given by SIS to Sony. It was but a dole out by SIS
and not in payment for goods or properties sold, bartered or exchanged by
Sony.
In the case of CIR v. Court of Appeals (CA),[23] the Court had the
occasion to rule that services rendered for a fee even on reimbursement-oncost basis only and without realizing profit are also subject to VAT. The case,
however, is not applicable to the present case. In that case, COMASERCO
rendered service to its affiliates and, in turn, the affiliates paid the former
reimbursement-on-cost which means that it was paid the cost or expense
that it incurred although without profit. This is not true in the present case.
Sony did not render any service to SIS at all. The services rendered by the
advertising companies, paid for by Sony using SIS dole-out, were for Sony
and not SIS. SIS just gave assistance to Sony in the amount equivalent to
the latters advertising expense but never received any goods, properties or
service from Sony.
Regarding the deficiency EWT assessment, more particularly Sonys
commission expense, the CIR insists that said deficiency EWT assessment is
subject to the ten percent (10%) rate instead of the five percent (5%) citing
Revenue Regulation No. 2-98 dated April 17, 1998. [24] The said revenue
regulation provides that the 10% rate is applied when the recipient of the
commission income is a natural person. According to the CIR, Sonys
schedule of Selling, General and Administrative expenses shows the
commission
expense
as
commission/dealer
salesman
incentive,
emphasizing the word salesman.
On the other hand, the application of the five percent (5%) rate by the
CTA-First Division is based on Section 1(g) of Revenue Regulations No. 6-85
which provides:
(g) Amounts paid to certain Brokers and Agents. On gross
payments to customs, insurance, real estate and commercial
32
brokers and agents of professional entertainers five per centum

(5%).[25]
In denying the very same argument of the CIR in its motion for
reconsideration, the CTA-First Division, held:
x x x, commission expense is indeed subject to 10%
withholding tax but payments made to broker is subject to 5%
withholding tax pursuant to Section 1(g) of Revenue Regulations
No. 6-85. While the commission expense in the schedule of
Selling, General and Administrative expenses submitted by
petitioner (SPI) to the BIR is captioned as commission/dealer
salesman incentive the same does not justify the automatic
imposition of flat 10% rate. As itemized by petitioner, such
expense is composed of Commission Expense in the amount of
P10,200.00 and Broker Dealer of P2,894,797.00.[26]
The Court agrees with the CTA-EB when it affirmed the CTA-First
Division decision. Indeed, the applicable rule is Revenue Regulations No. 685, as amended by Revenue Regulations No. 12-94, which was the
applicable rule during the subject period of examination and assessment as
specified in the LOA. Revenue Regulations No. 2-98, cited by the CIR, was
only adopted in April 1998 and, therefore, cannot be applied in the present
case.Besides, the withholding tax on brokers and agents was only increased
to 10% much later or by the end of July 2001 under Revenue Regulations
No. 6-2001.[27] Until then, the rate was only 5%.
The Court also affirms the findings of both the CTA-First Division and
the CTA-EB on the deficiency EWT assessment on the rental deposit.
According to their findings, Sony incurred the subject rental deposit in the
amount of P10,523,821.99 only from January to March 1998. As stated
earlier, in the absence of the appropriate LOA specifying the coverage, the
CIRs deficiency EWT assessment from January to March 1998, is not valid
and must be disallowed.
Finally, the Court now proceeds to the third ground relied upon by the
CIR.
The CIR initially assessed Sony to be liable for penalties for belated
remittance of its FWT on royalties (i) as of December 1997; and (ii) for the
33
period from January to March 1998. Again, the Court agrees with the CTAFirst Division when it upheld the CIR with respect to the royalties for
December 1997 but cancelled that from January to March 1998.
The CIR insists that under Section 3 [28] of Revenue Regulations No. 5-82
and Sections 2.57.4 and 2.58(A)(2)(a) [29] of Revenue Regulations No. 2-98,
Sony should also be made liable for the FWT on royalties from January to
March of 1998. At the same time, it downplays the relevance of the
Manufacturing License Agreement (MLA) between Sony and Sony-Japan,
particularly in the payment of royalties.
The above revenue regulations provide the manner of withholding
remittance as well as the payment of final tax on royalty. Based on the
same, Sony is required to deduct and withhold final taxes on royalty
payments when the royalty is paid or is payable. After which, the
corresponding return and remittance must be made within 10 days after the
end of each month. The question now is when does the royalty become
payable?
Under Article X(5) of the MLA between Sony and Sony-Japan, the
following terms of royalty payments were agreed upon:
(5)Within two (2) months following each semi-annual period
ending June 30 and December 31, the LICENSEE shall furnish to
the LICENSOR a statement, certified by an officer of the
LICENSEE, showing quantities of the MODELS sold, leased or
otherwise disposed of by the LICENSEE during such respective
semi-annual period and amount of royalty due pursuant this
ARTICLE X therefore, and the LICENSEE shall pay the royalty
hereunder to the LICENSOR concurrently with the furnishing of the
above statement.[30]
Withal, Sony was to pay Sony-Japan royalty within two (2) months after
every semi-annual period which ends in June 30 and December 31.
However, the CTA-First Division found that there was accrual of royalty by
the end of December 1997 as well as by the end of June 1998. Given this,
the FWTs should have been paid or remitted by Sony to the CIR on January
10, 1998 and July 10, 1998. Thus, it was correct for the CTA-First Division
and the CTA-EB in ruling that the FWT for the royalty from January to March
34
1998 was seasonably filed. Although the royalty from January to March 1998
was well within the semi-annual period ending June 30, which meant that
the royalty may be payable until August 1998 pursuant to the MLA, the FWT
for said royalty had to be paid on or before July 10, 1998 or 10 days from its
accrual at the end of June 1998. Thus, when Sony remitted the same on July
8, 1998, it was not yet late.
In view of the foregoing, the Court finds no reason to disturb the
findings of the CTA-EB.
WHEREFORE, the petition is DENIED.
SO ORDERED.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 175707
November 19, 2014
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.
x-----------------------x
G.R. No. 180035
vs.
35
x-----------------------x
G.R. No. 181092

vs.
DECISION
LEONARDO-DE CASTRO, J.:
The Court has consolidated these three petitions as they involve the same
parties, similar facts and common questions of law. This is not the first time
that Fort Bonifacio Development Corporation (FBDC) has come to this Court
about these issues against the very same respondents, and the Court En
Banc has resolved them in two separate, recent cases 1 that are applicable
here for reasons to be discussed below.
G.R. No. 175707 is an appeal by certiorari pursuant to Rule 45 of the 1997
Rules of Civil Procedure from (a) the Decision 2 dated April 22, 2003 of the
Court of Appeals in CA-G.R. SP No. 61516 dismissing FBDC's Petition for
Review with regard to the Decision of the Court of Ta:x Appeals (CTA) dated
October 13, 2000 in CTA Case No. 5885, and from (b) the Court of Appeals
Resolution3 dated November 30, 2006 denying its Motion for
Reconsideration.
G.R. No. 180035 is likewise an appeal by certiorari pursuant to Rule 45 from
(a) the Court of Appeals Decision4dated April 30, 2007 in CAG.R. SP No.
76540 denying FBDCs Petition for Review with respect to the CTA
Resolution5 dated March 28, 2003 in CTA Case No. 6021, and from (b) the
Court of Appeals Resolution6 dated October 8, 2007 denying its Motion for
Reconsideration.
The CTA Resolution reconsidered and reversed its earlier Decision 7 dated
January 30, 2002 ordering respondents in CTA Case No. 6021 to refund or
issue a tax credit certificate infavor of petitioner in the amount
ofP77,151,020.46, representing "VAT erroneously paid by or illegally
collected from petitioner for the first quarter of 1998, and instead denied
petitioners Claim for Refund therefor."8
36
G.R. No. 181092 is also an appeal by certiorari pursuant to Rule 45 from the
Court of Appeals Decision9 dated December 28, 2007 in CA-G.R. SP No.
61158 dismissing FBDCs petition for review with respect to the CTA
Decision10 dated September 29, 2000 in CTA Case No. 5694. The aforesaid
CTA Decision, which the Court of Appeals affirmed, denied petitioners Claim
for Refund in the amount of P269,340,469.45, representing "VAT erroneously
paid by or illegally collected from petitioner for the fourth quarter of 1996." 11
The facts are not in dispute.
Petitioner FBDC (petitioner) is a domestic corporation duly registered and
existing under Philippine laws. Its issued and outstanding capital stock is
owned in part by the Bases Conversion Development Authority, a wholly
owned government corporation created by Republic Act No. 7227 for the
purpose of "accelerating the conversion of military reservations into
alternative productive uses and raising funds through the sale of portions of
said military reservationsin order to promote the economic and social
development of the country in general." 12 The remaining fifty-five per cent
(55%) is owned by Bonifacio Land Corporation, a consortium of private
domestic corporations.13
Respondent Commissioner of Internal Revenue is the head of the Bureau of
Internal Revenue (BIR). Respondent Revenue District Officer, Revenue
District No. 44, Taguig and Pateros, BIR, is the chief of the aforesaid District
Office.
The parties entered into a Stipulation of Facts, Documents, and
Issue14 before the CTA for each case. It was established before the CTA that
petitioner is engaged in the development and sale of real property. It is the
owner of, and is developing and selling, parcels of land within a "newtown"
development area known as the Fort Bonifacio Global City (the Global City),
located within the former military camp known as Fort Bonifacio, Taguig,
Metro Manila.15 The National Government, by virtue of Republic Act No.
722716 and Executive Order No. 40,17 was the one that conveyed to
petitioner these parcels of land on February 8, 1995.
In May 1996, petitioner commenced developing the Global City, and since
October 1996, had been selling lots to interested buyers. 18 At the time of
acquisition, value-added tax (VAT) was not yet imposed on the sale of real
properties. Republic Act No. 7716(the Expanded Value-Added Tax [E-VAT]
Law),19 which took effect on January 1, 1996, restructured the VAT system by
further amending pertinent provisions of the National Internal Revenue Code
(NIRC). Section 100 of the old NIRC was so amended by including "real
37
properties" in the definition of the term "goods or properties," thereby

subjecting the sale of "real properties" to VAT. The provision, as amended,
reads:
SEC. 100. Value-Added Tax on Sale of Goods or Properties. (a) Rate and
Base of Tax. There shall be levied, assessed and collected on every sale,
barter or exchange of goods or properties, a value-added tax equivalent to
10% of the gross selling price or gross value in money of the goods or
properties sold, bartered or exchanged, such tax to be paid by the seller or
transferor.
(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[.]
While prior to Republic Act No. 7716, real estate transactions were not
subject to VAT, they became subject to VAT upon the effectivity of said law.
Thus, the sale of the parcels of land by petitioner became subject to a 10%
VAT, and this was later increased to 12%, pursuant to Republic Act No.
9337.20 Petitioner afterwards becamea VAT-registered taxpayer.
On September 19, 1996, in accordance with Revenue Regulations No. 7-95
(Consolidated VAT Regulations), petitioner submitted to respondent BIR,
Revenue District No. 44, Taguig and Pateros, an inventory list of its
properties as of February 29, 1996. The total book value of petitioners land
inventory amounted toP71,227,503,200.00.21
On the basis of Section 105 of the NIRC,22 petitioner claims a transitional or
presumptive input tax creditof 8% ofP71,227,503,200.00, the total value of
the real properties listed in its inventory, or a total input tax credit
ofP5,698,200,256.00.23 After the value of the real properties was reduced
dueto a reconveyance by petitioner to BCDA of a parcel of land, petitioner
claims that it is entitled to input tax credit in the reduced
amountofP4,250,475,000.48.24
What petitioner seeks to be refunded are the actual VAT payments made by
it in cash, which it claims were either erroneously paid by or illegally
collected from it.25 Each Claim for Refund is based on petitioners position
that it is entitled to a transitional input tax credit under Section 105 of the
old NIRC, which more than offsets the aforesaid VAT payments.
38
G.R. No. 175707
Petitioners VAT returns filed with the BIR show that for the second quarter
of 1997, petitioner received the total amount of P5,014,755,287.40 from its
sales and lease of lots, on which the output VAT payable
wasP501,475,528.74.26 The VAT returns likewise show that petitioner made
cash payments totaling P486,355,846.78 and utilized its input tax credit
of P15,119,681.96 on purchases of goods and services. 27
On February 11, 1999, petitioner filed with the BIR a claim for refundof the
amount of P486,355,846.78 which it paid in cash as VAT for the second
quarter of 1997.28
On May 21, 1999, petitioner filed with the CTA a petition for review 29 by way
of appeal, docketed as CTA Case No. 5885, from the alleged inaction by
respondents of petitioners claim for refund with the BIR. On October 1,
1999, the parties submitted tothe CTA a Stipulation of Facts, Documents and
Issue.30 On October 13, 2000, the CTA issued its Decision 31 in CTA Case No.
5885 denying petitioners claim for refund for lack of merit.
On November 23, 2000, petitioner filed with the Court of Appeals a Petition
for Review of the aforesaid CTA Decision, which was docketed as CA-G.R SP
No. 61516. On April 22, 2003, the CA issued its Decision 32 dismissing the
Petition for Review. On November 30, 2006, the Court of Appeals issued its
Resolution33 denying petitioners Motion for Reconsideration.
On December 21, 2006, this Petition for Review was filed.
Petitioner submitted its Memorandum34 on November 7, 2008 while
respondents filed their "Comment"35 on May 4, 2009.36
On December 2, 2009, petitioner submitted a Supplement 37 to its
Memorandum dated November 6, 2008,stating that the said case is
intimately related to the cases of Fort Bonifacio Development Corporation v.
Commissioner of Internal Revenue, G.R. No. 158885, and Fort Bonifacio
Development Corporation v. Commissioner of Internal Revenue," G.R. No.
170680, which were already decided by this Court, and which involve the
same parties and similar facts and issues. 38
Except for the amounts of tax refund being claimed and the periods covered
for each claim, the facts in this case and in the other two consolidated cases
below are thesame. The parties entered into similar Stipulations in the other
two cases consolidated here.39
39
G.R. No. 180035
We quote relevant portions of the parties Stipulation of Facts, Documents

and Issue in CTA Case No. 602140below:
1.11. Per VAT returns filed by petitioner with the BIR, for the second
quarter of 1998, petitioner derived the total amount
of P903,427,264.20 from its sales and lease of lots, on which the
output VAT payable to the Bureau of Internal Revenue
was P90,342,726.42.
1.12. The VAT returns filed by petitioner likewise show that to pay said
amount of P90,342,726.42 due to the BIR, petitioner made cash
payments totalling P77,151,020.46 and utilized its regular input tax
credit ofP39,878,959.37 on purchases of goods and services.
1.13. On November 22, 1999, petitioner filed with the BIR a claim for
refund of the amount of P77,151,020.46 which it paid as valueadded
tax for the first quarter of 1998.
1.14. Earlier, on October 8, 1998 and November 17, 1998, February 11,
1999, May 11, 1999, and September 10, 1999, based on similar
grounds, petitioner filed with the BIR claims for refund of the amounts
ofP269,340,469.45, P359,652,009.47, P486,355,846.78, P347,741,695.
74, and P15,036,891.26, representing value-added taxes paid by it on
proceeds derived from its sales and lease of lots for the quarters ended
December 31, 1996, March 31, 1997, June 30, 1997, September 30,
1997, and December 31, 1997, respectively. After deducting these
amounts
of P269,340,469.45, P359,652,009.47, P486,355,846.78,P347,741,695.
74, and P15,036,891.26 from the total amount of P5,698,200,256.00
claimed by petitioner as input tax credit, the remaining input tax credit
more than sufficiently covers the amount of P77,151,020.46 subject of
petitioners claim for refund of November 22, 1999.
1.15. As of the date of the Petition, no action had been taken by
respondents on petitioners claim for refund of November 22,
1999.41 (Emphases ours.)
The petition in G.R. No. 180035 "seeks to correct the unauthorized limitation
of the term real properties to improvements thereon by Revenue
Regulations 7-95 and the error of the Court of Tax Appeals and Court of
40
Appeals in sustaining the aforesaid Regulations." 42 This theory of petitioner

is the same for all three cases now before us.
On March 14, 2013, petitioner filed a Motion for Consolidation 43 of G.R. No.
180035 with G.R. No. 175707.
Petitioner submitted its Memorandum44 on September 15, 2009 while
respondents filed theirson September 22, 2009.45
G.R. No. 181092
The facts summarized below are found in the parties Stipulation of Facts,
Documents and Issue in CTA Case No. 5694 46:
1.09. Per VAT returns filed by petitioner with the BIR, for the fourth
quarter of 1996, petitioner derived the total amount
of P3,498,888,713.60 from its sales and lease of lots, on which the
output VAT payableto the Bureau of Internal Revenue
wasP318,080,792.14.
1.10. The VAT returns filed by petitioner likewise show that to pay said
amount of P318,080,792.14 due to the BIR, petitioner made cash
payments totalling P269,340,469.45 and utilized (a) part of the total
transitional/presumptive input tax credit of P5,698,200,256.00 being
claimed by it to the extent ofP28,413,783.00; and (b) its regular input
tax credit of P20,326,539.69 on purchases of goods and services.
1.11. On October 8, 1998 petitioner filed with the BIR a claim for
refund of the amounts of P269,340,469.45, which it paid as
valueadded tax.
1.12. As of the date of the Petition, no action had been taken by
respondents on petitioners claim for refund. 47 (Emphases ours.)
Petitioner submitted its Memorandum48 on January 18, 2010 while
respondents filed theirs on October 14, 2010.49
On March 14, 2013, petitioner filed a Motion for Consolidation 50 of G.R. No.
181092 with G.R. No. 175707.
On January 23, 2014, petitioner filed a Motion to Resolve 51 these
consolidated cases, alleging that the parties had already filed their
respective memoranda; and, more importantly, that the principal issue in
these cases, whether petitioner is entitled to the 8% transitional input tax
41
granted in Section 105 (now Section 111[A]) of the NIRC based on the value
of its inventory of land, and as a consequence, to a refund of the amounts it
paid as VAT for the periods in question, had already been resolved by the
Supreme Court En Bancin its Decision dated April 2, 2009 in G.R. Nos.
158885 and 170680, as well as its Decision dated September 4, 2012 in
G.R. No. 173425. Petitioner further alleges that said decided cases involve
the same parties, facts, and issues as the cases now before this Court. 52
THEORY OF PETITIONER
Petitioner claims that "the 10% value-added tax is based on the gross
selling price or gross value in money of the goods sold, bartered or
exchanged."53 Petitioner likewise claims thatby definition, the term "goods"
was limited to "movable, tangible objects which is appropriable or
transferable" and that said term did not originally include "real property." 54 It
was previously defined as follows under Revenue Regulations No. 5-87:
(p) "Goods" means any movable, tangible objects which is appropriable or
transferrable. Republic Act No. 7716 (E-VAT Law, January 1, 1996) expanded
the coverage of the original VAT Law (Executive Order No. 273), specifically
Section 100 of the old NIRC. According to petitioner, while under Executive
Order No. 273, the term "goods" did not include real properties, Republic Act
No. 7716, in amending Section 100, explicitly included in the term "goods"
"real properties held primarily for sale to customers or held for lease in the
ordinary course of trade or business." Consequently, the sale, barter, or
exchange of real properties was made subject to a VAT equivalent to 10%
(later increased to 12%, pursuant to Republic Act No. 9337) of the gross
selling price of real properties.
Among the new provisions included by Executive Order No. 273 in the NIRC
was the following: SEC. 105. Transitional Input Tax Credits. A person who
becomes liable to value-added tax orany 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.
According to petitioner, the E-VAT Law, Republic Act No. 7716, did not
amend Section 105. Thus, Section 105, as quoted above, remained effective
even after the enactment of Republic Act No. 7716.
42
Previously, or on December 9, 1995, the Secretary of Finance and the

Commissioner of Internal Revenue issued Revenue Regulations No. 7-95,
which included the following provisions: SECTION 4.100-1. Value-added tax
on sale of goods or properties. VAT is imposed and collected on every
sale, barter or exchange or transactions "deemed sale" of taxable goods or
properties at the rate of 10% of the gross selling price.
"Gross selling price" means the total amount of money or its equivalent
which the purchaser pays or is obligated to pay to the seller in consideration
of the sale, barter or exchange of the goods or properties, excluding the
value-added tax. The excise tax, if any, on such goods or properties shall
form part of the gross selling price. In the case of sale, barter or exchange
of real property subject to VAT, gross selling price shall mean the
consideration stated in the sales document or the zonal value whichever is
higher. Provided however, in the absence of zonal value, gross selling price
refers to the market value shown in the latest declaration or the
consideration whichever is higher.
"Taxable sale" refers to the sale, barter, exchange and/or lease of goods or
properties, including transactions "deemed sale" and the performance of
service for a consideration, all of which are subject to tax under Sections
100 and 102 of the Code.
Any person otherwise required to register for VAT purposes who fails to
register shall also be liable to VAT on his sale of taxable goods or properties
as defined in the preceding paragraph. The sale of goods subject to excise
tax is also subject to VAT, except manufactured petroleum products (other
than lubricating oil, processed gas, grease, wax and petrolatum).
"Goods or properties" refer to all tangible and intangible objects which are
capable of pecuniary estimation and shall include:
1. Real properties held primarily for sale to customers or held for lease in
the ordinary course of trade or business.
xxxx
SECTION 4.104-1. Credits for input tax.
"Input tax"means the value-added tax due from or paid by a VAT registered
person on importation of goodsor local purchases of goods or services,
including lease or use of property, from another VAT-registered person in the
course ofhis trade or business. It shall also include the transitional or
43
presumptive input tax determined in accordance with Section 105 of the

Code.
xxxx
SECTION 4.105-1. Transitional input tax on beginning inventories.
Taxpayers who became VAT-registered persons upon effectivity of RA No.
7716 who have exceeded the minimum turnover of P500,000.00 or who
voluntarily register even if their turnover does not exceed P500,000.00 shall
be entitled to a presumptive input tax on the inventory on hand as of
December 31, 1995 on the following; (a) goods purchased for sale 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 effectivity of
E.O. 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.
The value allowed for income tax purposes on inventories shall be the basis
for the computation of the 8% excluding goods that are exempt from VAT
under SECTION 103. Only VAT-registered persons shall be entitled to
presumptive input tax credits.
xxxx
TRANSITORY PROVISIONS
(a) Presumptive Input Tax Credits
(i) For goods, materials or supplies not for sale but purchased for use in
business in their present condition, which are not intended for further
processing and are on hand as of December 31, 1995, a presumptive
input tax equivalent to 8% of the value of the goods or properties shall
be allowed.
44
(ii) For goods or properties purchased with the object of resale in their
present condition, the same presumptive input tax equivalent to 8% of
the value of the goods unused as of December 31, 1995 shall be
allowed, which amount may also be credited against the output tax of
a VAT-registered person.
(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 effectivityof E.O. 273) shall be allowed.
For purposes of sub-paragraph (i), (ii) and (iii) above, 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 not later
than January 31, 1996. (Emphases supplied.)
Petitioner argues that Section 4.100-1 of Revenue Regulations No. 7-95
explicitly limited the term "goods" as regards real properties to
"improvements, such as buildings, roads, drainage systems, and other
similar structures," thereby excluding the real property itself from the
coverage of the term "goods" as it is used in Section 105 of the NIRC. This
has brought about, as a consequence, the issues involved in the instant
case.
Petitioner claims that the "Court of Appeals erred in not holding that
Revenue Regulations No. 6-97 has 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 NIRC to the improvements on real
properties."55Petitioner argues that the provision in Section 4.105-1 of
Revenue Regulations No. 7-95 stating that in the case of real estate dealers,
the basis of the input tax credit shall be the improvements, has been
deleted by Revenue Regulations No. 6-97, dated January 2, 1997,which
amended Revenue Regulations No. 7-95. Revenue Regulations No. 6-97 was
issued to implement Republic Act No. 8241 (the law amending Republic Act
No. 7716, the E-VAT Law), which took effect on January 1, 1997. Petitioner
notes that Section 4.105-1 of Revenue Regulations No. 6-97 is but a
reenactment of Section 4.105-1 of Revenue Regulations No. 7-95, with the
only difference being that the following paragraph in Revenue Regulations
No. 7-95 was deleted:
However, in the case of real estate dealers, the basis of the presumptive
45
systems, and other similar structures, constructed on or after the effectivity

of E.O. 273 (January 1, 1988).
Petitioner calls this an express repeal, and with the deletion of the above
paragraph, what stands and should be applied "is the statutory definition in
Section 100 of the NIRC of the term goods in Section 105 thereof." 56
Petitioner contends that the relevant provision now states that "[t]he
transitional input tax credit shall be eight percent (8%) of the value of the
beginning inventory x x x on such goods, materials and supplies." It no
longer limits the allowable transitional input tax credit to "improvements" on
the real properties. The amendment recognizes that the basis of the 8%
input tax credit should not be confinedto the value of the improvements.
Petitioner further contends that the Commissioner of Internal Revenue has
in fact corrected the mistake in Revenue Regulations No. 7-95. 57
Petitioner argues that Revenue Regulations No. 6-97, being beneficial to the
taxpayer, should be given a retroactive application. 58 Petitioner states that
the transactions involved inthese consolidated cases took place after
Revenue Regulations No. 6-97 took effect, under the provisions of which the
transitional input tax credit with regardto real properties would be based on
the value of the land inventory and not limited to the value of the
improvements.
Petitioner assigns another error: the Court of Appeals erred in holding that
Revenue Regulations No. 7-95 isa valid implementation of the NIRC and in
according it great respect, and should have held that the same is invalid for
being contrary to the provisions of Section 105 of the NIRC. 59 Petitioner
contends that Revenue Regulations No. 7-95 is not valid for being contrary
to the express provisions of Section 105 of the NIRC, and in fact amends the
same, for it limited the scope of Section 105 "to less than what the law
provides."60 Petitioner elaborates:
[Revenue Regulations No. 7-95] illegally constricted the provisions of the
aforesaid section. It delimited the coverage of Section 105 and practically
amended it in violation of the fundamental principle that administrative
regulations are subordinate to the law. Based on the numerous authorities
cited above, Section 4.105-1 and the Transitory Provisions of Revenue
Regulations No. 7-95 are invalid and ineffective insofar as they limit the
input tax credit to 8% of the value of the "improvements" on land, for being
contrary to the express provisions of Section 105, in relation to Section 100,
of the NIRC, and the Court of Appeals should have so held. 61 Petitioner
likewise raises the following arguments:
46
The rule that the construction given by the administrative agency

charged with the enforcement of the law should be accorded great weight
by the courts, does not apply here.62 x x x Section 4.105-1 of Revenue
Regulations No. 7-95 neither exclude[s] nor prohibit[s] that the 8% input tax
credit may also [be] based on the taxpayers inventory of land. 63
The issuance of Revenue Regulations No. 7-95 by the [BIR], which
changed the statutory definition of "goods" with regard to the application of
Section 105 of the NIRC, and the declaration of validity of said regulations
by the Court of Appeals and Court of Tax Appeals, was in violation of the
fundamental principle of separation of powers. 64
xxxx
Insofar, therefore, as Revenue Regulation[s] No. 7-95 limited the scope of
the term "goods" under Section 105, to "improvements" on real properties,
contrary to the definition of "goods" in Section 100, [RR] No. 7-95 decreed
"what the law shall be", now "how the law may be enforced", and is,
consequently, of no effect because it constitutes undue delegation of
legislative power.
xxxx
[T]he transgression by the BIR and the CTA and CA of the basic principle of
separation of powers, including the fundamental rule of nondelegation of
legislative power, is clear.65 Furthermore, petitioner claims that:
SINCE THE PROVISIONS OF SECTION 105 OF THE [NIRC] IN RELATION
TO SECTION 100 THEREOF, ARE CLEAR, THERE WAS NO BASIS AND
NECESSITY FOR THE BUREAU OF INTERNAL REVENUE AND THE COURT
OF APPEALS AND THE COURT OF TAX APPEALS TO INTERPRET AND
CONSTRUE THE SAME.66
PETITIONER IS CLEARLY ENTITLED TO THE TRANSITIONAL/PRESUMPTIVE
INPUT TAX CREDIT GRANTED IN SECTION 105 OF THE NIRCAND HENCE
TO A REFUND OF THE VALUE-ADDED TAX PAID BY IT FOR THE SECOND
QUARTER OF 1997.67
Petitioner insists that there was no basis and necessity for the BIR, the CTA,
and the Court of Appeals to interpret and construe Sections 100 and 105 of
the NIRC because "where the law speaks in clear and categorical language,
or the terms of the statute are clear and unambiguous and free from doubt,
there is no room for interpretation or construction and no interpretation or
47
construction is called for; there is only room for application." 68 Petitioner

asserts that legislative intent is determined primarily from the language of
the statute; legislative intent has to be discovered from the four corners of
the law; and thus, where no ambiguity appears, it may be presumed
conclusivelythat the clear and explicit terms of a statute express the
legislative intention.69
So looking at the cases now before us, petitioner avers that the Court of
Appeals, the CTA, and the BIR did not merely interpret and construe Section
105, and that they virtually amended the said section, for it is allegedly
clear from Section 105 of the old NIRC, in relation to Section 100, that
"legislative intent is to the effect that the taxpayer is entitled to the input
tax credit based on the value of the beginning inventory of land, not merely
on the improvements thereon, and irrespective of any prior payment of
sales tax or VAT."70
THEORY OF RESPONDENTS
Petitioners claims for refund were consistently denied in the three cases
now before us. Even if inone case, G.R. No. 180035, petitioner succeeded in
getting a favorable decision from the CTA, the grant of refund or tax credit
was subsequently reversed on respondents Motion for Reconsideration, and
such denial ofpetitioners claim was affirmed by the Court of Appeals.
Respondents reasons for denying petitioners claims are summarized in
their Comment in G.R. No. 175707, and we quote:
REASONS WHY PETITION SHOULD BE DENIED OR DISMISSED
1. The 8% input tax credit provided for in Section 105 of the NIRC, in
relation to Section 100 thereof, is based on the value of the
improvements on the land.
2. The taxpayer is entitled to the input tax credit provided for in
Section 105 of the NIRC only if it has previously paid VAT or sales taxes
on its inventory of land.
3. Section 4.105-1 of Revenue Regulations No. 7-95 of the BIR is valid,
effective and has the force and effect of law, which implemented
Section 105 of the NIRC.71
In respondents Comment72 dated November 3, 2008 in G.R. No. 180035,
they averred that petitioners claim for the 8% transitional/presumptive
48
input tax is "inconsistent with the purpose and intent of the law in granting
such tax refund or tax credit."73 Respondents raise the following arguments:
1. The transitional input tax provided under Section 105 in relation to
Section 100 of the Tax Code, as amended by EO No. 273 effective
January 1, 1988, is subject to certain conditions which petitioner failed
to meet.74
2. The claim for petitioner for transitional input tax is in the nature of a
tax exemption which should be strictly construed against it. 75
3. Revenue Regulations No. 7-95 is valid and consistent with provisions
of the NIRC.76 Moreover, respondents contend that:
"[P]etitioner is not legally entitled to any transitional input tax credit,
whether it be the 8% presumptive inputtax credit or any actual input tax
credit in respect of its inventory of land brought into the VAT regime
beginning January 1, 1996, in view of the following:
1. VAT free acquisition of the raw land. petitioner purchased and acquired,
from the Government, the aforesaid raw land under a VAT free sale
transaction. The Government, as a vendor, was tax-exempt and accordingly
did not pass on any VAT or sales tax as part of the price paid therefor by the
petitioner.
2. No transitory input tax on inventory of land is allowed. Section 105 of the
Code, as amended by Republic Act No. 7716, and as implemented by
Section 4.105-1 of Revenue Regulations No. 7-95, expressly provides that no
transitional input tax credit shall be allowed to real estate dealers in respect
of their beginning inventory of land brought into the VAT regime beginning
January 1, 1996 (supra). Likewise, the Transitory Provisions [(a) (iii)] of
Revenue Regulations No. 7-95 categorically states that "for real estate
dealers, the presumptive input tax of 8% of the book value of improvements
constructed on or after January 1, 1998 (effectivity of E.O. 273) shall be
allowed." For purposes of subparagraphs (i), (ii) and (iii) above, an inventory
as of December 31, 1995 ofsuch goods or properties and improvements
showing the quantity, description, and amount should be filed with the RDO
not later than January 31, 1996. It is admitted that petitioner filed its
inventory listing of real properties on September 19, 1996 or almost nine (9)
months late in contravention [of] the requirements in Revenue Regulations
No. 7-95."77
49
Respondents, quoting the Civil Code,78 argue that Section 4.105-1 of

Revenue Regulations No. 7-95 has the force and effect of a law since it is
not contrary to any law or the Constitution. Respondents add that "[w]hen
the administrative agency promulgates rules and regulations, it makes a
new law with the force and effect of a valid law x x x." 79
ISSUES
The main issue before us now is whether or not petitioner is entitled to a
refund of the amounts of: 1)P486,355,846.78 in G.R. No. 175707,
2) P77,151,020.46 for G.R. No. 180035, and 3) P269,340,469.45 in G.R. No.
181092, which it paid as value-added tax, or to a tax credit for said
amounts.
To resolve the issue stated above, it is also necessary to determine:
Whether the transitional/presumptive input tax credit under Section 105
of the NIRC may be claimed only on the "improvements" on real properties;
Whether there must have been previous payment of sales tax or value
added tax by petitioner on its land before it may claim the input tax credit
granted by Section 105 of the NIRC;
Whether Revenue Regulations No. 7-95 is a valid implementation of
Section 105 of the NIRC; and
Whether the issuance of Revenue Regulations No. 7-95 by the BIR, and
declaration of validity of saidRegulations by the Court of Tax Appeals and
the Court of Appeals, was in violation of the fundamental principle of
separation of powers.
THE RULINGS BELOW
A. G.R. No. 175707
1. CTA Case No. 5885 Decision (October 13, 2000)
The CTA traced the history of "transitional input tax credit" from the original
VAT Law of 1988 (Executive Order No. 273) up to the Tax Reform Act of 1997
and looked into Section 105 of the Tax Code. According to the CTA, the BIR
issued Revenue Regulations No. 5-87, specifically Section 26(b), 80 to
implement the provisions of Section 105. The CTA concluded from these
provisions that "the purpose of granting transitional input tax credit to be
utilized as payment for output VAT is primarily to give recognition to the
50
sales tax component of inventories which would qualify as input tax credit
had such goods been acquired during the effectivity of the VAT Law of
1988."81 The CTA stated that the purpose of transitional input tax credit
remained the same even after the amendments introduced by the E-VAT
Law.82 The CTA held that "the rationale in granting the transitional input tax
credit also serves as its condition for its availment as a benefit" 83 and that
"[i]nherent in the law is the condition of prior payment of VAT or sales
taxes."84 The CTA excluded petitioner from availing of the transitional input
tax credit provided by law, reasoning that "to base the 8% transitional input
tax on the book value of the land isto negate the purpose of the law in
granting such benefit. It would be tantamount to giving an undeserved
bonus to real estate dealers similarly situated as petitioner which the
Government cannot afford to provide."85 Furthermore, the CTA held that
respondent was correct in basing the 8% transitional input tax credit on the
value of the improvements on the land, citing Section 4.105-1 of Revenue
Regulations No. 7-95, which the CTA claims is consistent and in harmony
with the law it seeks to implement. Thus, the CTA denied petitioners claim
for refund.86
2. CA-G.R. No. 61516 Decision (April 22, 2003)
The Court of Appeals affirmed the CTA and ruled that petitioner is not
entitled to refund or tax credit in the amount ofP486,355,846.78 and stated
that "Revenue Regulations No. 7-95 is a valid implementation of the
NIRC."87 According to the Court of Appeals:
"[P]etitioner acquired the contested property from the National Government
under a VAT-free transaction. The Government, as a vendor was outside the
operation of the VATand ergo, could not possibly have passed on any VAT or
sales tax as part of the purchase price to the petitioner as vendee." 88
x x x [T]he grant of transitional input tax credit indeed presupposes that the
manufacturers, producers and importers should have previously paid sales
taxes on their inventories. They were given the benefit of transitional input
tax credits, precisely, to make up for the previously paid sales taxes which
were now abolished by the VAT Law. It bears stressing that the VAT Law took
the place of privilege taxes, percentage taxes and sales taxes on original or
subsequent sale of articles. These taxes were substituted by the VAT at the
constant rate of 0% or 10%.89
3. CA-G.R. No. 61516 Resolution (November 30, 2006)
51
Upon petitioners Motion for Reconsideration, the Court of Appeals affirmed

its decision, but we find the following statement by the appellate court
worthy of note:
We concede that the inventory restrictions under Revenue Regulation No. 795 limiting the coverage of the inventory only to acquisition cost of the
materials used in building "improvements" has already been deleted by
Revenue Regulation 6-97. This notwithstanding, we are poised to sustain our
earlier ruling as regards the refund presently claimed. 90
B. G.R. No. 180035
1. CTA Case No. 6021 Decision (January 30, 2002)
The CTA sustained petitioners position and held that respondent erred in
basing the transitional input tax credit of real estate dealers on the value of
the improvements.91 The CTA ratiocinated as follows:
This Court, in upholding the position taken by the petitioner, is convinced
that Section 105 of the Tax Code is clear in itself. Explicit therefrom is the
fact that a taxpayer shall be allowed a transitional/presumptive input tax
credit based on the value of its beginning inventory of goods which is
defined in Section 100 as to encompass even real property. x x x. 92
The CTA went on to point out inconsistencies it had found between the
transitory provisions of Revenue Regulations No. 7-95 and the law it sought
to implement, in the following manner:
Notice that letter (a)(ii) of the x x x transitory provisions 93 states that goods
or properties purchased with the object of resalein their present condition
comes with the corresponding 8% presumptive input tax of the value of the
goods, which amount may alsobe credited against the output tax of a VATregistered person. It must be remembered that Section 100 as amended by
Republic Act No. 7716 extends the term "goods or properties" to real
properties held primarily for sale to customers or held for lease in the
ordinary course of trade or business. This provision alone entitles Petitioner
to the 8%presumptive input tax of the value of the land (goods or
properties) sold. However in letter (a)(iii) of the same Transitory Provisions,
Respondent apparently changed his (sic) course when it declared that real
estate dealers are only entitled to the 8% of the value of the improvements.
This glaring inconsistency between the two provisions prove that Revenue
Regulations No. 7-95 was not a result of an intensive study and analysis and
may have been haphazardly formulated.94
52
The CTA held that the implementing regulation, which provides that the 8%
transitional input tax shall bebased on the improvements only of the real
properties, is neither valid nor effective. 95 The CTA also sustained
petitioners argument that Revenue Regulations No. 7-95 provides no
specific date as to when the inventory list should be submitted. The relevant
portion of the CTA decision reads:
The only requirement is that the presumptive input tax shall be supported
by an inventory of goods asshown in a detailed list to be submitted to the
BIR. Moreover, the requirement of filing an inventory of goods not later than
January 31, 1996 inthe transitory provision of the same regulation refers to
the recognition of presumptive input tax on goods or properties on hand as
of December 31, 1995 of taxpayers already liable to VAT as of that date.
Clearly, Petitioner is entitled to the presumptive input tax in the amount
of P5,698,200,256.00, computed as follows:
Book Value of Inventory x x x P71,227,503,200.00
Multiply by Presumptive
Input Tax rate _____ 8%
Available Presumptive Input Tax P5,698,200,256.00
The failure of the Petitioner to consider the presumptive input tax in the
computation of its output tax liability for the 1st quarter of 1998 results to
overpayment of the VAT for the same period.
To prove the fact of overpayment, Petitioner presented the original Monthly
VAT Declaration for the month of January 1998 showing the amount
of P77,151,020.46 as the cash component of the value-added taxes paid
(Exhibits E-14 & E-14-A) which is the subject matter of the instant claim for
refund.
In Petitioners amended quarterly VAT return for the 1st quarter of 1998
(Exhibit D-1), Petitioner deducted the amount of P77,151,020.46 from the
total available input tax toshow that the amount being claimed would no
longer be available as input tax credit.
In conclusion, the Petitioner has satisfactorily proven its entitlement to the
refund of value-added taxes paid for the first quarter of taxable year 1998.
53
WHEREFORE, in view of the foregoing, the Petition for Review is GRANTED.

Respondents are hereby ORDERED to REFUND or issue a TAX CREDIT
CERTIFICATE in favor of the Petitioner the total amount of P77,151,020.46
representing the erroneously paid value-added tax for the first quarter of
1998.96
2. CTA Case No. 6021 Resolution (March 28, 2003)
The CTA reversedits earlier ruling upon respondents motion for
reconsideration and thus denied petitioners claim for refund. The CTA
reasoned and concluded as follows:
The vortex of the controversy in the instant case actually involves the
question of whether or not Section 4.105-1 of Revenue Regulations No. 7-95,
issued by the Secretary of Finance upon recommendation of the
Commissioner of Internal Revenue, is valid and consistent with and not
violative of Section 105 of the Tax Code, in relation to Section 100 (a)(1)(A).
xxxx
We agree with the position taken by the respondents that Revenue
Regulations No. 7-95 is not contrary to the basic law which it seeks to
implement. As clearly worded, Section 105 of the Tax Code provides that a
person who becomes liable to value-added tax or any person who elects to
be a VAT-registered person shall be allowed 8% transitional input tax subject
to the filing of an inventory as prescribed by regulations.
Section 105, which requires the filing of an inventory for the grant of the
transitional input tax, is couched in a manner where there is a need for an
implementing rule or regulation tocarry its intendment. True to its wordings,
the BIR issued Revenue Regulations No. 7-95 (specifically Section 4.105-1)
which succinctly mentioned that the basis of the presumptive input tax shall
be the improvements in case of real estate dealers. 97
xxxx
WHEREFORE, in view of the foregoing, the instant Motion for
Reconsideration filed by respondents is hereby GRANTED. Accordingly,
petitioners claim for refund of the alleged overpaid Value-Added Tax in the
amount ofP77,151,020.46 covering the first quarter of 1998 is hereby
DENIEDfor lack of merit.98
3. CA-G.R. SP No. 76540 Decision (April 30, 2007)
54
The Court of Appeals affirmed the CTAs Resolution denying petitioners

claim for refund, and we quote portions of the discussion from the Court of
Appeals decision below:
To Our mind, the key to resolving the jugular issue of this controversy
involves a deeper analysis on how the much-contested transitional input tax
credit has been encrypted in the countrys valueadded tax (VAT) system.
xxxx
x x x [T]he Commissioner of Internal Revenue promulgated Revenue
Regulations No. 7-95which laid down, among others, the basis of the
transitional input tax credit for real estate dealers: 99 x x x x
The Regulation unmistakably allows credit for transitional input tax of any
person who becomes liable to VAT or who elects to be a VAT registered
person. More particularly, real estate dealers who were beforehand not
subject to VAT are allowed a tax credit to cushion the staggering effect of
the newly imposed 10% output VAT liability under RA No. 7716.
Bearing in mind the purpose of the transitional input tax credit under the
VAT system, We find it incongruous to grant petitioners claim for tax refund.
We take note of the fact that petitioner acquired the Global City lots from
the National Government. The transaction was not subject to any sales or
business tax. Since the seller did not pass on any tax liability to petitioner,
the latter may not claim tax credit. Clearly then, petitioner cannot simply
demand that it is entitled to the transitional input tax credit.
xxxx
Another point.Section 105 of the National Internal Revenue Code, as
amended by EO No. 273, explicitly provides that the transitional input tax
credit shall be based on "the beginning inventory of goods, materials and
supplies orthe actual value-added tax paid on such goods, materials and
supplies, whichever is higher." Note that the law did not simply say the
transitional input tax credit shall be 8% of the beginning inventory of goods,
materials and supplies.
Instead, lawmakers went on to say that the creditable input tax shall be
whichever is higher between the value of the inventory and the actual VAT
paid. Necessarily then, a comparison of these two figures would have to be
made. This strengthens Our view that previous payment of the VAT is
indispensable to determine the actual value of the input tax creditable
55
against the output tax. So too, this is in consonance with the present tax
credit method adopted in this jurisdiction whereby an entity can credit
against or subtract from the VAT charged on its sales or outputs the VAT
paid on its purchases, inputs and imports.
We proceed to traverse another argument raised in this controversy.
Petitioner insists that the term "goods" which was one of the bases in
computing the transitional inputtax credit must be construed so as to
include real properties held primarily for sale to customers. Petitioner posits
that respondent Commissioner practically rewrote the law when it issued
Revenue Regulations No. 7-95 which limited the basis of the 8% transitional
input tax credit to the value of improvements alone.
Petitioner is clearly mistaken.
The term "goods" has been defined to mean any movable or tangible
objects which are appreciable or tangible. More specifically, the word
"goods" is always used to designate wares, commodities, and personal
chattels; and does not include chattels real."Real property" on the other
hand, refers to land, and generally whatever is erected or growing upon or
affixed to land. It is therefore quite absurd to equate "goods" as being
synonymous to "properties". The vast difference between the terms "goods"
and "real properties" is so obvious that petitioners assertion must be
struckdown for being utterly baseless and specious.
Along this line, We uphold the validity of Revenue Regulations No. 7-95. The
authority of the Secretary of Finance, in conjunction with the Commissioner
of Internal Revenue, to promulgate all needful rules and regulations for the
effective enforcement of internal revenue laws cannot be controverted.
Neither can it be disputed that such rules and regulations, as well as
administrative opinions and rulings, ordinarily should deserve weight and
respect by the courts. Much more fundamental than either of the above,
however, is that all such issuances must not override, but must remain
consistent and in harmony with, the law they seek to apply and implement.
Administrative rules and regulations are intended to carry out, neither to
supplant nor to modify, the law. Revenue Regulations No. 7-95 is clearly not
inconsistent with the prevailing statute insofar as the provision on
transitional inputtax credit is concerned. 100
4. CA-G.R. SP No. 76540 Resolution (October 8, 2007)
In this Resolution, the Court of Appeals denied petitioners Motion for
Reconsideration of its Decision dated April 30, 2007.
56
C. G.R. No. 181092
1. CTA Case No. 5694 Decision (September 29, 2000)

The CTA ruled that petitioner is not automatically entitled to the 8%
transitional input tax allowed under Section 105 of the Tax Code based
solely on its inventory of real properties, and cited the rule on uniformity in
taxation duly enshrined in the Constitution. 101 According to the CTA:
As defined under the above Section 104 of the Tax Code, an "input tax"
means the VAT paid by a VAT-registered person in the course of his trade or
business on importation ofgoods or services from a VAT registered person;
and that such tax shall include the transitional input tax determined in
accordance with Section 105 of the Tax Code,supra. 102
Applying the rule on statutory construction that particular words, clauses
and phrases should not be studied as detached and isolated expressions,
but the whole and every part of the statute must be considered in fixing the
meaning of any of its parts in order to produce a harmonious whole, the
phrase "transitional input tax" found in Section 105 should be understood to
encompass goods, materials and supplies which are subject to VAT, in line
with the context of "input tax" as defined in Section 104, most especially
that the latter includes, and immediately precedes, the former under its
statutory meaning. Petitioners contention that the 8% transitional input tax
is statutorily presumed to the extent that its real properties which have not
been subjected to VAT are entitled thereto, would directly contradict "input
tax" as defined in Section 104 and would invariably cause disharmony. 103
The CTA held that the 8% transitional input tax should not be viewed as an
outright grant or presumption without need of prior taxes having been paid.
Expounding on this, the CTA said: The simple instance in the aforesaid
paragraphs of requiring the tax on the materials, supplies or goods
comprising the inventory to be currently unutilized as deferred sales tax
credit before the 8% presumptive input tax can be enjoyed readily leads to
the inevitable conclusion that such 8% tax cannot be just granted toany VAT
liable person if he has no priorly paid creditable sales taxes. Legislative
intent thus clearly points to priorly paid taxes on goods, materials and
supplies before a VAT registered person can avail of the 8% presumptive
input tax.104
Anent the applicability to petitioners case of the requirement under Article
VI, Section 28, par. 1 of the Constitution that the rule of taxation shall be
uniform and equitable, the CTA held thus: Granting arguendo that Petitioner
57
is statutorily presumed to be entitled to the 8% transitional input tax as

provided in Section 105, even without having previously paid any tax on its
inventory of goods, Petitioner would be placed at a more advantageous
position than a similar VAT-registered person who also becomes liable to VAT
but who has actually paid VAT on his purchases of goods, materials and
supplies. This is evident from the alternative modes of acquiring the proper
amount of transitional input tax under Section 105, supra. One is by getting
the equivalent amount of 8% tax based on the beginning inventory of
goods, materials and supplies and the other is by the actual VAT paid on
such goods, materials and supplies, whichever is higher.
As it is supposed to work, the transitional input tax should answer for the
10% output VAT liability thata VAT-registered person will incur once he starts
business operations. While a VAT-registered person who is allowed a
transitional input tax based on his actual payment of 10% VAT on his
purchases can utilize the same to pay for his output VAT liability, a similar
VAT-registered person like herein Petitioner, when allowed the alternative
8% transitional input tax, can offset his output VAT liability equally through
such 8% tax even without having paid any previous tax. This obvious
inequity that may arise could not have been the intention and purpose of
the lawmakers in granting the transitional input tax credit. x x x 105
Evidently, Petitioner is not similarly situated both as to privileges and
liabilities to that of a VAT-registered person who has paid actual 10% input
VAT on his purchases of goods, materials and supplies. The latter person will
not earn anything from his transitional input tax which, to emphasize, has
been paid by him because the same will just offset his 10% output VAT
liability. On the other hand, herein Petitioner will earn gratis the amount
equivalent to 10% output VAT it has passed on to buyers for the simple
reason that it has never previously paid any input tax on its goods. Its gain
will be facilitated by herein claim for refund if ever granted. This is the
reason why we do not see any incongruity in Section 4.105-1 of Revenue
Regulations No. 7-95 as it relates to Section 105 of the 1996 Tax Code,
contrary to the contention of Petitioner. Section 4.105-1 (supra), which
bases the transitional input tax credit on the value of the improvements, is
consistent with the purpose of the law x x x. 106
2. CA-G.R. SP No. 61158 Decision (December 28, 2007) The Court of
Appeals affirmed the CTAs denial of petitioners claim for refund and upheld
the validity of the questioned Revenue Regulation issued by respondent
Commissioner ofInternal Revenue, reasoning as follows:
58
Sec. 105 of the NIRC, as amended, provides that the allowance for the 8%
input tax on the beginning inventory of a VAT-covered entity is "subject to
the filing of an inventory as prescribed by regulations." This means that the
legislature left to the BIR the determination of what will constitute the
beginning inventory ofgoods, materials and supplies which will, in turn,
serve as the basis for computing the 8% input tax.
While the power to tax cannot be delegated to executive agencies, details
as to the enforcement and administration of an exercise of such power may
be left to them, including the power to determine the existence of facts on
which its operation depends x x x. Hence, there is no gainsaying that the
CIR and the Secretary of Finance, in limiting the application of the input tax
of real estate dealers to improvements constructed on or after January 1,
1988, merely exercised their delegated authority under Sec. 105, id., to
promulgate rules and regulations defining what should be included in the
beginning inventory of a VAT-registered entity.
xxxx
In the instant case, We find that, contrary to petitioners attacks against its
validity, the limitation on the beginning inventory of real estate dealers
contained in Sec. 4.105-1 of RR No. 7-95 is reasonable and consistent with
the natureof the input VAT. x x x.
Based on the foregoing antecedents, it is clear why the second paragraph of
Sec. 4.105-1 of RR No. 7-95 limits the transitional input taxes of real estate
dealers to the value of improvements constructed on or after January 1,
1988. Since the sale of the land was not subject to VAT or other sales taxes
prior to the effectivity of Rep. Act No. 7716, real estate dealers at that time
had no input taxes to speak of. With this in mind, the CIR correctly limited
the application of the 8% transitional input tax to improvements on real
estate dealers constructed on or after January 1, 1988 when the VAT was
initially implemented. This is, as it should be, for to grant petitioner a refund
or credit for input taxes it never paid would be tantamount to unjust
enrichment.
As petitioner itself observes, the input tax credit provided for by Sec. 105 of
the NIRC is a mechanism used to grant some relief from burden some taxes.
It follows, therefore, that not having been burdened by VAT or any other
sales tax on its inventory of land prior to the effectivity of Rep. Act No. 7716,
petitioner is not entitled to the relief afforded by Sec. 105, id. 107
59
The Court of Appeals ruled that petitioner is not similarly situated as those
business entities which previously paid taxes on their inputs, and stressed
that "a tax refund or credit x x x is in the nature of a tax exemption which
must be construed strictissimi juris against the taxpayer x x x." 108
THIS COURTS RULING
As previously stated, the issues here have already been passed upon and
resolved by this Court En Banc twice, in decisions that have reached finality,
and we are bound by the doctrine of stare decisis to apply those decisions
to these consolidated cases, for they involve the same facts, issues, and
even parties.
Thus, we find for the petitioner.
DISCUSSION
The errors assigned by petitioner to the Court of Appeals and the arguments
offered by respondents to support the denial of petitioners claim for tax
refund have already been dealt with thoroughly by the Court En Banc in Fort
Bonifacio Development Corporation v. Commissioner of Internal Revenue,
G.R. Nos. 158885 and 170680 (Decision - April 2, 2009; Resolution - October
2, 2009); and Fort Bonifacio Development Corporation v. Commissioner of
Internal Revenue, G.R. No. 173425 (Decision - September 4, 2012;
Resolution - January 22, 2013).
The Court En Bancdecided on the following issues in G.R. Nos. 158885 and
170680:
1. In determining the 10% value-added tax in Section 100 of the [Old
NIRC] on the sale of real properties by real estate dealers, is the 8%
transitional input tax credit in Section 105 applied only to the
improvements on the real property or is it applied on the value of the
entire real property?
2. Are Section 4.105.1 and paragraph (a)(III) of the Transitory
Provisions of Revenue Regulations No. 7-95 valid in limiting the 8%
transitional input tax to the improvements on the real property?
Subsequently, in G.R. No. 173425, the Court resolved issues that are
identical to the ones raised here by petitioner, 109 thus:
60
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 [sales tax or value-added tax]110 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 socialobjectives in the acquisition of
the subject property by petitioner from the Government should be
taken into consideration.111
The Courts pronouncements in the decided cases regarding these issues

are discussed below. The doctrine of stare decisis et non quieta movere,
which means "to abide by, or adhere to, decided cases," 112 compels us to
apply the rulings by the Court tothese consolidated cases before us. Under
the doctrine of stare decisis, "when this Court has once laid down a principle
of law as applicable to a certainstate of facts, it will adhere to that principle,
and apply it to all future cases, where facts are substantially the same;
regardless of whether the parties and property are the same." 113 This is to
provide stability in judicial decisions, as held by the Court in a previous
case:
Stand by the decisions and disturb not what is settled. Stare decisis simply
means that for the sake of certainty, a conclusion reached in one case
61
should be applied to those that follow if the facts are substantially the same,
even though the parties may be different. It proceeds from the first principle
of justice that, absent any powerful countervailing considerations, like cases
ought to be decided alike.114
More importantly, we cannot depart from the legal precedents as laid down
by the Court En Banc. It is provided in the Constitution that "no doctrine or
principle of law laid down by the court in a decision rendered en bancor in
division may be modified or reversed except by the court sitting en banc." 115
What is left for this Court to do is to reiterate the rulings in the aforesaid
legal precedents and apply them to these consolidated cases.
As regards the main issue, the Court conclusively held that petitioner is
entitled to the 8% transitional input tax on its beginning inventory of land,
which is granted in Section 105 (nowSection 111[A]) of the NIRC, and
granted the refund of the amounts petitioner had paid as output VAT for the
different tax periods in question.116
Whether the transitional/presumptive
input tax credit under Section 105 of the
NIRC may be claimed only on the
"improvements" on real properties.
The Court held in the earlier consolidated decision, G.R. Nos. 158885 and
170680, as follows: On its face, there is nothing in Section 105 of the Old
NIRC that prohibits the inclusion of real properties, together with the
improvements thereon, in the beginning inventory of goods, materials and
supplies, based on which inventory the transitional input tax credit is
computed. It can be conceded that when it was drafted Section 105 could
not have possibly contemplated concerns specific to real properties, as real
estate transactions were not originally subject to VAT. At the same time,
when transactions on real properties were finally made subject to VAT
beginning withRep. Act No. 7716, no corresponding amendment was
adopted as regards Section 105 to provide for a differentiated treatment in
the application of the transitional input tax credit with respect to real
properties or real estate dealers.
It was Section 100 of the Old NIRC, as amended by Rep. Act No. 7716, which
made real estate transactions subject to VAT for the first time. Prior to the
amendment, Section 100 had imposed the VAT "on every sale, barter or
exchange of goods", without however specifying the kind of properties that
fall within or under the generic class "goods" subject to the tax.
62
Rep. Act No. 7716, which significantly is also known as the Expanded ValueAdded Tax (EVAT) law, expanded the coverage of the VAT by amending
Section 100 of the Old NIRC in several respects, some of which we will
enumerate. First, it made every sale, barter or exchange of "goods or
properties" subject to VAT. Second, it generally defined "goods or properties"
as "all tangible and intangible objects which are capable of pecuniary
estimation." Third, it included a non-exclusive enumeration of various
objects that fall under the class "goods or properties" subject to VAT,
including "[r]eal properties held primarily for sale to customers or held for
lease in the ordinary courseof trade or business."
From these amendments to Section 100, is there any differentiated VAT
treatment on realproperties or real estate dealers that would justify the
suggested limitations on the application of the transitional input tax on
them? We see none.
Rep. Act No. 7716 clarifies that it is the real properties "held primarily for
sale to customers or held for lease in the ordinary course of trade or
business" that are subject to the VAT, and not when the real estate
transactions are engaged in by persons who do not sell or lease properties
in the ordinary course of trade or business. It is clear that those regularly
engaged in the real estate business are accorded the same treatment as the
merchants of other goods or properties available in the market. In the same
way that a milliner considers hats as his goods and a rancher considers
cattle as his goods, a real estate dealer holds real property, whether ornot it
contains improvements, as his goods. 117 (Citations omitted, emphasis
added.)
xxxx
Under Section 105, the beginning inventory of "goods" forms part of the
valuation of the transitional input tax credit. Goods, as commonly
understood in the business sense, refers to the product which the VAT
registered person offers for sale to the public. With respect to real estate
dealers, it is the real properties themselves which constitute their "goods".
Such real properties are the operating assets of the real estate dealer.
Section 4.100-1 of RR No. 7-95 itself includes in its enumeration of "goods or
properties" such "real properties held primarily for sale to customers or held
for lease in the ordinary course of trade or business." Said definition was
taken from the very statutory language of Section 100 of the Old NIRC. By
limiting the definition of goods to "improvements" in Section 4.105-1, the
BIR not only contravened the definition of "goods" as provided in the Old
63
NIRC, but also the definition which the same revenue regulation itself has
provided.118 (Emphasis added.)
The Court then emphasized in its Resolution in G.R. No. 158885 and G.R. No.
170680 that Section 105 of the old NIRC, on the transitional input tax credit,
remained intact despite the enactment of Republic Act No. 7716. Section
105 was amended by Republic Act No. 8424, and the provisions on the
transitional input tax credit are now embodied in Section 111(A) of the new
NIRC, which reads:
Section 111. Transitional/Presumptive Input Tax Credits.
(A) Transitional Input Tax Credits. A person who becomes liable to valueadded 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 [F]inance, upon recommendation of the
Commissioner, be allowed input tax on his beginning inventory of goods,
materials and supplies equivalent for 8% of the value of such inventory or
the actual value-added tax paid on such goods, materials and supplies,
whichever is higher, which shall be creditable against the output tax. 119
In G.R. Nos. 158885 and 170680, the Court asked, "If the plain text of
Republic Act No. 7716 fails to supply any apparent justification for limiting
the beginning inventory of real estate dealers only to the improvements on
their properties, how then were the Commissioner of Internal Revenue and
the courts a quoable to justify such a view?" 120 The Court then answered this
question in this manner:
IV.
The fact alone that the denial of FBDC's claims is in accord with Section
4.105-1 of RR 7-95 does not, of course, put this inquiry to rest. If Section
4.105-1 is itself incongruent to Rep. Act No. 7716, the incongruence cannot
by itself justify the denial of the claims. We need to inquire into the rationale
behind Section 4.105-1, as well as the question whether the interpretation
of the law embodied therein is validated by the law itself.
xxxx
It is correct, as pointed out by the CTA, that upon the shift from sales taxes
to VAT in 1987 newly-VAT registered people would have been prejudiced by
the inability to credit against the output VAT their payments by way of sales
tax on their existing stocks in trade. Yet that inequity was precisely
64
addressed by a transitory provision in E.O. No. 273 found in Section 25

thereof. The provision authorized VAT-registered persons to invoke a
"presumptive input tax equivalent to 8% of the value of the inventory as of
December 31, 1987 of materials and supplies which are not for sale, the tax
on which was not taken up or claimed as deferred sales tax credit," and a
similar presumptive input tax equivalent to 8% of the value of the inventory
as of December 31, 1987 of goods for sale, the tax on which was not taken
up or claimed as deferred sales tax credit. 121 (Emphasis ours.)
Whether there must have been previous
payment of sales tax or value-added tax
by petitioner on its land before petitioner
may claim the input tax credit granted by
Section 105 (now Section 111[A]) of the NIRC.
The Court discussed this matter lengthily in its Decision in G.R. Nos. 158885
and 170680, and we quote:
Section 25 of E.O. No. 273 perfectly remedies the problem assumed by the
CTA as the basis for the introduction of transitional input tax credit in 1987.
If the core purpose of the tax credit is only, as hinted by the CTA, to allow
for some mode of accreditation of previously-paid sales taxes, then Section
25 alone would have sufficed. Yet E.O. No. 273 amended the Old NIRC itself
by providing for the transitional input tax credit under Section 105, thereby
assuring that the tax credit would endure long after the last goods made
subject to sales tax have been consumed.
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.
x x x 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 VATregistered. 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.
65
x x x [I]t 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.
xxxx
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.
66
The CTA harped on the circumstance that FBDC was excused from paying
any tax on the purchase of its properties from the national government,
even claiming that to allow the transitional input tax credit is "tantamount
to giving an undeserved bonusto real estate dealers similarly situated as
[FBDC] which the Government cannot afford to provide." Yet the tax laws in
question, and all tax laws in general, are designed to enforce uniform tax
treatment to persons or classes of persons who share minimum legislated
standards. The common standard for the application of the transitional input
tax credit, as enacted by E.O. No. 273 and all subsequent tax laws which
reinforced or reintegrated the tax credit, is simply that the taxpayer in
question has become liable to VAT or has elected to be a VAT-registered
person. E.O. No. 273 and the subsequent tax laws are all decidedly neutral
and accommodating in ascertaining who should be entitled to the tax credit,
and it behooves the CIR and the CTA to adopt a similarly judicious
perspective.122 (Citations omitted, emphases ours.)
The Court En Bancin its Resolution in G.R. No. 173425 likewise discussed the
question of prior payment of taxes as a prerequisite before a taxpayer could
avail of the transitional input tax credit. The Court found that petitioner is
entitled to the 8% transitional input tax credit, and clearly said that the fact
that petitioner acquired the Global City property under a tax-free
transaction makes no difference as prior payment of taxes is not a
prerequisite.123 We quote pertinent portions of the resolution below:
This argument has long been settled. To reiterate, prior payment of taxes is
not necessary before a taxpayer could avail of the 8% transitional input tax
credit. This position is solidly supported by law and jurisprudence, viz.:
First.Section 105 of the old National Internal Revenue Code (NIRC) clearly
provides that for a taxpayer to avail of the 8% transitional input tax credit,
all that is required from the taxpayer is to file a beginning inventory with the
Bureau of Internal Revenue (BIR). It was never mentioned in Section 105
that prior payment of taxes is a requirement. x x x.
xxxx
Second. Since the law (Section 105 of the NIRC) does not provide for prior
payment of taxes, to require it now would be tantamount to judicial
legislation which, to state the obvious, is not allowed.
Third. A transitional input tax credit is not a tax refund per se but a tax
credit. Logically, prior payment of taxes is not required before a taxpayer
could avail of transitional input tax credit. As we have declared in our
67
September 4, 2012 Decision, "[t]ax 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. Tax credit, on the other hand, is an amount
subtracted directly from one's total tax liability. It is any amount given to a
taxpayer as a subsidy, a refund, or an incentive to encourage investment."
Fourth. The issue of whether prior payment of taxes is necessary to avail of
transitional input tax credit is no longer novel. It has long been settled by
jurisprudence. x x x.
Fifth. Moreover, in Commissioner of Internal Revenue v. Central Luzon Drug
Corp., this Court had already declared that prior payment of taxes is not
required in order toavail of a tax credit. x x x 124 (Citations omitted,
emphases ours.)
The Court has thus categorically ruled that prior payment of taxes is not
required for a taxpayer toavail of the 8% transitional input tax credit
provided in Section 105 of the old NIRC and that petitioner is entitled to it,
despite the fact that petitioner acquired the Global City property under a
tax-free transaction.125 The Court En Banc held:
Contrary to the view of the CTA and the CA, there is nothing in the
abovequoted 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 taxpayerto file a beginning inventory with the BIR.
To require prior payment of taxes x x x 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.126
Whether Revenue Regulations No. 7-95 is
a valid implementation of Section 105 of
the NIRC.
68
In the April 2, 2009 Decision inG.R. Nos. 158885 and 170680, the Court
struck down Section 4.105-1 ofRevenue Regulations No. 7-95 for being in
conflict with the law.127 The decision reads in part as follows:
[There] is no logic that coheres with either E.O. No. 273 or Rep. Act No. 7716
which supports the restriction imposed on realestate brokers and their
ability to claim the transitional input tax credit based on the value of their
real properties. In addition, the very idea of excluding the real properties
itself from the beginning inventory simply runs counter to what the
transitional input tax credit seeks to accomplish for persons engaged in the
sale of goods, whether or not such "goods" take the form of real properties
or more mundane commodities.
Under Section 105, the beginning inventory of "goods" forms part of the
valuation of the transitional input tax credit. Goods, as commonly
understood in the business sense, refers to the product which the VAT
registered person offers for sale to the public. With respect to real estate
dealers, it is the real properties themselves which constitute their "goods".
Such real properties are the operating assets of the real estate dealer.
Section 4.100-1 of RR No. 7-95 itself includes in its enumeration of "goods or
properties" such "real properties held primarily for sale to customers or held
for lease in the ordinary course of trade or business." Said definition was
taken from the very statutory language of Section 100 of the Old NIRC. By
limiting the definition of goods to "improvements" in Section 4.105-1, the
BIR not only contravened the definition of "goods" as provided in the Old
NIRC, but also the definition which the same revenue regulation itself has
provided.
The Court of Tax Appeals claimed that under Section 105 of the Old NIRC the
basis for the inventory of goods, materials and supplies upon which the
transitional input VAT would be based "shall be left to regulation by the
appropriate administrative authority". This is based on the phrase "filing of
an inventory as prescribed by regulations" found in Section 105.
Nonetheless, Section 105 does include the particular properties to be
included in the inventory, namely goods, materials and supplies. It is
questionable whether the CIR has the power to actually redefine the
concept of "goods", as she did when she excluded real properties from the
class of goods which real estate companies in the business of selling real
properties may include in their inventory. The authority to prescribe
regulations can pertain to more technical matters, such as how to appraise
the value of the inventory or what papers need to be filed to properly
itemize the contents of such inventory. But such authority cannot go as far
69
as to amend Section 105 itself, which the Commissioner had unfortunately

accomplished in this case.
It is of course axiomatic that a rule or regulation must bear upon, and be
consistent with, the provisions of the enabling statute if such rule or
regulation is to be valid. In case of conflict between a statute and an
administrative order, the former must prevail. Indeed, the CIR has no power
to limit the meaning and coverage of the term "goods" in Section 105 of the
Old NIRC absent statutory authority or basis to make and justify such
limitation. A contrary conclusion would mean the CIR could very well moot
the law or arrogate legislative authority unto himself by retaining sole
discretion to provide the definition and scope of the term
"goods."128 (Emphasis added.)
Furthermore, in G.R. No. 173425, the Court held:
Section 4.105-1 of RR 7-95 is
inconsistent with Section 105 of the
old NIRC
As regards Section 4.105-1 ofRR 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:
xxxx
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. 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.
70
To be valid, an administrative rule or regulation must conform, not

contradict, the provisions of the enabling law. An implementing rule or
regulation cannot modify, expand, or subtract from the law it is intended to
implement. Any rule that is not consistent with the statute itself is null and
void.
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 itsterms, 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.
As we see it then, the 8% transitional input tax creditshould not be limited
to the value of the improvements on the real properties but should include
the value of the real properties as well. 129 (Citations omitted, emphasis
ours.)
Whether the issuance of Revenue
Regulations No. 7-95 by the BIR, and
declaration of validity of said Regulations
by the CTA and the Court of Appeals,
was in violation of the fundamental
principle of separation of powers.
In the Resolution dated October 2, 2009 in G.R. Nos. 158885 and 170680
the Court denied the respondents Motion for Reconsideration with finality
and held:
[The April 2, 2009 Decision] held that the CIR had no power to limit the
meaning and coverage of the term "goods" in Section 105 of the Old NIRC
sans statutory authority or basis and justification to make such limitation.
This it did when it restrictedthe application of Section 105 in the case of real
estate dealers only to improvements on the real property belonging to their
beginning inventory.
xxxx
71
The statutory definition of the term "goods or properties" leaves no room for
doubt. It states: "Sec. 100. Value-added tax on sale of goods or properties.
(a) Rate and base of tax. x x x (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."
The amendatory provision of Section 105 of the NIRC, as introduced by RA
7716, states:
"Sec. 105. Transitional Input [T]ax 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 valueadded tax paid on such goods, materials and supplies, whichever is higher,
which shall be creditable against the output tax."
The term "goods or properties" by the unambiguous terms of Section 100
includes "real properties held primarily for sale to c[u]st[o]mers or held for
lease in the ordinary course of business." Having been defined in Section
100 of the NIRC, the term "goods" as used in Section 105 of the same code
could not have a different meaning. This has been explained in the Decision
dated April 2, 2009, thus:
xxxx
Section 4.105-1 of RR 7-95 restricted the definition of "goods," viz.:
"However, in the case of real estate dealers, the basis of the presumptive
of EO 273 (January 1, 1988)."
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,
72
should be within the scope of the statutory authority granted bythe

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 ruleor regulation must conform, not
contradict, the provisions of the enabling law. An implementing rule or
regulation cannot modify, expand, or subtract from the law itis 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 itsterms, or in any way modify explicit
provisions of the law. Indeed, a quasi-judicial body or an administrative
agency for that mattercannot 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 inputtax credit under Section 105 is a nullity.
On January 1, 1997, RR 6-97 was issued by the Commissioner of Internal
Revenue.1wphi1 RR 6-97 was basically a reiteration of the same Section
4.105-1 of RR 7-95, except that the RR 6-97 deleted the following
paragraph:
"However, in the case of real estate dealers, the basis of the presumptive
of E.O. 273 (January 1, 1988)."
It is clear, therefore, that under RR 6-97, the allowable transitional input tax
credit is not limited to improvements on real properties. The particular
provision of RR 7-95 has effectively been repealed by RR 6-97 which is now
in consonance with Section 100 of the NIRC, insofar as the definition of real
properties as goods is concerned. The failure to add a specific repealing
clause would not necessarily indicate that there was no intent to repeal RR
7-95. The fact that the aforequoted paragraph was deleted created an
irreconcilable inconsistency and repugnancy between the provisions of RR
6-97 and RR 7-95.
xxxx
73
As pointed out in Our Decision ofApril 2, 2009, to give Section 105 a

restrictive construction that transitional input tax credit applies only when
taxes were previously paid on the properties in the beginning inventory and
there is a law imposing the tax which is presumed to have been paid, is to
impose conditions or requisites to the application of the transitional tax
input credit which are not found in the law. The courts must not read into
the law what is not there. To do so will violate the principle of separation of
powers which prohibits this Court from engaging in judicial
legislation.130 (Emphases added.)
As the Court En Banc held in G.R. No. 173425, the issues in this case are not
novel. These same issues have been squarely ruled upon by this Court in
the earlier decided casesthat have attained finality. 131
It is now this Courts duty to apply the previous rulings to the present case.
Once a case has been decided one way, any other case involving exactly
the same point at issue, as in the present case, should be decided in the
same manner.132
Thus, we find that petitioner is entitled to a refund of the amounts of:
1) P486,355,846.78 in G.R. No. 175707, 2)P77,151,020.46 in G.R. No.
180035, and 3) P269,340,469.45 in G.R. No. 181092, which petitioner paid
as value-added tax, or toa tax credit for said amounts. WHEREFORE, in view
of the foregoing, the consolidated petitions are hereby GRANTED. The
following are REVERSED and SET ASIDE:
1) Under G.R. No. 175707, the Decisiondated April 22, 2003 of the
Court of Appeals in CA-G.R. SP No. 61516 and its subsequent
Resolution dated November 30, 2006;
2) Under G.R. No. 180035, the Decisiondated April 30, 2007 of the
Court of Appeals in CA-G.R. SP No. 76540 and its subsequent
Resolution dated October 8, 2007; and
3) Under G.R. No. 181092, the Decisiondated December 28, 2007 of
the Court of Appeals in CA-G.R. SP No. 61158.
Respondent Commissioner of Internal Revenue is ordered to REFUND, OR, IN
THE ALTERNATIVE, TO ISSUE A TAX CREDIT CERTIFICATE to petitioner Fort
Bonifacio Development Corporation, the following amounts:
1) P486,355,846. 78 paid as output value-added tax for the second
quarter of 1997 (G.R. No. 175707);
74
2) P77,151,020.46 paid as output value-added tax for the first quarter

of 1998 (G.R. No. 180035); and
3) P269,340,469.45 paid as output value-added tax for the fourth
quarter of 1996 (G.R. No. 181092).
SO ORDERED.
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 190102
July 11, 2012
ACCENTURE, INC., Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
SERENO, J.:
This is a Petition filed under Rule 45 of the 1997 Rules of Civil Procedure,
praying for the reversal of the Decision of the Court of Tax Appeals En Banc
(CTA En Banc ) dated 22 September 2009 and its subsequent Resolution
dated 23 October 2009.1
Accenture, Inc. (Accenture) is a corporation engaged in the business of
providing management consulting, business strategies development, and
selling and/or licensing of software. 2 It is duly registered with the Bureau of
Internal Revenue (BIR) as a Value Added Tax (VAT) taxpayer or enterprise in
accordance with Section 236 of the National Internal Revenue Code (Tax
Code).3
On 9 August 2002, Accenture filed its Monthly VAT Return for the period 1
July 2002 to 31 August 2002 (1st period). Its Quarterly VAT Return for the
fourth quarter of 2002, which covers the 1st period, was filed on 17
September 2002; and an Amended Quarterly VAT Return, on 21 June
2004.4 The following are reflected in Accentures VAT Return for the fourth
quarter of 2002:5
75
1wphi1
Purchases
Amount
Input VAT
Domestic Purchases- Capital Goods
P12,312,722.
00
P1,231,272.2
0
Domestic Purchases- Goods other than

capital Goods
P64,789,507.
90
P6,478,950.7
9
Domestic Purchases- Services
P16,455,868.
10
P1,645,586.8
1
Total Input Tax
P9,355,809.
80
Zero-rated Sales
P316,113,513
.34
Total Sales
P335,640,544
.74
Accenture filed its Monthly VAT Return for the month of September 2002 on
24 October 2002; and that for October 2002, on 12 November 2002. These
returns were amended on 9 January 2003. Accentures Quarterly VAT Return
for the first quarter of 2003, which included the period 1 September 2002 to
30 November 2002 (2nd period), was filed on 17 December 2002; and the
Amended Quarterly VAT Return, on 18 June 2004. The latter contains the
following information:6
Purchases
Domestic Purchases- Capital Goods
Domestic Purchases- Goods other than
capital Goods
Domestic Purchases-Services
Total Input Tax
Amount
Input VAT
P80,765,294.
10
P8,076,529.4
1
P132,820,541
.70
P13,282,054.
17
P63,238,758.
00
P6,323,875.8
0
P27,682,459
76
.38
P545,686,639
.18
Zero-rated Sales
Total Sales
P572,880,982
.68
The monthly and quarterly VAT returns of Accenture show that,

notwithstanding its application of the input VAT credits earned from its zerorated transactions against its output VAT liabilities, it still had excess or
unutilized input VAT credits. These VAT credits are in the amounts of
P9,355,809.80 for the 1st period and P27,682,459.38 for the 2nd period, or
a total of P37,038,269.18.7
Out of the P37,038,269.18, only P35,178,844.21 pertained to the allocated
input VAT on Accentures "domestic purchases of taxable goods which
cannot be directly attributed to its zero-rated sale of services." 8 This
allocated input VAT was broken down to P8,811,301.66 for the 1st period
and P26,367,542.55 for the 2nd period.9
The excess input VAT was not applied to any output VAT that Accenture was
liable for in the same quarter when the amount was earnedor to any of
the succeeding quarters. Instead, it was carried forward to petitioners 2nd
Quarterly VAT Return for 2003.10
Thus, on 1 July 2004, Accenture filed with the Department of Finance (DoF)
an administrative claim for the refund or the issuance of a Tax Credit
Certificate (TCC). The DoF did not act on the claim of Accenture. Hence, on
31 August 2004, the latter filed a Petition for Review with the First Division
of the Court of Tax Appeals (Division), praying for the issuance of a TCC in
its favor in the amount of P35,178,844.21.
The Commissioner of Internal Revenue (CIR), in its Answer, 11 argued thus:
1. The sale by Accenture of goods and services to its clients are not
zero-rated transactions.
2. Claims for refund are construed strictly against the claimant, and
Accenture has failed to prove that it is entitled to a refund, because its
claim has not been fully substantiated or documented.
77
In a 13 November 2008 Decision,12 the Division denied the Petition of

Accenture for failing to prove that the latters sale of services to the alleged
foreign clients qualified for zero percent VAT.13
In resolving the sole issue of whether or not Accenture was entitled to a
refund or an issuance of a TCC in the amount of P35,178,844.21, 14 the
Division ruled that Accenture had failed to present evidence to prove that
the foreign clients to which the former rendered services did business
outside the Philippines.15 Ruling that Accentures services would qualify for
zero-rating under the 1997 National Internal Revenue Code of the
Philippines (Tax Code) only if the recipient of the services was doing
business outside of the Philippines,16 the Division cited Commissioner of
Internal Revenue v. Burmeister and Wain Scandinavian Contractor
Mindanao, Inc. (Burmeister)17 as basis.
Accenture appealed the Divisions Decision through a Motion for
Reconsideration (MR).18 In its MR, it argued that the reliance of the Division
on Burmeister was misplaced19 for the following reasons:
1. The issue involved in Burmeister was the entitlement of the
applicant to a refund, given that the recipient of its service was doing
business in the Philippines; it was not an issue of failure of the
applicant to present evidence to prove the fact that the recipient of its
services was a foreign corporation doing business outside the
Philippines.20
2. Burmeister emphasized that, to qualify for zero-rating, the recipient
of the services should be doing business outside the Philippines, and
Accenture had successfully established that. 21
3. Having been promulgated on 22 January 2007 or after Accenture
filed its Petition with the Division, Burmeister cannot be made to apply
to this case.22
Accenture also cited Commissioner of Internal Revenue v. American Express
(Amex)23 in support of its position. The MR was denied by the Division in its
12 March 2009 Resolution.24
Accenture appealed to the CTA En Banc. There it argued that prior to the
amendment introduced by Republic Act No. (R.A.) 9337, 25 there was no
requirement that the services must be rendered to a person engaged in
business conducted outside the Philippines to qualify for zero-rating. The
CTA En Banc agreed that because the case pertained to the third and the
78
fourth quarters of taxable year 2002, the applicable law was the 1997 Tax
Code, and not R.A. 9337.26 Still, it ruled that even though the provision used
in Burmeister was Section 102(b)(2) of the earlier 1977 Tax Code, the
pronouncement therein requiring recipients of services to be engaged in
business outside the Philippines to qualify for zero-rating was applicable to
the case at bar, because Section 108(B)(2) of the 1997 Tax Code was a
mere reenactment of Section 102(b)(2) of the 1977 Tax Code.
The CTA En Banc concluded that Accenture failed to discharge the burden of
proving the latters allegation that its clients were foreign-based. 27
Resolute, Accenture filed a Petition for Review with the CTA En Banc, but the
latter affirmed the Divisions Decision and Resolution. 28 A subsequent MR
was also denied in a Resolution dated 23 October 2009.
Hence, the present Petition for Review29 under Rule 45.
In a Joint Stipulation of Facts and Issues, the parties and the Division have
agreed to submit the following issues for resolution:
1. Whether or not Petitioners sales of goods and services are zerorated for VAT purposes under Section 108(B)(2)(3) of the 1997 Tax
Code.
2. Whether or not petitioners claim for refund/tax credit in the amount
of P35,178,884.21 represents unutilized input VAT paid on its domestic
purchases of goods and services for the period commencing from 1 July
2002 until 30 November 2002.
3. Whether or not Petitioner has carried over to the succeeding taxable
quarter(s) or year(s) the alleged unutilized input VAT paid on its
domestic purchases of goods and services for the period commencing
from 1 July 2002 until 30 November 2002, and applied the same fully
to its output VAT liability for the said period.
4. Whether or not Petitioner is entitled to the refund of the amount of
P35,178,884.21, representing the unutilized input VAT on domestic
purchases of goods and services for the period commencing from 1 July
2002 until 30 November 2002, from its sales of services to various
foreign clients.
5. Whether or not Petitioners claim for refund/tax credit in the amount
of P35,178,884.21, as alleged unutilized input VAT on domestic
79
purchases of goods and services for the period covering 1 July 2002
until 30 November 2002 are duly substantiated by proper documents. 30
For consideration in the present Petition are the following issues:

1. Should the recipient of the services be "doing business outside the
Philippines" for the transaction to be zero-rated under Section 108(B)
(2) of the 1997 Tax Code?
2. Has Accenture successfully proven that its clients are entities doing
business outside the Philippines?
Recipient of services must be doing business outside the Philippines for the
transactions to qualify as zero-rated.
Accenture anchors its refund claim on Section 112(A) of the 1997 Tax Code,
which allows the refund of unutilized input VAT earned from zero-rated or
effectively zero-rated sales. The provision reads:
SEC. 112. Refunds or Tax Credits of Input Tax. (A) Zero-Rated or Effectively Zero-Rated Sales. - Any VAT-registered person,
106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable
or effectively zero-rated sale and also in taxable or exempt sale of goods of
Section 108(B) referred to in the foregoing provision was first seen when
Presidential Decree No. (P.D.) 199431 amended Title IV of P.D. 1158,32 which
is also known as the National Internal Revenue Code of 1977. Several
Decisions have referred to this as the 1986 Tax Code, even though it merely
amended Title IV of the 1977 Tax Code.
80
Two years thereafter, or on 1 January 1988, Executive Order No. (E.O.)

27333 further amended provisions of Title IV. E.O. 273 by transferring the old
Title IV provisions to Title VI and filling in the former title with new provisions
that imposed a VAT.
The VAT system introduced in E.O. 273 was restructured through Republic
Act No. (R.A.) 7716.34 This law, which was approved on 5 May 1994, widened
the tax base. Section 3 thereof reads:
SECTION 3. Section 102 of the National Internal Revenue Code, as amended,
is hereby further amended to read as follows:
"SEC. 102. Value-added tax on sale of services and use or lease of
properties. x x x
xxx
xxx
xxx
"(b) Transactions subject to zero-rate. The following services performed in

the Philippines by VAT-registered persons shall be subject to 0%:
"(1) Processing, manufacturing or repacking goods for other persons
doing business outside the Philippines which goods are subsequently
exported, where the services are paid for in acceptable foreign
currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP).
"(2) Services other than those mentioned in the preceding subparagraph, the consideration for which is paid for in acceptable foreign
regulations of the Bangko Sentral ng Pilipinas (BSP)."
Essentially, Section 102(b) of the 1977 Tax Codeas amended by P.D. 1994,
E.O. 273, and R.A. 7716provides that if the consideration for the services
provided by a VAT-registered person is in a foreign currency, then this
transaction shall be subjected to zero percent rate.
The 1997 Tax Code reproduced Section 102(b) of the 1977 Tax Code in its
Section 108(B), to wit:
(B) Transactions Subject to Zero Percent (0%) Rate. - The following services
performed in the Philippines by VAT- registered persons shall be subject to
zero percent (0%) rate.
81
(1) Processing, manufacturing or repacking goods for other persons

regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding paragraph,
the consideration for which is paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP); x x x.
On 1 November 2005, Section 6 of R.A. 9337, which amended the foregoing

provision, became effective. It reads:
SEC. 6. Section 108 of the same Code, as amended, is hereby further
amended to read as follows:
"SEC. 108. Value-added Tax on Sale of Services and Use or Lease of
Properties. (B) Transactions Subject to Zero Percent (0%) Rate. - The following services
performed in the Philippines by VAT-registered persons shall be subject to
zero percent (0%) rate:
(1) Processing, manufacturing or repacking goods for other persons
regulations of the Bangko Sentral ng Pilipinas (BSP);
"(2) Services other than those mentioned in the preceding paragraph
rendered to a person engaged in business conducted outside the
Philippines or to a nonresident person not engaged in business who is
outside the Philippines when the services are performed, the
consideration for which is paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP); x x x." (Emphasis supplied)
The meat of Accentures argument is that nowhere does Section 108(B) of
the 1997 Tax Code state that services, to be zero-rated, should be rendered
to clients doing business outside the Philippines, the requirement introduced
by R.A. 9337.35 Required by Section 108(B), prior to the amendment, is that
82
the consideration for the services rendered be in foreign currency and in

accordance with the rules of the Bangko Sentral ng Pilipinas (BSP). Since
Accenture has complied with all the conditions imposed in Section 108(B), it
is entitled to the refund prayed for.
In support of its claim, Accenture cites Amex, in which this Court supposedly
ruled that Section 108(B) reveals a clear intent on the part of the legislators
not to impose the condition of being "consumed abroad" in order for the
services performed in the Philippines to be zero-rated. 36
The Division ruled that this Court, in Amex and Burmeister, did not declare
that the requirementthat the client must be doing business outside the
Philippinescan be disregarded, because this requirement is expressly
provided in Article 108(2) of the Tax Code.37
Accenture questions the Divisions application to this case of the
pronouncements made in Burmeister. According to petitioner, the provision
applied to the present case was Section 102(b) of the 1977 Tax Code, and
not Section 108(B) of the 1997 Tax Code, which was the law effective when
the subject transactions were entered into and a refund was applied for.
In refuting Accentures theory, the CTA En Banc ruled that since Section
108(B) of the 1997 Tax Code was a mere reproduction of Section 102(b) of
the 1977 Tax Code, this Courts interpretation of the latter may be used in
interpreting the former, viz:
In the Burmeister case, the Supreme Court harmonized both Sections 102(b)
(1) and 102(b)(2) of the 1977 Tax Code, as amended, pertaining to zerorated transactions. A parallel approach should be accorded to the
renumbered provisions of Sections 108(B)(2) and 108(B)(1) of the 1997
NIRC. This means that Section 108(B)(2) must be read in conjunction with
Section 108(B)(1). Section 108(B)(2) requires as follows: a) services other
than processing, manufacturing or repacking rendered by VAT registered
persons in the Philippines; and b) the transaction paid for in acceptable
foreign currency duly accounted for in accordance with BSP rules and
regulations. The same provision made reference to Section 108(B)(1) further
imposing the requisite c) that the recipient of services must be performing
business outside of Philippines. Otherwise, if both the provider and recipient
of service are doing business in the Philippines, the sale transaction is
subject to regular VAT as explained in the Burmeister case x x x.
xxx
xxx
xxx
83
Clearly, the Supreme Courts pronouncements in the Burmeister case

requiring that the recipient of the services must be doing business outside
the Philippines as mandated by law govern the instant case. 38
Assuming that the foregoing is true, Accenture still argues that the tax
appeals courts cannot be allowed to apply to Burmeister this Courts
interpretation of Section 102(b) of the 1977 Tax Code, because the Petition
of Accenture had already been filed before the case was even promulgated
on 22 January 2007,39 to wit:
x x x. While the Burmeister case forms part of the legal system and
assumes the same authority as the statute itself, however, the same cannot
be applied retroactively against the Petitioner because to do so will be
prejudicial to the latter.40
The CTA en banc is of the opinion that Accenture cannot invoke the nonretroactivity of the rulings of the Supreme Court, whose interpretation of the
law is part of that law as of the date of its enactment. 41
We rule that the recipient of the service must be doing business outside the
Philippines for the transaction to qualify for zero-rating under Section 108(B)
of the Tax Code.
This Court upholds the position of the CTA en banc that, because Section
108(B) of the 1997 Tax Code is a verbatim copy of Section 102(b) of the
1977 Tax Code, any interpretation of the latter holds true for the former.
Moreover, even though Accentures Petition was filed before Burmeister was
promulgated, the pronouncements made in that case may be applied to the
present one without violating the rule against retroactive application. When
this Court decides a case, it does not pass a new law, but merely interprets
a preexisting one.42 When this Court interpreted Section 102(b) of the 1977
Tax Code in Burmeister, this interpretation became part of the law from the
moment it became effective. It is elementary that the interpretation of a law
by this Court constitutes part of that law from the date it was originally
passed, since this Court's construction merely establishes the
contemporaneous legislative intent that the interpreted law carried into
effect.43
Accenture questions the CTAs application of Burmeister, because the
provision interpreted therein was Section 102(b) of the 1977 Tax Code. In
support of its position that Section 108 of the 1997 Tax Code does not
require that the services be rendered to an entity doing business outside the
84
Philippines, Accenture invokes this Courts pronouncements in Amex.

However, a reading of that case will readily reveal that the provision applied
was Section 102(b) of the 1977 Tax Code, and not Section 108 of the 1997
Tax Code. As previously mentioned, an interpretation of Section 102(b) of
the 1977 Tax Code is an interpretation of Section 108 of the 1997 Tax Code,
the latter being a mere reproduction of the former.
This Court further finds that Accentures reliance on Amex is misplaced.
We ruled in Amex that Section 102 of the 1977 Tax Code does not require
that the services be consumed abroad to be zero-rated. However, nowhere
in that case did this Court discuss the necessary qualification of the
recipient of the service, as this matter was never put in question. In fact, the
recipient of the service in Amex is a nonresident foreign client.
The aforementioned case explains how the credit card system works. The
issuance of a credit card allows the holder thereof to obtain, on credit,
goods and services from certain establishments. As proof that this credit is
extended by the establishment, a credit card draft is issued. Thereafter, the
company issuing the credit card will pay for the purchases of the credit card
holders by redeeming the drafts. The obligation to collect from the card
holders and to bear the lossin case they do not payrests on the issuer of
the credit card.
The service provided by respondent in Amex consisted of gathering the bills
and credit card drafts from establishments located in the Philippines and
forwarding them to its parent company's regional operating centers outside
the country. It facilitated in the Philippines the collection and payment of
receivables belonging to its Hong Kong-based foreign client.
The Court explained how the services rendered in Amex were considered to
have been performed and consumed in the Philippines, to wit:
Consumption is "the use of a thing in a way that thereby exhausts it."
Applied to services, the term means the performance or "successful
completion of a contractual duty, usually resulting in the performers release
from any past or future liability x x x." The services rendered by respondent
are performed or successfully completed upon its sending to its foreign
client the drafts and bills it has gathered from service establishments here.
Its services, having been performed in the Philippines, are therefore also
consumed in the Philippines.44
85
The effect of the place of consumption on the zero-rating of the transaction

was not the issue in Burmeister.1wphi1Instead, this Court addressed the
squarely raised issue of whether the recipient of services should be doing
business outside the Philippines for the transaction to qualify for zero-rating.
We ruled that it should. Thus, another essential condition for qualification for
zero-rating under Section 102(b)(2) of the 1977 Tax Code is that the
recipient of the business be doing that business outside the Philippines. In
clarifying that there is no conflict between this pronouncement and that laid
down in Amex, we ruled thus:
x x x. As the Court held in Commissioner of Internal Revenue v. American
Express International, Inc. (Philippine Branch), the place of payment is
immaterial, much less is the place where the output of the service is
ultimately used. An essential condition for entitlement to 0% VAT under
Section 102 (b) (1) and (2) is that the recipient of the services is a person
doing business outside the Philippines. In this case, the recipient of the
services is the Consortium, which is doing business not outside, but within
the Philippines because it has a 15-year contract to operate and maintain
NAPOCORs two 100-megawatt power barges in Mindanao. (Emphasis in the
original)45
In Amex we ruled that the place of performance and/or consumption of the
service is immaterial. In Burmeister, the Court found that, although the
place of the consumption of the service does not affect the entitlement of a
transaction to zero-rating, the place where the recipient conducts its
business does.
Amex does not conflict with Burmeister. In fact, to fully understand how
Section 102(b)(2) of the 1977 Tax Codeand consequently Section 108(B)
(2) of the 1997 Tax Codewas intended to operate, the two aforementioned
cases should be taken together. The zero-rating of the services performed
by respondent in Amex was affirmed by the Court, because although the
services rendered were both performed and consumed in the Philippines,
the recipient of the service was still an entity doing business outside the
Philippines as required in Burmeister.
That the recipient of the service should be doing business outside the
Philippines to qualify for zero-rating is the only logical interpretation of
Section 102(b)(2) of the 1977 Tax Code, as we explained in Burmeister:
This can only be the logical interpretation of Section 102 (b) (2). If the
provider and recipient of the "other services" are both doing business in the
Philippines, the payment of foreign currency is irrelevant. Otherwise, those
86
subject to the regular VAT under Section 102 (a) can avoid paying the VAT
by simply stipulating payment in foreign currency inwardly remitted by the
recipient of services. To interpret Section 102 (b) (2) to apply to a payerrecipient of services doing business in the Philippines is to make the
payment of the regular VAT under Section 102 (a) dependent on the
generosity of the taxpayer. The provider of services can choose to pay the
regular VAT or avoid it by stipulating payment in foreign currency inwardly
remitted by the payer-recipient. Such interpretation removes Section 102 (a)
as a tax measure in the Tax Code, an interpretation this Court cannot
sanction. A tax is a mandatory exaction, not a voluntary contribution.
xxx
xxx
xxx
Further, when the provider and recipient of services are both doing business
in the Philippines, their transaction falls squarely under Section 102 (a)
governing domestic sale or exchange of services. Indeed, this is a purely
local sale or exchange of services subject to the regular VAT, unless of
course the transaction falls under the other provisions of Section 102 (b).
Thus, when Section 102 (b) (2) speaks of "services other than those
mentioned in the preceding subparagraph," the legislative intent is that only
the services are different between subparagraphs 1 and 2. The
requirements for zero-rating, including the essential condition that the
recipient of services is doing business outside the Philippines, remain the
same under both subparagraphs. (Emphasis in the original) 46
Lastly, it is worth mentioning that prior to the promulgation of Burmeister,
Congress had already clarified the intent behind Sections 102(b)(2) of the
1977 Tax Code and 108(B)(2) of the 1997 Tax Code amending the earlier
provision. R.A. 9337 added the following phrase: "rendered to a person
engaged in business conducted outside the Philippines or to a nonresident
person not engaged in business who is outside the Philippines when the
services are performed."
Accenture has failed to establish that the recipients of its services do
business outside the Philippines.
Accenture argues that based on the documentary evidence it presented, 47 it
was able to establish the following circumstances:
1. The records of the Securities and Exchange Commission (SEC) show
that Accentures clients have not established any branch office in
which to do business in the Philippines.
87
2. For these services, Accenture bills another corporation, Accenture

Participations B.V. (APB), which is likewise a foreign corporation with no
"presence in the Philippines."
3. Only those not doing business in the Philippines can be required
under BSP rules to pay in acceptable currency for their purchase of
goods and services from the Philippines. Thus, in a domestic
transaction, where the provider and recipient of services are both
doing business in the Philippines, the BSP cannot require any party to
make payment in foreign currency.48
Accenture claims that these documentary pieces of evidence are supported

by the Report of Emmanuel Mendoza, the Court-commissioned Independent
Certified Public Accountant. He ascertained that Accentures gross billings
pertaining to zero-rated sales were all supported by zero-rated Official
Receipts and Billing Statements. These documents show that these zerorated sales were paid in foreign exchange currency and duly accounted for
in the rules and regulations of the BSP.49
In the CTAs opinion, however, the documents presented by Accenture
merely substantiate the existence of the sales, receipt of foreign currency
payments, and inward remittance of the proceeds of these sales duly
accounted for in accordance with BSP rules. Petitioner presented no
evidence whatsoever that these clients were doing business outside the
Philippines.50
Accenture insists, however, that it was able to establish that it had rendered
services to foreign corporations doing business outside the Philippines,
unlike in Burmeister, which allegedly involved a foreign corporation doing
business in the Philippines.51
We deny Accentures Petition for a tax refund.
The evidence presented by Accenture may have established that its clients
are foreign.1wphi1 This fact does not automatically mean, however, that
these clients were doing business outside the Philippines. After all, the Tax
Code itself has provisions for a foreign corporation engaged in business
within the Philippines and vice versa, to wit:
SEC. 22. Definitions - When used in this Title:
xxx
xxx
xxx
88
(H) The term "resident foreign corporation" applies to a foreign

corporation engaged in trade or business within the Philippines.
(I) The term nonresident foreign corporation applies to a foreign
corporation not engaged in trade or business within the Philippines.
(Emphasis in the original)
Consequently, to come within the purview of Section 108(B)(2), it is not

enough that the recipient of the service be proven to be a foreign
corporation; rather, it must be specifically proven to be a nonresident
foreign corporation.
There is no specific criterion as to what constitutes "doing" or "engaging in"
or "transacting" business. We ruled thus in Commissioner of Internal
Revenue v. British Overseas Airways Corporation: 52
x x x. There is no specific criterion as to what constitutes "doing" or
"engaging in" or "transacting" business. Each case must be judged in the
light of its peculiar environmental circumstances. The term implies a
continuity of commercial dealings and arrangements, and contemplates, to
that extent, the performance of acts or works or the exercise of some of the
functions normally incident to, and in progressive prosecution of commercial
gain or for the purpose and object of the business organization. "In order
that a foreign corporation may be regarded as doing business within a
State, there must be continuity of conduct and intention to establish a
continuous business, such as the appointment of a local agent, and not one
of a temporary character."53
A taxpayer claiming a tax credit or refund has the burden of proof to
establish the factual basis of that claim.1wphi1 Tax refunds, like tax
exemptions, are construed strictly against the taxpayer. 54
Accenture failed to discharge this burden. It alleged and presented evidence
to prove only that its clients were foreign entities. However, as found by
both the CTA Division and the CTA En Banc, no evidence was presented by
Accenture to prove the fact that the foreign clients to whom petitioner
rendered its services were clients doing business outside the Philippines.
As ruled by the CTA En Banc, the Official Receipts, Intercompany Payment
Requests, Billing Statements, Memo Invoices-Receivable, Memo InvoicesPayable, and Bank Statements presented by Accenture merely
substantiated the existence of sales, receipt of foreign currency payments,
and inward remittance of the proceeds of such sales duly accounted for in
89
accordance with BSP rules, all of these were devoid of any evidence that the
clients were doing business outside of the Philippines. 55
WHEREFORE, the instant Petition is DENIED. The 22 September 2009
Decision and the 23 October 2009 Resolution of the Court of Tax Appeals En
Banc in C.T.A. EB No. 477, dismissing the Petition for the refund of the
excess or unutilized input VAT credits of Accenture, Inc., are AFFIRMED.
SO ORDERED.
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 188260
November 13, 2013
LUZON HYDRO CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
BERSAMIN, J.:
This case involves a claim for refund or tax credit to cover petitioner Luzon
Hydro Corporation's unutilized Input Value-Added Tax (VAT) worth 1
2,920,665 .16 corresponding to the four quarters of taxable year 2001.
The Case
The petitioner brought this action in the Court of Tax Appeals (CTA) after the
Commissioner of Internal Revenue (respondent) did not act on the claim
(CTA Case No. 6669). The CTA 2nd Division denied the claim on May 2, 2008
on the ground that the petitioner did not prove that it had zero-rated sales
for the four quarters of 2001.1 The CT A En Banc denied the petitioner's
motion for reconsideration, and affirmed the decision of the CTA 2nd
Division through its decision dated May 5, 2009. 2 Hence, the petitioner
appeals the decision of the CTA En Banc.
Antecedents
90
The petitioner, a corporation duly organized under the laws of the

Philippines, has been registered with the Bureau of Internal Revenue (BIR)
as a VAT taxpayer under Taxpayer Identification No. 004-266-526. It was
formed as a consortium of several corporations, namely: Northern Mini
Hydro Corporation, Aboitiz Equity Ventures, Inc., Ever Electrical
Manufacturing, Inc. and Pacific Hydro Limited.
Pursuant to the Power Purchase Agreement entered into with the National
Power Corporation (NPC), the electricity produced by the petitioner from its
operation of the Bakun Hydroelectric Power Plant was to be sold exclusively
to NPC.3 Relative to its sale to NPC, the petitioner was granted by the BIR a
certificate for Zero Rate for VAT purposes in the periods from January 1,
2000 to December 31, 2000; February 1, 2000 to December 31, 2000
(Certificate No. Z-162-2000); and from January 2, 2001 to December 31,
2001 (Certificate No. 2001-269).4
The petitioner alleged herein that it had incurred input VAT in the amount
of P9,795,427.89 on its domestic purchases of goods and services used in
its generation and sales of electricity to NPC in the four quarters of
2001;5and that it had declared the input VAT of P9,795,427.89 in its
amended VAT returns for the four quarters on 2001, as follows: 6
Exhibit
Date Filed
Period Covered
Input VAT (P)
May 25, 2001
1st quarter 2001
1,903,443.96
July 23, 2001
2nd quarter 2001
2,166,051.96
July 23, 2002
3rd quarter 2001
1,598,482.39
July 24, 2002
4th quarter 2001
4,127,449.58
Total 9,795,427.89
On November 26, 2001, the petitioner filed a written claim for refund or tax
credit relative to its unutilized input VAT for the period from October 1999 to
October 2001 aggregating P14,557,004.38.7 Subsequently, on July 24, 2002,
it amended the claim for refund or tax credit to cover the period from
October 1999 to May 2002 for P20,609,047.56.8
The BIR, through Revenue Examiner Felicidad Mangabat of Revenue District
Office No. 2 in Vigan City, concluded an investigation, and made a
recommendation in its report dated August 19, 2002 favorable to the
91
petitioners claim for the period from January 1, 2001 to December 31,
2001.9
Respondent Commissioner of Internal Revenue (Commissioner) did not
ultimately act on the petitioners claim despite the favorable
recommendation. Hence, on April 14, 2003, the petitioner filed its petition
for review in the CTA, praying for the refund or tax credit certificate (TCC)
corresponding to the unutilized input VAT paid for the four quarters of 2001
totalling P9,795,427.88.10
Answering on May 29, 2003,11 the Commissioner denied the claim, and
raised the following special and affirmative defenses, to wit:
xxxx
7. The petitioner has failed to demonstrate that the taxes sought to be
refunded were erroneously or illegally collected;
8. In an action for tax refund, the burden is upon the taxpayer to prove
that he is entitled thereto, and failure to sustain the same is fatal to
the action for tax refund;
9. It is incumbent upon petitioner to show compliance with the
provisions of Section 112 and Section 229, both of the National Internal
Revenue Code, as amended;
10. Claims for refund are construed strictly against the claimant for the
same partakes the nature of exemption from taxation (Commissioner
of Internal Revenue vs. Ledesma, G.R. No. L-13509, January 30, 1970,
31 SCRA 95) and as such they are looked upon [with] disfavor (Western
Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 121);
11. Taxes paid and collected are presumed to have been made in
accordance with the law and regulations, hence, not refundable. 12
xxxx
On October 30, 2003, the parties submitted a Joint Stipulation of Facts and
Issues,13 which the CTA in Division approved on November 10, 2003. The
issues to be resolved were consequently the following:
1. Whether or not the input value added tax being claimed by
petitioner is supported by sufficient documentary evidence;
92
2. Whether petitioner has excess and unutilized input VAT from its
purchases of domestic goods and services, including capital goods in
the amount of P9,795,427.88;
3. Whether or not the input VAT being claimed by petitioner is
attributable to its zero-rated sale of electricity to the NPC;
4.Whether or not the operation of the Bakun Hydroelectric Power Plant
is directly connected and attributable to the generation and sale of
electricity to NPC, the sole business of petitioner; and 5. Whether or
not the claim filed by the petitioner was filed within the reglementary
period provided by law.14
While the case was pending hearing, the Commissioner, through the
Assistant Commissioner for Assessment Services, informed the petitioner by
the letter dated March 3, 2005 that its claim had been granted in the
amount ofP6,874,762.72, net of disallowances of P2,920,665.16.
Accompanying the letter was the TCC for P6,874,762.72 (TCC No.
00002618).15
On May 3, 2005, the petitioner filed a Motion for Leave of Court to Amend
Petition for Review in consideration of the partial grant of the claim through
TCC No. 00002618. The CTA in Division granted the motion on May 11,
2005, and admitted the Amended Petition for Review, whereby the
petitioner sought the refund or tax credit in the reduced amount
of P2,920,665.16. The CTA in Division also directed the respondent to file a
supplemental answer within ten days from notice. 16
When no supplemental answer was filed within the period thus allowed, the
CTA in Division treated the answer filed on May 16, 2003 as the
Commissioners answer to the Amended Petition for Review. 17
Thereafter, the petitioner presented testimonial and documentary evidence
to support its claim. On the other hand, the Commissioner submitted the
case for decision based on the pleadings. 18 On May 2, 2007, the case was
submitted for decision without the memorandum of the Commissioner. 19
Ruling of the CTA in Division
The CTA in Division promulgated its decision in favor of the respondent
denying the petition for review, viz:
93
In petitioners VAT returns for the four quarters of 2001, no amount of zerorated sales was declared. Likewise, petitioner did not submit any VAT official
receipt of payments for services rendered to NPC. The only proof submitted
by petitioner is a letter from Regional Director Rene Q. Aguas, Revenue
Region No. 1, stating that the financial statements and annual income tax
return constitute sufficient secondary proof of effectively zero-rated and
that based on their examination and evaluation of the financial statements
and annual income tax return of petitioner for taxable year 2000, it had
annual gross receipts of PhP187,992,524.00. This Court cannot give
credence to the said letter as it refers to taxable year 2000, while the
instant case refers to taxable year 2001.
Without zero-rated sales for the four quarters of 2001, the input VAT
payments of PhP9,795,427.88 (including the present claim of
PhP2,920,665.16) allegedly attributable thereto cannot be refunded. It is
clear under Section 112 (A) of the NIRC of 1997 that the refund/tax credit of
unutilized input VAT is premised on the existence of zero-rated or effectively
zero-rated sales.
xxxx
For petitioners non-compliance with the first requisite of proving that it had
effectively zero-rated sales for the four quarters of 2001, the claimed
unutilized input VAT payments of PhP2,920,665.16 cannot be granted.
WHEREFORE, the instant Petition for Review is hereby DENIED for lack of
merit.
SO ORDERED.20
On May 21, 2008, the petitioner moved to reconsider the decision of the CTA
in Division.21 However, the CTA in Division denied the petitioners motion for
reconsideration on September 5, 2008.22
Decision of the CTA En Banc
On October 17, 2008, the petitioner filed a petition for review in the CTA En
Banc (CTA E.B No. 420), posing the main issue whether or not the CTA in
Division erred in denying its claim for refund or tax credit upon a finding
that it had not established its having effectively zero-rated sales for the four
quarters of 2001.
94
On May 5, 2009, the CTA En Banc promulgated the assailed decision

affirming the Division, and denying the claim for refund or tax credit,
stating:
The other argument of petitioner that even if the tax credit certificate will
not be used as evidence, it was able to prove that it has zero-rated sale as
shown in its financial statements and income tax returns quoting the letter
opinion of Regional Director Rene Q. Aguas that the statements and the
return are considered sufficient to establish that it generated zero-rated sale
of electricity is bereft of merit. As found by the Court a quo, the letter
opinion refers to taxable year 2000, while the instant case covers taxable
year 2001; hence, cannot be given credence. Even assuming for the sake of
argument that the financial statements, the return and the letter opinion
relates to 2001, the same could not be taken plainly as it is because there is
still a need to produce the supporting documents proving the existence of
such zero-rated sales, which is wanting in this case. Considering that there
are no zero-rated sales to speak of for taxable year 2001, petitioner is,
therefore, not entitled to a refund of PhP2,920,665.16 input tax allegedly
attributable thereto since it is basic requirement under Section 112 (A) of
the NIRC that there should exists a zero-rated sales in order to be entitled to
a refund of unutilized input tax.
It is settled that tax refunds, like tax exemptions, are construed strictly
against the taxpayer and that the claimant has the burden of proof to
establish the factual basis of its claim for tax credit or refund. Failure in this
regard, petitioners claim must therefore, fail.
WHEREFORE, the instant Petition for Review is hereby DENIED for lack of
merit.
SO ORDERED.23
On June 10, 2009, the CTA En Banc also denied the petitioners motion for
reconsideration.24
Issue
Aggrieved, the petitioner has appealed, urging as the lone issue:
WHETHER THE CTA EN BANC COMMITTED A REVERSIBLE ERROR IN
AFFIRMING THE DECISION OF THE CTA.
95
In its August 3, 2009 petition for review,25 the petitioner has argued as
follows:
(1) Its sale of electricity to NPC was automatically zero-rated pursuant
to Republic Act No. 9136 (EPIRA Law); hence, it need not prove that it
had zero-rated sales in the period from January 1, 2001 to December
31, 2001 by the presentation of VAT official receipts that would contain
all the necessary information required under Section 113 of the
National Internal Revenue Code of 1997, as implemented by Section
4.108-1 of Revenue Regulations No. 7-95. Evidence of sale of electricity
to NPC other than official receipts could prove zero-rated sales.
(2) The TCC, once issued, constituted an administrative opinion that
deserved consideration and respect by the CTA En Banc.
(3) The CTA En Banc was devoid of any authority to determine the
existence of the petitioners zero-rated sales, inasmuch as that would
constitute an encroachment on the powers granted to an
administrative agency having expertise on the matter.
(4) The CTA En Banc manifestly overlooked evidence not disputed by
the parties and which, if properly considered, would justify a different
conclusion.26
The petitioner has prayed for the reversal of the decision of the CTA En
Banc, and for the remand of the case to the CTA for the reception of its VAT
official receipts as newly discovered evidence. It has supported the latter
relief prayed for by representing that the VAT official receipts had been
misplaced by Edwin Tapay, its former Finance and Accounting Manager, but
had been found only after the CTA En Banc has already affirmed the
decision of the CTA in Division. In the alternative, it has asked that the
Commissioner allow the claim for refund or tax credit ofP2,920,665.16.
In the comment submitted on December 3, 2009, 27 the Commissioner has
insisted that the petitioners claim cannot be granted because it did not
incur any zero-rated sale; that its failure to comply with the invoicing
requirements on the documents supporting the sale of services to NPC
resulted in the disallowance of its claim for the input tax; and the claim
should also be denied for not being substantiated by appropriate and
sufficient evidence.
96
In its reply filed on February 4, 2010,28 the petitioner reiterated its

contention that it had established its claim for refund or tax credit; and that
it should be allowed to present the official receipts in a new trial.
Ruling of the Court
The petition is without merit.
Section 112 of the National Internal Revenue Code 1997 provides:
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero-rated Sales--Any VAT-registered person,
106(A)(2)(a)(1), (2) and (B) and Section 108(B)(1) and (2), the acceptable
or effectively zero-rated sale and also in taxable or exempt sale of goods or
xxxx
A claim for refund or tax credit for unutilized input VAT may be allowed only
if the following requisites concur, namely: (a) the taxpayer is VAT-registered;
(b) the taxpayer is engaged in zero-rated or effectively zero-rated sales; (c)
the input taxes are due or paid; (d) the input taxes are not transitional input
taxes; (e) the input taxes have not been applied against output taxes during
and in the succeeding quarters; (f) the input taxes claimed are attributable
to zero-rated or effectively zero-rated sales; (g) for zero-rated sales under
Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the acceptable
foreign currency exchange proceeds have been duly accounted for in
accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas; (h) where there are both zero-rated or effectively zero-rated sales
and taxable or exempt sales, and the input taxes cannot be directly and
entirely attributable to any of these sales, the input taxes shall be
97
proportionately allocated on the basis of sales volume; and (i) the claim is
filed within two years after the close of the taxable quarter when such sales
were made.29
The petitioner did not competently establish its claim for refund or tax
credit.1avvphi1 We agree with the CTA En Banc that the petitioner did not
produce evidence showing that it had zero-rated sales for the four quarters
of taxable year 2001. As the CTA En Banc precisely found, the petitioner did
not reflect any zero-rated sales from its power generation in its four
quarterly VAT returns, which indicated that it had not made any sale of
electricity. Had there been zero-rated sales, it would have reported them in
the returns. Indeed, it carried the burden not only that it was entitled under
the substantive law to the allowance of its claim for refund or tax credit but
also that it met all the requirements for evidentiary substantiation of its
claim before the administrative official concerned, or in the de novo
litigation before the CTA in Division.30
Although the petitioner has correctly contended here that the sale of
electricity by a power generation company like it should be subject to zerorated VAT under Republic Act No. 9136,31 its assertion that it need not prove
its having actually made zero-rated sales of electricity by presenting the VAT
official receipts and VAT returns cannot be upheld. It ought to be reminded
that it could not be permitted to substitute such vital and material
documents with secondary evidence like financial statements.
We further find to be lacking in substance and bereft of merit the
petitioners insistence that the CTA En Banc should not have disregarded
the letter opinion by BIR Regional Director Rene Q. Aguas to the effect that
its financial statements and its return were sufficient to establish that it had
generated zero-rated sale of electricity. To recall, the CTA En Banc rejected
the insistence because, firstly, the letter opinion referred to taxable year
2000 but this case related to taxable year 2001, and, secondly, even
assuming for the sake of argument that the financial statements, the return
and the letter opinion had related to taxable year 2001, they still could not
be taken at face value for the purpose of approving the claim for refund or
tax credit due to the need to produce the supporting documents proving the
existence of the zero-rated sales, which did not happen here. In that
respect, the CTA En Banc properly disregarded the letter opinion as
irrelevant to the present claim of the petitioner.
We further see no reason to grant the prayer of the petitioner for the
remand of this case to enable it to present before the CTA newly discovered
evidence consisting in VAT official receipts.
98
Ordinarily, the concept of newly discovered evidence is applicable to

litigations in which a litigant seeks a new trial or the re-opening of the case
in the trial court. Seldom is the concept appropriate when the litigation is
already on appeal, particularly in this Court. The absence of a specific rule
on newly discovered evidence at this late stage of the proceedings is not
without reason. The propriety of remanding the case for the purpose of
enabling the CTA to receive newly discovered evidence would undo the
decision already on appeal and require the examination of the pieces of
newly discovered evidence, an act that the Court could not do by virtue of
its not being a trier of facts. Verily, the Court has emphasized in Atlas
Consolidated Mining and Development Corporation v. Commissioner of
Internal Revenue32 that a judicial claim for tax refund or tax credit brought
to the CTA is by no means an original action but an appeal by way of a
petition for review of the taxpayers unsuccessful administrative claim;
hence, the taxpayer has to convince the CTA that the quasi-judicial agency
a quo should not have denied the claim, and to do so the taxpayer should
prove every minute aspect of its case by presenting, formally offering and
submitting its evidence to the CTA, including whatever was required for the
successful prosecution of the administrative claim as the means of
demonstrating to the CTA that its administrative claim should have been
granted in the first place.
Nonetheless, on the proposition that we may relax the stringent rules of
procedure for the sake of rendering justice, we still hold that the concept of
newly discovered evidence may not apply herein. In order that newly
discovered evidence may be a ground for allowing a new trial, it must be
fairly shown that: (a) the evidence is discovered after the trial; (b) such
evidence could not have been discovered and produced at the trial even
with the exercise of reasonable diligence; (c) such evidence is material, not
merely cumulative, corroborative, or impeaching; and (d) such evidence is
of such weight that it would probably change the judgment if admitted. 33
The first two requisites are not attendant. To start with, the proposed
evidence was plainly not newly discovered considering the petitioner s
admission that its former Finance and Accounting Manager had misplaced
the VAT official receipts. If that was true, the misplaced receipts were
forgotten evidence. And, secondly, the receipts, had they truly existed,
could have been sooner discovered and easily produced at the trial with the
exercise of reasonable diligence. But the petitioner made no convincing
demonstration that it had exercised reasonable diligence. The Court cannot
accept its tender of such receipts and return now, for, indeed, the nonproduction of documents as vital and material as such receipts and return
99
were to the success of its claim for refund or tax credit was improbable, as it
goes against the sound business practice of safekeeping relevant
documents precisely to ensure their future use to support an eventual
substantial claim for refund or tax credit.
WHEREFORE, the Court DENIES the petition for review on certiorari for its
lack of merit; AFFIRMS the decision dated May 5, 2009 of the Court of Tax
Appeals En Bane; and ORDERS the petitioner to pay the costs of suit.
SO ORDERED.
100

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VAT CASES ADVANCE TAXATION LAW REVIEW 2016

Republic of the Philippines

January 15, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

On 6 October 2005, Mindanao II filed with the Bureau of Internal Revenue

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

On 12 August 2008, the CTA Second Division rendered a Decision 14 ordering

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

VAT or subsequent sale of goods, properties, or services using materials

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

Notwithstanding the timely filing of the administrative claims, we find that

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

Section 112(C)48 also expressly grants the taxpayer a 30-day period to

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

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

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

fraud, bad faith or misrepresentation, the reversal by this Court of a general

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

E. Undersigned dissented in San Roque to the retroactive application of the

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

3. As a general rule, the 3 0-day period to appeal is both mandatory

G.R. No. 178697

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

Deficiency VAT Due

Deficiency EWT Due

LATE REMITTANCE OF FINAL

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

Sony sought re-evaluation of the aforementioned assessment by filing

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

VAT on Royalty P 429,242.07

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

The CIR sought a reconsideration of the above decision and submitted

The Honorable Court committed reversible error in holding

The Honorable court committed reversible error in holding

The Honorable Court committed a reversible error in

D. The Honorable Court committed reversible error in holding

Whether or not respondent (Sony) is liable for the

Whether or not the commission expense in the amount

Whether or not the withholding assessment with respect to

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

Whether or not the remittance of final withholding tax on

Finding no cogent reason to reverse the decision of the CTA-First

THE CTA EN BANC ERRED IN RULING THAT THE

THE CTA EN BANC ERRED IN RULING THAT THE

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

THE CTA EN BANC ERRED IN RULING THAT THE FINAL

VAT CASES ADVANCE TAXATION LAW REVIEW 2016

VAT CASES ADVANCE TAXATION LAW REVIEW 2016