Dissension in the Court:

February 2013
Posted on March 6, 2013 by Rafael L. Encarnacion Posted in Philippines - Cases, Philippines Law, Philippines - Regulation,Tax Law Tagged value added tax

The primary issue in the three (3) consolidated cases involving San Roque Power,
Taganito Mining and Philex Mining decided last February 12, 2013 revolves around the
proper period for filing the judicial claim for refund or credit of creditable input tax.
Under Section 112(A) and 112(C) of the Tax Code, a taxpayer whose sales are zerorated or effectively zero-rated can file his administrative claim for refund or credit at
anytime within two (2) years after the taxable quarter when the sales were made and,
after full or partial denial of the claim or failure of the Commissioner to act on his
application within 120 days from submission of the same, he may, within 30 days from
receipt of the decision denying the claim or after the expiration of the 120-day period,
file his judicial claim with the CTA.
These cases all involved the timely filing by the taxpayers of their administrative claims
with the Commissioner of Internal Revenue. However, San Roque and Taganito both
prematurely filed their judicial claims without waiting for the 120-day period (for the
Commissioner to act on their administrative claims) to lapse, whereas Philex was a case
of late filing since it did not file its judicial claim until after 426 days beyond the 120 +
30 day periods. Voting 9 to 6, the majority, in a decision penned by Justice Carpio,
denied tax refund or credit to San Roque and Philex, but granted the same to Taganito.
The majority denied refund to San Roque on the basis, among others, that the waiting
period for filing a judicial claim is mandatory and jurisdictional and has been in the Tax
Code for more than 15 years before San Roque filed its judicial claim in April 10, 2003
(barely 13 days after it filed its administrative claim). The majority, however, granted
refund to Taganito who, although like San Roque filed its judicial claim without waiting
for the 120-day period to lapse, was deemed to have filed its judicial claim on time
since it was filed on February 14, 2007 or after the issuance of BIR Ruling No. DA-489-03
on December 10, 2003 (which states that the taxpayer need not wait for the 120-day
period to lapse before it could seek judicial relief with the CTA) but before the October 6,
2010 Supreme Court (SC) decision in Commissioner of Internal Revenue v. Aichi Forging
Company of Asia (reinstating the 120+30 day periods as mandatory and jurisdictional).
The majority held that since the Commissioner has exclusive and original jurisdiction to
interpret tax laws under Section 4 of the Tax Code, a taxpayer should not be prejudiced
by an erroneous interpretation by the Commissioner and, under Section 246, a reversal
of a BIR ruling cannot adversely prejudice a taxpayer like Taganito who in good faith
relied on it prior to its reversal.
In denying Philexs judicial claim for refund filed on October 17, 2007, the majority ruled
that the inaction of the Commissioner during the 120-day period is a deemed denial
and Philexs failure to file an appeal within 30 days from the expiration of the 120-day
period rendered the deemed denial decision of the Commissioner final and
inappealable.
In his dissenting opinion, J. Velasco, joined by J. Mendoza and J. Perlas-Bernabe,
suggested that the doctrine applicable to a claim for refund depends on the operative

case and the prevailing rulings and practices at the time of filing the claim. In San
Roque, since both the administrative and judicial claims were filed during the effectivity
of RR 7-95 (which still applied the 2-year prescriptive period to judicial claims), San
Roque can claim good faith reliance on RR 7-95 and the then prevailing practices of the
BIR and CTA to believe that the 120 + 30-day periods are dispensable so long as both
administrative and judicial claims are filed within the 2-year period. In denying refund to
Taganito, however, the dissenter pointed out that Taganito cannot claim reliance in good
faith on RR 7-95 since it filed its judicial claim after November 1, 2005 when RR 16-2005
took effect and superseded RR 7-95 (including BIR Ruling No. DA-489-03 relied upon by
the majority in granting refund to Taganito and which this dissenter believed was a mere
application of RR 7-95), deleting the reference therein to the 2-year period for filing
judicial claims. Philex, on the other hand, filed its claim belatedly under both the
superseded RR 7-95 and the effective RR 16-2005. This dissenter thus voted to grant
refund to San Roque, but to deny it to Taganito and Philex.
In his separate dissenting opinion, CJ Sereno, concurred with J. Velascos dissent in San
Roque and Philex but disagreed with the latters stand in Taganito since, at the time
Taganito filed its administrative and judicial claims for refund, the 2-year prescriptive
period remained the unreversed interpretation of the court. Thus, Taganito cannot be
faulted for relying on court interpretations even with the existence of RR 16-2005, and
for preferring to abide by court interpretations over mere administrative issuances as
the latters validity is still subject to judicial determination. This dissenter believed that
the mandatory and jurisdictional nature of the 120+30 day periods was only definitely
and categorically declared by the SC in Aichi on October 6, 2010 and should only be
applied prospectively from that time, and that previous regard to the 120+30-day
periods is an exceptional circumstance which warrants procedural liberality to taxpayers
who relied on such interpretations.
In his separate dissenting opinion, J. Leonen, joined by J. del Castillo, disagreed that SC
interpretations of the law take effect only prospectively, since the SCs duty is to
construe and not to make law, and its interpretation became part of the law from the
date it was originally passed. This dissenter further reminds us that an erroneous
application of the law by public officers does not preclude a subsequent correct
application of the statute, and the Government is never estopped by mistake or error on
the part of its agents. Accordingly, while the Commissioner is given power and
authority to interpret tax laws, it cannot legislate guidelines contrary to the law it is
tasked to implement. Hence its interpretation is not conclusive and will be ignored if
judicially found to be erroneous. And while concededly any reversal of any BIR ruling
cannot adversely prejudice a taxpayer who in good faith relied on it prior to its reversal,
if it is patently clear that the ruling is contrary to the text itself, there can be no reliance
in good faith. Further, that it is the duty of the lawyers of private parties to best discern
the acceptable interpretation of legal text and, in doing so, they take the risk that the
SC will rule otherwise, especially if the text of the law as in this case is very clear.
This dissenter thus voted to deny refund to all three taxpayers.
(Commissioner of Internal Revenue vs San Roque Power Corporation (G.R. No.
187485), Taganito Mining Corporation vs. Commissioner of Internal Revenue (G.R. No.
196113), Philex Mining Corporation vs. Commissioner of Internal Revenue (G.R. No.
197156) dissenting opinions: Sereno, CJ; Velasco, J., Leonen, J.

PHILEX MINING CORP. v. CIR

GR No. 125704, August 28, 1998
294 SCRA 687
FACTS: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals
affirming the Court of Tax
Appeals decision ordering it to pay the amount of P110.7 M as excise tax liability for the
period from the 2nd
quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from 1994 until
fully paid pursuant to
Sections 248 and 249 of the Tax Code of 1977. Philex protested the demand for
payment of the tax liabilities
stating that it has pending claims for VAT input credit/refund for the taxes it paid for the
years 1989 to 1991 in
the amount of P120 M plus interest. Therefore these claims for tax credit/refund should
be applied against the
tax liabilities.
ISSUE: Can there be an off-setting between the tax liabilities vis-a-vis claims of tax
refund of the petitioner?
HELD: No. Philex's claim is an outright disregard of the basic principle in tax law that
taxes are the lifeblood of the
government and so should be collected without unnecessary hindrance. Evidently, to
countenance Philex's
whimsical reason would render ineffective our tax collection system. Too simplistic, it
finds no support in law or in

jurisprudence.
To be sure, Philex cannot be allowed to refuse the payment of its tax liabilities on the
ground that it has a
pending tax claim for refund or credit against the government which has not yet been
granted.Taxes cannot be
subject to compensation for the simple reason that the government and the taxpayer
are not creditors and
debtors of each other. There is a material distinction between a tax and debt. Debts are
due to the Government
in its corporate capacity, while taxes are due to the Government in its sovereign
capacity. xxx There can be no
off-setting of taxes against the claims that the taxpayer may have against the
government. A person cannot
refuse to pay a tax on the ground that the government owes him an amount equal to or
greater than the tax
being collected. The collection of a tax cannot await the results of a lawsuit against the
government.

FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL

REVENUE- Transitional Input Value Added Tax
FACTS:
Petitioner was a real estate developer that bought from the national government a
parcel of land that used to be the Fort Bonifacio military reservation. At the time of
the said sale there was as yet no VAT imposed so Petitioner did not pay any VAT on
its purchase. Subsequently, Petitioner sold two parcels of land to Metro Pacific Corp.
In reporting the said sale for VAT purposes (because the VAT had already been
imposed in the interim), Petitioner claimed transitional input VAT corresponding to

its inventory of land. The BIR disallowed the claim of presumptive input VAT and
thereby assessed Petitioner for deficiency VAT.
ISSUE:
Is Petitioner entitled to claim the transitional input VAT on its sale of real properties
given its nature as a real estate dealer and if so (i) is the transitional input VAT
applied only to the improvements on the real property or is it applied on the value
of the entire real property and (ii) should there have been a previous tax payment
for the transitional input VAT to be creditable?

HELD:
YES. Petitioner is entitled to claim transitional input VAT based on the value of not
only the improvements but on the value of the entire real property and regardless of
whether there was in fact actual payment on the purchase of the real property or
not.
The amendments to the VAT law do not show any intention to make those in the real
estate business subject to a different treatment from those engaged in the sale of
other goods or properties or in any other commercial trade or business. On the
scope of the basis for determining the available transitional input VAT, the CIR has
no power to limit the meaning and coverage of the term "goods" in Section 105 of
the Tax Code without statutory authority or basis. 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.