anet loss in its operations in the amount of

P6,077.00. J lexj
FIRST DIVISION
On February 10, 1992, COMASERCO filed with
[G.R. No. 125355. March 30, 2000] the BIR, a letter-protest objecting to the latter's
finding of deficiency VAT. On August 20, 1992,
COMMISSIONER OF INTERNAL the Commissioner of Internal Revenue sent a
REVENUE, petitioner, vs. COURT OF collection letter to COMASERCO demanding
APPEALS and COMMONWEALTH payment of the deficiency VAT.
MANAGEMENT AND SERVICES
CORPORATION, respondents. Court On September 29,1992, COMASERCO filed
with the Court of Tax Appeals[4] a petition for
DECISION review contesting the Commissioner's
assessment. COMASERCO asserted that the
PARDO, J.: services it rendered to Philamlife and its
affiliates, relating to collections, consultative and
other technical assistance, including functioning
What is before the Court is a petition for review as an internal auditor, were on a "no-profit,
on certiorari of the decision of the Court of reimbursement-of-cost-only" basis. It averred
Appeals,[1] reversing that of the Court of Tax that it was not engaged id the business of
Appeals,[2] which affirmed with modification the providing services to Philamlife and its affiliates.
decision of the Commissioner of Internal COMASERCO was established to ensure
Revenue ruling that Commonwealth operational orderliness and administrative
Management and Services Corporation, is liable efficiency of Philamlife and its affiliates, and not
for value added tax for services to clients during in the sale of services. COMASERCO stressed
taxable year 1988. that it was not profit-motivated, thus not
engaged in business. In fact, it did not generate
Commonwealth Management and Services profit but suffered a net loss in taxable year
Corporation (COMASERCO, for brevity), is a 1988. COMASERCO averred that since it was
corporation duly organized and existing under not engaged in business, it was not liable to pay
the laws of the Philippines. It is an affiliate of VAT.
Philippine American Life Insurance Co.
(Philamlife), organized by the letter to perform On June 22, 1995, the Court of Tax Appeals
collection, consultative and other technical rendered decision in favor of the Commissioner
services, including functioning as an internal of Internal Revenue, the dispositive portion of
auditor, of Philamlife and its other affiliates. which reads:
On January 24, 1992, the Bureau of Internal "WHEREFORE, the decision of
Revenue (BIR) issued an assessment to private the Commissioner of Internal
respondent COMASERCO for deficiency value- Revenue assessing petitioner
added tax (VAT) amounting to P351,851.01, for deficiency value-added tax for the
taxable year 1988, computed as follows: taxable year 1988 is AFFIRMED
with slight modifications.
"Taxable Accordingly, petitioner is ordered
sale/receipt P1,679,155.00 to pay respondent Commissioner
of Internal Revenue the amount of
10% tax due thereon 167,915.50 P335,831.01 inclusive of the 25%
surcharge and interest plus 20%
25% surcharge 41,978.88 interest from January 24, 1992
until fully paid pursuant to Section
20% interest per 248 and 249 of the Tax Code.
annum 125,936.63
"The compromise penalty of
Compromise penalty for late P16,000.00 imposed by the
payment 16,000.00 respondent in her assessment
letter shall not be included in the
payment as there was no
TOTAL AMOUNT DUE AND
COLLECTIBLE P 351,831.01"[3] compromise agreement entered
into between petitioner and
respondent with respect to the
COMASERCO's annual corporate income tax value-added tax deficiency."[5]
return ending December 31, 1988 indicated
On July 26, 1995, respondent filed with the We agree with the Commissioner.
Court of Appeals, petition for review of the
decision of the Court of Appeals. Section 99 of the National Internal Revenue
Code of 1986, as amended by Executive Order
After due proceedings, on May 13, 1996, the (E.O.) No. 273 in 1988, provides that:
Court of Appeals rendered decision reversing
that of the Court of Tax Appeals, the dispositive "Section 99. Persons liable. -
portion of which reads: Lexj uris Any person who, in the course of
trade or business, sells, barters or
"WHEREFORE, in view of the exchanges goods, renders
foregoing, judgment is hereby services, or engages in similar
rendered REVERSING and transactions and any person who
SETTING ASIDE the questioned imports goods shall be subject to
Decision promulgated on 22 June the value-added tax (VAT)
1995. The assessment for imposed in Sections 100 to 102 of
deficiency value-added tax for the this Code."[9]
taxable year 1988 inclusive of
surcharge, interest and penalty COMASERCO contends that the term "in the
charges are ordered CANCELLED course of trade or business" requires that the
for lack of legal and factual "business" is carried on with a view to profit or
basis."[6] livelihood. It avers that the activities of the entity
must be profit- oriented. COMASERCO submits
The Court of Appeals anchored its decision on that it is not motivated by profit, as defined by its
the ratiocination in another tax case involving primary purpose in the articles of incorporation,
the same parties,[7] where it was held that stating that it is operating "only on
COMASERCO was not liable to pay fixed and reimbursement-of-cost basis, without any profit."
contractor's tax for services rendered to Private respondent argues that profit motive is
Philamlife and its affiliates. The Court of material in ascertaining who to tax for purposes
Appeals, in that case, reasoned that of determining liability for VAT.
COMASERCO was not engaged in business of
providing services to Philamlife and its affiliates. We disagree.
In the same manner, the Court of Appeals held
that COMASERCO was not liable to pay VAT On May 28, 1994, Congress enacted Republic
for it was not engaged in the business of selling Act No. 7716, the Expanded VAT Law (EVAT),
services. amending among other sections, Section 99 of
the Tax Code. On January 1, 1998, Republic
On July 16, 1996, the Commissioner of Internal Act 8424, the National Internal Revenue Code
Revenue filed with this Court a petition for of 1997, took effect. The amended law provides
review on certiorari assailing the decision of the that:
Court of Appeals.
"SEC. 105. Persons Liable. - Any
On August 7, 1996, we required respondent person who, in the course of trade
COMASERCO to file comment on the petition, or business, sells, barters,
and on September 26, 1996, COMASERCO exchanges, leases goods or
complied with the resolution.[8] properties, renders services, and
any person who imports goods
We give due course to the petition. shall be subject to the value-
added tax (VAT) imposed in
At issue in this case is whether COMASERCO Sections 106 and 108 of this
was engaged in the sale of services, and thus Code.
liable to pay VAT thereon.
"The value-added tax is an indirect
Petitioner avers that to "engage in business" tax and the amount of tax may be
and to "engage in the sale of services" are two shifted or passed on to the buyer,
different things. Petitioner maintains that the transferee or lessee of the goods,
services rendered by COMASERCO to properties or services. This rule
Philamlife and its affiliates, for a fee or shall likewise apply to existing
consideration, are subject to VAT. VAT is a tax sale or lease of goods, properties
on the value added by the performance of the or services at the time of the
service. It is immaterial whether profit is derived effectivity of Republic Act
from rendering the service. Juri smis No.7716.
 "The phrase "in the course of that provided technical, research, management
trade or business" means the and technical assistance to its affiliated
regular conduct or pursuit of a companies and received payments on a
commercial or an economic reimbursement-of-cost basis, without any
activity, including transactions intention of realizing profit, was subject to VAT
incidental thereto, by any person on services rendered. In fact, even if such
regardless of whether or not the corporation was organized without any intention
person engaged therein is a of realizing profit, any income or profit
nonstock, nonprofit organization generated by the entity in the conduct of its
(irrespective of the disposition of activities was subject to income tax. lex
its net income and whether or not
it sells exclusively to members of Hence, it is immaterial whether the primary
their guests), or government purpose of a corporation indicates that it
entity. Jjj uris receives payments for services rendered to its
affiliates on a reimbursement-on-cost basis
"The rule of regularity, to the only, without realizing profit, for purposes of
contrary notwithstanding, services determining liability for VAT on services
as defined in this Code rendered rendered. As long as the entity provides service
in the Philippines by nonresident for a fee, remuneration or consideration, then
foreign persons shall be the service rendered is subject to VAT.
considered as being rendered in
the course of trade or business." At any rate, it is a rule that because taxes are
the lifeblood of the nation, statutes that allow
Contrary to COMASERCO's contention the exemptions are construed strictly against the
above provision clarifies that even a non-stock, grantee and liberally in favor of the government.
non-profit, organization or government entity, is Otherwise stated, any exemption from the
liable to pay VAT on the sale of goods or payment of a tax must be clearly stated in the
services. VAT is a tax on transactions, imposed language of the law; it cannot be merely implied
at every stage of the distribution process on the therefrom.[13] In the case of VAT, Section 109,
sale, barter, exchange of goods or property, and Republic Act 8424 clearly enumerates the
on the performance of services, even in the transactions exempted from VAT. The services
absence of profit attributable thereto. The term rendered by COMASERCO do not fall within the
"in the course of trade or business" requires the exemptions.
regular conduct or pursuit of a commercial or an
economic activity, regardless of whether or not Both the Commissioner of Internal Revenue and
the entity is profit-oriented. the Court of Tax Appeals correctly ruled that the
services rendered by COMASERCO to
The definition of the term "in the course of trade Philamlife and its affiliates are subject to VAT.
or business" incorporated in the present law As pointed out by the Commissioner, the
applies to all transactions even to those made performance of all kinds of services for others
prior to its enactment. Executive Order No. 273 for a fee, remuneration or consideration is
stated that any person who, in the course of considered as sale of services subject to VAT.
trade or business, sells, barters or exchanges As the government agency charged with the
goods and services, was already liable to pay enforcement of the law, the opinion of the
VAT. The present law merely stresses that even Commissioner of Internal Revenue, in the
a nonstock, nonprofit organization or absence of any showing that it is plainly wrong,
government entity is liable to pay VAT for the is entitled to great weight.[14] Also, it has been
sale of goods and services. the long standing policy and practice of this
Court to respect the conclusions of quasi-
Section 108 of the National Internal Revenue judicial agencies, such as the Court of Tax
Code of 1997[10] defines the phrase "sale of Appeals which, by the nature of its functions, is
services" as the "performance of all kinds of dedicated exclusively to the study and
services for others for a fee, remuneration or consideration of tax cases and has necessarily
consideration." It includes "the supply of developed an expertise on the subject, unless
technical advice, assistance or services there has been an [15] abuse or improvident
rendered in connection with technical exercise of its authority.
management or administration of any scientific,
industrial or commercial undertaking or There is no merit to respondent's contention
project."[11] that the Court of Appeals' decision in CA-G. R.
No. 34042, declaring the COMASERCO as not
On February 5, 1998, the Commissioner of engaged in business and not liable for the
Internal Revenue issued BIR Ruling No. 010- payment of fixed and percentage taxes, binds
98[12] emphasizing that a domestic corporation petitioner. The issue in CA-G. R. No. 34042 is
different from the present case, which involves and the vessels for P168,000,000.00. The bid
COMASERCO's liability for VAT. As heretofore was made by Magsaysay Lines, purportedly for
stated, every person who sells, barters, or a new company still to be formed composed of
exchanges goods and services, in the course of itself, Baliwag Navigation, Inc., and FIM Limited
trade or business, as defined by law, is subject of the Marden Group based in Hongkong
to VAT. Jksm (collectively, private respondents).[4] The bid
was approved by the Committee on
WHEREFORE, the Court GRANTS the petition Privatization, and a Notice of Award dated 1
and REVERSES the decision of the Court of July 1988 was issued to Magsaysay Lines.
Appeals in CA-G. R. SP No. 37930. The Court
hereby REINSTATES the decision of the Court On 28 September 1988, the implementing
of Tax Appeals in C. T. A. Case No. 4853. Contract of Sale was executed between NDC,
on one hand, and Magsaysay Lines, Baliwag
No costs. Navigation, and FIM Limited, on the other.
Paragraph 11.02 of the contract stipulated that
SO ORDERED. [v]alue-added tax, if any, shall be for the
account of the PURCHASER.[5] Per
arrangement, an irrevocable confirmed Letter of
CIR vs. Magsaysay Lines, Inc. – G.R. No. Credit previously filed as bidders bond was
146984 July 28, 2006 accepted by NDC as security for the payment of
VAT, if any. By this time, a formal request for a
DECISION ruling on whether or not the sale of the vessels
was subject to VAT had already been filed with
TINGA, J.: the Bureau of Internal Revenue (BIR) by the law
The issue in this present petition is whether the firm of Sycip Salazar Hernandez & Gatmaitan,
presumably in behalf of private respondents.
sale by the National Development Company Thus, the parties agreed that should no
(NDC) of five (5) of its vessels to the private favorable ruling be received from the BIR, NDC
respondents is subject to value-added tax (VAT) was authorized to draw on the
under the National Internal Revenue Code of upon written demand the amountLetter of Credit
1986 (Tax Code) then prevailing at the time of payment of the VAT on the stipulated duefor
needed the
date,
the sale. The Court of Tax Appeals (CTA) and 20 December 1988.[6]
the Court of Appeals commonly ruled that the
sale is not subject to VAT. We affirm, though on
a more unequivocal rationale than that utilized In January of 1989, private respondents through
counsel received VAT Ruling No. 568-88
by the rulings under review. The fact that the dated 14 December 1988 from the BIR, holding
sale was not in the course of the trade or that the sale of the vessels
business of NDC is sufficient in itself to declare 10% VAT. The ruling cited was subject to the
the fact that NDC
the sale as outside the coverage of VAT. was a VAT-registered enterprise, and thus its
The facts are culled primarily from the ruling of transactions incident to its normal VAT
registered activity of leasing out personal
the CTA. property including sale of its own assets that are
Pursuant to a government program of movable, tangible objects which are
appropriable or transferable are subject to the
privatization, NDC decided to sell to private 10% [VAT].[7]
enterprise all of its shares in its wholly-owned
subsidiary the National Marine Corporation Private respondents moved for the
(NMC). The NDC decided to sell in one lot its reconsideration of VAT Ruling No. 568-88, as
NMC shares and five (5) of its ships, which are
well as VAT Ruling No. 395-88 (dated 18
3,700 DWT Tween-Decker, Kloeckner type August 1988), which made a similar ruling on
vessels.[1] The vessels were constructed for the the sale of the same vessels in response to an
NDC between 1981 and 1984, then initially inquiry from the Chairman of the Senate Blue
leased to Luzon Stevedoring Company, also its Ribbon Committee. Their motion was denied
wholly-owned subsidiary. Subsequently, the when the BIR issued VAT Ruling Nos. 007-89
vessels were transferred and leased, on a dated 24 February 1989, reiterating the earlier
bareboat basis, to the NMC.[2] VAT rulings. At this point, NDC drew on the
The NMC shares and the vessels were offered Letter of Credit to pay for the VAT, and the
amount of P15,120,000.00 in taxes was paid
for public bidding. Among the stipulated terms on 16 March
and conditions for the public auction was that 1989.
the winning bidder was to pay a value added tax On 10 April 1989, private respondents filed an
of 10% on the value of the vessels.[3] On 3 June Appeal and Petition for Refund with the CTA,
1988, private respondent Magsaysay Lines, Inc. followed by a Supplemental Petition for Review
(Magsaysay Lines) offered to buy the shares on 14 July 1989. They prayed for the reversal of
VAT Rulings No. 395-88, 568-88 and 007-89,
as well as the refund of the VAT payment made However, the Court of Appeals reversed itself
amounting to P15,120,000.00.[8] The upon reconsidering the case, through a
Commissioner of Internal Revenue (CIR) Resolution dated 5 February 2001.[13] This time,
opposed the petition, first arguing that private the appellate court ruled that the change of
respondents were not the real parties in interest ownership of business as contemplated in R.R.
as they were not the transferors or sellers as No. 5-87 must be a consequence of the
contemplated in Sections 99 and 100 of the retirement from or cessation of business by the
then Tax Code. The CIR also squarely owner of the goods, as provided for in Section
defended the VAT rulings holding the sale of the 100 of the Tax Code. The Court of Appeals also
vessels liable for VAT, especially citing Section agreed with the CTA that the classification of
3 of Revenue Regulation No. 5-87 (R.R. No. 5- transactions deemed sale was a classification
87), which provided that [VAT] is imposed on statute, and not an exemption statute, thus
any sale or transactions deemed sale of taxable warranting the resolution of any doubt in favor
goods (including capital goods, irrespective of of the taxpayer.[14]
the date of acquisition). The CIR argued that the
sale of the vessels were among those To the mind of the Court, the arguments raised
transactions deemed sale, as enumerated in in the present petition have already been
Section 4 of R.R. No. 5-87. It seems that the adequately discussed and refuted in the rulings
CIR particularly emphasized Section 4(E)(i) of assailed before us. Evidently, the petition
the Regulation, which classified change of should be denied. Yet the Court finds that
ownership of business as a circumstance that Section 99 of the Tax Code is sufficient reason
gave rise to a transaction deemed sale. for upholding the refund of VAT payments, and
the subsequent disquisitions by the lower courts
In a Decision dated 27 April 1992, the CTA on the applicability of Section 100 of the Tax
rejected the CIRs arguments and granted the Code and Section 4 of R.R. No. 5-87 are
petition.[9] The CTA ruled that the sale of a ultimately irrelevant.
vessel was an isolated transaction, not done in
the ordinary course of NDCs business, and was A brief reiteration of the basic principles
thus not subject to VAT, which under Section 99 governing VAT is in order. VAT is ultimately a
of the Tax Code, was applied only to sales in tax on consumption, even though it is assessed
the course of trade or business. The CTA on many levels of transactions on the basis of a
further held that the sale of the vessels could fixed percentage.[15] It is the end user of
not be deemed sale, and thus subject to VAT, consumer goods or services which ultimately
as the transaction did not fall under the shoulders the tax, as the liability therefrom is
enumeration of transactions deemed sale as passed on to the end users by the providers of
listed either in Section 100(b) of the Tax Code, these goods or services[16] who in turn may
or Section 4 of R.R. No. 5-87. Finally, the CTA credit their own VAT liability (or input VAT) from
ruled that any case of doubt should be resolved the VAT payments they receive from the final
in favor of private respondents since Section 99 consumer (or output VAT).[17] The final
of the Tax Code which implemented VAT is not purchase by the end consumer represents the
an exemption provision, but a classification final link in a production chain that itself involves
provision which warranted the resolution of several transactions and several acts of
doubts in favor of the taxpayer. consumption. The VAT system assures fiscal
adequacy through the collection of taxes on
every level of consumption,[18] yet assuages the
manufacturers or providers of goods and
services by enabling them to pass on their
The CIR appealed the CTA respective VAT liabilities to the next link of the
Decision to the Court of Appeals,[10] which on 11 chain until finally the end consumer shoulders
March 1997, rendered a Decision reversing the the entire tax liability.
CTA.[11] While the appellate court agreed that
the sale was an isolated transaction, not made Yet VAT is not a singular-minded tax on every
in the course of NDCs regular trade or transactional level. Its assessment bears direct
business, it nonetheless found that the relevance to the taxpayers role or link in the
transaction fell within the classification of those production chain. Hence, as affirmed by Section
deemed sale under R.R. No. 5-87, since the 99 of the Tax Code and its subsequent
sale of the vessels together with the NMC incarnations,[19] the tax is levied only on the
shares brought about a change of ownership in sale, barter or exchange of goods or services by
NMC. The Court of Appeals also applied the persons who engage in such activities, in the
principle governing tax exemptions that such course of trade or business. These
should be strictly construed against the transactions outside the course of trade or
taxpayer, and liberally in favor of the business may invariably contribute to the
government.[12] production chain, but they do so only as a
matter of accident or incident. As the sales of
goods or services do not occur within the
course of trade or business, the providers of
such goods or services would hardly, if at all,
have the opportunity to appropriately credit any
VAT liability as against their own accumulated
VAT collections since the accumulation of
output VAT arises in the first place only through
the ordinary course of trade or business.
That the sale of the vessels was not in the
ordinary course of trade or business of NDC
was appreciated by both the CTA and the Court
of Appeals, the latter doing so even in its first
decision which it eventually reconsidered.[20] We
cite with approval the CTAs explanation on this
point:
In Imperial v. Collector of
Internal Revenue, G.R. No. L-
7924, September 30, 1955 (97
Phil. 992), the term carrying on
business does not mean the
performance of a single
disconnected act, but means
conducting, prosecuting and
continuing business by performing
progressively all the acts normally
incident thereof; while doing
businessconveys the idea of
business being done, not from time
to time, but all the time. [J. Aranas,
UPDATED NATIONAL INTERNAL
REVENUE CODE (WITH
ANNOTATIONS), p. 608-9
(1988)]. Course of business is
what is usually done in the
management of trade or business.
[Idmi v. Weeks & Russel, 99 So.
761, 764, 135 Miss. 65, cited in
Words & Phrases, Vol. 10, (1984)].
What is clear therefore,
based on the aforecited
jurisprudence, is that course of
business or doing business
connotes regularity of activity. In
the instant case, the sale was an
isolated transaction. The sale
which was involuntary and made
pursuant to the declared policy of
Government for privatization could
no longer be repeated or carried on
with regularity. It should be
emphasized that the normal VAT-
registered activity of NDC is
leasing personal property.[21]
This finding is confirmed by the Revised hew to those transactions deemed sale as
Charter[22] of the NDC which bears no indication defined under Section 100.
that the NDC was created for the primary
purpose of selling real property.[23]
The conclusion that the sale was not in
the course of trade or business, which the CIR
does not dispute before this Court,[24] should
have definitively settled the matter. Any sale,
barter or exchange of goods or services not in
the course of trade or business is not subject
to VAT.
Section 100 of the Tax Code, which is
implemented by Section 4(E)(i) of R.R. No. 5-87
now relied upon by the CIR, is captioned Value-
added tax on sale of goods, and it expressly
states that [t]here shall be levied, assessed and
collected on every sale, barter or exchange of
goods, a value added tax x x x. Section 100
should be read in light of Section 99, which lays
down the general rule on which persons are
liable for VAT in the first place and on what
transaction if at all. It may even be noted that
Section 99 is the very first provision in Title IV of
the Tax Code, the Title that covers VAT in the
law. Before any portion of Section 100, or the
rest of the law for that matter, may be applied in
order to subject a transaction to VAT, it must
first be satisfied that the taxpayer and
transaction involved is liable for VAT in the first
place under Section 99.
It would have been a different matter if Section
100 purported to define the phrase in the course
of trade or business as expressed in Section 99.
If that were so, reference to Section 100 would
have been necessary as a means of
ascertaining whether the sale of the
vessels was in the course of trade or business,
and thus subject to
VAT. But that is not the case. What Section 100
and Section 4(E)(i) of R.R. No. 5-87 elaborate
on is not the meaning of in the course of trade
or business, but instead the identification of the
transactions which may be deemed as sale. It
would become necessary to ascertain whether
under those two provisions the transaction may
be deemed a sale, only if it is settled that the
transaction occurred in the course of trade or
business in the first place. If the transaction
transpired outside the course of trade or
business, it would be irrelevant for the purpose
of determining VAT liability whether the
transaction may be deemed sale, since it
anyway is not subject to VAT.
Accordingly, the Court rules that given the
undisputed finding that the transaction in
question was not made in the course of trade or
business of the seller, NDC that is, the sale is
not subject to VAT pursuant to Section 99 of the
Tax Code, no matter how the said sale may
In any event, even if Section 100 or Section 4 of Seven Centavos (P 359,652,009.47), is
R.R. No. 5-87 were to find application in this hereby AFFIRMED.
case, the Court finds the discussions offered on
this point by the CTA and the Court of Appeals SO ORDERED.2
(in its subsequent Resolution) essentially
correct. Section 4 (E)(i) of R.R. No. 5-87 does Factual Antecedents
classify as among the transactions deemed sale
those involving change of ownership of Petitioner Fort Bonifacio Development
business. However, Section 4(E) of R.R. No. 5- Corporation (FBDC) is a duly registered
87, reflecting Section 100 of the Tax Code, domestic corporation engaged in the
clarifies that such change of ownership is only development and sale of real property.3 The
an attending circumstance to retirement from or Bases Conversion Development Authority
cessation of business[, ] with respect to all (BCDA), a wholly owned government
goods on hand [as] of the date of such corporation created under Republic Act (RA)
retirement or cessation.[25] Indeed, Section 4(E) No. 7227,4 owns 45% of petitioner’s issued and
of R.R. No. 5-87 expressly characterizes the outstanding capital stock; while the Bonifacio
change of ownership of business as only a Land Corporation, a consortium of private
circumstance that attends those transactions domestic corporations, owns the remaining
deemed sale, which are otherwise stated in the 55%.5
same section.[26]
On February 8, 1995, by virtue of RA 7227 and
Executive Order No. 40,6 dated December 8,
WHEREFORE, the petition is DENIED. No 1992, petitioner purchased from the national
costs. government a portion of the Fort Bonifacio
reservation, now known as the Fort Bonifacio
SO ORDERED. Global City (Global City).7

G.R. No. 173425 September 4, 2012 On January 1, 1996, RA 77168 restructured the
Value-Added Tax (VAT) system by amending
DEVELOPMENT certain provisions of the old National Internal
FORT BONIFACIO Revenue Code (NIRC). RA 7716 extended the
CORPORATION, Petitioner, coverage of VAT to real properties held
vs.
primarily for sale to customers or held for lease
COMMISSIONER OF INTERNAL REVENUE in the ordinary course of trade or business.9
and REVENUE DISTRICT OFFICER,
REVENUE DISTRICT NO. 44, TAGUIG and
PATEROS, BUREAU OF INTERNAL On September 19, 1996, petitioner submitted to
REVENUE, Respondents. the Bureau of Internal Revenue (BIR) Revenue
District No. 44, Taguig and Pateros, an
DECISION inventory of all its real properties, the book
value of which
aggregated P71,227,503,200.10 Based on this
DEL CASTILLO, J.: value, petitioner claimed that it is entitled to a
transitional input tax credit
Courts cannot limit the application or coverage of P5,698,200,256,11 pursuant to Section
of a law, nor can it impose conditions not 10512 of the old NIRC.
provided therein. To do so constitutes judicial
legislation. In October 1996, petitioner started selling
Global City lots to interested buyers.13
This Petition for Review on Certiorari under
Rule 45 of the Rules of Court assails the July 7, For the first quarter of 1997, petitioner
2006 Decision1 of the Court of Appeals (CA) in generated a total amount of P 3,685,356,539.50
CA-G.R. SP No. 61436, the dispositive portion from its sales and lease of lots, on which the
of which reads. output VAT payable
was P 368,535,653.95.14 Petitioner paid the
WHEREFORE, the instant petition is output VAT by making cash payments to the
hereby DISMISSED. ACCORDINGLY, the BIR totalling P 359,652,009.47 and crediting its
Decision dated October 12, 2000 of the Court of unutilized input tax credit on purchases of
Tax Appeals in CTA Case No. 5735, denying goods and services of P 8,883,644.48.15
petitioner’s claim for refund in the amount of
Three Hundred Fifty-Nine Million Six Hundred Realizing that its transitional input tax credit was
Fifty-Two Thousand Nine Pesos and Forty- not applied in computing its output VAT for the
first quarter of 1997, petitioner on November 17,
1998 filed with the BIR a claim for refund of the SO ORDERED.22
amount of P 359,652,009.47 erroneously paid
as output VAT for the said period.16 Ruling of the Court of Appeals

Ruling of the Court of Tax Appeals Aggrieved, petitioner filed a Petition for
Review23 under Rule 43 of the Rules of Court
On February 24, 1999, due to the inaction of the before the CA.
respondent Commissioner of Internal Revenue
(CIR), petitioner elevated the matter to the On July 7, 2006, the CA affirmed the decision of
Court of Tax Appeals (CTA) via a Petition for the CTA. The CA agreed that petitioner is not
Review.17 entitled to the 8% transitional input tax credit
since it did not pay any VAT when it purchased
In opposing the claim for refund, respondents the Global City property.24 The CA opined that
interposed the following special and affirmative transitional input tax credit is allowed only when
defenses: business taxes have been paid and passed-on
as part of the purchase price.25 In arriving at this
xxxx conclusion, the CA relied heavily on the
historical background of transitional input tax
26
8. Under Revenue Regulations No. 7-95, credit. As to the validity of RR 7-95, which
implementing Section 105 of the Tax Code as limited the 8% transitional input tax to the value
amended by E.O. 273, the basis of the of the improvements on the land, the CA said
presumptive input tax, in the case of real estate that it is entitled to great27weight as it was issued
28
dealers, is the improvements, such as buildings, pursuant to Section 245 of the old NIRC.
roads, drainage systems, and other similar
structures, constructed on or after January 1, Issues
1988.
Hence, the instant petition with the principal
9. Petitioner, by submitting its inventory listing of issue of whether petitioner is entitled to a refund
real properties only on September 19, 1996, of P 359,652,009.47 erroneously paid as output
failed to comply with the aforesaid revenue VAT for the first quarter of 1997, the resolution
regulations mandating that for purposes of of which depends on:
availing the presumptive input tax credits under
its Transitory Provisions, "an inventory as of 3.05.a. Whether Revenue Regulations No. 6-97
December 31, 1995, of such goods or effectively repealed or repudiated Revenue
properties and improvements showing the Regulations No. 7-95 insofar as the latter limited
quantity, description, and amount should be the transitional/presumptive input tax credit
filed with the RDO no later than January 31, which may be claimed under Section 105 of the
1996. x x x"18 National Internal Revenue Code to the
"improvements" on real properties.
On October 12, 2000, the CTA denied
petitioner’s claim for refund. According to the 3.05.b. Whether Revenue Regulations No. 7-95
CTA, "the benefit of transitional input tax credit is a valid implementation of Section 105 of the
comes with the condition that business taxes National Internal Revenue Code.
should have been paid first."19 In this case,
since petitioner acquired the Global City 3.05.c. Whether the issuance of Revenue
property under a VAT-free sale transaction, it Regulations No. 7-95 by the Bureau of Internal
cannot avail of the transitional input tax Revenue, and declaration of validity of said
credit.20 The CTA likewise pointed out that Regulations by the Court of Tax Appeals and
under Revenue Regulations No. (RR) 7-95, Court of Appeals, were in violation of the
implementing Section 105 of the old NIRC, the fundamental principle of separation of powers.
8% transitional input tax credit should be based
on the value of the improvements on land such 3.05.d. Whether there is basis and necessity to
as buildings, roads, drainage system and other interpret and construe the provisions of Section
similar structures, constructed on or after 105 of the National Internal Revenue Code.
January 1, 1998, and not on the book value of
the real property.21 Thus, the CTA disposed of 3.05.e. Whether there must have been previous
the case in this manner:
payment of business tax by petitioner on its land
before it may claim the input tax credit granted
WHEREFORE, in view of all the foregoing, the by Section 105 of the National Internal Revenue
claim for refund representing alleged overpaid Code.
value-added tax covering the first quarter of
1997 is hereby DENIED for lack of merit.
3.05.f. Whether the Court of Appeals and Court
of Tax Appeals merely speculated on the
purpose of the transitional/presumptive input tax
provided for in Section 105 of the National
Internal Revenue Code.
3.05.g. Whether the economic and social
objectives in the acquisition of the subject
property by petitioner from the Government
should be taken into consideration.29
Petitioner’s Arguments
Petitioner claims that it is entitled to recover the of the value of such inventory or the actual
amount of P 359,652,009.47 erroneously paid
as output VAT for the first quarter of 1997 since
its transitional input tax credit be creditable against the output tax. (Emphasis
of P 5,698,200,256 is more than sufficient to
cover its output VAT liability for the said
period.30
Petitioner assails the pronouncement of the CA indicate that prior payment of taxes is
that prior payment of taxes is required to avail of necessary for the availment of the 8%
the 8% transitional input tax credit.31 Petitioner transitional input tax credit. Obviously, all that is
contends that there is nothing in Section 105 of required is for the taxpayer to file a beginning
the old NIRC to support such conclusion.32
Petitioner further argues that RR 7-95, which
limited the 8% transitional input tax credit to the
value of the improvements on the land, is invalid
because it goes against the express provision of
Section 105 of the old NIRC, in relation to
Section 10033 of the same Code, as amended
by RA 7716.34
Respondents’ Arguments
Respondents, on the other hand, maintain that
petitioner is not entitled to a transitional input
tax credit because no taxes were paid in the
acquisition of the Global City
property.35 Respondents assert that prior
payment of taxes is inherent in the nature of a
transitional input tax.36 Regarding RR 7-95,
respondents insist that it is valid because it was
issued by the Secretary of Finance, who is
mandated by law to promulgate all needful rules
and regulations for the implementation of
Section 105 of the old NIRC.37
Our Ruling
The petition is meritorious.
The issues before us are no longer new or
novel as these have been resolved in the
related case of Fort Bonifacio Development
Corporation v. Commissioner of Internal
Revenue.38
Prior payment of taxes is not required
for a taxpayer to avail of the 8%
transitional input tax credit
Section 105 of the old NIRC reads:
SEC. 105. Transitional input tax credits. – A
person who becomes liable to value-added tax
or any person who elects to be a VAT-
registered person shall, subject to the filing of
an inventory as prescribed by regulations, be
allowed input tax on his beginning inventory of
goods, materials and supplies equivalent to 8%
value-added tax paid on such goods, materials
and supplies, whichever is higher, which shall
supplied.)
Contrary to the view of the CTA and the CA,
there is nothing in the above-quoted provision to
inventory with the BIR.
To require prior payment of taxes, as proposed
in the Dissent is not only tantamount to judicial
legislation but would also render nugatory the
provision in Section 105 of the old NIRC that the
transitional input tax credit shall be "8% of the
value of [the beginning] inventory or the actual
[VAT] paid on such goods, materials and
supplies, whichever is higher" because the
actual VAT (now 12%) paid on the goods,
materials, and supplies would always be higher
than the 8% (now 2%) of the beginning
inventory which, following the view of Justice
Carpio, would have to exclude all goods,
materials, and supplies where no taxes were
paid. Clearly, limiting the value of the beginning
inventory only to goods, materials, and supplies,
where prior taxes were paid, was not the
intention of the law. Otherwise, it would have
specifically stated that the beginning inventory
excludes goods, materials, and supplies where
no taxes were paid. As retired Justice Consuelo
Ynares-Santiago has pointed out in her
Concurring Opinion in the earlier case of Fort
Bonifacio:
If the intent of the law were to limit the input tax
to cases where actual VAT was paid, it could
have simply said that the tax base shall be the
actual value-added tax paid. Instead, the law as
framed contemplates a situation where a
transitional input tax credit is claimed even if
there was no actual payment of VAT in the
underlying transaction. In such cases, the tax
base used shall be the value of the beginning
inventory of goods, materials and supplies.39
Moreover, prior payment of taxes is not required
to avail of the transitional input tax credit
because it is not a tax refund per se but a tax
credit. Tax credit is not synonymous to tax
refund. Tax refund is defined as the money that
a taxpayer overpaid and is thus returned by the
taxing authority.40 Tax credit, on the other hand,
is an amount subtracted directly from one’s total
tax liability.41 It is any amount given to a
taxpayer as a subsidy, a refund, or an incentive
to encourage investment. Thus, unlike a tax
refund, prior payment of taxes is not a
prerequisite to avail of a tax credit. In fact, in
Commissioner of Internal Revenue v. Central
Luzon Drug Corp.,42 we declared that prior
payment of taxes is not required in order to avail
of a tax credit.43 Pertinent portions of the
Decision read:
While a tax liability is essential to the availment
or use of any tax credit, prior tax payments are
not. On the contrary, for the existence or grant
solely of such credit, neither a tax liability nor a
prior tax payment is needed. The Tax Code is in
fact replete with provisions granting or allowing
tax credits, even though no taxes have been
previously paid.
For example, in computing the estate tax due,
Section 86(E) allows a tax credit -- subject to
certain limitations -- for estate taxes paid to a
foreign country. Also found in Section 101(C) is
a similar provision for donor’s taxes -- again
when paid to a foreign country -- in computing
for the donor’s tax due. The tax credits in both
instances allude to the prior payment of taxes,
even if not made to our government.
Under Section 110, a VAT (Value-Added Tax) -
registered person engaging in transactions --
whether or not subject to the VAT -- is also
allowed a tax credit that includes a ratable
portion of any input tax not directly attributable
to either activity. This input tax may either be
the VAT on the purchase or importation of
goods or services that is merely due from -- not
necessarily paid by -- such VAT-registered
person in the course of trade or business; or the
transitional input tax determined in accordance
with Section 111(A). The latter type may in fact
be an amount equivalent to only eight percent of
the value of a VAT-registered person’s
beginning inventory of goods, materials and
supplies, when such amount -- as computed --
is higher than the actual VAT paid on the said
items. Clearly from this provision, the tax credit
refers to an input tax that is either due only or
given a value by mere comparison with the VAT
actually paid -- then later prorated. No tax is
actually paid prior to the availment of such
credit.
In Section 111(B), a one and a half percent
input tax credit that is merely presumptive is
allowed. For the purchase of primary
agricultural products used as inputs -- either in
the processing of sardines, mackerel and milk,
or in the manufacture of refined sugar and
cooking oil -- and for the contract price of public
works contracts entered into with the
government, again, no prior tax payments are
needed for the use of the tax credit.
More important, a VAT-registered person whose
sales are zero-rated or effectively zero-rated
may, under Section 112(A), apply for the
issuance of a tax credit certificate for the
amount of creditable input taxes merely due --
again not necessarily paid to -- the government
and attributable to such sales, to the extent that
the input taxes have not been applied against
output taxes. Where a taxpayer is engaged in
zero-rated or effectively zero-rated sales and
also in taxable or exempt sales, the amount of
creditable input taxes due that are not directly
and entirely attributable to any one of these
transactions shall be proportionately allocated
on the basis of the volume of sales. Indeed, in
availing of such tax credit for VAT purposes,
this provision -- as well as the one earlier
mentioned -- shows that the prior payment of
taxes is not a requisite.
It may be argued that Section 28(B)(5)(b) of the
Tax Code is another illustration of a tax credit
allowed, even though no prior tax payments are
not required. Specifically, in this provision, the
imposition of a final withholding tax rate on cash
and/or property dividends received by a
nonresident foreign corporation from a domestic
corporation is subjected to the condition that a
foreign tax credit will be given by the domiciliary
country in an amount equivalent to taxes that
are merely deemed paid. Although true, this
provision actually refers to the tax credit as a
condition only for the imposition of a lower tax
rate, not as a deduction from the corresponding
tax liability. Besides, it is not our government
but the domiciliary country that credits against
the income tax payable to the latter by the
foreign corporation, the tax to be foregone or
spared.
In contrast, Section 34(C)(3), in relation to
Section 34(C)(7)(b), categorically allows as
credits, against the income tax imposable under
Title II, the amount of income taxes merely
incurred -- not necessarily paid -- by a domestic
corporation during a taxable year in any foreign
country. Moreover, Section 34(C)(5) provides
that for such taxes incurred but not paid, a tax
credit may be allowed, subject to the condition
precedent that the taxpayer shall simply give a
bond with sureties satisfactory to and approved
by petitioner, in such sum as may be required;
and further conditioned upon payment by the transitional input tax credit against the output
taxpayer of any tax found due, upon petitioner’s VAT it has paid. Hence, it is merely availing of
redetermination of it. the tax credit incentive given by law to first time
VAT taxpayers. As we have said in the earlier
In addition to the above-cited provisions in the case of Fort Bonifacio, the provision on
Tax Code, there are also tax treaties and transitional input tax credit was enacted to
special laws that grant or allow tax credits, even benefit first time VAT taxpayers by mitigating
though no prior tax payments have been made. the impact of VAT on the taxpayer.45 Thus,
contrary to the view of Justice Carpio, the
Under the treaties in which the tax credit granting of a transitional input tax credit in favor
method is used as a relief to avoid double of petitioner, which would be paid out of the
taxation, income that is taxed in the state of general fund of the government, would be an
source is also taxable in the state of residence, appropriation authorized by law, specifically
but the tax paid in the former is merely allowed Section 105 of the old NIRC.
as a credit against the tax levied in the latter.
Apparently, payment is made to the state of The history of the transitional input tax credit
source, not the state of residence. No tax, likewise does not support the ruling of the CTA
therefore, has been previously paid to the latter. and CA. In our Decision dated April 2, 2009, in
the related case of Fort Bonifacio, we explained
Under special laws that particularly affect that:
businesses, there can also be tax credit
incentives. To illustrate, the incentives provided If indeed the transitional input tax credit is
for in Article 48 of Presidential Decree No. (PD) integrally related to previously paid sales taxes,
1789, as amended by Batas Pambansa Blg. the purported causal link between those two
(BP) 391, include tax credits equivalent to either would have been nonetheless extinguished long
five percent of the net value earned, or five or ago. Yet Congress has reenacted the
ten percent of the net local content of export. In transitional input tax credit several times; that
order to avail of such credits under the said law fact simply belies the absence of any
and still achieve its objectives, no prior tax relationship between such tax credit and the
payments are necessary. long-abolished sales taxes.

From all the foregoing instances, it is evident
that prior tax payments are not indispensable to
the availment of a tax credit. Thus, the CA
correctly held that the availment under RA 7432
did not require prior tax payments by private
establishments concerned. However, we do not
agree with its finding that the carry-over of tax
credits under the said special law to succeeding
taxable periods, and even their application
against internal revenue taxes, did not
necessitate the existence of a tax liability.
The examples above show that a tax liability is
certainly important in the availment or use, not
the existence or grant, of a tax credit. Regarding
this matter, a private establishment reporting a
net loss in its financial statements is no different
from another that presents a net income. Both
are entitled to the tax credit provided for under
RA 7432, since the law itself accords that
unconditional benefit. However, for the losing
establishment to immediately apply such credit,
where no tax is due, will be an improvident
usance.44
In this case, when petitioner realized that its
transitional input tax credit was not applied in
computing its output VAT for the 1st quarter of
1997, it filed a claim for refund to recover the
output VAT it erroneously or excessively paid Following the theory of the CTA, the new
for the 1st quarter of 1997. In filing a claim for enterprise should be able to claim the
tax refund, petitioner is simply applying its transitional input tax credit because it has
Obviously then, the purpose behind the
transitional input tax credit is not confined to the
transition from sales tax to VAT.
There is hardly any constricted definition of
"transitional" that will limit its possible meaning
to the shift from the sales tax regime to the VAT
regime. Indeed, it could also allude to the
transition one undergoes from not being a VAT-
registered person to becoming a VAT-registered
person. Such transition does not take place
merely by operation of law, E.O. No. 273 or
Rep. Act No. 7716 in particular. It could also
occur when one decides to start a business.
Section 105 states that the transitional input tax
credits become available either to (1) a person
who becomes liable to VAT; or (2) any person
who elects to be VAT-registered. The clear
language of the law entitles new trades or
businesses to avail of the tax credit once they
become VAT-registered. The transitional input
tax credit, whether under the Old NIRC or the
New NIRC, may be claimed by a newly-VAT
registered person such as when a business as it
commences operations. If we view the matter
from the perspective of a starting entrepreneur,
greater clarity emerges on the continued utility
of the transitional input tax credit.
presumably paid taxes, VAT in particular, in the registered taxpayer is obliged to remit a
purchase of the goods, materials and supplies significant portion of the income it derived from
in its beginning inventory. Consequently, as the its sales as output VAT. The transitional input
CTA held below, if the new enterprise has not tax credit mitigates this initial diminution of the
paid VAT in its purchases of such goods, taxpayer's income by affording the opportunity
materials and supplies, then it should not be to offset the losses incurred through the
able to claim the tax credit. However, it is not remittance of the output VAT at a stage when
always true that the acquisition of such goods, the person is yet unable to credit input VAT
materials and supplies entail the payment of payments.
taxes on the part of the new business. In fact,
this could occur as a matter of course by virtue There is another point that weighs against the
of the operation of various provisions of the CTA’s interpretation. Under Section 105 of the
NIRC, and not only on account of a specially Old NIRC, the rate of the transitional input tax
legislated exemption. credit is "8% of the value of such inventory or
the actual value-added tax paid on such goods,
Let us cite a few examples drawn from the New materials and supplies, whichever is higher." If
NIRC. If the goods or properties are not indeed the transitional input tax credit is
acquired from a person in the course of trade or premised on the previous payment of VAT, then
business, the transaction would not be subject it does not make sense to afford the taxpayer
to VAT under Section 105. The sale would be the benefit of such credit based on "8% of the
subject to capital gains taxes under Section 24 value of such inventory" should the same prove
(D), but since capital gains is a tax on passive higher than the actual VAT paid. This intent that
income it is the seller, not the buyer, who the CTA alluded to could have been
generally would shoulder the tax. implemented with ease had the legislature
shared such intent by providing the actual VAT
If the goods or properties are acquired through paid as the sole basis for the rate of the
donation, the acquisition would not be subject to transitional input tax credit.46
VAT but to donor’s tax under Section 98
instead. It is the donor who would be liable to In view of the foregoing, we find petitioner
pay the donor’s tax, and the donation would be entitled to the 8% transitional input tax credit
exempt if the donor’s total net gifts during the provided in Section 105 of the old NIRC. The
calendar year does not exceed P 100,000.00. fact that it acquired the Global City property
under a tax-free transaction makes no
If the goods or properties are acquired through difference as prior payment of taxes is not a
testate or intestate succession, the transfer pre-requisite.
would not be subject to VAT but liable instead
for estate tax under Title III of the New NIRC. If Section 4.105-1 of RR 7-95 is
the net estate does not exceed P 200,000.00, inconsistent with Section 105 of the old
no estate tax would be assessed. NIRC

The interpretation proffered by the CTA would As regards Section 4.105-147 of RR 7-95 which
exclude goods and properties which are limited the 8% transitional input tax credit to the
acquired through sale not in the ordinary course value of the improvements on the land, the
of trade or business, donation or through same contravenes the provision of Section 105
succession, from the beginning inventory on of the old NIRC, in relation to Section 100 of the
which the transitional input tax credit is based. same Code, as amended by RA 7716, which
This prospect all but highlights the ultimate defines "goods or properties," to wit:
absurdity of the respondents’ position. Again,
nothing in the Old NIRC (or even the New SEC. 100. Value-added tax on sale of goods or
NIRC) speaks of such a possibility or qualifies properties. – (a) Rate and base of tax. – There
the previous payment of VAT or any other taxes shall be levied, assessed and collected on
on the goods, materials and supplies as a pre- every sale, barter or exchange of goods or
requisite for inclusion in the beginning inventory. properties, a value-added tax equivalent to 10%
of the gross selling price or gross value in
It is apparent that the transitional input tax credit money of the goods or properties sold, bartered
operates to benefit newly VAT-registered or exchanged, such tax to be paid by the seller
persons, whether or not they previously paid or transferor.
taxes in the acquisition of their beginning
inventory of goods, materials and supplies. (1) The term "goods or properties" shall mean
During that period of transition from non-VAT to all tangible and intangible objects which are
VAT status, the transitional input tax credit capable of pecuniary estimation and shall
serves to alleviate the impact of the VAT on the include:
taxpayer. At the very beginning, the VAT-
 (A) Real properties held primarily for sale In this case, since petitioner is entitled to a
to customers or held for lease in the transitional input tax credit of P 5,698,200,256,
ordinary course of trade or business; x x which is more than sufficient to cover its output
x VAT liability for the first quarter of 1997, a
refund of the amount of P 359,652,009.47
In fact, in our Resolution dated October 2, 2009, erroneously paid as output VAT for the said
in the related case of Fort Bonifacio, we ruled quarter is in order.
that Section 4.105-1 of RR 7-95, insofar as it
limits the transitional input tax credit to the value WHEREFORE, the petition is
of the improvement of the real properties, is a hereby GRANTED. The assailed Decision
nullity.48 Pertinent portions of the Resolution dated July 7, 2006 of the Court of Appeals in
read: CA-G.R. SP No. 61436 is REVERSED and SET
ASIDE. Respondent Commissioner of Internal
As mandated by Article 7 of the Civil Code, an Revenue is ordered to refund to petitioner Fort
administrative rule or regulation cannot Bonifacio Development Corporation the amount
contravene the law on which it is based. RR 7- of P359,652,009.47 paid as output VAT for the
95 is inconsistent with Section 105 insofar as first quarter of 1997 in light of the transitional
the definition of the term "goods" is concerned. input tax credit available to petitioner for the
This is a legislative act beyond the authority of said quarter, or in the alternative, to issue a tax
the CIR and the Secretary of Finance. The rules credit certificate corresponding to such amount.
and regulations that administrative agencies
promulgate, which are the product of a SO ORDERED.
delegated legislative power to create new and
additional legal provisions that have the effect of MARIANO C. DEL CASTILLO
law, should be within the scope of the statutory Associate Justice
authority granted by the legislature to the
objects and purposes of the law, and should not The same legal issue resolved in the earlier
be in contradiction to, but in conformity with, the case of Fort Bonifacio Development Corporation
standards prescribed by law. v. Commissioner of Internal Revenue (G.R.
Nos. 158885 & 170680, 2 October 2009) –
To be valid, an administrative rule or regulation regarding the proper interpretation of Section
must conform, not contradict, the provisions of 105 (now Section 111(A)) of the National
the enabling law.1âwphi1 An implementing rule Internal Revenue Code (“Tax Code”) – was
or regulation cannot modify, expand, or subtract again raised in the recent case of Fort Bonifacio
from the law it is intended to implement. Any Development Corporation vs. Commissioner of
rule that is not consistent with the statute itself Internal Revenue and Revenue District Officer,
is null and void. Revenue District No. 44, Taguig and Pateros,
Bureau of Internal Revenue (G.R. No. 173425,
While administrative agencies, such as the January 22, 2013), resulting in the same
Bureau of Internal Revenue, may issue decision and dissenting opinion.
regulations to implement statutes, they are
without authority to limit the scope of the statute Section 105 of the old Tax Code provides:
to less than what it provides, or extend or
expand the statute beyond its terms, or in any
way modify explicit provisions of the law. SEC. 105. Transitional input tax credits. –
Indeed, a quasi-judicial body or an A person who becomes liable to value-added
administrative agency for that matter cannot tax or any person who elects to be a VAT-
amend an act of Congress. Hence, in case of a registered person shall, subject to the filing of
discrepancy between the basic law and an an inventory prescribed by regulations,
interpretative or administrative ruling, the basic be allowed input tax on his beginning
law prevails. inventory of good, materials and supplies
equivalent to 8% of the value of such
inventory or the actual value-added tax paid
To recapitulate, RR 7-95, insofar as it restricts on such goods, materials and supplies,
the definition of "goods" as basis of transitional whichever is higher, which shall be creditable
input tax credit under Section 105 is a nullity.49 against the output tax. (Emphasis supplied.)
As we see it then, the 8% transitional input tax
credit should not be limited to the value of the The recent case began with the purchase by
improvements on the real properties but should Fort Bonifacio Development Corporation
include the value of the real properties as well. (“FBDC”) on February 8, 1995 from the national
government of a portion of the Fort Bonifacio
Global City. On January 1, 1996, RA 7716
restructured the VAT system by, among others,
extending the VAT to real properties held first quarter of 1997 in light of the transitional
primarily for sale to customers or held for lease input tax credit available to petitioner for the
in the ordinary course of trade of business. said quarter, or in the alternative, to issue a tax
credit certificate corresponding to such amount.”
On September 19, 1996, FBDC submitted to the
BIR Revenue District No. 44 an inventory of all The CIR moved for reconsideration but this was
its real properties, the book value of which denied with finality by the Supreme Court in its
aggregated around Php71.2B, and claimed order promulgated last January 22, 2013.
entitlement to the 8% transitional input tax credit Justice Carpio again took exception to this
of roughly Php5.7B, pursuant to Section 105 of ruling of the majority and voted to grant the
the old Tax Code. motion for reconsideration filed by the CIR,
basing his argument on the same four grounds
For the first quarter of 1997, FBDC generated he had raised in this and in the 2009 FBDC
close to Php3.7B from its sales and lease of case, which the majority addressed again
lots, on which the output VAT payable was accordingly as follows:
Php368.5M. FBDC credited its Php8.9M
unutilized input tax credit on purchases of First, the dissenter argues that prior payment of
goods and services (not its transitional input tax taxes is a prerequisite before a taxpayer could
credit) and paid Php359.6M. Realizing that its avail of the transitional input tax credit. He
Php5.7B transitional input tax credit was not claims that the VAT provides a tax crediting
applied in computing its output VAT for the first system that allows a tax credit for
quarter of 1997, FBDC filed with the BIR on taxes previously paid when the same goods
November 17, 1998 a claim for refund of the and services are sold further in the chain of
Php359.6M erroneously paid as output VAT for transactions. The purpose of this tax crediting
the said period. system is to prevent double taxation in the
subsequent sale of the same product or
The Court of Tax Appeals (“CTA”), to whom the services that were already previously paid.
matter was elevated by FBDC due to the Since the national government did not pass on
inaction of the Commissioner of Internal to FBDC any previous sales tax or VAT as part
Revenue (“CIR”), denied on October 12, 2000 of the purchase price of the Global City land
FBDC’s claim for refund on the basis that “the (since (i) the national government is not subject
benefit of transitional input tax credit comes with to any tax, including VAT, when the law
the condition that business taxes should have authorizes it to sell government property like the
been paid first.” The CTA noted that since, in Global City land, and (ii) in 1995, the old VAT
this case, FBDC acquired the Global City law did not yet impose VAT on the sale of land),
property from the national government under a FBDC will not be subject to double taxation on
VAT-free sale transaction, it cannot avail of the its subsequent sale of that land and is thus not
transitional input tax credit. The CTA likewise entitled to any transitional input VAT refund or
pointed out that under Revenue Regulations credit when it subsequently sells that land.
No. (RR) 7-95, implementing Section 105 of the
Tax Code, the 8% transitional input tax credit According to the dissenter, there can be no
should be based on the value of refund or credit unless there is actual or, in the
the improvements on land, and not on the case of the transitional input tax, assumed tax
book value of the real property. payment, whether actually paid or not. In either
case, there must be a law imposing the input
FBDC filed a Petition for Review before the VAT. This can be inferred from the provision of
Court of Appeals (CA), but the latter affirmed Section 105 that a taxpayer is “allowed input tax
the decision of the CTA and further ruled, as to on his beginning inventory … equivalent to 8%
the validity of RR 7-95, that the latter is entitled …, or the actual value-added tax paid …,
to great weight as it was issued pursuant to the whichever is higher.” The phrase “actual
rule-making authority of the Secretary of value-added tax paid” means there was a law
Finance under Section 245 of the old Tax imposing the VAT, whether or not it was actually
Code. FBDC filed a Petition for Review on paid. Since there was no law imposing VAT on
Certiorari with the Supreme Court, whereupon the sale of the Global City land, there is no
the latter on September 4, 2012, through possibility of an actual or even assumed tax
Justice Mariano Del Castillo, but with Justice payment of input VAT on such sale. Hence,
Antonio Carpio (joined by Chief Justice Sereno there can be no refund or credit of input VAT.
and Justices Brion, Reyes, and Perlas-Bernabe, The dissenter claims that the transitional input
and subsequently Justice Leonen) dissenting, VAT was introduced to ease the transition from
reversed the CA decision and ordered the CIR the old VAT to the expanded VAT system by
“to refund petitioner FBDC the amount of allowing an 8% presumptive input VAT on
Php359,652,009.47 paid as output VAT for the goods and services newly covered by the
expanded VAT system without need of
substantiating the same, on the legal
presumption that the VAT imposed by law
prior to the expanded VAT system had been
paid, regardless of whether it was actually
paid.
The majority believes though that prior payment
of taxes in not necessary before a taxpayer
could avail of the 8% transitional input tax
credit. First, all that Section 105 requires for a
taxpayer to avail of the 8% transitional input tax
credit is to file a beginning inventory with the
BIR. Second, since Section 105 does not
provide for prior payment of taxes, to require it
now would be tantamount to judicial legislation.
Third, a transitional input tax credit is not a tax
refund per se but a tax credit and, logically, prior
payment of taxes is not required before a
taxpayer could avail of transitional input tax
credit. Fourth, as held in the 2009 FBDC case,
if the intent of the law were to limit the input tax
to cases where actual VAT was paid, it could
have simply said that the tax base shall be the
actual VAT paid. Instead, the law as framed
contemplates a situation where a transitional
input tax credit is claimed even if there was no
actual payment of VAT in the underlying
transaction. In such cases, the tax base used
shall be the value of the beginning inventory of
good, materials and supplies. In this regard, the
majority ruled that RR 7-95, insofar as it
restricts the definition of “goods” under Section
105 in relation to Section 100 of the old Tax
Code (which includes “real properties held
primarily for sale to customers or held for lease
in the ordinary course of business”) and limits
the transitional input tax credit to the value of
the improvements of the real properties, is an
administrative regulation that contravenes the
law on which it is based and is hence a nullity.
Fifth, as held in Commissioner of Internal
Revenue v. Central Luzon Drug Corp(496 Phil.
307 (2005):
While a tax liability is essential to the availment
or use of any tax credit, prior tax payments are
not. On the contrary, for the existence or
grant solely of such tax credit, neither a tax
liability nor a prior tax payment is needed. The
Tax Code is replete with provisions granting or
allowing tax credits even though no taxes have
been previously paid (e.g., Tax Code Section
86(E) on estate taxes and Section 101(C) on
donor’s taxes which allow tax credits for taxes
paid to a foreign country, even if not made to
our government; and Sections 110, 111(B),
112(A), 28(B)(5)(b), and 34(C)(3) in relation to
Section 34(C)(7)(b) which allow a tax credit
where no tax is actually paid prior to availment
of the credit)
xxx
In addition to the above-cited provisions in the
Tax Code, there are also tax treaties and
special laws (e.g., Article 48 of PD 1789, as
amended by BP 391) that grant or allow tax
credits, even though no prior tax payments have
been made.
xxx
Citing further the history of the transitional input
tax credit, the majority dispels dissenter’s claim
that the transitional input tax credit is integrally
related to previously paid sales taxes since
Congress has reenacted the transitional input
tax credit several times, belying the absence of
any relationship between such tax credit and
the long-abolished sales taxes. Section 105
states that the transitional input tax credit may
be claimed by a newly-VAT registered person
such as a starting enterprise. It is not always
true that the acquisition of goods, materials and
supplies by a new business entails the payment
of taxes on its part. For example, if the goods
are not acquired from a person in the course of
trade or business, the sale would be subject to
capital gains tax, not VAT, and it is the seller
who would shoulder the tax. If acquired through
donation, again it is not subject to VAT but to
donor’s tax which the donor would be liable to
pay. If through succession, again the transfer
would not be subject to VAT but liable instead
for estate tax. The interpretation proffered by
the CTA and the dissenter would exclude goods
which are acquired through the foregoing
means from the beginning inventory on which
the transitional input tax credit is based. Nothing
in the Tax Code qualifies the previous payment
of VAT or any other taxes on the goods as a
prerequisite for inclusion in the beginning
inventory.
Second, the dissenter argues that Section
110(B) of the Tax Code does not allow any cash
refund of input VAT (which the decision of
September 4, 2012 erroneously allowed), only a
tax credit of the input VAT against output VAT,
and any excess of the input VAT can only be
carried over to the succeeding quarters until
totally credited or used up.
The majority believes, as it had already held in
the 2009 FBDC case, that, while Section 110
only provides for a tax credit, a taxpayer who
excessively pays his output tax is entitled to
recover the payments either as a tax credit or
tax refund, and notes that both the 2009 FBDC
decision and the September 4, 2012 decision
did not outrightly direct the cash refund but
instead directed the CIR to either refund the
amount paid as output VAT or to issue a tax
credit certificate.
Third, the dissenter claims that Section 112(A)
of the Tax Code does not allow any cash refund
or credit of transitional input tax even for zero-
rated or effectively zero-rated taxpayers:
Sec. 112. Refunds or Tax Credits of Input Tax
In sum, the majority believes that adopting the
arguments presented by the dissenter would
result in the courts limiting the application or
coverage of a law or imposing conditions not
provided therein and that to do so would
constitute judicial legislation.

(A) Zero-rated or Effectively Zero-rated G.R. No. 175707 November 19, 2014
Sales. – Any VAT-registered person, whose
sales are zero-rated or effectively zero-rated, FORT BONIFACIO DEVELOPMENT
may within two (2) years after the close of the CORPORATION, Petitioner,
taxable quarter when the sales were made, vs.
apply for the issuance of a tax credit certificate COMMISSIONER OF INTERNAL REVENUE
or refund of creditable input tax due or paid and REVENUE DISTRICT OFFICER,
attributable to such sales, except transitional REVENUE DISTRICT NO. 44, TAGUIG and
input tax, to the extent that such input tax has PATEROS, BUREAU OF INTERNAL
not been applied against output tax: xxx REVENUE, Respondents.
(Emphasis supplied)
x-----------------------x
Contrary to the dissent, the majority believes
that Section 112 does not prohibit cash refund G.R. No. 180035
or tax credit of transitional input tax and that the
phrase “except transitional input tax” was FORT BONIFACIO DEVELOPMENT
inserted not to exclude tax refunds or credits of CORPORATION, Petitioner,
transitional input tax but to distinguish vs.
transitional input tax from creditable input tax. COMMISSIONER OF INTERNAL REVENUE
Transitional input tax credits are input taxes on and REVENUE DISTRICT OFFICER,
a taxpayer’s beginning inventory and may only REVENUE DISTRICT NO. 44, TAGUIG and
be availed of once by first-time VAT taxpayers. PATEROS, BUREAU OF INTERNAL
On the other hand, creditable input taxes which REVENUE, Respondents.
are the subject of Section 112 are input taxes of
VAT taxpayers in the course of their trade of x-----------------------x
business, which should be applied within two
years after the close of the taxable quarter G.R. No. 181092
when the sales were made.
FORT BONIFACIO DEVELOPMENT
Fourth, the dissenter claims that the cash CORPORATION, Petitioner,
refund, not being supported by any prior actual vs.
tax payment, is unconstitutional since public COMMISSIONER OF INTERNAL REVENUE
funds will be used to pay for the refund which is and REVENUE DISTRICT OFFICER,
for the exclusive benefit of petitioner, a private REVENUE DISTRICT NO. 44, TAGUIG and
entity, contrary to Section 4(2) of the PATEROS, BUREAU OF INTERNAL
Government Auditing Code requiring that REVENUE, Respondents.
“government funds or property shall be spent or
used solely for public purposes.” Moreover, DECISION
such refund without prior tax payment is an
expenditure of public funds without an
appropriation law. Without any previous tax LEONARDO-DE CASTRO, J.:
payment as source, a tax refund or credit will be
paid out of the general funds of the government, The Court has consolidated these three
a payment that requires an appropriation law. petitions as they involve the same parties,
The Tax Code, particularly its provisions on similar facts and common questions of law. This
VAT, is a revenue measure, not an is not the first time that Fort Bonifacio
appropriation law. Development Corporation (FBDC) has come to
this Court about these issues against the very
same respondents, and the Court En Banc has
The majority believes, however, that the grant of resolved them in two separate, recent
a refund or tax credit would not be cases1 that are applicable here for reasons to
unconstitutional and would not contravene the be discussed below.
Government Auditing Code because it is
precisely pursuant to Section 105 of the old Tax
Code which allows a refund or tax credit. G.R. No. 175707 is an appeal by certiorari
pursuant to Rule 45 of the 1997 Rules of Civil
Procedure from (a) the Decision2 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 FBDC’s 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.
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. 40,17was
the one that conveyed to petitioner these
parcels of land on February 8, 1995.

The CTA Resolution reconsidered and reversed In May 1996, petitioner commenced developing
its earlier Decision7 dated January 30, 2002 the Global City, and since October 1996, had
ordering respondents in CTA Case No. 6021 to been selling lots to interested buyers.18 At the
refund or issue a tax credit certificate infavor of time of acquisition, value-added tax (VAT) was
petitioner in the amount ofP77,151,020.46, not yet imposed on the sale of real properties.
representing "VAT erroneously paid by or Republic Act No. 7716(the Expanded Value-
illegally collected from petitioner for the first Added Tax [E-VAT] Law),19 which took effect on
quarter of 1998, and instead denied petitioner’s January 1, 1996, restructured the VAT system
Claim for Refund therefor."8 by further amending pertinent provisions of the
National Internal Revenue Code (NIRC).
G.R. No. 181092 is also an appeal by certiorari Section 100 of the old NIRC was so amended
pursuant to Rule 45 from the Court of Appeals by including "real properties" in the definition of
Decision9 dated December 28, 2007 in CA-G.R. the term "goods or properties," thereby
SP No. 61158 dismissing FBDC’s petition for subjecting the sale of "real properties" to VAT.
review with respect to the CTA Decision10 dated The provision, as amended, reads:
September 29, 2000 in CTA Case No. 5694.
The aforesaid CTA Decision, which the Court of SEC. 100. Value-Added Tax on Sale of Goods
Appeals affirmed, denied petitioner’s Claim for or Properties. — (a) Rate and Base of Tax. —
Refund in the amount of P269,340,469.45, There shall be levied, assessed and collected
representing "VAT erroneously paid by or on every sale, barter or exchange of goods or
illegally collected from petitioner for the fourth properties, a value-added tax equivalent to 10%
quarter of 1996."11 of the gross selling price or gross value in
money of the goods or properties sold, bartered
The facts are not in dispute. or exchanged, such tax to be paid by the seller
or transferor.
Petitioner FBDC (petitioner) is a domestic
corporation duly registered and existing under (1) The term "goods or properties" shall mean
Philippine laws. Its issued and outstanding all tangible and intangible objects which are
capital stock is owned in part by the Bases capable of pecuniary estimation and shall
Conversion Development Authority, a wholly include:
owned government corporation created by
Republic Act No. 7227 for the purpose of (A) Real properties held primarily for sale to
"accelerating the conversion of military customers or held for lease in the ordinary
reservations into alternative productive uses course of trade or business[.]
and raising funds through the sale of portions of
said military reservationsin order to promote the
While prior to Republic Act No. 7716, real estate
economic and social development of the transactions were not subject to VAT, they
country in general."12 The remaining fifty-five
became subject to VAT upon the effectivity of
per cent (55%) is owned by Bonifacio Land said law. Thus, the sale of the parcels of land by
Corporation, a consortium of private domestic petitioner became subject to a 10% VAT, and
corporations.13 this was later increased to 12%, pursuant to
Republic Act No. 9337.20 Petitioner afterwards
Respondent Commissioner of Internal Revenue becamea VAT-registered taxpayer.
is the head of the Bureau of Internal Revenue
(BIR). Respondent Revenue District Officer,
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 petitioner’s land inventory
amounted toP71,227,503,200.00.21
CA-G.R SP No. 61516. On April 22, 2003, the
CA issued its Decision32dismissing the Petition
for Review. On November 30, 2006, the Court
of Appeals issued its Resolution33 denying
petitioner’s Motion for Reconsideration.
On December 21, 2006, this Petition for Review
was filed.

On the basis of Section 105 of the Petitioner submitted its Memorandum34 on

NIRC,22 petitioner claims a transitional or November 7, 2008 while respondents filed their
presumptive input tax creditof 8% "Comment"35 on May 4, 2009.36
ofP71,227,503,200.00, the total value of the real
properties listed in its inventory, or a total inputOn December 2, 2009, petitioner submitted a
tax credit ofP5,698,200,256.00.23 After the value Supplement37 to its Memorandum dated
of the real properties was reduced dueto a November 6, 2008,stating that the said case is
reconveyance by petitioner to BCDA of a parcel intimately related to the cases of Fort Bonifacio
of land, petitioner claims that it is entitled to Development Corporation v. Commissioner of
input tax credit in the reduced Internal Revenue, G.R. No. 158885, and Fort
amountofP4,250,475,000.48.24 Bonifacio Development Corporation v.
Commissioner of Internal Revenue," G.R. No.
What petitioner seeks to be refunded are the 170680, which were already decided by this
actual VAT payments made by it in cash, which Court, and which involve the same parties and
it claims were either erroneously paid by or similar facts and issues.38
illegally collected from it.25 Each Claim for
Refund is based on petitioner’s position that it is Except for the amounts of tax refund being
entitled to a transitional input tax credit under claimed and the periods covered for each claim,
Section 105 of the old NIRC, which more than the facts in this case and in the other two
offsets the aforesaid VAT payments. consolidated cases below are thesame. The
parties entered into similar Stipulations in the
G.R. No. 175707 other two cases consolidated here.39

Petitioner’s 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 review29 by way of appeal, docketed
as CTA Case No. 5885, from the alleged
inaction by respondents of petitioner’s 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 Decision31 in CTA
Case No. 5885 denying petitioner’s 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
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 ofP77,151,020.46 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, of P318,080,792.14 due to the BIR,
based on similar grounds, petitioner filed petitioner made cash payments
with the BIR claims for refund of the totalling P269,340,469.45 and utilized (a)
amounts part of the total transitional/presumptive
of P269,340,469.45, P359,652,009.47, P input tax credit of P5,698,200,256.00
486,355,846.78, P347,741,695.74, being claimed by it to the extent
and P15,036,891.26, representing value- ofP28,413,783.00; and (b) its regular
added taxes paid by it on proceeds input tax credit of P20,326,539.69 on
derived from its sales and lease of lots purchases of goods and services.
for the quarters ended December 31,
1996, March 31, 1997, June 30, 1997, 1.11. On October 8, 1998 petitioner filed
September 30, 1997, and December 31, with the BIR a claim for refund of the
1997, respectively. After deducting these amounts ofP269,340,469.45, which it
amounts paid as valueadded tax.
of P269,340,469.45, P359,652,009.47,P
486,355,846.78, P347,741,695.74, 1.12. As of the date of the Petition, no
and P15,036,891.26 from the total action had been taken by respondents on
amount of P5,698,200,256.00 claimed by petitioner’s claim for refund.47 (Emphases
petitioner as input tax credit, the ours.)
remaining input tax credit more than
sufficiently covers the amount submitted its Memorandum48 on
of P77,151,020.46 subject of petitioner’s Petitioner
claim for refund of November 22, 1999. January 18, 2010 while respondents filed theirs
on October 14, 2010.49
1.15. As of the date of the Petition, no On March 14, 2013, petitioner filed a Motion for
action had been taken by respondents on Consolidation50 of G.R. No. 181092 with G.R.
petitioner’s claim for refund of November No. 175707.
22, 1999.41 (Emphases ours.)
On January 23, 2014, petitioner filed a Motion to
The petition in G.R. No. 180035 "seeks to Resolve51 these consolidated cases, alleging
correct the unauthorized limitation of the term that the parties had already filed their respective
‘real properties’ to ‘improvements thereon’ by memoranda; and, more importantly, that the
Revenue Regulations 7-95 and the error of the
principal issue in these cases, whether
Court of Tax Appeals and Court of Appeals in petitioner is entitled to the 8% transitional input
sustaining the aforesaid Regulations."42 This tax granted in Section 105 (now Section 111[A])
theory of petitioner is the same for all three
cases now before us. 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
On March 14, 2013, petitioner filed a Motion for question, had already been resolved by the
Consolidation43 of G.R. No. 180035 with G.R. Supreme Court En Bancin its Decision dated
No. 175707. April 2, 2009 in G.R. Nos. 158885 and 170680,
as well as its Decision dated September 4, 2012
Petitioner submitted its Memorandum44 on in G.R. No. 173425. Petitioner further alleges
September 15, 2009 while respondents filed that said decided cases involve the same
theirson September 22, 2009.45 parties, facts, and issues as the cases now
before this Court.52
G.R. No. 181092
THEORY OF PETITIONER
The facts summarized below are found in the
parties’ Stipulation of Facts, Documents and Petitioner claims that "the 10% value-added tax
Issue in CTA Case No. 569446: is based on the gross selling price or gross
value in money of the ‘goods’ sold, bartered or
1.09. Per VAT returns filed by petitioner exchanged."53 Petitioner likewise claims thatby
with the BIR, for the fourth quarter of definition, the term "goods" was limited to
1996, petitioner derived the total amount "movable, tangible objects which is appropriable
of P3,498,888,713.60 from its sales and or transferable" and that said term did not
lease of lots, on which the output VAT originally include "real property."54 It was
payableto the Bureau of Internal previously defined as follows under Revenue
Revenue wasP318,080,792.14. Regulations No. 5-87:

1.10. The VAT returns filed by petitioner (p) "Goods" means any movable, tangible
likewise show that to pay said amount objects which is appropriable or transferrable.
Republic Act No. 7716 (E-VAT Law, January 1, declaration or the consideration whichever is
1996) expanded the coverage of the original higher.
VAT Law (Executive Order No. 273), specifically
Section 100 of the old NIRC. According to "Taxable sale" refers to the sale, barter,
petitioner, while under Executive Order No. 273, exchange and/or lease of goods or properties,
the term "goods" did not include real properties, including transactions "deemed sale" and the
Republic Act No. 7716, in amending Section performance of service for a consideration, all of
100, explicitly included in the term "goods" "real which are subject to tax under Sections 100 and
properties held primarily for sale to customers 102 of the Code.
or held for lease in the ordinary course of trade
or business." Consequently, the sale, barter, or Any person otherwise required to register for
exchange of real properties was made subject VAT purposes who fails to register shall also be
to a VAT equivalent to 10% (later increased to liable to VAT on his sale of taxable goods or
12%, pursuant to Republic Act No. 9337) of the properties as defined in the preceding
gross selling price of real properties. paragraph. The sale of goods subject to excise
tax is also subject to VAT, except manufactured
Among the new provisions included by petroleum products (other than lubricating oil,
Executive Order No. 273 in the NIRC was the processed gas, grease, wax and petrolatum).
following: SEC. 105. Transitional Input Tax
Credits. — A person who becomes liable to "Goods or properties" refer to all tangible and
value-added tax orany person who elects to be intangible objects which are capable of
a VAT registered person shall, subject to the pecuniary estimation and shall include:
filing of an inventory as prescribed by
regulations, be allowed input tax on his 1. Real properties held primarily for sale to
beginning inventory of goods, materials and customers or held for lease in the ordinary
supplies equivalent to 8%of the value of such course of trade or business.
inventory or the actual value-added tax paid on
such goods, materials and supplies, whichever
is higher, which shall be creditable against the x x x x
output tax.
SECTION 4.104-1. Credits for input tax. —
According to petitioner, the E-VAT Law,
Republic Act No. 7716, did not amend Section "Input tax"means the value-added tax due from
105. Thus, Section 105, as quoted above, or paid by a VAT registered person on
remained effective even after the enactment of importation of goodsor local purchases of goods
Republic Act No. 7716. or services, including lease or use of property,
from another VAT-registered person in the
Previously, or on December 9, 1995, the course ofhis trade or business. It shall also
Secretary of Finance and the Commissioner of include the transitional or presumptive input tax
Internal Revenue issued Revenue Regulations determined in accordance with Section 105 of
No. 7-95, which included the following the Code.
provisions: SECTION 4.100-1. Value-added tax
on sale of goods or properties. — VAT is x x x x
imposed and collected on every sale, barter or
exchange or transactions "deemed sale" of SECTION 4.105-1. Transitional input tax on
taxable goods or properties at the rate of 10% beginning inventories. — Taxpayers who
of the gross selling price. became VAT-registered persons upon effectivity
of RA No. 7716 who have exceeded the
"Gross selling price" means the total amount of minimum turnover of P500,000.00 or who
money or its equivalent which the purchaser voluntarily register even if their turnover does
pays or is obligated to pay to the seller in not exceed P500,000.00 shall be entitled to a
consideration of the sale, barter or exchange of presumptive input tax on the inventory on hand
the goods or properties, excluding the value- as of December 31, 1995 on the following; (a)
added tax. The excise tax, if any, on such goods purchased for sale in their present
goods or properties shall form part of the gross condition; (b) materials purchased for further
selling price. In the case of sale, barter or processing, but which have not yet undergone
exchange of real property subject to VAT, gross processing; (c) goods which have been
selling price shall mean the consideration stated manufactured by the taxpayer; (d) goods in
in the sales document or the zonal value process and supplies, all of which are for sale or
whichever is higher. Provided however, in the for use in the course of the taxpayer's trade or
absence of zonal value, gross selling price business as a VAT-registered person.
refers to the market value shown in the latest
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.
(ii) For goods or properties purchased 273 (January 1, 1988).
with the object of resale in their present
condition, the same presumptive input Petitioner calls this an express repeal, and with
tax equivalent to 8% of the value of the the deletion of the above paragraph, what
goods unused as of December 31, 1995 stands and should be applied "is the statutory
shall be allowed, which amount may also definition in Section 100 of the NIRC of the term
be credited against the output tax of a ‘goods’ in Section 105 thereof."56
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 input tax shall be the
improvements, such as buildings, roads,
drainage systems, and other similar structures,
constructed on or after the effectivity of E.O.
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.
enforced", and is, consequently, of no effect
because it constitutes undue delegation of
legislative power.
xxxx

Petitioner assigns another error: the Court of [T]he transgression by the BIR and the CTA and
Appeals erred in holding that Revenue CA of the basic principle of separation of
Regulations No. 7-95 isa valid implementation powers, including the fundamental rule of
of the NIRC and in according it great respect, nondelegation of legislative power, is
and should have held that the same is invalid clear.65 Furthermore, petitioner claims that:
for being contrary to the provisions of Section
105 of the NIRC.59 Petitioner contends that SINCE THE PROVISIONS OF SECTION
Revenue Regulations No. 7-95 is not valid for 105 OF THE [NIRC] IN RELATION TO
being contrary to the express provisions of SECTION 100 THEREOF, ARE CLEAR,
Section 105 of the NIRC, and in fact amends THERE WAS NO BASIS AND
the same, for it limited the scope of Section 105 NECESSITY FOR THE BUREAU OF
"to less than what the law provides."60 Petitioner INTERNAL REVENUE AND THE
elaborates: COURT OF APPEALS AND THE
COURT OF TAX APPEALS TO
[Revenue Regulations No. 7-95] illegally INTERPRET AND CONSTRUE THE
constricted the provisions of the aforesaid SAME.66
section. It delimited the coverage of Section 105
and practically amended it in violation of the PETITIONER IS CLEARLY ENTITLED
fundamental principle that administrative TO THE
regulations are subordinate to the law. Based TRANSITIONAL/PRESUMPTIVE INPUT
on the numerous authorities cited above, TAX CREDIT GRANTED IN SECTION
Section 4.105-1 and the Transitory Provisions of 105 OF THE NIRCAND HENCE TO A
Revenue Regulations No. 7-95 are invalid and REFUND OF THE VALUE-ADDED TAX
ineffective insofar as they limit the input tax PAID BY IT FOR THE SECOND
credit to 8% of the value of the "improvements" QUARTER OF 1997.67
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 Petitioner insists that there was no basis and
necessity for the BIR, the CTA, and the Court of
should have so held.61 Petitioner likewise raises Appeals to interpret
the following arguments: and construe Sections 100
and 105 of the NIRC because "where the law
speaks in clear and categorical language, or the
● The rule that the construction given by the terms of the statute are clear and unambiguous
administrative agency charged with the and free from doubt, there is no room for
enforcement of the law should be accorded interpretation or construction and no
great weight by the courts, does not apply interpretation or construction is called for; there
here.62 ● x x x Section 4.105-1 of Revenue is only room for application."68 Petitioner asserts
Regulations No. 7-95 neither exclude[s] nor that legislative intent is determined primarily
prohibit[s] that the 8% input tax credit may also from the language of the statute; legislative
[be] based on the taxpayer’s inventory of land.63 intent has to be discovered from the four
corners of the law; and thus, where no
● The issuance of Revenue Regulations No. 7- ambiguity appears, it may be presumed
95 by the [BIR], which changed the statutory conclusivelythat the clear and explicit terms of a
definition of "goods" with regard to the statute express the legislative intention.69
application of Section 105 of the NIRC, and the
declaration of validity of said regulations by the So looking at the cases now before us,
Court of Appeals and Court of Tax Appeals, petitioner avers that the Court of Appeals, the
was in violation of the fundamental principle of CTA, and the BIR did not merely interpret and
separation of powers.64 construe Section 105, and that they virtually
amended the said section, for it is allegedly
xxxx clear from Section 105 of the old NIRC, in
relation to Section 100, that "legislative intent is
Insofar, therefore, as Revenue Regulation[s] to the effect that the taxpayer is entitled to the
No. 7-95 limited the scope of the term "goods" input tax credit based on the value of the
under Section 105, to "improvements" on real beginning inventory of land, not merely on the
properties, contrary to the definition of "goods" improvements thereon, and irrespective of any
in Section 100, [RR] No. 7-95 decreed "what the prior payment of sales tax or VAT."70
law shall be", now "how the law may be
THEORY OF RESPONDENTS tax credit in respect of its inventory of land
brought into the VAT regime beginning January
Petitioner’s claims for refund were consistently 1, 1996, in view of the following:
denied in the three cases now before us. Even if
inone case, G.R. No. 180035, petitioner 1. VAT free acquisition of the raw land.–
succeeded in getting a favorable decision from petitioner purchased and acquired, from the
the CTA, the grant of refund or tax credit was Government, the aforesaid raw land under a
subsequently reversed on respondents’ Motion VAT free sale transaction. The Government, as
for Reconsideration, and such denial a vendor, was tax-exempt and accordingly did
ofpetitioner’s claim was affirmed by the Court of not pass on any VAT or sales tax as part of the
Appeals. Respondents’ reasons for denying price paid therefor by the petitioner.
petitioner’s claims are summarized in their
Comment in G.R. No. 175707, and we quote: 2. No transitory input tax on inventory of land is
allowed. Section 105 of the Code, as amended
REASONS WHY PETITION SHOULD BE by Republic Act No. 7716, and as implemented
DENIED OR DISMISSED by Section 4.105-1 of Revenue Regulations No.
7-95, expressly provides that no transitional
1. The 8% input tax credit provided for in input tax credit shall be allowed to real estate
Section 105 of the NIRC, in relation to dealers in respect of their beginning inventory of
Section 100 thereof, is based on the land brought into the VAT regime beginning
value of the improvements on the land. January 1, 1996 (supra). Likewise, the
Transitory Provisions [(a) (iii)] of Revenue
2. The taxpayer is entitled to the input tax Regulations No. 7-95 categorically states that
credit provided for in Section 105 of the "for real estate dealers, the presumptive input
NIRC only if it has previously paid VAT or tax of 8% of the book value of improvements
sales taxes on its inventory of land. constructed on or after January 1, 1998
(effectivity of E.O. 273) shall be allowed." For
Revenue purposes of subparagraphs (i), (ii) and (iii)
3. Section 4.105-1 of above, an inventory as of December 31, 1995
Regulations No. 7-95 of the BIR is valid, ofsuch goods or properties and improvements
effective and has the force and effect of showing the quantity, description, and amount
law, which implemented Section 105 of should be filed with the
the NIRC. 71 RDO not later than
January 31, 1996. It is admitted that petitioner
filed its inventory listing of real properties on
In respondents’ Comment72 dated November 3, September 19, 1996 or almost nine (9) months
2008 in G.R. No. 180035, they averred that late in contravention [of] the requirements in
petitioner’s claim for the 8% Revenue Regulations No. 7-95."77
transitional/presumptive input tax is
"inconsistent with the purpose and intent of the Respondents, quoting the Civil Code,78 argue
law in granting such tax refund or tax that Section 4.105-1 of Revenue Regulations
credit."73 Respondents raise the following No. 7-95 has the force and effect of a law since
arguments:
it is not contrary to any law or the Constitution.
Respondents add that "[w]hen the
1. The transitional input tax provided administrative agency promulgates rules and
under Section 105 in relation to Section regulations, it makes a new law with the force
100 of the Tax Code, as amended by EO and effect of a valid law x x x."79
No. 273 effective January 1, 1988, is
subject to certain conditions which ISSUES
petitioner failed to meet.74
The main issue before us now is whether or not
2. The claim for petitioner for transitional
petitioner is entitled to a refund of the amounts
input tax is in the nature of a tax of: 1)P486,355,846.78 in G.R. No. 175707,
exemption which should be strictly
construed against it.75 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
3. Revenue Regulations No. 7-95 is valid said amounts.
and consistent with provisions of the
NIRC.76 Moreover, respondents contend To resolve the issue stated above, it is also
that: necessary to determine:
"[P]etitioner is not legally entitled to any ● Whether the transitional/presumptive input tax
transitional input tax credit, whether it be the 8% credit under Section 105 of the NIRC may be
presumptive inputtax credit or any actual input
claimed only on the "improvements" on real improvements on the land, citing Section 4.105-
properties; 1 of Revenue Regulations No. 7-95, which the
CTA claims is consistent and in harmony with
● Whether there must have been previous the law it seeks to implement. Thus, the CTA
payment of sales tax or value added tax by denied petitioner’s claim for refund.
86

petitioner on its land before it may claim the

input tax credit granted by Section 105 of the 2. CA-G.R. No. 61516 Decision (April 22, 2003)
NIRC;
The Court of Appeals affirmed the CTA and
● Whether Revenue Regulations No. 7-95 is a ruled that petitioner is not entitled to refund or
valid implementation of Section 105 of the tax credit in the amount of P486,355,846.78 and
NIRC; and stated that "Revenue Regulations No. 7-95 is a
valid implementation of the NIRC."87 According
● Whether the issuance of Revenue to the Court of Appeals:
Regulations No. 7-95 by the BIR, and
declaration of validity of saidRegulations by the "[P]etitioner acquired the contested property
Court of Tax Appeals and the Court of Appeals, from the National Government under a VAT-free
was in violation of the fundamental principle of transaction. The Government, as a vendor was
separation of powers. outside the operation of the VATand ergo, could
not possibly have passed on any VAT or sales
THE RULINGS BELOW tax as part of the purchase price to the
petitioner as vendee."88
A. G.R. No. 175707
x x x [T]he grant of transitional input tax credit
1. CTA Case No. 5885 Decision (October 13, indeed presupposes that the manufacturers,
2000) producers and importers should have previously
paid sales taxes on their inventories. They were
The CTA traced the history of "transitional input given the benefit of transitional input tax credits,
tax credit" from the original VAT Law of 1988 sales taxesto which
precisely, make up for the previously paid
(Executive Order No. 273) up to the Tax Reform VAT Law. It bears were now abolished by the
stressing that the VAT Law
Act of 1997 and looked into Section 105 of the took the place of privilege taxes, percentage
Tax Code. According to the CTA, the BIR taxes and sales taxes on original or subsequent
issued Revenue Regulations No. 5-87, sale of articles. These taxes were substituted by
specifically Section 26(b),80 to implement the the VAT at the constant rate of 0% or 10%.89
provisions of Section 105. The CTA concluded
from these provisions that "the purpose of
granting transitional input tax credit to be 3. CA-G.R. No. 61516 Resolution (November
utilized as payment for output VAT is primarily 30, 2006)
to give recognition to the sales tax component
of inventories which would qualify as input tax Upon petitioner’s Motion for Reconsideration,
credit had such goods been acquired during the the Court of Appeals affirmed its decision, but
effectivity of the VAT Law of 1988."81The CTA we find the following statement by the appellate
stated that the purpose of transitional input tax court worthy of note:
credit remained the same even after the
amendments introduced by the E-VAT We concede that the inventory restrictions
Law.82 The CTA held that "the rationale in under Revenue Regulation No. 7-95 limiting the
granting the transitional input tax credit also coverage of the inventory only to acquisition
serves as its condition for its availment as a cost of the materials used in building
benefit"83 and that "[i]nherent in the law is the "improvements" has already been deleted by
condition of prior payment of VAT or sales Revenue Regulation 6-97. This notwithstanding,
taxes."84 The CTA excluded petitioner from we are poised to sustain our earlier ruling as
availing of the transitional input tax credit regards the refund presently claimed.90
provided by law, reasoning that "to base the 8%
transitional input tax on the book value of the B. G.R. No. 180035
land isto negate the purpose of the law in
granting such benefit. It would be tantamount to 1. CTA Case No. 6021 Decision (January 30,
giving an undeserved bonus to real estate 2002)
dealers similarly situated as petitioner which the
Government cannot afford to
provide."85 Furthermore, the CTA held that The CTA sustained petitioner’s position and
held that respondent erred in basing the
respondent was correct in basing the 8% transitional input tax credit of real estate dealers
transitional input tax credit on the value of the
on the value of the improvements.91 The CTA Clearly, Petitioner is entitled to the presumptive
ratiocinated as follows: input tax in the amount of P5,698,200,256.00,
computed as follows:
This Court, in upholding the position taken by
the petitioner, is convinced that Section 105 of Book Value of Inventory x x
the Tax Code is clear in itself. Explicit therefrom x P71,227,503,200.00
is the fact that a taxpayer shall be allowed a
transitional/presumptive input tax credit based Multiply by Presumptive
on the value of its beginning inventory of goods
which is defined in Section 100 as to Input Tax rate _____ 8%
encompass even real property. x x x.92
Available Presumptive Input
The CTA went on to point out inconsistencies it Tax P5,698,200,256.00
had found between the transitory provisions of
Revenue Regulations No. 7-95 and the law it The failure of the Petitioner to consider the
sought to implement, in the following manner:
presumptive input tax in the computation of its
output tax liability for the 1st quarter of 1998
Notice that letter (a)(ii) of the x x x transitory results to overpayment of the VAT for the same
provisions93 states that goods or properties period.
purchased with the object of resalein their
present condition comes with the corresponding To prove the fact of overpayment, Petitioner
8% presumptive input tax of the value of the presented the original Monthly VAT Declaration
goods, which amount may alsobe credited for the month of January 1998 showing the
against the output tax of a VAT-registered
person. It must be remembered that Section amount of P77,151,020.46 as the cash
component of the value-added taxes paid
100 as amended by Republic Act No. 7716 (Exhibits E-14 & E-14-A) which is the subject
extends the term "goods or properties" to real matter of the instant claim for refund.
properties held primarily for sale to customers
or held for lease in the ordinary course of trade
or business. This provision alone entitles In Petitioner’s amended quarterly VAT return for
Petitioner to the 8%presumptive input tax of the the 1st quarter of 1998 (Exhibit D-1), Petitioner
value of the land (goods or properties) sold. deducted the amount of P77,151,020.46 from
However in letter (a)(iii) of the same Transitory the total available input tax toshow that the
Provisions, Respondent apparently changed his amount being claimed would no longer be
(sic) course when it declared that real estate available as input tax credit.
dealers are only entitled to the 8% of the value
of the improvements. This glaring inconsistency In conclusion, the Petitioner has satisfactorily
between the two provisions prove that Revenue proven its entitlement to the refund of value-
Regulations No. 7-95 was not a result of an added taxes paid for the first quarter of taxable
intensive study and analysis and may have year 1998.
been haphazardly formulated.94
WHEREFORE, in view of the foregoing, the
The CTA held that the implementing regulation, Petition for Review is GRANTED. Respondents
which provides that the 8% transitional input tax are hereby ORDERED to REFUND or issue a
shall bebased on the improvements only of the TAX CREDIT CERTIFICATE in favor of the
real properties, is neither valid nor Petitioner the total amount of P77,151,020.46
effective. The CTA also sustained petitioner’s representing the erroneously paid
95
96
value-added
argument that Revenue Regulations No. 7-95 tax for the first quarter of 1998.
provides no specific date as to when the
inventory list should be submitted. The relevant 2. CTA Case No. 6021 Resolution (March 28,
portion of the CTA decision reads: 2003)

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.
The CTA reversedits earlier ruling upon
respondents’ motion for reconsideration and
thus denied petitioner’s 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 VAT registered person. More particularly, real
Code, in relation to Section 100 (a)(1)(A). estate dealers who were beforehand not subject
to VAT are allowed a tax credit to cushion the
xxxx staggering effect of the newly imposed 10%
output VAT liability under RA No. 7716.
We agree with the position taken by the
respondents that Revenue Regulations No. 7- Bearing in mind the purpose of the transitional
95 is not contrary to the basic law which it seeks input tax credit under the VAT system, We find
to implement. As clearly worded, Section 105 of it incongruous to grant petitioner’s claim for tax
the Tax Code provides that a person who refund. We take note of the fact that petitioner
becomes liable to value-added tax or any acquired the Global City lots from the National
person who elects to be a VAT-registered Government. The transaction was not subject to
person shall be allowed 8% transitional input tax any sales or business tax. Since the seller did
subject to the filing of an inventory as not pass on any tax liability to petitioner, the
prescribed by regulations. latter may not claim tax credit. Clearly then,
petitioner cannot simply demand that it is
Section 105, which requires the filing of an entitled to the transitional input tax credit.
inventory for the grant of the transitional input
tax, is couched in a manner where there is a x x x x
need for an implementing rule or regulation
tocarry its intendment. True to its wordings, the Another point.Section 105 of the National
BIR issued Revenue Regulations No. 7-95 Internal Revenue Code, as amended by EO No.
(specifically Section 4.105-1) which succinctly 273, explicitly provides that the transitional input
mentioned that the basis of the presumptive tax credit shall be based on "the beginning
input tax shall be the improvements in case of inventory of goods, materials and supplies orthe
real estate dealers.97 actual value-added tax paid on such goods,
materials and supplies, whichever is higher."
xxxx Note that the law did not simply say – the
transitional input tax credit shall be 8% of the
WHEREFORE, in view of the foregoing, the beginning inventory of goods, materials and
instant Motion for Reconsideration filed by supplies.
respondents is hereby GRANTED. Accordingly,
petitioner’s claim for refund of the alleged Instead, lawmakers went on to say that the
overpaid Value-Added Tax in the amount creditable input tax shall be whichever is higher
ofP77,151,020.46 covering the first quarter of between the value of the inventory and the
1998 is hereby DENIEDfor lack of merit.98 actual VAT paid. Necessarily then, a
comparison of these two figures would have to
3. CA-G.R. SP No. 76540 Decision (April 30, be made. This strengthens Our view that
2007) previous payment of the VAT is indispensable
to determine the actual value of the input tax
The Court of Appeals affirmed the CTA’s creditable against the output tax. So too, this is
in consonance with the present tax credit
Resolution denying petitioner’s claim for refund, method adopted in this jurisdiction whereby an
and we quote portions of the discussion from entity can credit against
the Court of Appeals decision below: or subtract from the
VAT charged on its sales or outputs the VAT
paid on its purchases, inputs and imports.
To Our mind, the key to resolving the jugular
issue of this controversy involves a deeper
analysis on how the much-contested transitional We proceed to traverse another argument
raised in this controversy. Petitioner insists that
input tax credit has been encrypted in the the term
country’s valueadded tax (VAT) system. "goods" which was one of the bases in
computing the transitional inputtax credit must
be construed so as to include real properties
xxxx held primarily for sale to customers. Petitioner
posits that respondent Commissioner practically
x x x [T]he Commissioner of Internal Revenue rewrote the law when it issued Revenue
promulgated Revenue Regulations No. 7- Regulations No. 7-95 which limited the basis of
95which laid down, among others, the basis of the 8% transitional input tax credit to the value
the transitional input tax credit for real estate of improvements alone.
dealers:99 x x x x
Petitioner is clearly mistaken.
The Regulation unmistakably allows credit for
transitional input tax of any person who
becomes liable to VAT or who elects to be a
The term "goods" has been defined to mean such tax shall include the transitional input tax
any movable or tangible objects which are determined in accordance with Section 105 of
appreciable or tangible. More specifically, the the Tax Code,supra.102
word "goods" is always used to designate
wares, commodities, and personal chattels; and Applying the rule on statutory construction that
does not include chattels real."Real property" on particular words, clauses and phrases should
the other hand, refers to land, and generally not be studied as detached and isolated
whatever is erected or growing upon or affixed expressions, but the whole and every part of the
to land. It is therefore quite absurd to equate statute must be considered in fixing the
"goods" as being synonymous to "properties". meaning of any of its parts in order to produce a
The vast difference between the terms "goods" harmonious whole, the phrase "transitional input
and "real properties" is so obvious that tax" found in Section 105 should be understood
petitioner’s assertion must be struckdown for to encompass goods, materials and supplies
being utterly baseless and specious. which are subject to VAT, in line with the
context of "input tax" as defined in Section 104,
Along this line, We uphold the validity of most especially that the latter includes, and
Revenue Regulations No. 7-95. The authority of immediately precedes, the former under its
the Secretary of Finance, in conjunction with the statutory meaning. Petitioner’s contention that
Commissioner of Internal Revenue, to the 8% transitional input tax is statutorily
promulgate all needful rules and regulations for presumed to the extent that its real properties
the effective enforcement of internal revenue which have not been subjected to VAT are
laws cannot be controverted. Neither can it be entitled thereto, would directly contradict "input
disputed that such rules and regulations, as well tax" as defined in Section 104 and would
as administrative opinions and rulings, ordinarily invariably cause disharmony.103
should deserve weight and respect by the
courts. Much more fundamental than either of The CTA held that the 8% transitional input tax
the above, however, is that all such issuances should not be viewed as an outright grant or
must not override, but must remain consistent presumption without need of prior taxes having
and in harmony with, the law they seek to apply been paid. Expounding on this, the CTA said:
and implement. Administrative rules and The simple instance in the aforesaid paragraphs
regulations are intended to carry out, neither to
of requiring the tax on the materials, supplies or
supplant nor to modify, the law. Revenue goods comprising the inventory to be currently
Regulations No. 7-95 is clearly not inconsistentunutilized as deferred sales tax credit before the
with the prevailing statute insofar as the 8% presumptive input tax can be enjoyed
provision on transitional inputtax credit is readily leads to the inevitable conclusion that
concerned.100 such 8% tax cannot be just granted toany VAT
liable person if he has no priorly paid creditable
4. CA-G.R. SP No. 76540 Resolution (October sales taxes. Legislative intent thus clearly points
8, 2007) to priorly paid taxes on goods, materials and
supplies before a VAT registered person can
104
In this Resolution, the Court of Appeals denied avail of the 8% presumptive input tax.
petitioner’s Motion for Reconsideration of its
Decision dated April 30, 2007. Anent the applicability to petitioner’s case of the
requirement under Article VI, Section 28, par. 1
C. G.R. No. 181092 of the Constitution that the rule of taxation shall
be uniform and equitable, the CTA held thus:
1. CTA Case No. 5694 Decision (September 29, Granting arguendo that Petitioner is statutorily
2000) presumed to be entitled to the 8% transitional
input tax as provided in Section 105, even
The CTA ruled that petitioner is not without having previously paid any tax on its
automatically entitled to the 8% transitional at a more of
inventory goods, Petitioner would be placed
advantageous position than a similar
input tax allowed under Section 105 of the Tax VAT-registered person who also becomes liable
Code based solely on its inventory of real to VAT but who has actually paid VAT on his
properties, and cited the rule on uniformity in purchases of goods, materials and supplies.
taxation duly enshrined in the This is evident from the alternative
Constitution.101 According to the CTA: modes of
acquiring the proper amount of transitional input
tax under Section 105, supra. One is by getting
As defined under the above Section 104 of the the equivalent amount of 8% tax based on the
Tax Code, an "input tax" means the VAT paid beginning inventory of goods, materials and
by a VAT-registered person in the course of his supplies and the other is by the actual VAT paid
trade or business on importation ofgoods or on such goods, materials and supplies,
services from a VAT registered person; and that whichever is higher.
As it is supposed to work, the transitional input power to determine the existence of facts on
tax should answer for the 10% output VAT which its operation depends x x x. Hence, there
liability thata VAT-registered person will incur is no gainsaying that the CIR and the Secretary
once he starts business operations. While a of Finance, in limiting the application of the input
VAT-registered person who is allowed a tax of real estate dealers to improvements
transitional input tax based on his actual constructed on or after January 1, 1988, merely
payment of 10% VAT on his purchases can exercised their delegated authority under Sec.
utilize the same to pay for his output VAT 105, id., to promulgate rules and regulations
liability, a similar VAT-registered person like defining what should be included in the
herein Petitioner, when allowed the alternative beginning inventory of a VAT-registered entity.
8% transitional input tax, can offset his output
VAT liability equally through such 8% tax even xxxx
without having paid any previous tax. This
obvious inequity that may arise could not have In the instant case, We find that, contrary to
been the intention and purpose of the petitioner’s attacks against its validity, the
lawmakers in granting the transitional input tax limitation on the beginning inventory of real
credit. x x x105 estate dealers contained in Sec. 4.105-1 of RR
No. 7-95 is reasonable and consistent with the
Evidently, Petitioner is not similarly situated natureof the input VAT. x x x.
both as to privileges and liabilities to that of a
VAT-registered person who has paid actual Based on the foregoing antecedents, it is clear
10% input VAT on his purchases of goods, why the second paragraph of Sec. 4.105-1 of
materials and supplies. The latter person will RR No. 7-95 limits the transitional input taxes of
not earn anything from his transitional input tax real estate dealers to the value of improvements
which, to emphasize, has been paid by him constructed on or after January 1, 1988. Since
because the same will just offset his 10% output the sale of the land was not subject to VAT or
VAT liability. On the other hand, herein other sales taxes prior to the effectivity of Rep.
Petitioner will earn gratis the amount equivalent Act No. 7716, real estate dealers at that time
to 10% output VAT it has passed on to buyers had no input taxes to speak of. With this in
for the simple reason that it has never mind, the CIR correctly limited the application of
previously paid any input tax on its goods. Its the 8% transitional input tax to improvements on
gain will be facilitated by herein claim for refund real estate dealers constructed on or after
if ever granted. This is the reason why we do January 1, 1988 when the VAT was initially
not see any incongruity in Section 4.105-1 of implemented. This is, as it should be, for to
Revenue Regulations No. 7-95 as it relates to grant petitioner a refund or credit for input taxes
Section 105 of the 1996 Tax Code, contrary to it never paid would be tantamount to unjust
the contention of Petitioner. Section 4.105-1 enrichment.
(supra), which bases the transitional input tax
credit on the value of the improvements, is As petitioner itself observes, the input tax credit
consistent with the purpose of the law x x x.106
provided for by Sec. 105 of the NIRC is a
mechanism used to grant some relief from
2. CA-G.R. SP No. 61158 Decision (December burden some taxes. It follows, therefore, that
28, 2007) The Court of Appeals affirmed the not having been burdened by VAT or any other
CTA’s denial of petitioner’s claim for refund and sales tax on its inventory of land prior to the
upheld the validity of the questioned Revenue effectivity of Rep. Act No. 7716, petitioner is not
Regulation issued by respondent Commissioner entitled to the relief afforded by Sec. 105, id.107
ofInternal Revenue, reasoning as follows:
The Court of Appeals ruled that petitioner is not
Sec. 105 of the NIRC, as amended, provides similarly situated as those business entities
that the allowance for the 8% input tax on the which previously paid taxes on their inputs, and
beginning inventory of a VAT-covered entity is stressed that "a tax refund or credit x x x is in
"subject to the filing of an inventory as the nature of a tax exemption which must be
prescribed by regulations." This means that the construed strictissimi juris against the taxpayer
legislature left to the BIR the determination of x x x."108
what will constitute the beginning inventory
ofgoods, materials and supplies which will, in THIS COURT’S RULING
turn, serve as the basis for computing the 8%
input tax.
As previously stated, the issues here have
While the power to tax cannot be delegated to already been passed upon and resolved by this
Court En Banc twice, in decisions that have
executive agencies, details as to the reached finality,
enforcement and administration of an exercise doctrine of stareanddecisis
we are bound by the
to apply those
of such power may be left to them, including the
decisions to these consolidated cases, for they of Tax Appeals and Court of Appeals,
involve the same facts, issues, and even [were] in violation of the fundamental
parties. principle of separation of powers.

Thus, we find for the petitioner. 3.05.d. Whether there is basis and
necessity to interpret and construe the
DISCUSSION provisions of Section 105 of the National
Internal Revenue Code.
The errors assigned by petitioner to the Court of
Appeals and the arguments offered by 3.05.e. Whether there must have been
respondents to support the denial of petitioner’s previous payment of business tax [sales
claim for tax refund have already been dealt tax or value-added tax]110by petitioner on
with thoroughly by the Court En Banc in Fort its land before it may claim the input tax
Bonifacio Development Corporation v. credit granted by Section 105 of the
Commissioner of Internal Revenue, G.R. Nos. National Internal Revenue Code.
158885 and 170680 (Decision - April 2, 2009;
Resolution - October 2, 2009); and Fort 3.05.f. Whether the Court of Appeals and
Bonifacio Development Corporation v. Court of Tax Appeals merely speculated
Commissioner of Internal Revenue, G.R. No. on the purpose of the
173425 (Decision - September 4, 2012; transitional/presumptive input tax
Resolution - January 22, 2013). provided for in Section 105 of the
National Internal Revenue Code.
The Court En Bancdecided on the following
issues in G.R. Nos. 158885 and 170680: 3.05.g. Whether the economic and
socialobjectives in the acquisition of the
1. In determining the 10% value-added subject property by petitioner from the
tax in Section 100 of the [Old NIRC] on Government should be taken into
the sale of real properties by real estate consideration.111
dealers, is the 8% transitional input tax
credit in Section 105 applied only to the The Court’s pronouncements in the decided
improvements on the real property or is it cases regarding these issues are discussed
applied on the value of the entire real below. The doctrine of stare decisis et non
property? quieta movere, which means "to abide by, or
adhere to, decided cases,"112 compels us to
2. Are Section 4.105.1 and paragraph apply the rulings by the Court tothese
(a)(III) of the Transitory Provisions of consolidated cases before us. Under the
Revenue Regulations No. 7-95 valid in doctrine of stare decisis, "when this Court has
limiting the 8% transitional input tax to once laid down a principle of law as applicable
the improvements on the real property? to a certainstate of facts, it will adhere to that
principle, and apply it to all future cases, where
Subsequently, in G.R. No. 173425, the Court facts are substantially the same; regardless of
resolved issues that are identical to the ones whether the parties and property are the
raised here by petitioner,109 thus: same."113 This is to provide stability in judicial
decisions, as held by the Court in a previous
case:
3.05.a. Whether Revenue Regulations
No. 6-97 effectively repealed or
repudiated Revenue Regulations No. 7- Stand by the decisions and disturb not what is
95 insofar as the latter limited the settled. Stare decisis simply means that for the
sake of certainty, a conclusion reached in one
transitional/presumptive input tax credit
which may be claimed under Section 105 case should be applied to those that follow if the
of the National Internal Revenue Code tofacts are substantially the same, even though
the "improvements" on real properties. the parties may be different. It proceeds from
the first principle of justice that, absent any
3.05.b. Whether Revenue Regulations powerful countervailing considerations, like
cases ought to be decided alike.114
No. 7-95 is a valid implementation of
Section 105 of the National Internal
Revenue Code. More importantly, we cannot depart from the
legal precedents as laid down by the Court En
3.05.c. Whether the issuance of Revenue Banc. It is provided in the Constitution that "no
Regulations No. 7-95 by the Bureau of court in or
doctrine principle of law laid down by the
a decision rendered en bancor in
Internal Revenue, and declaration of
validity of said Regulations by the Court
division may be modified or reversed except by the class "goods or properties" subject to VAT,
the court sitting en banc."115 including "[r]eal properties held primarily for sale
to customers or held for lease in the ordinary
What is left for this Court to do is to reiterate the courseof trade or business."
rulings in the aforesaid legal precedents and
apply them to these consolidated cases. From these amendments to Section 100, is
there any differentiated VAT treatment on
As regards the main issue, the Court realproperties or real estate dealers that would
conclusively held that petitioner is entitled to the justify the suggested limitations on the
8% transitional input tax on its beginning application of the transitional input tax on them?
inventory of land, which is granted in Section We see none.
105 (nowSection 111[A]) of the NIRC, and
granted the refund of the amounts petitioner Rep. Act No. 7716 clarifies that it is the real
had paid as output VAT for the different tax properties "held primarily for sale to customers
periods in question.116 or held for lease in the ordinary course of trade
or business" that are subject to the VAT, and
Whether the transitional/presumptive not when the real estate transactions are
input tax credit under Section 105 of the engaged in by persons who do not sell or lease
NIRC may be claimed only on the properties in the ordinary course of trade or
"improvements" on real properties. business. It is clear that those regularly
engaged in the real estate business are
The Court held in the earlier consolidated accorded the same treatment as the merchants
decision, G.R. Nos. 158885 and 170680, as of other goods or properties available in the
follows: On its face, there is nothing in Section market. In the same way that a milliner
105 of the Old NIRC that prohibits the inclusion considers hats as his goods and a rancher
of real properties, together with the considers cattle as his goods, a real estate
improvements thereon, in the beginning dealer holds real property, whether ornot it
inventory of goods, materials and supplies, contains improvements, as
117 (Citations omitted, emphasis added.)
his
based on which inventory the transitional input goods.
tax credit is computed. It can be conceded that
when it was drafted Section 105 could not have x x x x
possibly contemplated concerns specific to real
properties, as real estate transactions were not Under Section 105, the beginning inventory of
originally subject to VAT. At the same time, "goods" forms part of the valuation of the
when transactions on real properties were transitional input tax credit. Goods, as
finally made subject to VAT beginning withRep. commonly understood in the business sense,
Act No. 7716, no corresponding amendment refers to the product which the VAT registered
was adopted as regards Section 105 to provide person offers for sale to the public. With respect
for a differentiated treatment in the application to real estate dealers, it is the real properties
of the transitional input tax credit with respect to themselves which constitute their "goods". Such
real properties or real estate dealers. real properties are the operating assets of the
real estate dealer.
It was Section 100 of the Old NIRC, as
amended by Rep. Act No. 7716, which made Section 4.100-1 of RR No. 7-95 itself includes in
real estate transactions subject to VAT for the its enumeration of "goods or properties" such
first time. Prior to the amendment, Section 100 "real properties held primarily for sale to
had imposed the VAT "on every sale, barter or customers or held for lease in the ordinary
exchange of goods", without however specifying course of trade or business." Said definition was
the kind of properties that fall within or under the taken from the very statutory language of
generic class "goods" subject to the tax. Section 100 of the Old NIRC. By limiting the
definition of goods to "improvements" in Section
Rep. Act No. 7716, which significantly is also 4.105-1, the BIR not only contravened the
known as the Expanded Value-Added Tax definition of "goods" as provided in the Old
(EVAT) law, expanded the coverage of the VAT NIRC, but also the definition which the same
by amending Section 100 of the Old NIRC in revenue 118 regulation itself has
several respects, some of which we will provided. (Emphasis added.)
enumerate. First, it made every sale, barter or
exchange of "goods or properties" subject to The Court then emphasized in its Resolution in
VAT. Second, it generally defined "goods or G.R. No. 158885 and G.R. No. 170680 that
properties" as "all tangible and intangible Section 105 of the old NIRC, on the transitional
objects which are capable of pecuniary input tax credit, remained intact despite the
estimation." Third, it included a non-exclusive enactment of Republic Act No. 7716. Section
enumeration of various objects that fall under 105 was amended by Republic Act No. 8424,
and the provisions on the transitional input tax inventory as of December 31, 1987 of goods for
credit are now embodied in Section 111(A) of sale, the tax on which was not taken up or
the new NIRC, which reads: claimed as deferred sales tax
credit.121 (Emphasis ours.)
Section 111. Transitional/Presumptive Input Tax
Credits.— Whether there must have been previous
payment of sales tax or value-added tax
(A) Transitional Input Tax Credits.— A person by petitioner on its land before petitioner
who becomes liable to value-added tax or any may claim the input tax credit granted by
person who elects to be a VAT-registered Section 105 (now Section 111[A]) of the NIRC.
person shall, subject to the filing of an inventory
according to rules and regulations prescribed by The Court discussed this matter lengthily in its
the Secretary of [F]inance, upon Decision in G.R. Nos. 158885 and 170680, and
recommendation of the Commissioner, be we quote:
allowed input tax on his beginning inventory of
goods, materials and supplies equivalent for 8% Section 25 of E.O. No. 273 perfectly remedies
of the value of such inventory or the actual the problem assumed by the CTA as the basis
value-added tax paid on such goods, materials for the introduction of transitional input tax credit
and supplies, whichever is higher, which shall in 1987. If the core purpose of the tax credit is
be creditable against the output tax.119 only, as hinted by the CTA, to allow for some
mode of accreditation of previously-paid sales
In G.R. Nos. 158885 and 170680, the Court taxes, then Section 25 alone would have
asked, "If the plain text of Republic Act No. sufficed. Yet E.O. No. 273 amended the Old
7716 fails to supply any apparent justification for NIRC itself by providing for the transitional input
limiting the beginning inventory of real estate tax credit under Section 105, thereby assuring
dealers only to the improvements on their that the tax credit would endure long after the
properties, how then were the Commissioner of last goods made subject to sales tax have been
Internal Revenue and the courts a quoable to consumed.
justify such a view?"120 The Court then
answered this question in this manner: If indeed the transitional input tax credit is
integrally related to previously paid sales taxes,
IV. the purported causal link between those two
would have been nonetheless extinguished long
The fact alone that the denial of FBDC's claims ago. Yet Congress has reenacted the
is in accord with Section 4.105-1 of RR 7-95 transitional input tax credit several times; that
does not, of course, put this inquiry to rest. If fact simply belies the absence of any
Section 4.105-1 is itself incongruent to Rep. Act relationship between such tax credit and the
No. 7716, the incongruence cannot by itself long-abolished sales taxes. Obviously then, the
justify the denial of the claims. We need to purpose behind the transitional input tax credit
inquire into the rationale behind Section 4.105- is not confined to the transition from sales tax to
1, as well as the question whether the VAT.
interpretation of the law embodied therein is
validated by the law itself. x x x Section 105 states that the transitional
input tax credits become available either to (1) a
xxxx person who becomes liable to VAT; or (2) any
person who elects to be VAT-registered. The
It is correct, as pointed out by the CTA, that clear language of the law entitles new trades or
upon the shift from sales taxes to VAT in 1987 businesses to avail of the tax credit once they
newly-VAT registered people would have been become VAT-registered. The transitional input
prejudiced by the inability to credit against the tax credit, whether under the Old NIRC or the
output VAT their payments by way of sales tax New NIRC, may be claimed by a newly-VAT
on their existing stocks in trade. Yet that registered person such as when a business as it
inequity was precisely addressed by a transitory commences operations.
provision in E.O. No. 273 found in Section 25
thereof. The provision authorized VAT- x x x [I]t is not always true that the acquisition of
registered persons to invoke a "presumptive such goods, materials and supplies entail the
input tax equivalent to 8% of the value of the payment of taxes on the part of the new
inventory as of December 31, 1987 of materials business. In fact, this could occur as a matter of
and supplies which are not for sale, the tax on course by virtue of the operation of various
which was not taken up or claimed as deferred provisions of the NIRC, and not only on account
sales tax credit," and a similar presumptive of a specially legislated exemption.
input tax equivalent to 8% of the value of the
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.
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 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 95 for being in conflict with the law.127 The
incentive to encourage investment." decision reads in part as follows:

Fourth. The issue of whether prior payment of [There] is no logic that coheres with either E.O.
taxes is necessary to avail of transitional input No. 273 or Rep. Act No. 7716 which supports
tax credit is no longer novel. It has long been the restriction imposed on realestate brokers
settled by jurisprudence. x x x. and their ability to claim the transitional input tax
credit based on the value of their real
Fifth. Moreover, in Commissioner of Internal properties. In addition, the very idea of
Revenue v. Central Luzon Drug Corp., this excluding the real properties itself from the
Court had already declared that prior payment beginning inventory simply runs counter to what
of taxes is not required in order toavail of a tax the transitional input tax credit seeks to
credit. x x x124 (Citations omitted, emphases accomplish for persons engaged in the sale of
ours.) goods, whether or not such "goods" take the
form of real properties or more mundane
The Court has thus categorically ruled that prior commodities.
payment of taxes is not required for a taxpayer
toavail of the 8% transitional input tax credit Under Section 105, the beginning inventory of
provided in Section 105 of the old NIRC and "goods" forms part of the valuation of the
that petitioner is entitled to it, despite the fact transitional input tax credit. Goods, as
that petitioner acquired the Global City property commonly understood in the business sense,
under a tax-free transaction.125 The Court En refers to the product which the VAT registered
Banc held: person offers for sale to the public. With respect
to real estate dealers, it is the real properties
Contrary to the view of the CTA and the CA, themselves which constitute their "goods". Such
there is nothing in the abovequoted provision to real properties are the operating assets of the
indicate that prior payment of taxes is real estate dealer.
necessary for the availment of the 8%
transitional input tax credit. Obviously, all that is Section 4.100-1 of RR No. 7-95 itself includes in
required is for the taxpayerto file a beginning its enumeration of "goods or properties" such
inventory with the BIR. "real properties held primarily for sale to
customers or held for lease in the ordinary
To require prior payment of taxes x x x is not course of trade or business." Said definition was
only tantamount to judicial legislation but would taken from the very statutory language of
also render nugatory the provision in Section Section 100 of the Old NIRC. By limiting the
105 of the old NIRC that the transitional input definition of goods to "improvements" in Section
tax credit shall be "8% of the value of [the 4.105-1, the BIR not only contravened the
beginning] inventory or the actual [VAT] paid on definition of "goods" as provided in the Old
such goods, materials and supplies, whichever NIRC, but also the definition which the same
is higher" because the actual VAT (now 12%) revenue regulation itself has provided.
paid on the goods, materials, and supplies
would always be higher than the 8% (now 2%) The Court of Tax Appeals claimed that under
of the beginning inventory which, following the Section 105 of the Old NIRC the basis for the
view of Justice Carpio, would have to exclude inventory of goods, materials and supplies upon
all goods, materials, and supplies where no which the transitional input VAT would be based
taxes were paid. Clearly, limiting the value of "shall be left to regulation by the appropriate
the beginning inventory only to goods, administrative authority". This is based on the
materials, and supplies, where prior taxes were phrase "filing of an inventory as prescribed by
paid, was not the intention of the law. regulations" found in Section 105. Nonetheless,
Otherwise, it would have specifically stated that Section 105 does include the particular
the beginning inventory excludes goods, properties to be included in the inventory,
materials, and supplies where no taxes were namely goods, materials and supplies. It is
paid.126 questionable whether the CIR has the power to
actually redefine the concept of "goods", as she
Whether Revenue Regulations No. 7-95 is did when she excluded real properties from the
a valid implementation of Section 105 of class of goods which real estate companies in
the NIRC. the business of selling real properties may
include in their inventory. The authority to
In the April 2, 2009 Decision inG.R. Nos. prescribe regulations can pertain to more
technical matters, such as how to appraise the
158885 and 170680, the Court struck down value of the inventory or what papers need to
Section 4.105-1 ofRevenue Regulations No. 7- be filed to properly itemize the contents of such
inventory. But such authority cannot go as far
as to amend Section 105 itself, which the To be valid, an administrative rule or regulation
Commissioner had unfortunately accomplished must conform, not contradict, the provisions of
in this case. the enabling law. An implementing rule or
regulation cannot modify, expand, or subtract
It is of course axiomatic that a rule or regulation from the law it is intended to implement. Any
must bear upon, and be consistent with, the rule that is not consistent with the statute itself
provisions of the enabling statute if such rule or is null and void.
regulation is to be valid. In case of conflict
between a statute and an administrative order, While administrative agencies, such as the
the former must prevail. Indeed, the CIR has no Bureau of Internal Revenue, may issue
power to limit the meaning and coverage of the regulations to implement statutes, they are
term "goods" in Section 105 of the Old NIRC without authority to limit the scope of the statute
absent statutory authority or basis to make and to less than what it provides, or extend or
justify such limitation. A contrary conclusion expand the statute beyond itsterms, or in any
would mean the CIR could very well moot the way modify explicit provisions of the law.
law or arrogate legislative authority unto himself Indeed, a quasi-judicial body or an
by retaining sole discretion to provide the administrative agency for that matter cannot
definition and scope of the term amend an act of Congress. Hence, in case of a
"goods."128 (Emphasis added.) discrepancy between the basic law and an
interpretative or administrative ruling, the basic
Furthermore, in G.R. No. 173425, the Court law prevails.
held:
To recapitulate, RR 7-95, insofar as it restricts
Section 4.105-1 of RR 7-95 is the definition of "goods" as basis of transitional
inconsistent with Section 105 of the input tax credit under Section 105 is a nullity.
old NIRC
As we see it then, the 8% transitional input tax
As regards Section 4.105-1 ofRR 7-95 which creditshould not be limited to the value of the
limited the 8% transitional input tax credit to the improvements on the real properties but should
value of the improvements on the land, the include the value of the real properties as
129 (Citations omitted, emphasis ours.)
same contravenes the provision of Section 105 well.
of the old NIRC, in relation to Section 100 of the
same Code, as amended by RA 7716, which Whether the issuance of Revenue
defines "goods or properties," to wit: Regulations No. 7-95 by the BIR, and
declaration of validity of said Regulations
xxxx by the CTA and the Court of Appeals,
was in violation of the fundamental
In fact, in our Resolution dated October 2, 2009, principle of separation of powers.
in the related case of Fort Bonifacio, we ruled
that Section 4.105-1 of RR 7-95, insofar as it In the Resolution dated October 2, 2009 in G.R.
limits the transitional input tax credit to the value Nos. 158885 and 170680 the Court denied the
of the improvement of the real properties, is a respondents’ Motion for Reconsideration with
nullity. Pertinent portions of the Resolution read: finality and held:

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.
[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
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 To be valid, an administrative ruleor regulation
include: must conform, not contradict, the provisions of
the enabling law. An implementing rule or
(A) Real properties held primarily for sale to regulation cannot modify, expand, or subtract
customers or held for lease in the ordinary from the law itis intended to implement. Any rule
course of trade or business; x x x." that is not consistent with the statute itself is null
and void. While administrative agencies, such
The amendatory provision of Section 105 of the as the Bureau of Internal Revenue, may issue
NIRC, as introduced by RA 7716, states: regulations to implement statutes, they are
without authority to limit the scope of the statute
"Sec. 105. Transitional Input [T]ax Credits.— A to less than what it provides, or extend or
expand the statute beyond itsterms, or in any
person who becomes liable to value-added tax way modify explicit provisions of the law.
or any person who elects to be a VAT- Indeed,
registered person shall, subject to the filing of administrative quasi-judicial
a body or an
agency for that mattercannot
an inventory as prescribed by regulations, be amend an act of Congress. Hence, in case of a
allowed input tax on his beginning inventory of discrepancy between the basic law and an
goods, materials and supplies equivalent to 8% interpretative or administrative ruling, the basic
of the value of such inventory or the actual law prevails.
value-added tax paid on such goods, materials
and supplies, whichever is higher, which shall
be creditable against the output tax." 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.
The term "goods or properties" by the
unambiguous terms of Section 100 includes
"real properties held primarily for sale to On January 1, 1997, RR 6-97 was issued by the
c[u]st[o]mers or held for lease in the ordinary Commissioner of Internal Revenue.1âwphi1 RR
course of business." Having been defined in 6-97 was basically a reiteration of the same
Section 100 of the NIRC, the term "goods" as Section 4.105-1 of RR 7-95, except that the RR
used in Section 105 of the same code could not 6-97 deleted the following paragraph:
have a different meaning. This has been
explained in the Decision dated April 2, 2009, "However, in the case of real estate dealers, the
thus: basis of the presumptive input tax shall be the
improvements, such as buildings, roads,
xxxx drainage systems, and other similar structures,
constructed on or after the effectivity of E.O.
273 (January 1, 1988)."
Section 4.105-1 of RR 7-95 restricted the
definition of "goods," viz.:
It is clear, therefore, that under RR 6-97, the
allowable transitional input tax credit is not
"However, in the case of real estate dealers, the limited to improvements on real properties. The
basis of the presumptive input tax shall be the particular provision of RR 7-95 has effectively
improvements, such as buildings, roads, been repealed by RR 6-97 which is now in
drainage systems, and other similar structures, consonance with Section 100 of the NIRC,
constructed on or after the effectivity of EO 273 insofar as the definition of real properties as
(January 1, 1988)."
goods is concerned. The failure to add a
specific repealing clause would not necessarily
As mandated by Article 7 of the Civil Code, an indicate that there was no intent to repeal RR 7-
administrative rule or regulation cannot 95. The fact that the aforequoted paragraph
contravene the law on which it is based. RR 7- was deleted created an irreconcilable
95 is inconsistent with Section 105 insofar as inconsistency and repugnancy between the
the definition of the term"goods" is concerned. provisions of RR 6-97 and RR 7-95.
This is a legislative act beyond the authority of
the CIR and the Secretary of Finance. The rules x x x x
and regulations that administrative agencies
promulgate, which are the product of a
delegated legislative power to create new and As pointed out in Our Decision ofApril 2, 2009,
additional legal provisions that have the effect of to give Section 105 a restrictive construction
law, should be within the scope of the statutory that transitional input tax credit applies only
authority granted bythe legislature to the objects when taxes were previously paid on the
and purposes of the law, and should not be in properties in the beginning inventory and there
contradiction to, but in conformity with, the is a law imposing the tax which is presumed to
standards prescribed by law. 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 3) P269,340,469.45 paid as output value-
not there. To do so will violate the principle of added tax for the fourth quarter of 1996
separation of powers which prohibits this Court (G.R. No. 181092).
from engaging in judicial
legislation.130 (Emphases added.) SO ORDERED.

As the Court En Banc held in G.R. No. 173425, TERESITA J. LEONARDO-DE CASTRO
the issues in this case are not novel. These Associate Justice
same issues have been squarely ruled upon by
this Court in the earlier decided casesthat have G.R. No. 187485 February 12, 2013
attained finality.131
COMMISSIONER OF INTERNAL
It is now this Court’s duty to apply the previous REVENUE, Petitioner,
rulings to the present case. Once a case has vs.
been decided one way, any other case involving SAN ROQUE POWER
exactly the same point at issue, as in the CORPORATION, Respondent.
present case, should be decided in the same
manner.132 X----------------------------X
Thus, we find that petitioner is entitled to a G.R. No. 196113
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. TAGANITO MINING
181092, which petitioner paid as value-added CORPORATION, Petitioner,
tax, or toa tax credit for said amounts. vs.
WHEREFORE, in view of the foregoing, the COMMISSIONER OF INTERNAL
consolidated petitions are hereby GRANTED. REVENUE, Respondent.
The following are REVERSED and SET ASIDE:
x----------------------------x
1) Under G.R. No. 175707, the
Decisiondated April 22, 2003 of the Court G.R. No. 197156
of Appeals in CA-G.R. SP No. 61516 and
its subsequent Resolution dated PHILEX MINING CORPORATION, Petitioner,
November 30, 2006; vs.
COMMISSIONER OF INTERNAL
2) Under G.R. No. 180035, the REVENUE, Respondent.
Decisiondated April 30, 2007 of the Court
of Appeals in CA-G.R. SP No. 76540 and D E C I S I O N
its subsequent Resolution dated October
8, 2007; and CARPIO, J.:

3) Under G.R. No. 181092, the The Cases

Decisiondated December 28, 2007 of the
Court of Appeals in CA-G.R. SP No. G.R. No. 187485 is a petitiOn for
61158. review1 assailing the Decision2 promulgated on
25 March 2009 as well as the
Respondent Commissioner of Internal Revenue Resolution3 promulgated on 24 April 2009 by
is ordered to REFUND, OR, IN THE the Court of Tax Appeals En Banc (CTA EB) in
ALTERNATIVE, TO ISSUE A TAX CREDIT CTA EB No. 408. The CTA EB affirmed the 29
CERTIFICATE to petitioner Fort Bonifacio November 2007 Amended Decision4 as well as
Development Corporation, the following the 11 July 2008 Resolution5 of the Second
amounts: Division of the Court of Tax Appeals (CTA
Second Division) in CTA Case No. 6647. The
1) P486,355,846. 78 paid as output CTA Second Division ordered the
value-added tax for the second quarter of Commissioner of Internal Revenue
1997 (G.R. No. 175707); (Commissioner) to refund or issue a tax credit
for P483,797,599.65 to San Roque Power
2) P77,151,020.46 paid as output value- Corporation (San Roque) for unutilized input
added tax for the first quarter of 1998 value-added tax (VAT) on purchases of capital
(G.R. No. 180035); and goods and services for the taxable year 2001.
G.R. No. 196113 is a petition for instrumentality or agency thereof, or any
review6 assailing the Decision7 promulgated on governmentowned or controlled corporation, or
8 December 2010 as well as the other entity engaged in the development,
Resolution8 promulgated on 14 March 2011 by supply, or distribution of energy.
the CTA EB in CTA EB No. 624. In its Decision,
the CTA EB reversed the 8 January 2010 As a seller of services, [San Roque] is duly
Decision9 as well as the 7 April 2010 registered with the BIR with TIN/VAT No. 005-
Resolution10of the CTA Second Division and 017-501. It is likewise registered with the Board
granted the CIR’s petition for review in CTA of Investments ("BOI") on a preferred pioneer
Case No. 7574. The CTA EB dismissed, for status, to engage in the design, construction,
having been prematurely filed, Taganito Mining erection, assembly, as well as to own,
Corporation’s (Taganito) judicial claim for commission, and operate electric power-
P8,365,664.38 tax refund or credit. generating plants and related activities, for
which it was issued Certificate of Registration
G.R. No. 197156 is a petition for No. 97-356 on February 11, 1998.
review11 assailing the Decision12promulgated on
3 December 2010 as well as the On October 11, 1997, [San Roque] entered into
Resolution13 promulgated on 17 May 2011 by a Power Purchase Agreement ("PPA") with the
the CTA EB in CTA EB No. 569. The CTA EB National Power Corporation ("NPC") to develop
affirmed the 20 July 2009 Decision as well as hydro-potential of the Lower Agno River and
the 10 November 2009 Resolution of the CTA generate additional power and energy for the
Second Division in CTA Case No. 7687. The Luzon Power Grid, by building the San Roque
CTA Second Division denied, due to Multi-Purpose Project located in San Manuel,
prescription, Philex Mining Corporation’s Pangasinan. The PPA provides, among others,
(Philex) judicial claim for P23,956,732.44 tax that [San Roque] shall be responsible for the
refund or credit. design, construction, installation, completion,
testing and commissioning of the Power Station
On 3 August 2011, the Second Division of this and shall operate and maintain the same,
Court resolved14 to consolidate G.R. No. subject to NPC instructions. During the
197156 with G.R. No. 196113, which were cooperation period of twenty-five (25) years
pending in the same Division, and with G.R. No. commencing from the completion date of the
187485, which was assigned to the Court En Power Station, NPC will take and pay for all
Banc. The Second Division also resolved to electricity available from the Power Station.
refer G.R. Nos. 197156 and 196113 to the
Court En Banc, where G.R. No. 187485, the On the construction and development of the
lower-numbered case, was assigned. San Roque Multi- Purpose Project which
comprises of the dam, spillway and power plant,
G.R. No. 187485 [San Roque] allegedly incurred, excess input
CIR v. San Roque Power Corporation VAT in the amount of ₱559,709,337.54 for
taxable year 2001 which it declared in its
The Facts Quarterly VAT Returns filed for the same year.
[San Roque] duly filed with the BIR separate
The CTA EB’s narration of the pertinent facts is claims for refund, in the total amount of
as follows: ₱559,709,337.54, representing unutilized input
taxes as declared in its VAT returns for taxable
year 2001.
[CIR] is the duly appointed Commissioner of
Internal Revenue, empowered, among others,
to act upon and approve claims for refund or tax However, on March 28, 2003, [San Roque] filed
credit, with office at the Bureau of Internal amended Quarterly VAT Returns for the year
Revenue ("BIR") National Office Building, 2001 since it increased its unutilized input VAT
Diliman, Quezon City. to the amount of ₱560,200,283.14.
Consequently, [San Roque] filed with the BIR
[San Roque] is a domestic corporation duly on even date, separate amended claims for
refund in the aggregate amount of
organized and existing under and by virtue of ₱560,200,283.14.
the laws of the Philippines with principal office
at Barangay San Roque, San Manuel,
Pangasinan. It was incorporated in October [CIR’s] inaction on the subject claims led to the
1997 to design, construct, erect, assemble, filing by [San Roque] of the Petition for Review
own, commission and operate power-generating with the Court [of Tax Appeals] in Division on
plants and related facilities pursuant to and April 10, 2003.
under contract with the Government of the
Republic of the Philippines, or any subdivision, Trial of the case ensued and on July 20, 2005,
the case was submitted for decision.15
The Court of Tax Appeals’ Ruling: Division J, L, and N"). These returns were all
subsequently amended on March 28, 2003
The CTA Second Division initially denied San (Exhibits "I, K, M, and O"). On the other hand,
Roque’s claim. In its Decision16 dated 8 March [San Roque] originally filed its separate claims
2006, it cited the following as bases for the for refund on July 10, 2001, October 10, 2001,
denial of San Roque’s claim: lack of recorded February 21, 2002, and May 9, 2002 for the
zero-rated or effectively zero-rated sales; failure first, second, third, and fourth quarters of 2001,
to submit documents specifically identifying the respectively, (Exhibits "EE, FF, GG, and HH")
purchased goods/services related to the and subsequently filed amended claims for all
claimed input VAT which were included in its quarters on March 28, 2003 (Exhibits "II, JJ, KK,
Property, Plant and Equipment account; and and LL"). Moreover, the Petition for Review was
failure to prove that the related construction filed on April 10, 2003. Counting from the
costs were capitalized in its books of account respective dates when [San Roque] originally
and subjected to depreciation. filed its VAT returns for the first, second, third
and fourth quarters of 2001, the administrative
The CTA Second Division required San Roque claims for refund (original and amended) and
to show that it complied with the following the Petition for Review fall within the two-year
requirements of Section 112(B) of Republic Act prescriptive period.18
No. 8424 (RA 8424)17 to be entitled to a tax
refund or credit of input VAT attributable to San Roque filed a Motion for New Trial and/or
capital goods imported or locally purchased: (1) Reconsideration on 7 April 2006. In its 29
it is a VAT-registered entity; (2) its input taxes November 2007 Amended Decision,19 the CTA
claimed were paid on capital goods duly Second Division found legal basis to partially
supported by VAT invoices and/or official grant San Roque’s claim. The CTA Second
receipts; (3) it did not offset or apply the claimed Division ordered the Commissioner to refund or
input VAT payments on capital goods against issue a tax credit in favor of San Roque in the
any output VAT liability; and (4) its claim for amount of ₱483,797,599.65, which represents
refund was filed within the two-year prescriptive San Roque’s unutilized input VAT on its
period both in the administrative and judicial purchases of capital goods and services for the
levels. taxable year 2001. The CTA based the
adjustment in the amount on the findings of the
The CTA Second Division found that San independent certified public accountant. The
Roque complied with the first, third, and fourth following reasons were cited for the disallowed
requirements, thus: claims: erroneous computation; failure to
ascertain whether the related purchases are in
the nature of capital goods; and the purchases
The fact that [San Roque] is a VAT registered pertain to capital goods. Moreover, the
entity is admitted (par. 4, Facts Admitted, Joint reduction of claims was based on the following:
Stipulation of Facts, Records, p. 157). It was the difference between San Roque’s claim and
also established that the instant claim of
that appearing on its books; the official receipts
₱560,200,823.14 is already net of the covering the claimed input VAT on purchases of
₱11,509.09 output tax declared by [San Roque] local services are not within the period of the
in its amended VAT return for the first quarter of claim; and the amount of VAT cannot be
2001. Moreover, the entire amount of determined from the submitted official receipts
₱560,200,823.14 was deducted by [San Roque] and invoices. The CTA Second Division denied
from the total available input tax reflected in its San Roque’s claim for refund or tax credit of its
amended VAT returns for the last two quarters unutilized input VAT attributable to its zero-rated
of 2001 and first two quarters of 2002 (Exhibits or effectively zero-rated sales because San
M-6, O-6, OO-1 & QQ-1). This means that the Roque had no record of such sales for the four
claimed input taxes of ₱560,200,823.14 did not quarters of 2001.
form part of the excess input taxes of
₱83,692,257.83, as of the second quarter of
2002 that was to be carried-over to the The dispositive portion of the CTA Second
succeeding quarters. Further, [San Roque’s] Division’s 29 November 2007 Amended
claim for refund/tax credit certificate of excess Decision reads:
input VAT was filed within the two-year
prescriptive period reckoned from the dates of WHEREFORE, [San Roque’s] "Motion for New
filing of the corresponding quarterly VAT Trial and/or Reconsideration" is hereby
returns. PARTIALLY GRANTED and this Court’s
Decision promulgated on March 8, 2006 in the
For the first, second, third, and fourth quarters instant case is hereby MODIFIED.
of 2001, [San Roque] filed its VAT returns on
April 25, 2001, July 25, 2001, October 23, 2001 Accordingly, [the CIR] is hereby ORDERED to
and January 24, 2002, respectively (Exhibits "H, REFUND or in the alternative, to ISSUE A TAX
CREDIT CERTIFICATE in favor of [San Roque] taxpayer may interpose a petition for review
in the reduced amount of Four Hundred Eighty with this Court within the two year period.
Three Million Seven Hundred Ninety Seven
Thousand Five Hundred Ninety Nine Pesos and In the case of Gibbs vs. Collector, the Supreme
Sixty Five Centavos (₱483,797,599.65) Court held that if, however, the Collector (now
representing unutilized input VAT on purchases Commissioner) takes time in deciding the claim,
of capital goods and services for the taxable and the period of two years is about to end, the
year 2001. suit or proceeding must be started in the Court
of Tax Appeals before the end of the two-year
SO ORDERED.20 period without awaiting the decision of the
Collector.
The Commissioner filed a Motion for Partial
Reconsideration on 20 December 2007. The Furthermore, in the case of Commissioner of
CTA Second Division issued a Resolution dated Customs and Commissioner of Internal
11 July 2008 which denied the CIR’s motion for Revenue vs. The Honorable Court of Tax
lack of merit. Appeals and Planters Products, Inc., the
Supreme Court held that the taxpayer need
The Court of Tax Appeals’ Ruling: En Banc not wait indefinitely for a decision or ruling
which may or may not be forthcoming and
The Commissioner filed a Petition for Review which he has no legal right to expect. It is
before the CTA EB praying for the denial of San disheartening enough to a taxpayer to keep him
Roque’s claim for refund or tax credit in its waiting for an indefinite period of time for a
entirety as well as for the setting aside of the 29 ruling or decision of the Collector (now
November 2007 Amended Decision and the 11 Commissioner) of Internal Revenue on his claim
July 2008 Resolution in CTA Case No. 6647. for refund. It would make matters more
exasperating for the taxpayer if we were to
close the doors of the courts of justice for such
The CTA EB dismissed the CIR’s petition for a relief until after the Collector (now
review and affirmed the challenged decision
and resolution. Commissioner) of Internal Revenue, would
have, at his personal convenience, given his go
signal.
The CTA EB cited Commissioner of Internal
Revenue v. Toledo Power, Inc.21 and Revenue This Court ruled in several cases that once the
Memorandum Circular No. 49-03,22 as its bases petition is filed, the Court has already acquired
for ruling that San Roque’s judicial claim was jurisdiction over the claims and the Court is not
not prematurely filed. The pertinent portions of
the Decision state: bound to wait indefinitely for no reason for
whatever action respondent (herein petitioner)
may take. At stake are claims for refund and
More importantly, the Court En Banc has unlike disputed assessments, no decision of
squarely and exhaustively ruled on this issue in respondent (herein petitioner) is required
this wise: before one can go to this Court. (Emphasis
supplied and citations omitted)
It is true that Section 112(D) of the
abovementioned provision applies to the Lastly, it is apparent from the following
present case. However, what the petitioner provisions of Revenue Memorandum Circular
failed to consider is Section 112(A) of the No. 49-03 dated August 18, 2003, that [the CIR]
same provision. The respondent is also knows that claims for VAT refund or tax credit
covered by the two (2) year prescriptive period. filed with the Court [of Tax Appeals] can
We have repeatedly held that the claim for proceed simultaneously with the ones filed with
refund with the BIR and the subsequent appeal the BIR and that taxpayers need not wait for the
to the Court of Tax Appeals must be filed within lapse of the subject 120-day period, to wit:
the two-year period.
In response to [the] request of selected
Accordingly, the Supreme Court held in the taxpayers for adoption of procedures in
case of Atlas Consolidated Mining and handling refund cases that are aligned to the
Development Corporation vs. Commissioner of statutory requirements that refund cases should
Internal Revenue that the two-year prescriptive be elevated to the Court of Tax Appeals before
period for filing a claim for input tax is reckoned the lapse of the period prescribed by law,
from the date of the filing of the quarterly VAT certain provisions of RMC No. 42-2003 are
return and payment of the tax due. If the said hereby amended and new provisions are added
period is about to expire but the BIR has not thereto.
yet acted on the application for refund, the
In consonance therewith, the following developing, exploiting, extracting, milling,
amendments are being introduced to RMC No. concentrating, converting, smelting, treating,
42-2003, to wit: refining, preparing for market, manufacturing,
buying, selling, exchanging, shipping,
I.) A-17 of Revenue Memorandum Circular No. transporting, and otherwise producing and
42-2003 is hereby revised to read as follows: dealing in nickel, chromite, cobalt, gold, silver,
copper, lead, zinc, brass, iron, steel, limestone,
In cases where the taxpayer has filed a and all kinds of ores, metals and their by-
"Petition for Review" with the Court of Tax products and which by-products thereof of every
Appeals involving a claim for refund/TCC kind and description and by whatsoever process
that is pending at the administrative agency the same can be or may hereafter be produced,
(Bureau of Internal Revenue or OSS-DOF), and generally and without limit as to amount, to
the administrative agency and the tax court buy, sell, locate, exchange, lease, acquire and
may act on the case separately. While the deal in lands, mines, and mineral rights and
case is pending in the tax court and at the same claims and to conduct all business appertaining
time is still under process by the administrative thereto, to purchase, locate, lease or otherwise
agency, the litigation lawyer of the BIR, upon acquire, mining claims and rights, timber rights,
receipt of the summons from the tax court, shall water rights, concessions and mines, buildings,
request from the head of the dwellings, plants machinery, spare parts, tools
investigating/processing office for the docket and other properties whatsoever which this
containing certified true copies of all the corporation may from time to time find to be to
documents pertinent to the claim. The docket its advantage to mine lands, and to explore,
shall be presented to the court as evidence for work, exercise, develop or turn to account the
the BIR in its defense on the tax credit/refund same, and to acquire, develop and utilize water
case filed by the taxpayer. In the meantime, the rights in such manner as may be authorized or
investigating/processing office of the permitted by law; to purchase, hire, make,
administrative agency shall continue processing construct or otherwise, acquire, provide,
the refund/TCC case until such time that a final maintain, equip, alter, erect, improve, repair,
decision has been reached by either the CTA or manage, work and operate private roads,
the administrative agency. barges, vessels, aircraft and vehicles, private
telegraph and telephone lines, and other
If the CTA is able to release its decision communication media, as may be needed by
the corporation for its own purpose, and to
ahead of the evaluation of the administrative
purchase, import, construct, machine, fabricate,
agency, the latter shall cease from or otherwise acquire, and maintain and operate
processing the claim. On the other hand, if the bridges, piers, wharves, wells, reservoirs,
administrative agency is able to process the plumes, watercourses, waterworks, aqueducts,
claim of the taxpayer ahead of the CTA and the shafts, tunnels, furnaces, cook ovens,
taxpayer is amenable to the findings thereof, the works, gasworks, electric lights andcrushing power
concerned taxpayer must file a motion to plants and compressed air plants, chemical
23
withdraw the claim with the CTA. (Emphasis works of all kinds, concentrators, smelters,
supplied)
smelting plants, and refineries, matting plants,
warehouses, workshops, factories, dwelling
G.R. No. 196113 houses, stores, hotels or other buildings,
Taganito Mining Corporation v. CIR engines, machinery, spare parts, tools,
implements and other works, conveniences and
The Facts properties of any description in connection with
or which may be directly or indirectly conducive
The CTA Second Division’s narration of the to any of the objects of the corporation, and to
pertinent facts is as follows: contribute to, subsidize or otherwise aid or take
part in any operations;
Petitioner, Taganito Mining Corporation, is a
corporation duly organized and existing under and is a VAT-registered entity, with Certificate
and by virtue of the laws of the Philippines, with of Registration (BIR Form No. 2303) No. OCN
principal office at 4th Floor, Solid Mills Building, 8RC0000017494. Likewise, [Taganito] is
De La Rosa St., Lega[s]pi Village, Makati City. It registered with the Board of Investments (BOI)
is duly registered with the Securities and as an exporter of beneficiated nickel silicate and
Exchange Commission with Certificate of chromite ores, with BOI Certificate of
Registration No. 138682 issued on March 4, Registration No. EP-88-306.
1987 with the following primary purpose:
Respondent, on the other hand, is the duly
To carry on the business, for itself and for appointed Commissioner of Internal Revenue
others, of mining lode and/or placer mining, vested with authority to exercise the functions of
 the said office, including inter alia, the power
07/01/05 to
480,784,287.30 144,887.67 - 144,88
decide refunds of internal revenue - taxes, fees
and other charges, penalties imposed09/30/05in relation
thereto, or other matters arising under the
National Internal Revenue Code 10/01/05
(NIRC) or other350,212,345.02 473,598.03 - 473,59
laws administered by Bureau - of Internal
Revenue (BIR) under Section 4 of 12/31/05
the NIRC. He
holds office at the BIR National Office Building,
Diliman, Quezon City. TOTAL P1,446,854,034.68 P2,314,730.43 P6,050,933.95 P8,36

[Taganito] filed all its Monthly VAT Declarations On November 14, 2006, [Taganito] filed with
and Quarterly Vat Returns for the period [the CIR], through BIR’s Large Taxpayers Audit
January 1, 2005 to December 31, 2005. For and Investigation Division II (LTAID II), a letter
easy reference, a summary of the filing dates of dated November 13, 2006 claiming a tax
the original and amended Quarterly VAT credit/refund of its supposed input VAT
Returns for taxable year 2005 of [Taganito] is as amounting to ₱8,365,664.38 for the period
follows: covering January 1, 2004 to December 31,
2004. On the same date, [Taganito] likewise
filed an Application for Tax Credits/Refunds for
Quarter Nature of Mode of filing Filing the
Dateperiod covering January 1, 2005 to
the Return December 31, 2005 for the same amount.
1st Original Electronic April 15, 2005
On November 29, 2006, [Taganito] sent again
Amended Electronic July 20, 2005 letter dated November 29, 2004 to [the
another
Amended Electronic OctoberCIR],
18, to correct the period of the above claim for
2006
tax credit/refund in the said amount of
2nd Original Electronic ₱8,365,664.38
July 20, 2005 as actually referring to the period
covering January 1, 2005 to December 31,
Amended Electronic October 18, 2006
2005.
3rd Original Electronic October 19, 2005
As the statutory period within which to file a
Amended Electronic October 18, 2006
claim for refund for said input VAT is about to
4th Original Electronic lapse
January 20, 2006 without action on the part of the [CIR],
[Taganito] filed the instant Petition for Review
Amended Electronic Octoberon18, 2006 17, 2007.
February

As can be gleaned from its amended Quarterly In his Answer filed on March 28, 2007, [the CIR]
VAT Returns, [Taganito] reported zero-rated interposes the following defenses:
sales amounting to P1,446,854,034.68; input
VAT on its domestic purchases and 4. [Taganito’s] alleged claim for refund is
importations of goods (other than capital goods) subject to administrative
and services amounting to P2,314,730.43; and investigation/examination by the Bureau
input VAT on its domestic purchases and of Internal Revenue (BIR);
importations of capital goods amounting to
P6,050,933.95, the details of which are 5. The amount of ₱8,365,664.38 being
summarized as follows: claimed by [Taganito] as alleged
unutilized input VAT on domestic
Zero-Rated Sales Input VAT on Input VAT on Total purchases Input of goods and services and on
Domestic Domestic VAT importation of capital goods for the
Purchases Purchases period January 1, 2005 to December 31,
and and 2005 is not properly documented;
Importations Importations
of Goods and of Capital 6. [Taganito] must prove that it has
Services Goods complied with the provisions of Sections
112 (A) and (D) and 229 of the National
P551,179,871.58 P1,491,880.56 P239,803.22 P1,731,683.78
Internal Revenue Code of 1997 (1997
Tax Code) on the prescriptive period for
claiming tax refund/credit;
64,677,530.78 204,364.17 5,811,130.73 6,015,494.90
7. Proof of compliance with the
prescribed checklist of requirements to
be submitted involving claim for VAT
 refund pursuant to Revenue
Memorandum Order No. 53-
98, otherwise there would be no
sufficient compliance with the filing of
administrative claim for refund, the
administrative claim thereof being
mere proforma, which is a condition
sine qua non prior to the filing of
judicial claim in accordance with the
provision of Section 229 of the 1997 Tax
Code. Further, Section 112 (D) of the
Tax Code, as amended, requires
the submission of complete
documents in support of the
application filed with the BIR before the
120-day audit period shall apply,
and before the taxpayer could avail of
judicial remedies as provided for in
the law. Hence, [Taganito’s] failure to
submit proof of compliance with the
above-stated requirements warrants
immediate dismissal of the petition for
review.
8. [Taganito] must prove that it has
complied with the invoicing requirements
mentioned in Sections 110 and 113 of
the 1997 Tax Code, as amended, in
relation to provisions of Revenue
Regulations No. 7-95.
9. In an action for refund/credit, the
burden of proof is on the taxpayer to
establish its right to refund, and failure to
sustain the burden is fatal to the claim for
refund/credit (Asiatic Petroleum Co. vs.
Llanes, 49 Phil. 466 cited in Collector
of Internal Revenue vs. Manila Jockey
Club, Inc., 98 Phil. 670);
10. Claims for refund are construed
strictly against the claimant for the same
partake the nature of exemption from
taxation (Commissioner of Internal
Revenue vs. Ledesma, 31 SCRA
95) and as such, they are looked upon The Court of Tax Appeals’ Ruling: Division
with disfavor (Western Minolco Corp.
vs. Commissioner of Internal The CTA Second Division partially granted
Revenue, 124 SCRA 1211).
SPECIAL AND AFFIRMATIVE DEFENSES
11. The Court of Tax Appeals has no jurisdiction entitled to a tax refund or credit of input VAT
to entertain the instant petition for review for attributable to zero-rated or effectively zero-
failure on the part of [Taganito] to comply with rated sales.26
the provision of Section 112 (D) of the 1997 Tax
Code which provides, thus:
Section 112. Refunds or Tax Credits of Input
Tax. –
xxx xxx xxx
(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 (120) days from the
date of submission of complete documents
in support of the application filed in
accordance with Subsections (A) and (B)
hereof.
In cases of full or partial denial 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 dayperiod, appeal the decision or the
unacted claim with the Court of Tax
Appeals. (Emphasis supplied.)
12. As stated, [Taganito] filed the administrative
claim for refund with the Bureau of Internal
Revenue on November 14, 2006. Subsequently
on February 14, 2007, the instant petition was
filed. Obviously the 120 days given to the
Commissioner to decide on the claim has not
yet lapsed when the petition was filed. The
petition was prematurely filed, hence it must be
dismissed for lack of jurisdiction.
During trial, [Taganito] presented testimonial
and documentary evidence primarily aimed at
proving its supposed entitlement to the refund in
the amount of ₱8,365,664.38, representing
input taxes for the period covering January 1,
2005 to December 31, 2005. [The CIR], on the
other hand, opted not to present evidence.
Thus, in the Resolution promulgated on January
22, 2009, this case was submitted for decision
as of such date, considering [Taganito’s]
"Memorandum" filed on January 19, 2009 and
[the CIR’s] "Memorandum" filed on December
19, 2008.24
Taganito’s claim. In its Decision25 dated 8
January 2010, the CTA Second Division found
that Taganito complied with the requirements of
Section 112(A) of RA 8424, as amended, to be
The pertinent portions of the CTA Second
Division’s Decision read:
Finally, records show that [Taganito’s]
administrative claim filed on November 14,
2006, which was amended on November 29,
2006, and the Petition for Review filed with this filing a claim for tax refund or credit over input
Court on February 14, 2007 are well within the VAT to be the close of the taxable quarter when
two-year prescriptive period, reckoned from the sales were made. The CTA EB also relied
March 31, 2005, June 30, 2005, September 30, on this Court’s rulings in the cases
2005, and December 31, 2005, respectively, the of Commissioner of Internal Revenue v. Aichi
close of each taxable quarter covering the Forging Company of Asia, Inc.
period January 1, 2005 to December 31, 2005. (Aichi)30 and Commisioner of Internal Revenue
v. Mirant Pagbilao Corporation
In fine, [Taganito] sufficiently proved that it is (Mirant).31 Both Aichi and Mirant ruled that the
entitled to a tax credit certificate in the amount two-year prescriptive period to file a refund for
of ₱8,249,883.33 representing unutilized input input VAT arising from zero-rated sales should
VAT for the four taxable quarters of 2005. be reckoned from the close of the taxable
quarter when the sales were made. Aichi further
WHEREFORE, premises considered, the emphasized that the failure to await the decision
instant Petition for Review is hereby of the Commissioner or the lapse of 120-day
PARTIALLY GRANTED.Accordingly, [the CIR] period prescribed in Section 112(D) amounts to
is hereby ORDERED to REFUND to [Taganito] a premature filing.
the amount of EIGHT MILLION TWO
HUNDRED FORTY NINE THOUSAND EIGHT The CTA EB found that Taganito filed its
HUNDRED EIGHTY THREE PESOS AND administrative claim on 14 November 2006,
THIRTY THREE CENTAVOS (P8,249,883.33) which was well within the period prescribed
representing its unutilized input under Section 112(A) and (B) of the 1997 Tax
taxes
Code. However, the CTA EB found that
attributable to zero-rated sales from January 1,
2005 to December 31, 2005. Taganito’s judicial claim was prematurely filed.
Taganito filed its Petition for Review before the
SO ORDERED. 27 CTA Second Division on 14 February 2007. The
judicial claim was filed after the lapse of only 92
The Commissioner filed a Motion for Partial days from the filing of its administrative claim
before the CIR, in violation of the 120-day
Reconsideration on 29 January 2010. Taganito, period prescribed in Section 112(D) of the 1997
in turn, filed a Comment/Opposition on the Tax Code.
Motion for Partial Reconsideration on 15
February 2010.
The dispositive portion of the Decision states:
In a Resolution28 dated 7 April 2010, the CTA
Second Division denied the CIR’s motion. The WHEREFORE, the instant Petition for Review is
CTA Second Division ruled that the legislature hereby GRANTED. The assailed Decision dated
did not intend that Section 112 (Refunds or Tax January 8, 2010 and Resolution dated April 7,
Credits of Input Tax) should be read in isolation 2010 of the Special Second Division of this
from Section 229 (Recovery of Tax Erroneously Court are hereby REVERSED and SET ASIDE.
or Illegally Collected) or vice versa. The CTA Another one is hereby entered DISMISSING the
Second Division applied the mandatory statute Petition for Review filed in CTA Case No. 7574
of limitations in seeking judicial recourse for having been prematurely filed.
prescribed under Section 229 to claims for
refund or tax credit under Section 112. SO ORDERED.32

The Court of Tax Appeals’ Ruling: En Banc
On 29 April 2010, the Commissioner filed a
Petition for Review before the CTA EB assailing
the 8 January 2010 Decision and the 7 April
2010 Resolution in CTA Case No. 7574 and
praying that Taganito’s entire claim for refund
be denied.
In its 8 December 2010 Decision,29 the CTA EB
granted the CIR’s petition for review and
reversed and set aside the challenged decision
and resolution.
The CTA EB declared that Section 112(A) and
(B) of the 1997 Tax Code both set forth the
reckoning of the two-year prescriptive period for
In his dissent,33 Associate Justice Lovell R.
Bautista insisted that Taganito timely filed its
claim before the CTA. Justice Bautista read
Section 112(C) of the 1997 Tax Code (Period
within which Refund or Tax Credit of Input
Taxes shall be Made) in conjunction with
Section 229 (Recovery of Tax Erroneously or
Illegally Collected). Justice Bautista also relied
on this Court’s ruling in Atlas Consolidated
Mining and Development Corporation v.
Commissioner of Internal Revenue
(Atlas),34 which stated that refundable or
creditable input VAT and illegally or erroneously
collected national internal revenue tax are the
same, insofar as both are monetary amounts
which are currently in the hands of the
government but must rightfully be returned to
the taxpayer. Justice Bautista concluded:
Being merely permissive, a taxpayer claimant In [her] Answer, respondent CIR alleged the
has the option of seeking judicial redress for following special and affirmative defenses:
refund or tax credit of excess or unutilized input
tax with this Court, either within 30 days from 4. Claims for refund are strictly construed
receipt of the denial of its claim, or after the against the taxpayer as the same partake
lapse of the 120-day period in the event of the nature of an exemption;
inaction by the Commissioner, provided that
both administrative and judicial remedies must 5. The taxpayer has the burden to show
be undertaken within the 2-year period.35 that the taxes were erroneously or
illegally paid. Failure on the part of
Taganito filed its Motion for Reconsideration on [Philex] to prove the same is fatal to its
29 December 2010. The Commissioner filed an cause of action;
Opposition on 26 January 2011. The CTA EB
denied for lack of merit Taganito’s motion in a 6. [Philex] should prove its legal basis for
Resolution36 dated 14 March 2011. The CTA EB claiming for the amount being refunded.37
did not see any justifiable reason to depart from
this Court’s rulings in Aichi and Mirant. The Court of Tax Appeals’ Ruling: Division
G.R. No. 197156 The CTA Second Division, in its Decision dated
Philex Mining Corporation v. CIR
20 July 2009, denied Philex’s claim due to
prescription. The CTA Second Division ruled
The Facts that the two-year prescriptive period specified in
Section 112(A) of RA 8424, as amended,
The CTA EB’s narration of the pertinent facts is applies not only to the filing of the administrative
as follows: claim with the BIR, but also to the filing of the
judicial claim with the CTA. Since Philex’s claim
[Philex] is a corporation duly organized and covered the 3rd quarter of 2005, its
existing under the laws of the Republic of the administrative claim filed on 20 March 2006 was
Philippines, which is principally engaged in the timely filed, while its judicial claim filed on 17
mining business, which includes the exploration October 2007 was filed late and therefore
and operation of mine properties and barred by prescription.
commercial production and marketing of mine
products, with office address at 27 Philex On 10 November 2009, the CTA Second
Building, Fairlaine St., Kapitolyo, Pasig City. Division denied Philex’s Motion for
Reconsideration.
[The CIR], on the other hand, is the head of the
Bureau of Internal Revenue ("BIR"), the The Court of Tax Appeals’ Ruling: En Banc
government entity tasked with the
duties/functions of assessing and collecting all Philex filed a Petition for Review before the CTA
national internal revenue taxes, fees, and EB praying for a reversal of the 20 July 2009
charges, and enforcement of all forfeitures, Decision and the 10 November 2009 Resolution
penalties and fines connected therewith, of the CTA Second Division in CTA Case No.
including the execution of judgments in all 7687.
cases decided in its favor by [the Court of Tax
Appeals] and the ordinary courts, where she The CTA EB, in its Decision38 dated 3
can be served with court processes at the BIR December 2010, denied Philex’s petition and
Head Office, BIR Road, Quezon City.
affirmed the CTA Second Division’s Decision
and Resolution.
On October 21, 2005, [Philex] filed its Original
VAT Return for the third quarter of taxable year The pertinent portions of the Decision read:
2005 and Amended VAT Return for the same
quarter on December 1, 2005.
In this case, while there is no dispute that
On March 20, 2006, [Philex] filed its claim for [Philex’s] administrative claim for refund was
filed within the two-year prescriptive period;
refund/tax credit of the amount of however, as to its judicial claim for refund/credit,
₱23,956,732.44 with the One Stop Shop Center records show that on March 20, 2006, [Philex]
of the Department of Finance. However, due to applied the administrative
[the CIR’s] failure to act on such claim, on unutilized input VAT inclaim for refund of
the amount of
October 17, 2007, pursuant to Sections 112 and ₱23,956,732.44 with the One Stop Shop Center
229 of the NIRC of 1997, as amended, [Philex] of the Department of Finance, per Application
filed a Petition for Review, docketed as C.T.A. No. 52490. From March 20, 2006, which is also
Case No. 7687.
presumably the date [Philex] submitted
supporting documents, together with the I. The Court of Tax Appeals En
aforesaid application for refund, the CIR has Banc committed serious error and acted
120 days, or until July 18, 2006, within which to with grave abuse of discretion
decide the claim. Within 30 days from the lapse tantamount to lack or excess of
of the 120-day period, or from July 19, 2006 jurisdiction in erroneously applying
until August 17, 2006, [Philex] should have the Aichi doctrine in violation of
elevated its claim for refund to the CTA. [Taganito’s] right to due process.
However, [Philex] filed its Petition for Review
only on October 17, 2007, which is 426 days II. The Court of Tax Appeals committed
way beyond the 30- day period prescribed by serious error and acted with grave abuse
law. of discretion amounting to lack or excess
of jurisdiction in erroneously interpreting
Evidently, the Petition for Review in CTA Case the provisions of Section 112 (D).41
No. 7687 was filed 426 days late. Thus, the
Petition for Review in CTA Case No. 7687 G.R. No. 197156
should have been dismissed on the ground that Philex Mining Corporation v. CIR
the Petition for Review was filed way beyond
the 30-day prescribed period; thus, no Philex raised the following grounds in its
jurisdiction was acquired by the CTA in Division; Petition for Review:
and not due to prescription.
I. The CTA En Banc erred in denying the
WHEREFORE, premises considered, the petition due to alleged prescription. The
instant Petition for Review is hereby DENIED fact is that the petition was filed with the
DUE COURSE, and accordingly, DISMISSED. CTA within the period set by prevailing
The assailed Decision dated July 20, 2009, court rulings at the time it was filed.
dismissing the Petition for Review in CTA Case
No. 7687 due to prescription, and Resolution II. The CTA En Banc erred in
dated November 10, 2009 denying [Philex’s] retroactively applying the Aichi ruling in
Motion for Reconsideration are hereby denying the petition in this instant case.42
AFFIRMED, with modification that the dismissal
is based on the ground that the Petition for
Review in CTA Case No. 7687 was filed way The Court’s Ruling
beyond the 30-day prescribed period to appeal.
For ready reference, the following are the
SO ORDERED. 39 provisions of the Tax Code applicable to the
present cases:
G.R. No. 187485
CIR v. San Roque Power Corporation Section 105:

The Commissioner raised the following grounds Persons Liable. — Any person who, in the
in the Petition for Review: course of trade or business, sells, barters,
exchanges, leasesgoods or properties,
I. The Court of Tax Appeals En renders services, and any person who imports
goods shall be subject to the value-added tax
Banc erred in holding that [San Roque’s] (VAT) imposed in Sections 106 to 108 of this
claim for refund was not prematurely Code.
filed.
The value-added tax is an indirect tax and
II. The Court of Tax Appeals En the amount of tax may be shifted or passed
Banc erred in affirming the amended on to the buyer, transferee or lessee of the
decision of the Court of Tax Appeals goods, properties or services. This rule shall
(Second Division) granting [San Roque’s] likewise apply to existing contracts of sale or
claim for refund of alleged unutilized lease of goods, properties or services at the
input VAT on its purchases of capital time of the effectivity of Republic Act No. 7716.
goods and services for the taxable year
2001 in the amount of
P483,797,599.65. 40 xxxx

G.R. No. 196113 Section 110(B):

Taganito Mining Corporation v. CIR
Sec. 110. Tax Credits. —
Taganito raised the following grounds in its
Petition for Review:
(B) Excess Output or Input Tax. — If at the end
of any taxable quarter the output tax exceeds
the input tax, the excess shall be paid by the
VAT-registered person. If the input tax
exceeds the output tax, the excess shall be
carried over to the succeeding quarter or
quarters: [Provided, That the input tax inclusive
of input VAT carried over from the previous
quarter that may be credited in every quarter
shall not exceed seventy percent (70%) of the
output VAT:]43 Provided, however, That any
input tax attributable to zero-rated sales by a
VAT-registered person may at his option be
refunded or credited against other internal
revenue taxes, subject to the provisions of
Section 112.
Section 112:44
Sec. 112. Refunds or Tax Credits of Input Tax.
— taxes within one hundred twenty (120)
(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 may,within thirty (30) days from the
extent that such input tax has not been
applied against output tax: Provided,
however, That in the case of zero-rated
sales under Section 106(A)(2) (a)(1), (2)
and (B) and Section 108(B)(1) and (2),
the acceptable foreign currency
exchange proceeds thereof had been
duly accounted for in accordance with
the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP): Provided,
further, That where the taxpayer is
engaged in zero-rated or effectively zero-
rated sale and also in taxable or exempt
sale of goods or properties or services,
and the amount of creditable input tax
due or paid cannot be directly and
entirely attributed to any one of the
transactions, it shall be allocated
proportionately on the basis of the Section 229:
volume of sales.
(B) Capital Goods.- A VAT — registered
person may apply for the issuance of a
tax credit certificate or refund of input
taxes paid on capital goods imported or
locally purchased, to the extent that such
input taxes have not been applied
against output taxes. The application
may be made only within two (2) years
after the close of the taxable quarter
when the importation or purchase was
made.
(C) Cancellation of VAT Registration. —
A person whose registration has been
cancelled due to retirement from or
cessation of business, or due to changes
in or cessation of status under Section
106(C) of this Code may, within two (2)
years from the date of cancellation, apply
for the issuance of a tax credit certificate
for any unused input tax which may be
used in payment of his other internal
revenue taxes
(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
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
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.
(E) Manner of Giving Refund. — Refunds
shall be made upon warrants drawn by
the Commissioner or by his duly
authorized representative without the
necessity of being countersigned by the
Chairman, Commission on Audit, the
provisions of the Administrative Code of
1987 to the contrary notwithstanding:
Provided, that refunds under this
paragraph shall be subject to post audit
by the Commission on Audit.
Recovery of Tax Erroneously or Illegally
Collected. — No suit or proceeding shall be
maintained in any court for the recovery of any
national internal revenue tax hereafter alleged
to have been erroneously or illegally assessed
or collected, or of any penalty claimed to have
been collected without authority, or of any sum
alleged to have been excessively or in any
manner wrongfully collected, until a claim for
refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may
be maintained, whether or not such tax, penalty, The charter of the CTA expressly provides that
or sum has been paid under protest or duress. its jurisdiction is to review on appeal
"decisions of the Commissioner of Internal
In any case, no such suit or proceeding shall be Revenue in cases involving x x x refunds of
filed after the expiration of two (2) years from internal revenue taxes."47 When a taxpayer
the date of payment of the tax or penalty prematurely files a judicial claim for tax refund
regardless of any supervening cause that may or credit with the CTA without waiting for the
arise after payment: Provided, however, That decision of the Commissioner, there is no
the Commissioner may, even without a written "decision" of the Commissioner to review and
claim therefor, refund or credit any tax, where thus the CTA as a court of special jurisdiction
on the face of the return upon which payment has no jurisdiction over the appeal. The charter
was made, such payment appears clearly to of the CTA also expressly provides that if the
have been erroneously paid. Commissioner fails to decide within "a specific
period" required by law, such "inaction shall
(All emphases supplied) be deemed a denial"48 of the application for tax
refund or credit. It is the Commissioner’s
I. Application of the 120+30 Day Periods decision, or inaction "deemed a denial," that the
taxpayer can take to the CTA for review.
Without a decision or an "inaction x x x deemed
a. G.R. No. 187485 - CIR v. San Roque Power a denial" of the Commissioner, the CTA has no
Corporation jurisdiction over a petition for review.49
On 10 April 2003, a mere 13 days after it filed San Roque’s failure to comply with the 120-
its amended administrative claim with the day mandatory period renders its petition for
Commissioner on 28 March 2003, San Roque review with the CTA void. Article 5 of the Civil
filed a Petition for Review with the CTA Code provides, "Acts executed against
docketed as CTA Case No. 6647. From this we provisions of mandatory or prohibitory laws shall
gather two crucial facts: first, San Roque did not be void, except when the law itself authorizes
wait for the 120-day period to lapse before filing their validity." San Roque’s void petition for
its judicial claim;second, San Roque filed its review cannot be legitimized by the CTA or this
judicial claim more than four (4)Court because Article 5 of the Civil Code states
years before the Atlas45 doctrine, which was that such void petition cannot be legitimized
promulgated by the Court on 8 June 2007. "except when the law itself authorizes [its]
validity." There is no law authorizing the
Clearly, San Roque failed to comply with the petition’s validity.
120-day waiting period, the time expressly given
by law to the Commissioner to decide whether It is hornbook doctrine that a person committing
to grant or deny San Roque’s application for tax a void act contrary to a mandatory provision of
refund or credit. It is indisputable that law cannot claim or acquire any right from his
compliance with the 120-day waiting period void act. A right cannot spring in favor of a
is mandatory and jurisdictional. The waiting person from his own void or illegal act. This
period, originally fixed at 60 days only, was part doctrine is repeated in Article 2254 of the Civil
of the provisions of the first VAT law, Executive Code, which states, "No vested or acquired right
Order No. 273, which took effect on 1 January can arise from acts or omissions which are
1988. The waiting period was extended to 120 against the law or which infringe upon the rights
days effective 1 January 1998 under RA 8424 of others."50 For violating a mandatory provision
or the Tax Reform Act of 1997. Thus, the of law in filing its petition with the CTA, San
waiting period has been in our statute books Roque cannot claim any right arising from such
for more than fifteen (15) years before San void petition. Thus, San Roque’s petition with
Roque filed its judicial claim. the CTA is a mere scrap of paper.
Failure to comply with the 120-day waiting This Court cannot brush aside the grave issue
period violates a mandatory provision of law. It of the mandatory and jurisdictional nature of the
violates the doctrine of exhaustion of 120-day period just because the Commissioner
administrative remedies and renders the petition merely asserts that the case was prematurely
premature and thus without a cause of action, filed with the CTA and does not question the
with the effect that the CTA does not acquire entitlement of San Roque to the refund. The
jurisdiction over the taxpayer’s petition. mere fact that a taxpayer has undisputed
Philippine jurisprudence is replete with cases excess input VAT, or that the tax was admittedly
upholding and reiterating these doctrinal illegally, erroneously or excessively collected
principles.46 from him, does not entitle him as a matter of
right to a tax refund or credit. Strict compliance
with the mandatory and jurisdictional conditions
prescribed by law to claim such tax refund or between the Atlas doctrine on one hand, and
credit is essential and necessary for such claim the Mirant54 doctrine on the other hand, is a
to prosper. Well-settled is the rule that tax mere 20 days. TheAtlas doctrine counts the
refunds or credits, just like tax exemptions, two-year prescriptive period from the date of
are strictly construed against the payment of the output VAT, which means within
taxpayer.51 The burden is on the taxpayer to 20 days after the close of the taxable quarter.
show that he has strictly complied with the The output VAT at that time must be paid at the
conditions for the grant of the tax refund or time of filing of the quarterly tax returns, which
credit. were to be filed "within 20 days following the
end of each quarter."
This Court cannot disregard mandatory and
jurisdictional conditions mandated by law simply Thus, in Atlas, the three tax refund claims listed
because the Commissioner chose not to contest below were deemed timely filed because the
the numerical correctness of the claim for tax administrative claims filed with the
refund or credit of the taxpayer. Non- Commissioner, and the petitions for review filed
compliance with mandatory periods, non- with the CTA, were all filed within two years
observance of prescriptive periods, and non- from the date of payment of the output VAT,
adherence to exhaustion of administrative following Section 229:
remedies bar a taxpayer’s claim for tax refund
or credit, whether or not the Commissioner Date of Filing Date of Filing Date
questions the numerical correctness of the
Period Covered Return Administrative Petition
claim of the taxpayer. This Court should not & Payment of Tax Claim CTA
establish the precedent that non-compliance
with mandatory and jurisdictional2ndconditions can1990 20 July 1990
Quarter, 21 August 1990 20 July
be excused if the claim is otherwise meritorious,
Close of Quarter
particularly in claims for tax refunds
30 Juneor 1990
credit.
Such precedent will render meaningless
compliance with mandatory and 3rdjurisdictional
Quarter, 1990 18 October 1990 21 November 1990 9 Octo
Close case
requirements, for then every tax refund of will
Quarter
have to be decided on 30 September
the numerical
1990regardless
correctness of the amounts claimed,
of non-compliance with mandatory 4th Quarter, and1990 20 January 1991 19 February 1991 14 Jan
jurisdictional conditions. Close of Quarter
31 December 1990
San Roque cannot also claim being misled,
misguided or confused by the Atlas doctrine
because San Roque filed its petition for Atlas paid the output VAT at the time it filed the
review with the CTA more than four years quarterly tax returns on the 20th, 18th, and 20th
before Atlas was day after the close of the taxable quarter. Had
promulgated. The Atlasdoctrine did not exist at the twoyear prescriptive period been counted
the time San Roque failed to comply with the from the "close of the taxable quarter" as
120- day period. Thus, San Roque cannot expressly stated in the law, the tax refund
invoke the Atlas doctrine as an excuse for its claims of Atlas would have already prescribed.
failure to wait for the 120-day period to lapse. In In contrast, the Mirant doctrine counts the two-
any event, the Atlasdoctrine merely stated that year prescriptive period from the "close of the
the two-year prescriptive period should be taxable quarter when the sales were made" as
counted from the date of payment of the output expressly stated in the law, which means the
VAT, not from the close of the taxable quarter last day of the taxable quarter. The 20-day
55 between the Atlas doctrine and
when the sales involving the input VAT were difference
made. TheAtlas doctrine does not interpret, the later Mirant doctrine is not material to
expressly or impliedly, the 120+3052 day San Roque’s claim for tax refund.
periods.
Whether the Atlas doctrine or
In fact, Section 106(b) and (e) of the Tax Code the Mirant doctrine is applied to San Roque is
of 1977 as amended, which was the law cited immaterial because what is at issue in the
by the Court in Atlasas the applicable provision present case is San Roque’s non-compliance
of the law did not yet provide for the 30-day with the 120-day mandatory and jurisdictional
period for the taxpayer to appeal to the CTA period, which is counted from the date it filed its
from the decision or inaction of the administrative claim with the Commissioner.
Commissioner.53 Thus, the Atlas doctrine The 120-day period may extend beyond the
cannot be invoked by anyone to disregard two-year prescriptive period, as long as the
compliance with the 30-day mandatory and administrative claim is filed within the two-year
jurisdictional period. Also, the difference prescriptive period. However, San Roque’s fatal
mistake is that it did not wait for the Taganito filed its judicial claim before the
Commissioner to decide within the 120-day promulgation of the Atlas doctrine. Taganito
period, a mandatory period whether the Atlas or filed a Petition for Review on 14 February 2007
the Mirant doctrine is applied. with the CTA. This is almost four
months before the adoption of
At the time San Roque filed its petition for the Atlas doctrine on 8 June 2007. Taganito is
review with the CTA, the 120+30 day mandatory similarly situated as San Roque - both cannot
periods were already in the law. Section claim being misled, misguided, or confused by
112(C)56 expressly grants the Commissioner the Atlas doctrine.
120 days within which to decide the taxpayer’s
claim. The law is clear, plain, and unequivocal: However, Taganito can invoke BIR Ruling No.
"x x x the Commissioner shall grant a refund or DA-489-0357 dated 10 December 2003, which
issue the tax credit certificate for creditable expressly ruled that the "taxpayer-claimant
input taxes within one hundred twenty (120) need not wait for the lapse of the 120-day
days from the date of submission of complete period before it could seek judicial relief
documents." Following the verba legis doctrine, with the CTA by way of Petition for Review."
this law must be applied exactly as worded Taganito filed its judicial claim after the
since it is clear, plain, and unequivocal. The issuance of BIR Ruling No. DA-489-03 but
taxpayer cannot simply file a petition with the before the adoption of the Aichi doctrine. Thus,
CTA without waiting for the Commissioner’s as will be explained later, Taganito is deemed to
decision within the 120-day mandatory and have filed its judicial claim with the CTA on time.
jurisdictional period. The CTA will have no
jurisdiction because there will be no "decision" c. G.R. No. 197156 – Philex Mining
or "deemed a denial" decision of the Corporation v. CIR
Commissioner for the CTA to review. In San
Roque’s case, it filed its petition with the CTA a Philex (1) filed on 21 October 2005 its original
mere 13 days after it filed its administrative VAT Return for the third quarter of taxable year
claim with the Commissioner. Indisputably, San 2005; (2) filed on 20 March 2006 its
Roque knowingly violated the mandatory 120- administrative claim for refund or credit; (3) filed
day period, and it cannot blame anyone but on 17 October 2007 its Petition for Review with
itself. the CTA. The close of the third taxable quarter
in 2005 is 30 September 2005, which is the
Section 112(C) also expressly grants the reckoning date in computing the two-year
taxpayer a 30-day period to appeal to the CTA prescriptive period under Section 112(A).
the decision or inaction of the Commissioner,
thus: Philex timely filed its administrative claim on 20
March 2006, within the two-year prescriptive
x x x the taxpayer affected may, within thirty period. Even if the two-year prescriptive period
(30) days from the receipt of the decision is computed from the date of payment of the
denying the claim or after the expiration of output VAT under Section 229, Philex still filed
the one hundred twenty day-period, appeal its administrative claim on time. Thus,
the decision or the unacted claim with the Court the Atlas doctrine is immaterial in this case.
of Tax Appeals. (Emphasis supplied) The Commissioner had until 17 July 2006, the
last day of the 120-day period, to decide
This law is clear, plain, and unequivocal. Philex’s claim. Since the Commissioner did not
Following the well-settled verba legis doctrine, act on Philex’s claim on or before 17 July 2006,
this law should be applied exactly as worded Philex had until 17 August 2006, the last day of
since it is clear, plain, and unequivocal. As this the 30-day period, to file its judicial claim. The
law states, the taxpayer may, if he wishes, CTA EB held that 17 August 2006 was
appeal the decision of the Commissioner to the indeed the last day for Philex to file its
CTA within 30 days from receipt of the judicial claim. However, Philex filed its Petition
Commissioner’s decision, or if the for Review with the CTA only on 17 October
Commissioner does not act on the taxpayer’s 2007, or four hundred twenty-six (426) days
claim within the 120-day period, the taxpayer after the last day of filing. In short, Philex was
may appeal to the CTA within 30 days from the late by one year and 61 days in filing its
expiration of the 120-day period. judicial claim. As the CTA EB correctly found:

b. G.R. No. 196113 - Taganito Mining Evidently, the Petition for Review in C.T.A.
Corporation v. CIR Case No. 7687 was filed 426 days late. Thus,
the Petition for Review in C.T.A. Case No. 7687
Like San Roque, Taganito also filed its petition should have been dismissed on the ground that
for review with the CTA without waiting for the the Petition for Review was filed way beyond
120-day period to lapse. Also, like San Roque, the 30-day prescribed period; thus, no
jurisdiction was acquired by the CTA Division; x
x x58(Emphasis supplied)
Unlike San Roque and Taganito, Philex’s case
is not one of premature filing but of late filing.
Philex did not file any petition with the CTA
within the 120-day period. Philex did not also
file any petition with the CTA within 30 days
after the expiration of the 120-day period. Philex
filed its judicial claim long after the expiration of
the 120-day period, in fact 426 days after the
lapse of the 120-day period. In any event,
whether governed by jurisprudence before,
during, or after the Atlas case, Philex’s
judicial claim will have to be rejected
because of late filing. Whether the two-year
prescriptive period is counted from the date of
payment of the output VAT following
the Atlas doctrine, or from the close of the
taxable quarter when the sales attributable to
the input VAT were made following
the Mirant and Aichi doctrines, Philex’s judicial
claim was indisputably filed late.
The Atlas doctrine cannot save Philex from the
late filing of its judicial claim. The inaction of
the Commissioner on Philex’s claim during the
120-day period is, by express provision of law,
"deemed a denial" of Philex’s claim. Philex had
30 days from the expiration of the 120-day
period to file its judicial claim with the CTA.
Philex’s failure to do so rendered the "deemed a
denial" decision of the Commissioner final and
inappealable. The right to appeal to the CTA
from a decision or "deemed a denial" decision
of the Commissioner is merely a statutory
privilege, not a constitutional right. The exercise
of such statutory privilege requires strict
compliance with the conditions attached by the
statute for its exercise.59 Philex failed to comply
with the statutory conditions and must thus bear
the consequences.
II. Prescriptive Periods under Section 112(A)
and (C)
There are three compelling reasons why the 30-
day period need not necessarily fall within the
two-year prescriptive period, as long as the
administrative claim is filed within the two-year
prescriptive period.
First, Section 112(A) clearly, plainly, and
unequivocally provides that the taxpayer
"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 the creditable input tax due or
paid to such sales." In short, the law
states that the taxpayer may apply with
the Commissioner for a refund or credit
"within two (2) years," which means at
anytime within two years. Thus, the
application for refund or credit may be
filed by the taxpayer with the
Commissioner on the last day of the two-
year prescriptive period and it will still
strictly comply with the law. The twoyear
prescriptive period is a grace period in
favor of the taxpayer and he can avail of
the full period before his right to apply for
a tax refund or credit is barred by
prescription.
Second, Section 112(C) provides that the
Commissioner shall decide the
application for refund or credit "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)." The
reference in Section 112(C) of the
submission of documents "in support of
the application filed in accordance with
Subsection A" means that the application
in Section 112(A) is the administrative
claim that the Commissioner must decide
within the 120-day period. In short, the
two-year prescriptive period in Section
112(A) refers to the period within which
the taxpayer can file an administrative
claim for tax refund or credit. Stated
otherwise, the two-year prescriptive
period does not refer to the filing of
the judicial claim with the CTA but to
the filing of the administrative claim
with the Commissioner. As held
in Aichi, the "phrase ‘within two years x x
x apply for the issuance of a tax credit or
refund’ refers to applications for
refund/credit with the CIR and not to
appeals made to the CTA."
Third, if the 30-day period, or any part of
it, is required to fall within the two-year
prescriptive period (equivalent to 730
days60), then the taxpayer must file his
administrative claim for refund or credit
within the first 610 days of the two-year
prescriptive period. Otherwise, the filing
of the administrative claim beyond the
first 610 days will result in the appeal
to the CTA being filed beyond the two-
year prescriptive period. Thus, if the
taxpayer files his administrative claim on
the 611th day, the Commissioner, with
his 120-day period, will have until the
731st day to decide the claim. If the
Commissioner decides only on the 731st
day, or does not decide at all, the
taxpayer can no longer file his judicial
claim with the CTA because the two-year
prescriptive period (equivalent to 730
days) has lapsed. The 30-day period
granted by law to the taxpayer to file an
 appeal before the CTA becomes utterly the input VAT is not "excessively" collected as
useless, even if the taxpayer complied understood under Section 229. At the time of
with the law by filing his administrative payment of the input VAT the amount paid is
claim within the two-year prescriptive the correct and proper amount. Under the VAT
period. System, there is no claim or issue that the input
VAT is "excessively" collected, that is, that the
The theory that the 30-day period must fall input VAT paid is more than what is legally due.
within the two-year prescriptive period adds a The person legally liable for the input VAT
condition that is not found in the law. It results in cannot claim that he overpaid the input VAT by
truncating 120 days from the 730 days that the the mere existence of an "excess" input VAT.
law grants the taxpayer for filing his The term "excess" input VAT simply means that
administrative claim with the Commissioner. the input VAT available as credit exceeds the
This Court cannot interpret a law to defeat, output VAT, not that the input VAT is
wholly or even partly, a remedy that the law excessively collected because it is more than
expressly grants in clear, plain, and unequivocal what is legally due. Thus, the taxpayer who
language. legally paid the input VAT cannot claim for
refund or credit of the input VAT as
Section 112(A) and (C) must be interpreted "excessively" collected under Section 229.
according to its clear, plain, and unequivocal
language. The taxpayer can file his Under Section 229, the prescriptive period for
administrative claim for refund or credit filing a judicial claim for refund is two years from
the date of payment of the tax "erroneously, x x
at anytime within the two-year prescriptive
x illegally, x x x excessively or in any manner
period. If he files his claim on the last day of the
wrongfully collected." The prescriptive period is
two-year prescriptive period, his claim is still
reckoned from the date the person liable for the
filed on time. The Commissioner will have 120
tax pays the tax. Thus, if the input VAT is in fact
days from such filing to decide the claim. If the
"excessively" collected, that is, the person liable
Commissioner decides the claim on the 120th
for the tax actually pays more than what is
day, or does not decide it on that day, the
legally due, the taxpayer must file a judicial
taxpayer still has 30 days to file his judicial
claim for refund within two years from his date
claim with the CTA. This is not only the plain
of payment. Only the person legally liable to
meaning but also the only logical interpretation
of Section 112(A) and (C). pay the tax can file the judicial claim for
refund. The person to whom the tax is
III. "Excess" Input VAT and "Excessively" passed on as part of the purchase price has
Collected Tax no personality to file the judicial claim under
Section 229.63
The input VAT is not "excessively" collected as
understood under Section 229 because at the Under Section 110(B) and Section 112(A), the
time the input VAT is collected the amount prescriptive period for filing a judicial claim for
paid is correct and proper. The input VAT is a "excess" input VAT is two years from the close
tax liability of, and legally paid by, a VAT- of the taxable quarter when the sale was made
registered seller61 of goods, properties or by the person legally liable to pay
services used as input by another VAT- theoutput VAT. This prescriptive period has no
registered person in the sale of his own goods, relation to the date of payment of the
properties, or services. This tax liability is true "excess" input VAT. The "excess" input VAT
even if the seller passes on the input VAT to the may have been paid for more than two years
buyer as part of the purchase price. The second but this does not bar the filing of a judicial claim
VAT-registered person, who is not legally liable for "excess" VAT under Section 112(A), which
for the input VAT, is the one who applies the has a different reckoning period from Section
input VAT as credit for his own output VAT. 62 If 229. Moreover, the person claiming the refund
the input VAT is in fact "excessively" collected or credit of the input VAT is not the person who
as understood under Section 229, then it is the legally paid the input VAT. Such person seeking
first VAT-registered person - the taxpayer who the VAT refund or credit does not claim that the
is legally liable and who is deemed to have input VAT was "excessively" collected from him,
legally paid for the input VAT - who can ask for or that he paid an input VAT that is more than
a tax refund or credit under Section 229 as an what is legally due. He is not the taxpayer who
ordinary refund or credit outside of the VAT legally paid the input VAT.
System. In such event, the second VAT-
registered taxpayer will have no input VAT to As its name implies, the Value-Added Tax
offset against his own output VAT. system is a tax on the value added by the
taxpayer in the chain of transactions. For
In a claim for refund or credit of "excess" input simplicity and efficiency in tax collection, the
VAT under Section 110(B) and Section 112(A), 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.64 Thus,
a non zero-rated VAT-registered taxpayer who
has no output VAT because he has no sales
cannot claim a tax refund or credit of his unused
input VAT under the VAT System. Even if the
taxpayer has sales but his input VAT exceeds
his output VAT, he cannot seek a tax refund or
credit of his "excess" input VAT under the VAT
System. He can only carry-over and apply his
"excess" input VAT against his future output
VAT. If such "excess" input VAT is an
"excessively" collected tax, the taxpayer should
be able to seek a refund or credit for such
"excess" input VAT whether or not he has
output VAT. The VAT System does not allow
such refund or credit. Such "excess" input VAT
is not an "excessively" collected tax under
Section 229. The "excess" input VAT is a
correctly and properly collected tax. However,
such "excess" input VAT can be applied against
the output VAT because the VAT is a tax
imposed only on the value added by the
taxpayer. If the input VAT is in fact "excessively"
collected under Section 229, then it is the
person legally liable to pay the input VAT, not
the person to whom the tax was passed on as
part of the purchase price and claiming credit
for the input VAT under the VAT System, who
can file the judicial claim under Section 229.
Any suggestion that the "excess" input VAT
under the VAT System is an "excessively"
collected tax under Section 229 may lead
taxpayers to file a claim for refund or credit for
such "excess" input VAT under Section 229 as
an ordinary tax refund or credit outside of the
VAT System. Under Section 229, mere payment
of a tax beyond what is legally due can be
claimed as a refund or credit. There is no
requirement under Section 229 for an output
VAT or subsequent sale of goods, properties, or
services using materials subject to input VAT.
From the plain text of Section 229, it is clear
that what can be refunded or credited is a tax
that is "erroneously, x x x illegally, x x x
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.
IV. Effectivity and Scope of
the Atlas , Mirant and Aichi Doctrines
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 theverba 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.
The Atlas doctrine has no relevance to the
120+30 day periods under Section 112(C)
because the application of the 120+30 day
periods was not in issue in Atlas. The
application of the 120+30 day periods was first
raised inAichi, which adopted the verba
legis rule in holding that the 120+30 day periods
are mandatory and jurisdictional. The language
of Section 112(C) is plain, clear, and
unambiguous. When Section 112(C) states that
"the Commissioner shall grant a refund or issue
the tax credit within one hundred twenty (120)
days from the date of submission of complete
documents," the law clearly gives the
Commissioner 120 days within which to decide
the taxpayer’s claim. Resort to the courts prior
to the expiration of the 120-day period is a
patent violation of the doctrine of exhaustion of
administrative remedies, a ground for
dismissing the judicial suit due to prematurity.
Philippine jurisprudence is awash with cases
affirming and reiterating the doctrine of
exhaustion of administrative remedies.65 Such
doctrine is basic and elementary.
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. Certainly, by
no stretch of the imagination can the word
"may" be construed as making the 120+30 day
periods optional, allowing the taxpayer to file a
judicial claim one day after filing the
administrative claim with the Commissioner.
The old rule66 that the taxpayer may file the
judicial claim, without waiting for the
Commissioner’s decision if the two-year
prescriptive period is about to expire, cannot
apply because that rule was adopted before the
enactment of the 30-day period. The 30-day
period was adopted precisely to do away
with the old rule, so that under the VAT
System the taxpayer will always have 30
days to file the judicial claim even if the
Commissioner acts only on the 120th day, or
does not act at all during the 120-day period.
With the 30-day period always available to the
taxpayer, the taxpayer can no longer file a
judicial claim for refund or credit of input VAT
without waiting for the Commissioner to decide
until the expiration of the 120-day period.
To repeat, a claim for tax refund or credit, like a
claim for tax exemption, is construed strictly
against the taxpayer. One of the conditions for a
judicial claim of refund or credit under the VAT
System is compliance with the 120+30 day
mandatory and jurisdictional periods. Thus,
strict compliance with the 120+30 day periods is
necessary for such a claim to prosper, whether
before, during, or after the effectivity of
the Atlas doctrine, except for the period from the
issuance of BIR Ruling No. DA-489-03 on 10
December 2003 to 6 October 2010 when
the Aichi doctrine was adopted, which again
reinstated the 120+30 day periods as
mandatory and jurisdictional.
BIR Ruling No. DA-489-03 does provide a valid
V. Revenue Memorandum Circular No. 49-03 claim for equitable estoppel under Section 246
(RMC 49-03) dated 15 April 2003 of the Tax Code. BIR Ruling No. DA-489-
03 expressly states that the "taxpayer-claimant
There is nothing in RMC 49-03 that states, need not wait for the lapse of the 120-day
expressly or impliedly, that the taxpayer need period before it could seek judicial relief
not wait for the 120-day period to expire before
filing a judicial claim with the CTA. RMC 49-03
merely authorizes the BIR to continue
processing the administrative claim even after
the taxpayer has filed its judicial claim, without
saying that the taxpayer can file its judicial claim
before the expiration of the 120-day period.
RMC 49-03 states: "In cases where the
taxpayer has filed a ‘Petition for Review’ with
the Court of Tax Appeals involving a claim for
refund/TCC that is pending at the administrative
agency (either the Bureau of Internal Revenue
or the One- Stop Shop Inter-Agency Tax Credit
and Duty Drawback Center of the Department
of Finance), the administrative agency and the
court may act on the case separately." Thus, if
the taxpayer files its judicial claim before the
expiration of the 120-day period, the BIR will
nevertheless continue to act on the
administrative claim because such premature
filing cannot divest the Commissioner of his
statutory power and jurisdiction to decide the
administrative claim within the 120-day period.
On the other hand, if the taxpayer files its
judicial claim after the 120- day period, the
Commissioner can still continue to evaluate the
administrative claim. There is nothing new in
this because even after the expiration of the
120-day period, the Commissioner should still
evaluate internally the administrative claim for
purposes of opposing the taxpayer’s judicial
claim, or even for purposes of determining if the
BIR should actually concede to the taxpayer’s
judicial claim. The internal administrative
evaluation of the taxpayer’s claim
must necessarilycontinue to enable the BIR to
oppose intelligently the judicial claim or, if the
facts and the law warrant otherwise, for the BIR
to concede to the judicial claim, resulting in the
termination of the judicial proceedings.
What is important, as far as the present
cases are concerned, is that the mere filing
by a taxpayer of a judicial claim with the
CTA before the expiration of the 120-day
period cannot operate to divest the
Commissioner of his jurisdiction to decide
an administrative claim within the 120-day
mandatory period,unless the Commissioner
has clearly given cause for equitable
estoppel to apply as expressly recognized in
Section 246 of the Tax Code.67
VI. BIR Ruling No. DA-489-03 dated 10
December 2003
with the CTA by way of Petition for Review."
Prior to this ruling, the BIR held, as shown by its
position in the Court of Appeals,68 that the
expiration of the 120-day period is mandatory
and jurisdictional before a judicial claim can be
filed.
There is no dispute that the 120-day period is
mandatory and jurisdictional, and that the CTA
does not acquire jurisdiction over a judicial
claim that is filed before the expiration of the
120-day period. There are, however, two
exceptions to this rule. The first exception is if
the Commissioner, through a specific ruling,
misleads a particular taxpayer to prematurely
file a judicial claim with the CTA. Such specific
ruling is applicable only to such particular
taxpayer. The second exception is where the
Commissioner, through a general interpretative
rule issued under Section 4 of the Tax Code,
misleads all taxpayers into filing prematurely
judicial claims with the CTA. In these cases, the
Commissioner cannot be allowed to later on
question the CTA’s assumption of jurisdiction
over such claim since equitable estoppel has
set in as expressly authorized under Section
246 of the Tax Code.
Section 4 of the Tax Code, a new provision
introduced by RA 8424, expressly grants to the
Commissioner the power to interpret tax laws,
thus:
Sec. 4. Power of the Commissioner To Interpret
Tax Laws and To Decide Tax Cases. — The
power to interpret the provisions of this Code
and other tax laws shall be under the exclusive
and original jurisdiction of the Commissioner,
subject to review by the Secretary of Finance.
The power to decide disputed assessments,
refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto,
or other matters arising under this Code or other
laws or portions thereof administered by the
Bureau of Internal Revenue is vested in the
Commissioner, subject to the exclusive
appellate jurisdiction of the Court of Tax
Appeals.
Since the Commissioner has exclusive and
original jurisdiction to interpret tax laws,
taxpayers acting in good faith should not be
made to suffer for adhering to general
interpretative rules of the Commissioner
interpreting tax laws, should such interpretation
later turn out to be erroneous and be reversed
by the Commissioner or this Court. Indeed,
Section 246 of the Tax Code expressly provides
that a reversal of a BIR regulation or ruling In ABS-CBN Broadcasting Corp. v. Court of Tax
cannot adversely prejudice a taxpayer who in Appeals, this Court held that under Section 246
good faith relied on the BIR regulation or ruling of the 1997 Tax Code, the Commissioner of
prior to its reversal. Section 246 provides as
follows:
Sec. 246. Non-Retroactivity of Rulings. — Any
revocation, modification or reversal of any of
the rules and regulations promulgated in
accordance with the preceding Sections or any
of the rulings or circulars promulgated by the
Commissioner shall not be given retroactive
application if the revocation, modification or
reversal will be prejudicial to the taxpayers,
except in the following cases:
(a) Where the taxpayer deliberately
misstates or omits material facts from his
return or any document required of him
by the Bureau of Internal Revenue;
(b) Where the facts subsequently
gathered by the Bureau of Internal
Revenue are materially different from the
facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith.
(Emphasis supplied)
Thus, a general interpretative rule issued by the
Commissioner may be relied upon by taxpayers
from the time the rule is issued up to its reversal
by the Commissioner or this Court. Section 246
is not limited to a reversal only by the
Commissioner because this Section expressly
states, "Any revocation, modification or
reversal" without specifying who made the
revocation, modification or reversal. Hence, a
reversal by this Court is covered under Section
246.
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 Aichi69 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 Atlasdoctrine 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 Aichiprospectively.
Absent fraud, bad faith or misrepresentation,
the reversal by this Court of a general
interpretative rule issued by the Commissioner,
like the reversal of a specific BIR ruling under
Section 246, should also apply prospectively.
As held by this Court in CIR v. Philippine Health
Care Providers, Inc.:70
Internal Revenue is precluded from adopting
a position contrary to one previously taken
where injustice would result to the taxpayer.
Hence, where an assessment for deficiency
withholding income taxes was made, three
years after a new BIR Circular reversed a
previous one upon which the taxpayer had
relied upon, such an assessment was
prejudicial to the taxpayer. To rule otherwise,
opined the Court, would be contrary to the
tenets of good faith, equity, and fair play.
This Court has consistently reaffirmed its ruling
in ABS-CBN Broadcasting Corp.1âwphi1 in the
later cases ofCommissioner of Internal Revenue
v. Borroughs, Ltd., Commissioner of Internal
Revenue v. Mega Gen. Mdsg.
Corp., Commissioner of Internal Revenue v.
Telefunken Semiconductor (Phils.) Inc.,
and Commissioner of Internal Revenue v. Court
of Appeals. The rule is that the BIR rulings
have no retroactive effect where a grossly
unfair deal would result to the prejudice of
the taxpayer, as in this case.
More recently, in Commissioner of Internal
Revenue v. Benguet Corporation, wherein the
taxpayer was entitled to tax refunds or credits
based on the BIR’s own issuances but later was
suddenly saddled with deficiency taxes due to
its subsequent ruling changing the category of
the taxpayer’s transactions for the purpose of
paying its VAT, this Court ruled that applying
such ruling retroactively would be prejudicial to
the taxpayer. (Emphasis supplied)
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 days after the lapse of the 30-day period.
interpretative rule. Thus, all taxpayers can rely
on BIR Ruling No. DA-489-03 from the time of VII. Existing Jurisprudence
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
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.
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.
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.
Philex’s situation is not a case of premature
filing of its judicial claim but of late filing,
indeed very late filing. BIR Ruling No. DA-489-
03 allowed premature filing of a judicial claim,
which means non-exhaustion of the 120-day
period for the Commissioner to act on an
administrative claim. Philex cannot claim the
benefit of BIR Ruling No. DA-489-03 because
Philex did not file its judicial claim prematurely
but filed it long after the lapse of the 30-day
period following the expiration of the 120-day
period. In fact, Philex filed its judicial claim 426
There is no basis whatsoever to the claim that
in five cases this Court had already made a
ruling that the filing dates of the administrative
and judicial claims are inconsequential, as long
as they are within the two-year prescriptive
period. The effect of the claim of the dissenting
opinions is that San Roque’s failure to wait for
the 120-day mandatory period to lapse is
inconsequential, thus allowing San Roque to
claim the tax refund or credit. However, the five
cases cited by the dissenting opinions do not
support even remotely the claim that this Court
had already made such a ruling. None of these
five cases mention, cite, discuss, rule or
even hint that compliance with the 120-day
mandatory period is inconsequential as long
as the administrative and judicial claims are
filed within the two-year prescriptive period.
rated sales, nevertheless denied petitioner’s
claim ‘for lack of substantiation,’ x x x." The
Court quoted the ruling of the First Division that
"valid VAT official receipts, and not mere
sale invoices, should have been submitted"
by petitioner to substantiate its claim. The Court
further stated: "x x x the CTA En Banc, x x x
affirmed x x x the CTA First Division," and
"petitioner’s motion for reconsideration having
been denied x x x, the present petition for
review was filed." Clearly, the sole issue in this
case is whether petitioner complied with the
substantiation requirements in claiming for tax
refund or credit. Again, nowhere in this case did
the Court discuss, state, or rule that the filing
dates of the administrative and judicial claims
are inconsequential, as long as they are within
the two-year prescriptive period.

In CIR v. Toshiba Information Equipment In CIR v. Ironcon Builders and Development

(Phils.), Inc.,71 the issue was whether any Corporation,74 the Court put the issue in this
output VAT was actually passed on to Toshiba manner: "Simply put, the sole issue the petition
that it could claim as input VAT subject to tax raises is whether or not the CTA erred in
credit or refund. The Commissioner argued that granting respondent Ironcon’s application for
"although Toshiba may be a VAT-registered refund of its excess creditable VAT withheld."
taxpayer, it is not engaged in a VAT-taxable The Commissioner argued that "since the NIRC
business." The Commissioner cited Section does not specifically grant taxpayers the option
4.106-1 of Revenue Regulations No. 75 that to refund excess creditable VAT withheld, it
"refund of input taxes on capital goods shall be follows that such refund cannot be allowed."
allowed only to the extent that such capital Thus, this case is solely about whether the
goods are used in VAT-taxable business." In the taxpayer has the right under the NIRC to ask for
words of the Court, "Ultimately, however, the a cash refund of excess creditable VAT
issue still to be resolved herein shall be whether withheld. Again, nowhere in this case did the
respondent Toshiba is entitled to the tax Court discuss, state, or rule that the filing dates
credit/refund of its input VAT on its purchases of of the administrative and judicial claims are
capital goods and services, to which this Court inconsequential, as long as they are within the
answers in the affirmative." Nowhere in this two-year prescriptive period.
case did the Court discuss, state, or rule that
the filing dates of the administrative and judicial In CIR v. Cebu Toyo Corporation,75 the issue
claims are inconsequential, as long as they are was whether Cebu Toyo was exempt or subject
within the two-year prescriptive period. to VAT. Compliance with the 120-day period
was never an issue in Cebu Toyo. As the Court
In Intel Technology Philippines, Inc. v. explained:
CIR,72 the Court stated: "The issues to be
resolved in the instant case are (1) whether the Both the Commissioner of Internal Revenue and
absence of the BIR authority to print or the the Office of the Solicitor General argue that
absence of the TIN-V in petitioner’s export sales respondent Cebu Toyo Corporation, as a PEZA-
invoices operates to forfeit its entitlement to a registered enterprise, is exempt from national
tax refund/credit of its unutilized input VAT and local taxes, including VAT, under Section
attributable to its zero-rated sales; and (2) 24 of Rep. Act No. 7916 and Section 109 of the
whether petitioner’s failure to indicate "TIN-V" in NIRC. Thus, they contend that respondent
its sales invoices automatically invalidates its Cebu Toyo Corporation is not entitled to any
claim for a tax credit certification." Again, refund or credit on input taxes it previously paid
nowhere in this case did the Court discuss, as provided under Section 4.103-1 of Revenue
state, or rule that the filing dates of the Regulations No. 7-95, notwithstanding its
administrative and judicial claims are registration as a VAT taxpayer. For petitioner
inconsequential, as long as they are within the claims that said registration was erroneous and
two-year prescriptive period. did not confer upon the respondent any right to
claim recognition of the input tax credit.
In AT&T Communications Services Philippines,
Inc. v. CIR,73 the Court stated: "x x x the CTA The respondent counters that it availed of the
First Division, conceding that petitioner’s income tax holiday under E.O. No. 226 for four
transactions fall under the classification of zero- years from August 7, 1995 making it exempt
from income tax but not from other taxes such is not a binding precedent that the taxpayer
as VAT. Hence, according to respondent, its need not wait for the 120-day period to lapse.
export sales are not exempt from VAT,
contrary to petitioner’s claim, but its export Any issue, whether raised or not by the
sales is subject to 0% VAT. Moreover, it parties, but not passed upon by the
argues that it was able to establish through a Court, does not have any value as
report certified by an independent Certified precedent. As this Court has explained as early
Public Accountant that the input taxes it as 1926:
incurred from April 1, 1996 to December 31,
1997 were directly attributable to its export It is contended, however, that the question
sales. Since it did not have any output tax before us was answered and resolved against
against which said input taxes may be offset, it the contention of the appellant in the case
had the option to file a claim for refund/tax credit of Bautista vs. Fajardo (38 Phil. 624). In that
of its unutilized input taxes. case no question was raised nor was it even
suggested that said section 216 did not apply to
Considering the submission of the parties and a public officer. That question was not
the evidence on record, we find the petition discussed nor referred to by any of the parties
bereft of merit. interested in that case. It has been frequently
decided that the fact that a statute has been
Petitioner’s contention that respondent is accepted as valid, and invoked and applied for
not entitled to refund for being exempt from many years in cases where its validity was not
VAT is untenable. This argument turns a blind raised or passed on, does not prevent a court
eye to the fiscal incentives granted to PEZA- from later passing on its validity, where that
registered enterprises under Section 23 of Rep. question is squarely and properly raised and
Act No. 7916. Note that under said statute, the presented. Where a question passes the
respondent had two options with respect to its Court sub silentio, the case in which the
tax burden. It could avail of an income tax question was so passed is not binding on
holiday pursuant to provisions of E.O. No. 226, the Court (McGirr vs. Hamilton and Abreu,
thus exempt it from income taxes for a number 30 Phil. 563), nor should it be considered as
of years but not from other internal revenue a precedent. (U.S. vs. Noriega and Tobias, 31
taxes such as VAT; or it could avail of the tax Phil. 310; Chicote vs. Acasio, 31 Phil. 401; U.S.
exemptions on all taxes, including VAT under vs. More, 3 Cranch [U.S.] 159, 172; U.S. vs.
P.D. No. 66 and pay only the preferential tax Sanges, 144 U.S. 310, 319; Cross vs. Burke,
rate of 5% under Rep. Act No. 7916. Both the 146 U.S. 82.) For the reasons given in the case
Court of Appeals and the Court of Tax Appeals of McGirr vs. Hamilton and Abreu, supra, the
found that respondent availed of the income tax decision in the case of Bautista vs. Fajardo,
holiday for four (4) years starting from August 7, supra, can have no binding force in the
1995, as clearly reflected in its 1996 and 1997 interpretation of the question presented
Annual Corporate Income Tax Returns, where here.76 (Emphasis supplied)
respondent specified that it was availing of the
tax relief under E.O. No. 226. Hence, In Cebu Toyo, the nature of the 120-day period,
respondent is not exempt from VAT and it whether it is mandatory or optional, was not
correctly registered itself as a VAT taxpayer. even raised as an issue by any of the
In fine, it is engaged in taxable rather than parties. The Court never passed upon this
exempt transactions. (Emphasis supplied) issue. Thus, Cebu Toyo does not constitute
binding precedent on the nature of the 120-day
Clearly, the issue in Cebu Toyo was whether period.
the taxpayer was exempt from VAT or
subject to VAT at 0% tax rate. If subject to 0% There is also the claim that there are numerous
VAT rate, the taxpayer could claim a refund or CTA decisions allegedly supporting the
credit of its input VAT. Again, nowhere in this argument that the filing dates of the
case did the Court discuss, state, or rule that administrative and judicial claims are
the filing dates of the administrative and judicial inconsequential, as long as they are within the
claims are inconsequential, as long as they are two-year prescriptive period. Suffice it to state
within the two-year prescriptive period. that CTA decisions do not constitute
precedents, and do not bind this Court or the
While this Court stated in the narration of facts public. That is why CTA decisions are
in Cebu Toyo that the taxpayer "did not bother appealable to this Court, which may affirm,
to wait for the Resolution of its (administrative) reverse or modify the CTA decisions as the
claim by the CIR" before filing its judicial claim facts and the law may warrant. Only decisions
with the CTA, this issue was not raised before of this Court constitute binding precedents,
the Court. Certainly, this statement of the Court forming part of the Philippine legal system.77 As
held by this Court in The Philippine Veterans Sec. 106. Refunds or tax credits of creditable
Affairs Office v. Segundo:78 input tax. —

x x x Let it be admonished that decisions of the (a) x x x x

Supreme Court "applying or interpreting the
laws or the Constitution . . . form part of the (d) Period within which refund or tax
legal system of the Philippines," and, as it were, credit of input tax shall be made - In
"laws" by their own right because they interpret proper cases, the Commissioner shall
what the laws say or mean. Unlike rulings of grant a refund or issue the tax credit for
the lower courts, which bind the parties to creditable input taxes within sixty (60)
specific cases alone, our judgments are days from the date of submission of
universal in their scope and application, and complete documents in support of the
equally mandatory in character. Let it be application filed in accordance with
warned that to defy our decisions is to court subparagraphs (a) and (b) hereof. In
contempt. (Emphasis supplied) case of full or partial denial of the claim
for tax refund or tax credit, or the failure
The same basic doctrine was reiterated by this on the part of the Commissioner to act
Court in De Mesa v. Pepsi Cola Products Phils., on the application within the period
Inc.:79 prescribed above, the taxpayer
affected may, within thirty (30) days
The principle of stare decisis et non quieta from receipt of the decision denying
movere is entrenched in Article 8 of the Civil the claim or after the expiration of the
Code, to wit: sixty-day period, appeal the decision
or the unacted claim with the Court of
ART. 8. Judicial decisions applying or Tax Appeals.
interpreting the laws or the Constitution shall
form a part of the legal system of the Revenue Regulations No. 7-95 (1996)
Philippines.
Section 4.106-2. Procedures for claiming
It enjoins adherence to judicial precedents. It refunds or tax credits of input tax — (a) x x x
requires our courts to follow a rule already
established in a final decision of the x x x x
Supreme Court. That decision becomes a
judicial precedent to be followed in subsequent (c) Period within which refund or tax credit of
cases by all courts in the land. The doctrine input taxes shall be made. — In proper cases,
of stare decisis is based on the principle that the Commissioner shall grant a tax credit/refund
once a question of law has been examined and for creditable input taxes within sixty (60) days
decided, it should be deemed settled and from the date of submission of complete
closed to further argument. (Emphasis supplied) documents in support of the application filed in
accordance with subparagraphs (a) and (b)
VIII. Revenue Regulations No. 7-95 Effective above.
1 January 1996
In case of full or partial denial of the claim for
Section 4.106-2(c) of Revenue Regulations No. tax credit/refund as decided by the
7-95, by its own express terms, applies only if Commissioner of Internal Revenue, the
the taxpayer files the judicial claim "after" the taxpayer may appeal to the Court of Tax
lapse of the 60-day period, a period with which Appeals within thirty (30) days from the receipt
San Roque failed to comply. Under Section of said denial, otherwise the decision will
4.106-2(c), the 60-day period is still become final. However, if no action on the
mandatory and jurisdictional. claim for tax credit/refund has been taken by
the Commissioner of Internal Revenue after
Moreover, it is a hornbook principle that a prior the sixty (60) day period from the date of
administrative regulation can never prevail over submission of the application but before the
a later contrary law, more so in this case where lapse of the two (2) year period from the date
the later law was enacted precisely to amend of filing of the VAT return for the taxable
the prior administrative regulation and the law it quarter, the taxpayer may appeal to the
implements. Court of Tax Appeals.

The laws and regulation involved are as follows: xxxx

1977 Tax Code, as amended by Republic Act 1997 Tax Code

No. 7716 (1994)
Section 112. Refunds or Tax Credits of Input Commissioner after the sixty (60) day period,"
Tax — the taxpayer "may" already file the judicial
claim even long before the lapse of the two-year
(A) x x x prescriptive period. Prior to the amendment by
RA 7716, the taxpayer had to wait until the two-
xxxx year prescriptive period was about to expire if
the Commissioner did not act on the
80 With the amendment by RA 7716, the
(D) Period within which Refund or Tax Credit of claim.
Input Taxes shall be made. — In proper cases, taxpayer need not wait until the two-year
prescriptive period is about to expire before
the Commissioner shall grant the refund or filing the judicial claim because mere inaction by
issue the tax credit certificate for creditable the Commissioner
input taxes within one hundred twenty (120) deemed a denial during the 60-day period is
of the claim. This is the
days from the date of submission of complete meaning of the phrase "but before the lapse
documents in support of the application filed in of the two (2) year period" in Section 4.106-
accordance with Subsections (A) and (B) 2(c). As Section 4.106- 2(c) reiterates
hereof. that the
judicial claim can be filed only "after the sixty
(60) day period," this period remains
In case of full or partial denial of the claim mandatory and jurisdictional. Clearly, Section
for tax refund or tax credit, or the failure on 4.106-2(c) did not amend Section 106(d) but
the part of the Commissioner to act on the merely faithfully implemented it.
application within the period prescribed
above, the taxpayer affected may, within Even assuming, for the sake of argument, that
thirty (30) days from the receipt of the Section 4.106-2(c) of Revenue Regulations No.
decision denying the claim or after the
expiration of the hundred twenty day-period, 7-95, an administrative issuance, amended
appeal the decision or the unacted claim period 106(d)
Section of the Tax Code to make the
with the Court of Tax Appeals. given to the Commissioner non-
mandatory, still the 1997 Tax Code, a much
later law, reinstated the original intent and
There can be no dispute that under Section provision of Section 106(d) by extending the 60-
106(d) of the 1977 Tax Code, as amended by day period to 120 days and re-adopting the
RA 7716, the Commissioner has a 60-day original wordings of Section 106(d). Thus,
period to act on the administrative claim. This Section 4.106-2(c), a mere administrative
60-day period is mandatory and issuance, becomes inconsistent with Section
jurisdictional. 112(D), a later law. Obviously, the later law
prevails over a prior inconsistent administrative
Did Section 4.106-2(c) of Revenue Regulations issuance.
No. 7-95 change this, so that the 60-day period
is no longer mandatory and jurisdictional? The Section 112(D) of the 1997 Tax Code is clear,
obvious answer is no. unequivocal, and categorical that the
Commissioner has 120 days to act on an
Section 4.106-2(c) itself expressly states that if, administrative claim. The taxpayer can file the
"after the sixty (60) day period," the judicial claim (1) only within thirty days after
Commissioner fails to act on the administrative the Commissioner partially or fully denies
claim, the taxpayer may file the judicial claim the claim within the 120- day period, or (2) only
even "before the lapse of the two (2) year within thirty days from the expiration of the
period." Thus, under Section 4.106-2(c) the 120- day period if the Commissioner does not
60-day period is still mandatory and act within the 120-day period.
jurisdictional.
There can be no dispute that upon effectivity of
Section 4.106-2(c) did not change Section the 1997 Tax Code on 1 January 1998, or more
106(d) as amended by RA 7716, but merely than five yearsbefore San Roque filed its
implemented it, for two reasons. First, Section administrative claim on 28 March 2003, the
4.106-2(c) still expressly requires law has been clear: the 120- day period is
compliance with the 60-day period. This mandatory and jurisdictional. San Roque’s
cannot be disputed.1âwphi1 claim, having been filed administratively on 28
March 2003, is governed by the 1997 Tax
Second, under the novel amendment introduced Code, not the 1977 Tax Code. Since San
by RA 7716, mere inaction by the Roque filed its judicial claim before the
Commissioner during the 60-day period expiration of the 120-day mandatory and
is deemed a denial of the claim. Thus, Section jurisdictional period, San Roque’s claim cannot
4.106-2(c) states that "if no action on the claim prosper.
for tax refund/credit has been taken by the
San Roque cannot also invoke Section 4.106-
2(c), which expressly provides that the taxpayer
can only file the judicial claim "after" the lapse
of the 60-day period from the filing of the
administrative claim. San Roque filed its
judicial claim just 13 days after filing its
administrative claim. To recall, San Roque
filed its judicial claim on 10 April 2003, a mere
13 days after it filed its administrative claim.
Even if, contrary to all principles of statutory
construction as well as plain common sense, we
gratuitously apply now Section 4.106-2(c) of
Revenue Regulations No. 7-95, still San Roque
cannot recover any refund or credit because
San Roque did not wait for the 60-day period
to lapse, contrary to the express
requirement in Section 4.106-2(c). In short,
San Roque does not even comply with Section
4.106-2(c). A claim for tax refund or credit is
strictly construed against the taxpayer, who
must prove that his claim clearly complies with
all the conditions for granting the tax refund or
credit. San Roque did not comply with the
express condition for such statutory grant.
A final word. Taxes are the lifeblood of the
nation. The Philippines has been struggling to
improve its tax efficiency collection for the
longest time with minimal success.
Consequently, the Philippines has suffered the
economic adversities arising from poor tax
collections, forcing the government to continue
borrowing to fund the budget deficits. This Court
cannot turn a blind eye to this economic malaise
by being unduly liberal to taxpayers who do not
comply with statutory requirements for tax
refunds or credits. The tax refund claims in the
present cases are not a pittance. Many other
companies stand to gain if this Court were to
rule otherwise. The dissenting opinions will turn
on its head the well-settled doctrine that tax
refunds are strictly construed against the
taxpayer.
CIR vs. Aichi Forging Company of Asia, Inc. –
G.R. No. 184823 October 6, 2010
DEL CASTILLO, J.:
A taxpayer is entitled to a refund either by
authority of a statute expressly granting such right,
privilege, or incentive in his favor, or under the
principle of solutio indebiti requiring the return of
taxes erroneously or illegally collected. In both
cases, a taxpayer must prove not only his
entitlement to a refund but also his compliance with
the procedural due process as non-observance of
the prescriptive periods within which to file the
administrative and the judicial claims would result in
the denial of his claim.
This Petition for Review on Certiorari under
Rule 45 of the Rules of Court seeks to set aside the
July 30, 2008 Decision[1] and the October 6, 2008
Resolution[2] of the Court of Tax Appeals (CTA) En
Banc.
Factual Antecedents
Respondent Aichi Forging Company of Asia,
Inc., a corporation duly organized and existing
under the laws of the Republic of the Philippines, is
engaged in the manufacturing, producing, and
processing of steel and its by-products.[3] It is
registered with the Bureau of Internal Revenue
(BIR) as a Value-Added Tax (VAT) entity[4] and its
products, close impression die steel forgings and
tool and dies, are registered with the Board of
Investments (BOI) as a pioneer status.[5]
On September 30, 2004, respondent filed a
claim for refund/credit of input VAT for the period
July 1, 2002 to September 30, 2002 in the total
amount of P3,891,123.82 with the petitioner
Commissioner of Internal Revenue (CIR), through
the Department of Finance (DOF) One-Stop Shop
Inter-Agency Tax Credit and Duty Drawback
Center.[6]

WHEREFORE, the Court hereby Proceedings before the Second Division of the
(1) GRANTS the petition of the Commissioner CTA
of Internal Revenue in G.R. No. 187485
to DENY the P483,797,599.65 tax refund or On even date, respondent filed a Petition for
credit claim of San Roque Power Corporation; Review[7] with the CTA for the refund/credit of the
(2) GRANTSthe petition of Taganito Mining same input VAT. The case was docketed as CTA
Corporation in G.R. No. 196113 for a tax refund Case No. 7065 and was raffled to the Second
or credit of P8,365,664.38; and (3) DENIES the Division of the CTA.
petition of Philex Mining Corporation in G.R. No.
197156 for a tax refund or credit of In the Petition for Review, respondent
P23,956,732.44. alleged that for the period July 1, 2002 to
September 30, 2002, it generated and recorded
SO ORDERED. zero-rated sales in the amount
ofP131,791,399.00,[8] which was paid pursuant to
Section 106(A) (2) (a) (1), (2) and (3) of the National
ANTONIO T. CARPIO Internal Revenue Code of 1997 (NIRC);[9] that for
Associate Justice the said period, it incurred and paid input VAT
amounting to P3,912,088.14 from purchases and
importation attributable to its zero-rated
sales;[10] and that in its application for refund/credit
filed with the DOF One-Stop Shop Inter-Agency
Tax Credit and Duty Drawback Center, it only
claimed the amount of P3,891,123.82.[11]
In response, petitioner filed his
Answer[12] raising the following special and
affirmative defenses, to wit:
4. Petitioners alleged claim
for refund is subject to
administrative investigation by the
Bureau;
5. Petitioner must prove that
it paid VAT input taxes for the
period in question;
6. Petitioner must prove that
its sales are export sales
contemplated under Sections
106(A) (2) (a), and 108(B) (1) of
the Tax Code of 1997;
7. Petitioner must prove that
the claim was filed within the two
(2) year period prescribed in
Section 229 of the Tax Code;
8. In an action for refund, the
burden of proof is on the taxpayer
to establish its right to refund, and
failure to sustain the burden is
fatal to the claim for refund; and
9. Claims for refund are
construed strictly against the
claimant for the same partake of
the nature of exemption from
taxation.[13]
Trial ensued, after which, on January 4,
2008, the Second Division of the CTA rendered a
Decision partially granting respondents claim for
refund/credit. Pertinent portions of the Decision
read:
For a VAT registered entity
whose sales are zero-rated, to validly
claim a refund, Section 112 (A) of the
NIRC of 1997, as amended,
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: x x x
Pursuant to the above
provision, petitioner must comply with
the following requisites: (1) the
taxpayer is engaged in sales which
are zero-rated or effectively zero-
rated; (2) the taxpayer is VAT-
registered; (3) the claim must be filed
within two years after the close of the
taxable quarter when such sales
were made; and (4) the creditable
input tax due or paid must be
attributable to such sales, except the
transitional input tax, to the extent
that such input tax has not been
applied against the output tax.
The Court finds that the first
three requirements have been
complied [with] by petitioner.
With regard to the first
requisite, the evidence presented by
petitioner, such as the Sales Invoices
(Exhibits II to II-262, JJ to JJ-431, KK
to KK-394 and LL) shows that it is
engaged in sales which are zero-
rated.
The second requisite has
likewise been complied with. The
Certificate of Registration with OCN
1RC0000148499 (Exhibit C) with the
BIR proves that petitioner is a
registered VAT taxpayer.
In compliance with the third
requisite, petitioner filed its
administrative claim for refund on
September 30, 2004 (Exhibit N) and
the present Petition for Review on
September 30, 2004, both within the
two (2) year prescriptive period from
the close of the taxable quarter when
the sales were made, which is from
September 30, 2002.
 As regards, the fourth
requirement, the Court finds that
there are some documents and
claims of petitioner that are baseless
and have not been satisfactorily
substantiated.
xxxx
In sum, petitioner has
sufficiently proved that it is entitled to
a refund or issuance of a tax credit
certificate representing unutilized
excess input VAT payments for the
period July 1, 2002 to September 30,
2002, which are attributable to its
zero-rated sales for the same
period,but in the reduced amount
of P3,239,119.25, computed as
follows:
2004.[16] He cited as basis Article 13 of the Civil
Code,[17] which provides that when the law speaks
of a year, it is equivalent to 365 days. In addition,
petitioner argued that the simultaneous filing of the
administrative and the judicial claims contravenes
Sections 112 and 229 of the NIRC.[18] According to
the petitioner, a prior filing of an administrative claim
is a condition precedent[19] before a judicial claim
can be filed. He explained that the rationale of such
requirement rests not only on the doctrine of
exhaustion of administrative remedies but also on
the fact that the CTA is an appellate body which
exercises the power of judicial review over
administrative actions of the BIR. [20]
The Second Division of the CTA, however,
denied petitioners Motion for Partial
Reconsideration for lack of merit. Petitioner thus
elevated the matter to the CTA En Banc via a
Petition for Review.[21]

Amount of P 3,891,123.82 Ruling of the CTA En Banc

Claimed Input
VAT On July 30, 2008, the CTA En Banc affirmed
Less: the Second Divisions Decision allowing the partial
Exceptions as 41,020.37 tax refund/credit in favor of respondent. However,
found by the as to the reckoning point for counting the two-year
ICPA period, the CTA En Banc ruled:
Net Creditable P 3,850,103.45
Input VAT Petitioner argues that the
Less: administrative and judicial claims
Output VAT Due 610,984.20 were filed beyond the period allowed
Excess P 3,239,119.25 by law and hence, the honorable
Creditable Input Court has no jurisdiction over the
VAT same. In addition, petitioner further
contends that respondent's filing of
WHEREFORE, premises the administrative and judicial
considered, the present Petition for [claims] effectively eliminates the
Review is PARTIALLY GRANTED. authority of the honorable Court to
Accordingly, respondent is hereby exercise jurisdiction over the judicial
ORDERED TO REFUND OR ISSUE claim.
A TAX CREDIT CERTIFICATE in
favor of petitioner [in] the reduced We are not persuaded.
amount of THREE MILLION TWO
HUNDRED THIRTY NINE Section 114 of the 1997
THOUSAND ONE HUNDRED NIRC, and We quote, to wit:
NINETEEN AND 25/100 PESOS
(P3,239,119.25), representing the SEC.
unutilized input VAT incurred for the 114. Return and
months of July to September 2002. Payment of Value-
added Tax.
SO ORDERED.[14]
(A) In General.
Every person liable to
Dissatisfied with the above-quoted Decision, pay the value-added
petitioner filed a Motion for Partial tax imposed under this
Reconsideration,[15] insisting that the administrative Title shall file a
and the judicial claims were filed beyond the two- quarterly return of the
year period to claim a tax refund/credit provided for amount of his gross
under Sections 112(A) and 229 of the NIRC. He sales or receipts within
reasoned that since the year 2004 was a leap year, twenty-five (25) days
the filing of the claim for tax refund/credit on following the close of
September 30, 2004 was beyond the two-year each taxable quarter
period, which expired on September 29, prescribed for each
 taxpayer: Provided,
however, That VAT-
registered persons
shall pay the value-
added tax on a
monthly basis.
[x x x x ]
Based on the above-stated
provision, a taxpayer has twenty five
(25) days from the close of each
taxable quarter within which to file a
quarterly return of the amount of his
gross sales or receipts. In the case at
bar, the taxable quarter involved was
for the period of July 1,
2002 to September 30, 2002.
Applying Section 114 of the 1997
NIRC, respondent has until October
25, 2002 within which to file its
quarterly return for its gross sales or
receipts [with] which it complied
when it filed its VAT Quarterly Return
on October 20, 2002.
In relation to this, the
reckoning of the two-year period
provided under Section 229 of the
1997 NIRC should start from the
payment of tax subject claim for
refund. As stated above, respondent
filed its VAT Return for the taxable
third quarter of 2002 on October 20,
2002. Thus, respondent's
administrative and judicial claims for
refund filed on September 30,
2004were filed on time because
AICHI has until October 20,
2004 within which to file its claim for
refund.
In addition, We do not agree
with the petitioner's contention that
the 1997 NIRC requires the previous
filing of an administrative claim for
refund prior to the judicial claim. This
should not be the case as the law
does not prohibit the simultaneous
filing of the administrative and judicial
claims for refund. What is controlling
is that both claims for refund must be
filed within the two-year prescriptive
period.
In sum, the Court En Banc
finds no cogent justification to disturb
the findings and conclusion spelled
out in the assailed January 4, 2008
Decision and March 13, 2008
Resolution of the CTA Second
Division. What the instant petition
seeks is for the Court En Banc to
view and appreciate the evidence in
their own perspective of things, which
unfortunately had already been
considered and passed upon.
WHEREFORE, the instant
Petition for Review is hereby
DENIED DUE COURSE and
DISMISSED for lack of
merit. Accordingly, the January 4,
2008 Decision and March 13, 2008
Resolution of the CTA Second
Division in CTA Case No. 7065
entitled, AICHI Forging Company of
Asia, Inc. petitioner vs.
Commissioner of Internal Revenue,
respondent are hereby AFFIRMED
in toto.
SO ORDERED.[22]
Petitioner sought reconsideration but the
CTA En Banc denied[23] his Motion for
Reconsideration.
Issue
Hence, the present recourse where
petitioner interposes the issue of whether
respondents judicial and administrative claims for
tax refund/credit were filed within the two-
year prescriptive period provided in Sections
112(A) and 229 of
the NIRC.[24]
Petitioners Arguments
Petitioner maintains that respondents administrative
and judicial claims for tax refund/credit were filed in
violation of Sections 112(A) and 229 of the
NIRC.[25] He posits that pursuant to Article 13 of the
Civil Code,[26] since the year 2004 was a leap year,
the filing of the claim for tax refund/credit
on September 30, 2004 was beyond the two-year
period, which expired on September 29, 2004.[27]
Petitioner further argues that the CTA En
Banc erred in applying Section 114(A) of the NIRC
in determining the start of the two-year period as the
said provision pertains to the compliance
requirements in the payment of VAT.[28] He asserts
that it is Section 112, paragraph (A), of the same
Code that should apply because it specifically
provides for the period within which a claim for tax
refund/ credit should be made.[29]
Petitioner likewise puts in issue the fact that the
administrative claim with the BIR and the judicial
claim with the CTA were filed on the same
day.[30] He opines that the simultaneous filing of the
administrative and the judicial claims contravenes
Section 229 of the NIRC, which requires the prior
filing of an administrative claim.[31] He insists that
such procedural requirement is based on the
doctrine of exhaustion of administrative remedies
and the fact that the CTA is an appellate body
exercising judicial review over administrative actions
of the CIR.[32]
Respondents Arguments
For its part, respondent claims that it is entitled to a were
refund/credit of its unutilized input VAT for the made
period July 1, 2002 to September 30, 2002 as a
matter of right because it has substantially complied
with all the requirements provided by In computing the two-year prescriptive period for
law.[33] Respondent likewise defends the CTA En claiming a refund/credit of unutilized input VAT, the
Banc in applying Section 114(A) of the NIRC in Second Division of the CTA applied Section 112(A)
computing the prescriptive period for the claim for of the NIRC, which states:
tax refund/credit. Respondent believes that Section
112(A) of the NIRC must be read together with
Section 114(A) of the same Code.[34]
As to the alleged simultaneous filing of its
administrative and judicial claims, respondent
contends that it first filed an administrative claim
with the One-Stop Shop Inter-Agency Tax Credit
and Duty Drawback Center of the DOF before it
filed a judicial claim with the CTA.[35] To prove this,
respondent points out that its Claimant Information
Sheet No. 49702[36]and BIR Form No. 1914 for the
third quarter of 2002,[37] which were filed with the
DOF, were attached as Annexes M and N,
respectively, to the Petition for Review filed with the
CTA.[38] Respondent further contends that the non-
observance of the 120-day period given to the CIR
to act on the claim for tax refund/credit in Section
112(D) is not fatal because what is important is that
both claims are filed within the two-year prescriptive
period.[39] In support thereof, respondent
cites Commissioner of Internal Revenue v. Victorias
Milling Co., Inc.[40] where it was ruled that [i]f,
however, the [CIR] takes time in deciding the claim,
and the period of two years is about to end, the suit
or proceeding must be started in the [CTA] before
the end of the two-year period without awaiting the
decision of the [CIR].[41] Lastly, respondent argues
that even if the period had already lapsed, it may be
suspended for reasons of equity considering that it
is not a jurisdictional requirement.[42]
Our Ruling
The petition has merit.
Unutiliz
ed
input
VAT
must
be
claime
d
within
two
years
after
the
close
of the
taxable
quarter
when
the
sales
SEC. 112. Refunds or Tax Credits of
Input Tax.
(A) Zero-rated or Effectively Zero-
rated Sales Any VAT-registered
person, whose sales are zero-rated
or effectively zero-rated may, within
two (2) years after the close of the
taxable quarter when the sales
were made, apply for the issuance of
a tax credit certificate or refund of
creditable input tax due or paid
attributable to such sales, except
transitional input tax, to the extent
that such input tax has not been
applied against output tax: Provided,
however, That in the case of zero-
rated sales under Section
106(A)(2)(a)(1), (2) and (B) and
Section 108 (B)(1) and (2), the
acceptable foreign currency
exchange proceeds thereof had
been duly accounted for in
accordance with the rules and
regulations of the Bangko Sentral ng
Pilipinas (BSP): Provided, further,
That where the taxpayer is engaged
in zero-rated or effectively zero-rated
sale and also in taxable or exempt
sale of goods or properties or
services, and the amount of
creditable input tax due or paid
cannot be directly and entirely
attributed to any one of the
transactions, it shall be allocated
proportionately on the basis of the
volume of sales.(Emphasis supplied.)
The CTA En Banc, on the other hand, took into
consideration Sections 114 and 229 of the NIRC,
which read:
SEC. 114. Return and
Payment of Value-Added Tax.
 (A) In General. Every person
liable to pay the value-added tax
imposed under this Title shall file a
quarterly return of the amount of
his gross sales or receipts within
twenty-five (25) days following the
close of each taxable quarter
prescribed for each taxpayer:
Provided, however, That VAT-
registered persons shall pay the
value-added tax on a monthly basis.
Any person, whose
registration has been cancelled in
accordance with Section 236, shall
file a return and pay the tax due
thereon within twenty-five (25) days
from the date of cancellation of
registration: Provided, That only one
consolidated return shall be filed by
the taxpayer for his principal place of
business or head office and all
branches.
xxxx
SEC. 229. Recovery of tax
erroneously or illegally collected.
No suit or proceeding shall be
maintained in any court for the
recovery of any national internal
revenue tax hereafter alleged to have
been erroneously or illegally
assessed or collected, or of any
penalty claimed to have been
collected without authority, or of any
sum alleged to have been
excessively or in any manner
wrongfully collected, until a claim for
refund or credit has been duly filed
with the Commissioner; but such suit
or proceeding may be maintained,
whether or not such tax, penalty or
sum has been paid under protest or
duress.
In any case, no such suit or
proceeding shall be filed after the
expiration of two (2) years from
the date of payment of the tax or
penalty regardless of any
supervening cause that may arise
after payment: Provided, however,
That the Commissioner may, even
without written claim therefor, refund
or credit any tax, where on the face
of the return upon which payment
was made, such payment appears
clearly to have been erroneously
paid. (Emphasis supplied.)
Hence, the CTA En Banc ruled that the reckoning of
the two-year period for filing a claim for refund/credit
of unutilized input VAT should start from the date of
payment of tax and not from the close of the taxable
quarter when the sales were made.[43]
The pivotal question of when to reckon the running
of the two-year prescriptive period, however, has
already been resolved in Commissioner of Internal
Revenue v. Mirant Pagbilao Corporation,[44] where
we ruled that Section 112(A) of the NIRC is the
applicable provision in determining the start of the
two-year period for claiming a refund/credit of
unutilized input VAT, and that Sections 204(C) and
229 of the NIRC are inapplicable as both provisions
apply only to instances of erroneous payment or
illegal collection of internal revenue taxes.[45] We
explained that:
The above proviso [Section
112 (A) of the NIRC] clearly provides
in no uncertain terms that unutilized
input VAT payments not
otherwise used for any internal
revenue tax due the taxpayer must
be claimed within two years
reckoned from the close of the
taxable quarter when the relevant
sales were made pertaining to the
input VAT regardless of whether
said tax was paid or not. As the CA
aptly puts it, albeit it erroneously
applied the aforequoted Sec. 112
(A), [P]rescriptive period commences
from the close of the taxable quarter
when the sales were made and not
from the time the input VAT was paid
nor from the time the official receipt
was issued. Thus, when a zero-rated
VAT taxpayer pays its input VAT a
year after the pertinent transaction,
said taxpayer only has a year to file a
claim for refund or tax credit of the
unutilized creditable input VAT. The
reckoning frame would always be the
end of the quarter when the pertinent
sales or transaction was made,
regardless when the input VAT was
paid. Be that as it may, and given
that the last creditable input VAT due
for the period covering the progress
billing of September 6, 1996 is the
third quarter of 1996 ending on
September 30, 1996, any claim for
unutilized creditable input VAT refund
or tax credit for said quarter
prescribed two years after
September 30, 1996 or, to be
precise, on September 30, 1998.
Consequently, MPCs claim for
refund or tax credit filed
on December 10, 1999 had already
prescribed.
Reckoning for prescriptive period
under
Secs. 204(C) and 229 of the NIRC proceeding shall be
inapplicable maintained in any
court for the recovery
To be sure, MPC cannot avail of any national internal
itself of the provisions of either Sec. revenue tax hereafter
204(C) or 229 of the NIRC which, for alleged to have been
the purpose of refund, prescribes a erroneously or illegally
different starting point for the two- assessed or collected,
year prescriptive limit for the filing of a or of any penalty
claim therefor. Secs. 204(C) and 229 claimed to have been
respectively provide: collected without
authority, of any sum
Sec. alleged to have been
204. Authority of the excessively or in any
Commissioner to manner wrongfully
Compromise, Abate collected without
and Refund or Credit authority, or of any
Taxes. The sum alleged to have
Commissioner may been excessively or in
any manner wrongfully
xxxx collected, until a claim
for refund or credit has
(c) Credit or been duly filed with the
refund taxes Commissioner; but
erroneously or illegally such suit or
received or penalties proceeding may be
imposed without maintained, whether
authority, refund the or not such tax,
value of internal penalty, or sum has
revenue stamps when been paid under
they are returned in protest or duress.
good condition by the
purchaser, and, in his In any case, no
discretion, redeem or such suit or
change unused proceeding shall be
stamps that have filed after the
been rendered unfit for expiration of two (2)
use and refund their years from the date of
value upon proof of payment of the tax or
destruction. No credit penalty regardless of
or refund of taxes or any supervening
penalties shall be cause that may arise
allowed unless the after payment:
taxpayer files in writing Provided, however,
with the That the
Commissioner a claim Commissioner may,
for credit or refund even without a written
within two (2) years claim therefor, refund
after the payment of or credit any tax,
the tax or penalty: where on the face of
Provided, however, the return upon which
That a return filed payment was made,
showing an such payment
overpayment shall be appears clearly to
considered as a have been
written claim for credit erroneously paid.
or refund.
Notably, the above provisions
xxxx also set a two-year prescriptive
period, reckoned from date of
Sec. payment of the tax or penalty, for the
229. Recovery of Tax filing of a claim of refund or tax credit.
Erroneously or Illegally Notably too, both provisions apply
Collected. No suit or only to instances of erroneous
 payment or illegal collection of
internal revenue taxes.
MPCs creditable input VAT not
erroneously paid
For perspective, under Sec.
105 of the NIRC, creditable input
VAT is an indirect tax which can be
shifted or passed on to the buyer,
transferee, or lessee of the goods,
properties, or services of the
taxpayer. The fact that the
subsequent sale or transaction
involves a wholly-tax exempt client,
resulting in a zero-rated or effectively
zero-rated transaction, does not,
standing alone, deprive the taxpayer
of its right to a refund for any
unutilized creditable input VAT, albeit
the erroneous, illegal, or wrongful
payment angle does not enter the
equation.
xxxx
Considering the foregoing
discussion, it is clear that Sec. 112
(A) of the NIRC, providing a two-
year prescriptive period reckoned
from the close of the taxable
quarter when the relevant sales or
transactions were made
pertaining to the creditable input
VAT, applies to the instant case,
and not to the other actions which
refer to erroneous payment of
taxes.[46] (Emphasis supplied.)
In view of the foregoing, we find that the CTA En
Banc erroneously applied Sections 114(A) and 229
of the NIRC in computing the two-year prescriptive
period for claiming refund/credit of unutilized input
VAT. To be clear, Section 112 of the NIRC is the
pertinent provision for the refund/credit of input
VAT. Thus, the two-year period should be reckoned
from the close of the taxable quarter when the sales
were made.
The
admini
strative
claim
was
timely
filed
Bearing this in mind, we shall now proceed to
determine whether the administrative claim was
timely filed.
Relying on Article 13 of the Civil
Code,[47] which provides that a year is equivalent to
365 days, and taking into account the fact that the
year 2004 was a leap year, petitioner submits that
the two-year period to file a claim for tax refund/
credit for the period July 1, 2002 to September 30,
2002 expired on September 29, 2004.[48]
We do not agree.
In Commissioner of Internal Revenue v.
Primetown Property Group, Inc.,[49] we said that as
between the Civil Code, which provides that a year
is equivalent to 365 days, and theAdministrative
Code of 1987, which states that a year is composed
of 12 calendar months, it is the latter that must
prevail following the legal maxim, Lex posteriori
derogat priori.[50]Thus:
Both Article 13 of the Civil
Code and Section 31, Chapter VIII,
Book I of the Administrative Code of
1987 deal with the same subject
matter the computation of legal
periods. Under the Civil Code, a year
is equivalent to 365 days whether it
be a regular year or a leap year.
Under the Administrative Code of
1987, however, a year is composed
of 12 calendar months. Needless to
state, under the Administrative Code
of 1987, the number of days is
irrelevant.
There obviously exists a mani
fest incompatibility in the manner of
computing legal periods under the
Civil Code and the Administrative
Code of 1987. For this reason, we
hold that Section 31, Chapter VIII,
Book I of the Administrative Code of
1987, being the more recent law,
governs the computation of legal
periods. Lex posteriori derogat priori.
Applying Section 31, Chapter
VIII, Book I of the Administrative
Code of 1987 to this case, the two-
year prescriptive period (reckoned
from the time respondent filed its final
adjusted return on April 14, 1998)
consisted of 24 calendar months,
computed as follows:
Year April 15, 1998 to
1 1st calendar May 14, 1998
month
2nd calendar May 15, 1998 to
month June 14, 1998
3rd calendar June 15, 1998 to
month July 14, 1998
4th calendar July 15, 1998 to
month August 14, 1998
5th calendar August 15, 1998
month to September 14,
1998
 6th calendar September 15, period July 1, 2002 to September 30, 2002 expired
month 1998 to October on September 30, 2004. Hence, respondents
14, 1998 administrative claim was timely filed.
7th calendar October 15, 1998
month to November 14, The
1998 filing of
8th calendar November 15, the
month 1998 to judicial
December 14, claim
1998 was
9th calendar December 15, premat
month 1998 to January ure
14, 1999
10th calendar January 15, 1999
month to February 14, However, notwithstanding the timely filing of the
1999 administrative claim, we
11th calendar February 15, 1999 are constrained to deny respondents claim for tax
month to March 14, 1999 refund/credit for having been filed in violation of
12th calendar March 15, 1999 to Section 112(D) of the NIRC, which provides that:
month April 14, 1999
Year April 15, 1999 to SEC. 112. Refunds or Tax Credits of
2 13th calendar May 14, 1999 Input Tax.
month xxxx
14th calendar May 15, 1999 to (D) Period within which Refund or
month June 14, 1999 Tax Credit of Input Taxes shall be
15th calendar June 15, 1999 to Made. In proper cases, the
month July 14, 1999 Commissioner shall grant a refund or
16th calendar July 15, 1999 to issue the tax credit certificate for
month August 14, 1999 creditable input taxes within one
17th calendar August 15, 1999 to hundred twenty (120) days from
month September 14, the date of submission of
1999 complete documents in support of
18th calendar September 15, the application filed in accordance
month 1999 to October with Subsections (A) and (B)
14, 1999 hereof.
19th calendar October 15,
month 1999 to November In case of full or partial denial of the
14, 1999 claim for tax refund or tax credit, or
20th calendar November 15, the failure on the part of the
month 1999 to December Commissioner to act on the
14, 1999 application within the period
21st calendar December 15, prescribed above, the taxpayer
month 1999 to January affected may, within thirty (30)
14, 2000 days from the receipt of the
22nd calendar January 15, 2000 decision denying the claim or after
month to February 14, the expiration of the one hundred
2000 twenty day-period, appeal the
23rd calendar February 15, decision or the unacted claim with
month 2000 to March 14, the Court of Tax
2000 Appeals. (Emphasis supplied.)
24th calendar March 15, 2000 to
month April 14, 2000
Section 112(D) of the NIRC clearly provides that the
We therefore hold that CIR has 120 days, from the date of the submission
respondent's petition (filed on April of the complete documents in support of the
14, 2000) was filed on the last day of application [for tax refund/credit], within which to
the 24th calendar month from the grant or deny the claim. In case of full or partial
day respondent filed its final adjusted denial by the CIR, the taxpayers recourse is to file
return.Hence, it was filed within the an appeal before the CTA within 30 days from
reglementary period.[51] receipt of the decision of the CIR. However, if after
the 120-day period the CIR fails to act on the
application for tax refund/credit, the remedy of the
Applying this to the present case, the two- taxpayer is to appeal the inaction of the CIR to CTA
year period to file a claim for tax refund/credit for the within 30 days.
 Decision and the October 6, 2008 Resolution of the
In this case, the administrative and the Court of Tax Appeals are
judicial claims were simultaneously filed on herebyREVERSED and SET ASIDE. The Court of
September 30, 2004. Obviously, respondent did not Tax Appeals Second Division is DIRECTED to
wait for the decision of the CIR or the lapse of the dismiss CTA Case No. 7065 for having been
120-day period. For this reason, we find the filing of prematurely filed.
the judicial claim with the CTA premature.
SO ORDERED.
Respondents assertion that the non- THE COMMISIONER OF G.R. No. 147295
observance of the 120-day period is not fatal to the INTERNAL REVENUE,
filing of a judicial claim as long as both the Petitioner, Present:
administrative and the judicial claims are filed within
the two-year prescriptive period[52] has no legal QUISUMBING, J., Chairperson,
basis. - versus - CARPIO,
CARPIO MORALES,
There is nothing in Section 112 of the NIRC TINGA, and
to support respondents view. Subsection (A) of the VELASCO, JR., JJ.
said provision states that any VAT-registered ACESITE (PHILIPPINES)
person, whose sales are zero-rated or effectively HOTEL CORPORATION, Promulgated:
zero-rated may, within two years after the close of Respondent.
the taxable quarter when the sales were February 16, 2007
made, apply for the issuance of a tax credit x--------------------------------------------------------------
certificate or refund of creditable input tax due or ---------------------------x
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 DECISION
refund/credit filed with the CIR and not to appeals
made to the CTA. This is apparent in the first VELASCO, JR., J.:
paragraph of subsection (D) of the same provision,
which states that the CIR has 120 days from the The Case
submission of complete documents in support of
the application filed in accordance Before us is a Petition for Review on
withSubsections (A) and (B) within which to decide Certiorari[1] under Rule 45 of the Rules of Court,
on the claim. assailing the November 17, 2000 Decision[2] of
the Court of Appeals (CA) in CA-G.R. SP No.
In fact, applying the two-year period to 56816, which affirmed the January 3, 2000
judicial claims would render nugatory Section Decision[3] of the Court of Tax Appeals (CTA) in
112(D) of the NIRC, which already provides for a CTA Case No. 5645 entitled Acesite
specific period within which a taxpayer should (Philippines) Hotel Corporation v. The
appeal the decision or inaction of the CIR. The Commissioner of Internal Revenue for Refund
second paragraph of Section 112(D) of the NIRC of VAT Payments.
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 The Facts
30 days within which to file an appeal with the
CTA. As we see it then, the 120-day period is The facts as found by the appellate court
crucial in filing an appeal with the CTA. are undisputed, thus:
With regard to Commissioner of Internal
Revenue v. Victorias Milling, Co., Inc.[53]relied upon Acesite is the owner and
by respondent, we find the same inapplicable as the operator of the Holiday Inn
tax provision involved in that case is Section Manila Pavilion Hotel
306, now Section 229 of the NIRC. And as already along United Nations
discussed, Section 229 does not apply to Avenue in Manila. It leases
refunds/credits of input VAT, such as the instant 6,768.53 square meters of
case. the hotels premises to the
Philippine Amusement and
In fine, the premature filing of respondents Gaming Corporation
claim for refund/credit of input VAT before the CTA [hereafter, PAGCOR] for
warrants a dismissal inasmuch as no jurisdiction casino operations. It also
was acquired by the CTA. caters food and beverages to
PAGCORs casino patrons
WHEREFORE, the Petition is through the hotels restaurant
hereby GRANTED. The assailed July 30, 2008 outlets. For the period
January (sic) 96 to April to the petitioner for
1997, Acesite incurred VAT having been
amounting to inadvertently
P30,152,892.02 from its remitted to the
rental income and sale of respondent.
food and beverages to
PAGCOR during said Thus, taking into
period. Acesite tried to shift consideration the
the said taxes to PAGCOR prescribed portion of
by incorporating it in the Petitioners claim for
amount assessed to refund of
PAGCOR but the latter P98,743.40, and
refused to pay the taxes on considering further
account of its tax exempt the principle
status. ofsolutio
indebiti which
Thus, PAGCOR paid the requires the return of
amount due to Acesite minus what has been
the P30,152,892.02 VAT delivered through
while the latter paid the VAT mistake,
to the Commissioner of Respondent must
Internal Revenue [hereafter, refund to the
CIR] as it feared the legal Petitioner the
consequences of non- amount of
payment of the tax.However, P30,054,148.64
Acesite belatedly arrived at computed as follows:
the conclusion that its
transaction with PAGCOR Total amount per
was subject to zero rate as it claim 30,152,892.02
was rendered to a tax- Less Prescribed
exempt entity. On21 May amount (Exhs A, X,
1998, Acesite filed an & X-20)
administrative claim for January
refund with the CIR but the 1996 P 2,199.94
latter failed to resolve the February
same. Thus on 29 May 1998, 1996 26,205.04
Acesite filed a petition with March
the Court of Tax Appeals 1996 70,338.42 98,7
[hereafter, CTA] which was 43.40
decided in this wise: P30,054,148.
64
As earlier stated, vvvvvvvvvvvv
Petitioner is subject v
to zero percent tax WHEREFORE, in
pursuant to Section view of all the
102 (b)(3) [now foregoing, the instant
106(A)(C)] insofar as Petition for Review is
its gross income partially
from rentals and GRANTED. The
sales to PAGCOR, a Respondent is
tax exempt entity by hereby ORDERED
virtue of a special to REFUND to the
law. Accordingly, the petitioner the
amounts of amount of THIRTY
P21,413,026.78 and MILLION FIFTY
P8,739,865.24, FOUR THOUSAND
representing the ONE HUNDRED
10% EVAT on its FORTY EIGHT
sales of food and PESOS AND SIXTY
services and gross FOUR CENTAVOS
rentals, respectively (P30,054,148.64)
from PAGCOR shall, immediately.
as a matter of
course, be refunded SO ORDERED.[4]
 Corporation, except a
Franchise Tax of five (5%)
percent of the gross revenue
The Ruling of the Court of Appeals or earnings derived by the
Corporation from its
Upon appeal by petitioner, the CA operation under this
affirmed in toto the decision of the CTA holding Franchise. Such tax shall be
that PAGCOR was not only exempt from direct due and payable quarterly to
taxes but was also exempt from indirect taxes the National Government
like the VAT and consequently, the transactions and shall be in lieu of all
between respondent Acesite and PAGCOR kinds of taxes, levies, fees or
were effectively zero-rated because they assessments of any kind,
involved the rendition of services to an entity nature or description, levied,
exempt from indirect taxes. Thus, the CA established or collected by
affirmed the CTAs determination by ruling that any municipal, provincial, or
respondent Acesite was entitled to a refund of national government
PhP 30,054,148.64 from petitioner. authority.

The Issues xxxx

Hence, we have the instant petition with (b) Others: The exempti
the following issues: (1) whether PAGCORs tax ons herein granted for
exemption privilege includes the indirect tax of earnings derived from the
VAT to entitle Acesite to zero percent (0%) VAT operations conducted
rate; and (2) whether the zero percent (0%) under the franchise
VAT rate under then Section 102 (b)(3) of the specifically from the
Tax Code (now Section 108 (B)(3) of the Tax payment of any tax,
Code of 1997) legally applies to Acesite. income or otherwise, as
well as any form of
The petition is devoid of merit. charges, fees or
levies,shall inure to the
In resolving the first issue on whether benefit of and extend to
PAGCORs tax exemption privilege includes the corporation(s),
indirect tax of VAT to entitle Acesite to zero association(s),
percent (0%) VAT rate, we answer in the agency(ies), or
affirmative. We will however discuss both issues individual(s) with whom
together. the Corporation or
operator has any
PAGCOR is exempt from payment of indirect contractual relationship in
taxes connection with the
operations of the casino(s)
It is undisputed that P.D. 1869, the authorized to be
charter creating PAGCOR, grants the latter an conducted under this
exemption from the payment of taxes. Section Franchise and to those
13 of P.D. 1869 pertinently provides: receiving compensation or
other remuneration from the
Sec. 13. Exemptions. Corporation or operator as a
result of essential facilities
xxxx furnished and/or technical
services rendered to the
(2) Income and other Corporation or operator.
taxes. (a) Franchise (Emphasis supplied.)
Holder: No tax of any kind
or form, income or Petitioner contends that the above tax
otherwise, as well as fees, exemption refers only to PAGCORs direct tax
charges or levies of liability and not to indirect taxes, like the VAT.
whatever nature, whether
National or Local, shall be We disagree.
assessed and collected
under this Franchise from A close scrutiny of the above provisos
the Corporation; nor shall clearly gives PAGCOR a blanket exemption to
any form of tax or charge taxes with no distinction on whether the taxes
attach in any way to the are direct or indirect. We are one with the CA
earnings of the
ruling that PAGCOR is also exempt from PAGCOR is exempt from an indirect tax, like
indirect taxes, like VAT, as follows: VAT.

Under the above provision VAT exemption

[Section 13 (2) (b) of P.D. extends to Acesite
1869], the term Corporation
or operator refers to Thus, while it was proper for PAGCOR
PAGCOR. Although the law not to pay the 10% VAT charged by Acesite, the
does not specifically mention latter is not liable for the payment of it as it is
PAGCORs exemption from exempt in this particular transaction by
indirect taxes, PAGCOR is operation of law to pay the indirect tax. Such
undoubtedly exempt from exemption falls within the former Section 102
such taxes because the (b) (3) of the 1977 Tax Code, as amended (now
law exempts from taxes Sec. 108 [b] [3] of R.A. 8424), which provides:
persons or entities
contracting with PAGCOR Section 102. Value-added
in casino tax on sale of services (a)
operations.Although, Rate and base of tax There
differently worded, the shall be levied, assessed
provision clearly exempts and collected, a value-added
PAGCOR from indirect tax equivalent to 10% of
taxes. In fact, it goes one gross receipts derived by
step further by granting any person engaged in the
tax exempt status to sale of services x x
persons dealing with x;Provided, that the following
PAGCOR in casino services performed in the
operations. The Philippines by VAT-
unmistakable conclusion is registered persons shall be
that PAGCOR is not liable subject to 0%.
for the P30,152,892.02 VAT
and neither is Acesite as the xxxx
latter is effectively subject to
zero percent rate under Sec. (b) Transactions subject to
108 B (3). R.A. zero percent (0%) rated.
8424. (Emphasis supplied.)
xxxx

Indeed, by extending the exemption to (3) Services rendered to

entities or individuals dealing with PAGCOR, persons or entities whose
the legislature clearly granted exemption also exemption under special
from indirect taxes. It must be noted that the laws or international
indirect tax of VAT, as in the instant case, can agreements to which the
be shifted or passed to the buyer, transferee, or Philippines is a signatory
lessee of the goods, properties, or services effectively subjects the
subject to VAT. Thus, by extending the tax supply of such services to
exemption to entities or individuals dealing with zero (0%) rate (emphasis
PAGCOR in casino operations, it is exempting supplied).
PAGCOR from being liable to indirect taxes.
The rationale for the exemption from
The manner of charging VAT does not make indirect taxes provided for in P.D. 1869 and the
PAGCOR liable to said tax extension of such exemption to entities or
individuals dealing with PAGCOR in casino
It is true that VAT can either be operations are best elucidated from the 1987
incorporated in the value of the goods, case of Commissioner of Internal Revenue v.
properties, or services sold or leased, in which John Gotamco & Sons, Inc.,[5] where the
case it is computed as 1/11 of such value, or absolute tax exemption of the World Health
charged as an additional 10% to the Organization (WHO) upon an international
value. Verily, the seller or lessor has the option agreement was upheld.We held in said case
to follow either way in charging its clients and that the exemption of contractee WHO should
customer. In the instant case, Acesite followed be implemented to mean that the entity or
the latter method, that is, charging an additional person exempt is the contractor itself who
10% of the gross sales and rentals. Be that as it constructed the building owned by contractee
may, the use of either method, and in particular, WHO, and such does not violate the rule that
the first method, does not denigrate the fact that tax exemptions are personal because
the manifest intention of the agreement is to
exempt the contractor so that no contractors
tax may be shifted to the contractee
WHO. Thus, the proviso in P.D. 1869, extending
the exemption to entities or individuals dealing
with PAGCOR in casino operations, is clearly to
proscribe any indirect tax, like VAT, that may be
shifted to PAGCOR.
Acesite paid VAT by mistake
Considering the foregoing discussion,
there are undoubtedly erroneous payments of
the VAT pertaining to the effectively zero-rate
transactions between Acesite and
PAGCOR. Verily, Acesite has clearly shown
that it paid the subject taxes under a mistake of
fact, that is, when it was not aware that the
transactions it had with PAGCOR were zero-
rated at the time it made the payments. In UST
Cooperative Store v. City of Manila,[6] we
explained that there is erroneous payment of
taxes when a taxpayer pays under a mistake of
fact, as for the instance in a case where he is
not aware of an existing exemption in his favor
at the time the payment was made.[7] Such
payment is held to be not voluntary and,
therefore, can be recovered or refunded.[8]
Moreover, it must be noted that aside
from not raising the issue of Acesites
compliance with pertinent Revenue Regulations
on exemptions during the proceedings in the
CTA, it cannot be gainsaid that Acesite should
have done so as it paid the VAT under a
mistake of fact. Hence, petitioners argument on
this point is utterly tenuous.
Solutio
indebiti applies to
the Government
Tax refunds are based on the principle of
quasi-contract or solutio indebiti and the
pertinent laws governing this principle are found
in Arts. 2142 and 2154 of the Civil Code, which
provide, thus:
Art. 2142. Certain lawful,
voluntary, and unilateral acts
give rise to the juridical
relation of quasi-contract to
the end that no one shall be
unjustly enriched or
benefited at the expense of
another.
Art. 2154. If something is
received when there is no
right to demand it, and it was
unduly delivered through
mistake, the obligation to
return it arises.
When money is paid to another under the
influence of a mistake of fact, that is to say, on
the mistaken supposition of the existence of a
specific fact, where it would not have been
known that the fact was otherwise, it may be
recovered. The ground upon which the right of
recovery rests is that money paid through
misapprehension of facts belongs in equity and
in good conscience to the person who paid it.[9]
The Government comes within the scope
of solutio indebiti principle as elucidated
inCommissioner of Internal Revenue v.
Firemans Fund Insurance Company, where we
held that: Enshrined in the basic legal principles
is the time-honored doctrine that no person
shall unjustly enrich himself at the expense of
another. It goes without saying that the
Government is not exempted from the
application of this doctrine.[10]
Action for refund strictly construed; Acesite
discharged the
burden of proof
Since an action for a tax refund partakes
of the nature of an exemption, which cannot be
allowed unless granted in the most explicit and
categorical language, it is strictly construed
against the claimant who must discharge such
burden convincingly.[11] In the instant case,
respondent Acesite had discharged this burden
as found by the CTA and the CA. Indeed, the
records show that Acesite proved its actual VAT
payments subject to refund, as attested to by an
independent Certified Public Accountant who
was duly commissioned by the CTA. On the
other hand, petitioner never disputed nor
contested respondents testimonial and
documentary evidence. In fact, petitioner never
presented any evidence on its behalf.
One final word. The BIR must release the
refund to respondent without any unreasonable
delay. Indeed, fair dealing is expected by our
taxpayers from the BIR and this duty demands
that the BIR should refund without any
unreasonable delay what it has erroneously
collected.[12]