United Airlines v CIR

DOCTRINE: The matter of prescription raised by petitioner is a NON-ISSUE; thus, the prescriptive periods under Sections 203 and
222 (NIRC) find no application in this case.

FACTS:
 United Airlines, Inc. (UA) is a foreign corporation organized and existing under the laws of the State of Delaware, U.S.A.,
engaged in the international airline business. UA used to be an online international carrier of passenger and cargo (i.e.
it used to operate passenger and cargo flights originating in the Philippines). Upon cessation of its passenger flights in
and out of the Philippines beginning February 21, 1998, UA appointed a sales agent in the Philippines (Aerotel Ltd. Corp.
- an independent general sales agent acting as such for several international airlinecompanies). UA continued operating
cargo flights from the Philippines until January 31, 2001.
 April 12, 2002 - UA filed with the CIR a claim for income tax refund, pursuant to Sec. 28(A)(3)(a) of NIRC 1997 in relation
to Article 4(7) of the RP-US Tax Treaty.
o Citing the change in definition of Gross Philippine Billings (GPB) in the NIRC, UA argued that since it no longer
operated passenger flights originating from the Philippines beginning February 21, 1998, its passenger
revenue for 1999, 2000 and 2001 cannot be considered as income from sources within the Philippines, and
hence should not be subject to Philippine income tax under Article 9 of the RP-US Tax Treaty.
o Under the new definition of GPB, Philippine tax authorities have jurisdiction to tax only the gross revenue
derived by US air and shipping carriers from outgoing traffic in the Philippines. Since the BIR erroneously
imposed and collected income tax in 1999 based on UA’s gross passenger revenue, as beginning 1998 UA no
longer flew passenger flights to and from the Philippines, UA is entitled to a refund of such erroneously
collected income tax.
 As no resolution on its claim for refund had yet been made by the respondent and in view of the 2-year prescriptive
period (from the time of filing the Final Adjustment Return for the taxable year 1999) which was about to expire on
April 15, 2002, UA filed on said date a petition for review with the CTA.
 CTA 1st Division ruled that no excess or erroneously paid tax may be refunded to UA because the income tax on GPB under
Section 28(A)(3)(a) of the NIRC applies as well to gross revenue from carriage of cargoes originating from the Philippines. It
agreed that UA cannot be taxed on its 1999 passenger revenue from flights originating outside the Philippines. However, it
was found that UA erroneously deducted 2 items from its gross cargo revenue in 1999 (commissions and incentives of its
agent). These deductions were erroneous because the gross revenue referred to in Section 28(A)(3)(a) of the NIRC was total
revenue before any deduction of commission and incentives. UA even underpaid its taxes on cargo revenue by P31.43
million, which amount was much higher than the P5.03 million it asked to be refunded. UA’s MR DENIED. CTA En Banc
AFFIRMED CTA 1D.
 UA argues that the denial of its claim for refund is tantamount to an offsetting of its claim for refund of erroneously
paid GPB against its alleged tax liability. The well-entrenched rule is that internal revenue taxes cannot be the subject
of set-off or compensation. Further, since CIR did not issue an assessment for any deficiency tax, the alleged deficiency
tax on its cargo revenue in 1999 cannot be considered a disputed assessment that may be passed upon by the CTA. The
authority to issue an assessment for deficiency internal revenue taxes is vested by law with the CIR, not with the CTA.
Finally, UA argues that any assessment against it for deficiency income tax for taxable year 1999 is barred by
prescription. The prescriptive period within which an assessment for deficiency income tax may be made has
prescribed on April 17, 2003, 3 years after it filed its 1999 tax return.
 CIR maintains that the CTA acted within its jurisdiction in denying petitioner’s claim for tax refund. It points out that
the objective of the CTA’s determination of whether UA correctly paid its GPB tax for the taxable year 1999 was to
ascertain the latter’s entitlement to the claimed refund and not for the purpose of imposing any deficiency tax. Hence,
UA’s arguments regarding the propriety of the CTA’s determination of its deficiency tax on its GPB for gross cargo
revenues for 1999 are clearly misplaced.

ISSUE & HELD: WON UA is entitled to a refund of the amount it paid as income tax on its passenger revenues in 1999 (NO)

RATIO:
 Under Section 72 of the NIRC (Suit to Recover Tax Based on False or Fraudulent Returns), the CTA can make a valid finding
that UA made erroneous deductions on its gross cargo revenue; that because of the erroneous deductions, UA reported a
lower cargo revenue and paid a lower income tax thereon; and that UA’s underpayment of the income tax on cargo revenue
is even higher than the income tax it paid on passenger revenue subject of the claim for refund, such that the refund cannot
be granted.
 The CTA explained that it merely determined whether UA is entitled to a refund based on the facts. On the assumption
that UA filed a correct return, it had the right to file a claim for refund of GPB tax on passenger revenues it paid in 1999
 when it was not operating passenger flights to and from the Philippines. However, upon examination by the CTA, UA’s
return was found erroneous as it understated its gross cargo revenue for the same taxable year due to deductions of 2
items consisting of commission and other incentives of its agent. Having underpaid the GPB tax due on its cargo revenues
for 1999, UA is not entitled to a refund of its GPB tax on its passenger revenue. The CTA therefore correctly denied the claim
for tax refund after determining the proper assessment and the tax due. The matter of prescription raised by UA is a non-
issue. The prescriptive periods under Sections 203and 222of the NIRC find no application in this case.
 Tax refunds, like tax exemptions, are construed strictly against the taxpayer and liberally in favor of the taxing authority.

Tridharma Marketing Corporation vs. CTA and CIR

GR # 215950 June 20, 2016

Facts:

Petitioner received a Preliminary Assessment Notice (PAN) from BIR

assessing it with various deficiency taxes on income tax (IT), VAT, withholding tax
on compensation (WTC), expanded withholding tax (EWT) and documentary stamp
tax (DST) totaling to PHP 4, 942, 937, 053.82 inclusive of surcharge and interest.
A substantial portion of the deficiency of income tax and VAT arose from the
complete disallowance by the BIR of the petitioner’s purchases from Etheria Trading
in 2010 amounting to PHP 4, 942, 937, 053. 82.

Petitioner also received from the BIR a Formal Letter of Demand assessing it
with deficiency taxes for the taxable year ending December 31, 2010 amounting to
PHP 4, 697, 696, 275. 25 inclusive of surcharge and interest. With that, petitioner
filed a protest against the Formal Letter of Demand with the CIR. Respondent CIR
then required the petitioner to submit additional documents in support of its protest
which the petitioner complied – but the protest was denied.

Thus, petitioner filed with the CIR a protest through a Request for
Reconsideration, but the same was still denied.

Prior to the CIR’s decision, the petitioner paid the assessments corresponding
to the WTC, DST and EWT deficiency assessments inclusive of interest amounting
to PHP 5, 836, 786. 10 – with an offer to compromise the alleged deficiency
assessments on IT and VAT.

An appeal was then filed with the CTA with Motion to Suspend Collection of
Tax. The Motion was granted but with the condition that the petitioner deposits to
the court an acceptable surety bond equivalent to 150% of the assessment or in the
amount PHP 6, 701, 087, 822.64 within 15 days from notice. Subsequently, the
petitioner filed its Motion for Partial Reconsideration praying for the reduction of
the bond to an amount it could obtain. The same was granted reducing the amount of
bond to PHP 4, 467, 391, 881. 76.

Hence, the petitioner has commenced a special civil action for certiorari on
the ground that the amount of bond required by the CTA was excessive, legally
impossible to procure and could cause irreparable injury to the petitioner even
before the case is heard.

As action, the court issued a TRO on the resolutions issued by the CTA in
Division and the collection of the deficiency assessments.

Issue:

Whether or not the CTA in Division committed grave abuse of discretion in

requiring the petitioner to file a surety bond despite the supposedly patent illegality
of the assessment that was beyond petitioner’s net worth but equivalent to the
deficiency assessment for IT and VAT.

Ruling:

The court ruled that, the CTA in Division gravely abused its discretion under
Sec. 11 of RA 1125 because it fixed the amount of bond at nearly five times the net
worth of the petitioner without conducting a preliminary hearing to ascertain
whether there were ground to suspend the collection of the deficiency assessment
on the ground that such collection would jeopardize the interest of the taxpayer.
Although the amount of PHP 4, 467, 391, 881. 76 was itself the amount of the
assessment, it behooved the CTA in Division to consider other factors recognized
by law itself towards suspending the collection of the assessment.

Simply prescribing such high amount of bond like the initial 150% of the
deficiency assessment or later on even reducing the amount of the bond to equal the
deficiency assessment would practically deny the petitioner the meaningful
opportunity to contest the validity of the assessments and would likely even
impoverish it as to force it out of business.

At this juncture, it becomes imperative to reiterate the principle that the

power to tax is not the power to destroy.
 Moreover, Sec. 11 of RA 1125, as amended indicates that the requirement of
the bond as a condition precedent to suspension of the collection applies only in cases
where the process by which the collection sought to be made by means thereof are
carried out in consonance with the law not when the processes are in plain violation
of the law that they have to be suspended for jeopardizing the interest of the
taxpayer.

MEDICARD PHILIPPINES, INC VS. CIR

MEDICARD PHILIPPINES, INC VS. COMMISSIONER OF

INTERNAL REVENUE (GR NO. 222743) APRIL 5, 2017

FACTS: MEDICARD is a health maintenance organization (HMO) that

provides prepaid health and medical insurance coverage to its clients.
Individuals enrolled in its health care programs pay an annual membership
fee and are entitled to various preventive, diagnostic and curative medical
services provided by duly licensed physicians, specialists, and other
professional technical staff participating in the group practice health
delivery system at a hospital or clinic owned, operated or accredited by it.

MEDICARD filed it first, second, and third quarterly VAT Returns through
Electronic Filing and Payment System (EFPS) on April 20, July 25, and
October 25, 2006, respectively, and its fourth quarterly VAT Return on
January 25, 2007.

Upon finding some discrepancies between MEDICARD’s Income Tax

Returns (ITR) and VAT Returns, the CIR issued a Letter Notice (LN) dated
September 20, 2007. Subsequently, the CIR also issued a Preliminary
Assessment Notice (PAN) against MEDICARD for deficiency VAT.
MEDICARD received CIR’s FAN dated December 10, 2007 for allegedly
deficiency VAT for taxable year 2006 including penalties.

MEDICARD filed a protest arguing, among others, that that the services it
render is not limited merely to arranging for the provision of medical and/or
hospitalization services but include actual and direct rendition of medical
and laboratory services. On June 19, 2009, MEDICARD received CIR’s
Final Decision denying its protest. The petitioner MEDICARD proceeded
to file a petition for review before the CTA.

The CTA Division held that the determination of deficiency VAT is not
limited to the issuance of Letter of Authority (LOA) alone and that in lieu
of an LOA, an LN was issued to MEDICARD informing it if the
discrepancies between its ITRs and VAT Returns and this procedure is
authorized under Revenue Memorandum Order (RMO) No. 30-2003 and
42-2003. Also, the amounts that MEDICARD earmarked and eventually
paid to doctors, hospitals and clinics cannot be excluded from the
computation of its gross receipts because the act of earmarking or allocation
is by itself an act of ownership and management over the funds by
MEDICARD which is beyond the contemplation of RR No. 4-2007.
Furthermore, MEDICARD’s earnings from its clinics and laboratory
facilities cannot be excluded from its gross receipts because the operation of
these clinics and laboratory is merely an incident to MEDICARD’s line of
business as an HMO.

MEDICARD filed a Motion for Reconsideration but it was denied.

Petitioner elevated the matter to the CTA en banc.

CTA en banc partially granted the petition only insofar as 10% VAT rate for
January 2006 is concerned but sustained the findings of the CTA Division.
 ISSUES:

1. Is the absence of the Letter of Authority fatal?

2. Should the amounts that MEDICARD earmarked and eventually paid to the
medical service providers still form part of its gross receipts for VAT
purposes?

RULING:

1. Yes. The absence of the LOA violated MEDICARD’s right to due process.
An LOA is the authority given to the appropriate revenue officer assigned
to perform assessment functions. Under the NLRC, unless authorized by the
CIR himself or by his duly authorized representative, through an LOA, an
examination of the taxpayer cannot ordinarily be undertaken. An LOA is
premised on the fact that the examination of a taxpayer who has already filed
his tax returns is a power that statutorily belongs only to the CIR himself or
his duly authorized representatives. In this case, there is no dispute that no
LOA was issued prior to the issuance of a PAN and FAN against
MEDICARD. Therefore, no LOA was also served on MEDICARD.
2. No. The VAT is a tax on the value added by the performance of the service
by the taxpayer. It is, thus, this service and the value charged thereof by the
taxpayer that is taxable under the NLRC.
G.R. No. 167146 October 31, 2006

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
PHILIPPINE GLOBAL COMMUNICATION, INC., respondent.
FACTS:

1. Respondent, a corporation engaged in telecommunications, filed its Annual Income Tax Return for taxable
year 1990 on 15 April 1991.
2. On 13 April 1992, the Commissioner of Internal Revenue (CIR) issued Letter of Authority No. 0002307,
authorizing the appropriate Bureau of Internal Revenue (BIR) officials to examine the books of account
and other accounting records of respondent, in connection with the investigation of respondent’s 1990
income tax liability.
3. On 22 April 1992, the BIR sent a letter to respondent requesting the latter to present for examination
certain records and documents, but respondent failed to present any document.
4. On 21 April 1994, respondent received a Preliminary Assessment Notice dated 13 April 1994 for
deficiency income tax in the amount of P118,271,672.00.
5. On the following day, 22 April 1994, respondent received a Formal Assessment Notice with Assessment
Notice No. 000688-80-7333, dated 14 April 1994, for deficiency income tax in the total amount
of P118,271,672.00.
6. On 6 May 1994, respondent, through its counsel filed a formal protest letter against Assessment Notice
No. 000688-80-7333. Respondent filed another protest letter on 23 May 1994, through another counsel.
7. In both letters, respondent requested for the cancellation of the tax assessment, which they alleged was
invalid for lack of factual and legal basis.
8. On 16 October 2002, more than eight years after the assessment was presumably issued, the Ponce
Enrile Cayetano Reyes and Manalastas Law Offices received from the CIR a Final Decision dated 8 October
2002 denying the respondent’s protest against Assessment Notice No. 000688-80-7333, and affirming the
said assessment in toto.
9. Respondents filed a petition for review with the CTA. CTA ruled on the primary issue of prescription. It
decided that the protest letters filed by the respondent cannot constitute a request for reinvestigation,
hence, they cannot toll the running of the prescriptive period to collect the assessed deficiency income
tax.7 Thus, since more than three years had lapsed from the time Assessment Notice No. 000688-80-
7333 was issued in 1994, the CIR’s right to collect the same has prescribed.

ISSUE: Whether or not the CIR’s right to collect the tax under said Assessment notice has prescribed.

HELD: YES

Sec. 269 provides for the exceptions as to the period of limitation where, Any internal revenue tax which has been
assessed within the period of limitation above-prescribed may be collected by distraint or levy or by a proceeding
in court within three years following the assessment of the tax.

The law prescribed a period of three years from the date the return was actually filed or from the last date
prescribed by law for the filing of such return, whichever came later, within which the BIR may assess a national
internal revenue tax.13 However, the law increased the prescriptive period to assess or to begin a court proceeding
for the collection without an assessment to ten years when a false or fraudulent return was filed with the intent of
evading the tax or when no return was filed at all.14 In such cases, the ten-year period began to run only from the
date of discovery by the BIR of the falsity, fraud or omission.

If the BIR issued this assessment within the three-year period or the ten-year period, whichever was applicable,
the law provided another three years after the assessment for the collection of the tax due thereon through the
administrative process of distraint and/or levy or through judicial proceedings. 15 The three-year period for
collection of the assessed tax began to run on the date the assessment notice had been released, mailed or sent by
the BIR.
The assessment, in this case, was presumably issued on 14 April 1994 since the respondent did not dispute the
CIR’s claim. Therefore, the BIR had until 13 April 1997. However, as there was no Warrant of Distraint and/or Levy
served on the respondents nor any judicial proceedings initiated by the BIR, the earliest attempt of the BIR to
collect the tax due based on this assessment was when it filed its Answer in CTA Case No. 6568 on 9 January 2003,
which was several years beyond the three-year prescriptive period. Thus, the CIR is now prescribed from
collecting the assessed tax.

In a number of cases, this Court has also clarified that the statute of limitations on the collection of taxes should
benefit both the Government and the taxpayers.

Thus, in Commissioner of Internal Revenue v. B.F. Goodrich, 21 this Court affirmed that the law on prescription
should be liberally construed in order to protect taxpayers and that, as a corollary, the exceptions to the law on
prescription should be strictly construed.

The Tax Code of 1977, as amended, provides instances when the running of the statute of limitations on the
assessment and collection of national internal revenue taxes could be suspended, even in the absence of a
waiver, when the taxpayer requests for a reinvestigation which is granted by the Commissioner; when the
taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or
collected x x x. (Emphasis supplied.)

Among the exceptions provided by the aforecited section, and invoked by the CIR as a ground for this petition, is
the instance when the taxpayer requests for a reinvestigation which is granted by the Commissioner. However,
this exception does not apply to this case since the respondent never requested for a reinvestigation. More
importantly, the CIR could not have conducted a reinvestigation where, as admitted by the CIR in its Petition,
the respondent refused to submit any new evidence.

Revenue Regulations No. 12-85, the Procedure Governing Administrative Protests of Assessment of the Bureau of
Internal Revenue, issued on 27 November 1985, defines the two types of protest, the request for reconsideration
and the request for reinvestigation, and distinguishes one from the other in this manner:

Section 6. Protest. - The taxpayer may protest administratively an assessment by filing a written request for
reconsideration or reinvestigation specifying the following particulars:

xxxx

For the purpose of protest herein—

(a) Request for reconsideration-- refers to a plea for a re-evaluation of an assessment on the basis of existing
records without need of additional evidence. It may involve both a question of fact or of law or both.

(b) Request for reinvestigation—refers to a plea for re-evaluation of an assessment on the basis of newly-
discovered evidence or additional evidence that a taxpayer intends to present in the investigation. It may also
involve a question of fact or law or both.

The main difference between these two types of protests lies in the records or evidence to be examined by
internal revenue officers, whether these are existing records or newly discovered or additional evidence. A re-
evaluation of existing records which results from a request for reconsideration does not toll the running of the
prescription period for the collection of an assessed tax. Section 271 distinctly limits the suspension of the
running of the statute of limitations to instances when reinvestigation is requested by a taxpayer and is granted
by the CIR.
The Court provided a clear-cut rationale in the case of Bank of the Philippine Islands v. Commissioner of Internal
Revenue22 explaining why a request for reinvestigation, and not a request for reconsideration, interrupts the
running of the statute of limitations on the collection of the assessed tax:

Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional evidence, will
take more time than a reconsideration of a tax assessment, which will be limited to the evidence already
at hand; this justifies why the former can suspend the running of the statute of limitations on collection of
the assessed tax, while the latter cannot.

In the present case, the separate letters of protest dated 6 May 1994 and 23 May 1994 are requests for
reconsideration. The CIR’s allegation that there was a request for reinvestigation is inconceivable since
respondent consistently and categorically refused to submit new evidence and cooperate in any reinvestigation
proceedings.

The distinction between a request for reconsideration and a request for reinvestigation is significant. It bears
repetition that a request for reconsideration, unlike a request for reinvestigation, cannot suspend the statute of
limitations on the collection of an assessed tax. If both types of protest can effectively interrupt the running of the
statute of limitations, an erroneous assessment may never prescribe. If the taxpayer fails to file a protest, then the
erroneous assessment would become final and unappealable. 29 On the other hand, if the taxpayer does file the
protest on a patently erroneous assessment, the statute of limitations would automatically be suspended and the
tax thereon may be collected long after it was assessed. Meanwhile the interest on the deficiencies and the
surcharges continue to accumulate. And for an unrestricted number of years, the taxpayers remain uncertain and
are burdened with the costs of preserving their books and records. This is the predicament that the law on the
statute of limitations seeks to prevent.

In the present case the respondent did nothing to prevent the BIR from collecting the tax. It did not present to
the BIR any new evidence for its re-evaluation. At the earliest opportunity, respondent insisted that the
assessment was invalid and made clear to the BIR its refusal to produce documents that the BIR requested. On the
other hand, the BIR also communicated to the respondent its unwavering stance that its assessment is correct.
Given that both parties were at a deadlock, the next logical step would have been for the BIR to issue a Decision
denying the respondent’s protest and to initiate proceedings for the collection of the assessed tax and, thus, allow
the respondent, should it so choose, to contest the assessment before the CTA. Postponing the collection for eight
long years could not possibly make the taxpayer feel that the demand was not unreasonable or that no
harassment or injustice is meant by the Government.

Thus, the three-year statute of limitations on the collection of an assessed tax provided under Section 269(c) of
the Tax Code of 1977, a law enacted to protect the interests of the taxpayer, must be given effect. In providing
for exceptions to such rule in Section 271, the law strictly limits the suspension of the running of the prescription
period to, among other instances, protests wherein the taxpayer requests for a reinvestigation. In this case,
where the taxpayer merely filed two protest letters requesting for a reconsideration, and where the BIR could
not have conducted a reinvestigation because no new or additional evidence was submitted, the running of
statute of limitations cannot be interrupted. The tax which is the subject of the Decision issued by the CIR on 8
October 2002 affirming the Formal Assessment issued on 14 April 1994 can no longer be the subject of any
proceeding for its collection. Consequently, the right of the government to collect the alleged deficiency tax is
barred by prescription.

Visayas Geothermal Power v. CIR

GR No. 197525 / 4 Jun 2014 / J. Mendoza

FACTS
  VGPC filed an administrative claim on 6 Dec 2006 for refund for about ₱14.2 million in unutilized
input VAT payments for the four quarters of taxable year 2005, pursuant to RA 9136 that
prescribed a 0% rate on sales of generated power.
 On 3 Jan 2007 while the admin claim was pending, VGPC filed its judicial claim via a petition for
review with the CTA for the same amount.
 CTA division granted the refund in the amount of ₱7.7 million finding that this was the only
amount duly substantiated with the required evidence. Both CIR and VGPC moved for MR (denied)
and appealed.
 CTA en banc reversed and dismissed the original petition for review for being filed prematurely. It
held that since the judicial claim was filed 28 days after the petitioner filed its admin claim,
without waiting for the expiration of the 120-day period, it was premature and thus the CTA
acquired no jurisdiction. This cited the case of CIR v. Aichi Forging Company.
 VGPC filed MR, citing Atlas Consolidated Mining v. CIR, but the CTA en banc denied saying that
Atlas had long been abandoned.

ISSUE / HELD
 W/N the filing of the judicial claim was premature. NO

RATIO
 There are actually two sub-issues on when judicial claims are premature. First, on when the two-
year period starts (applicability of Atlas which was later reversed in CIR v. Mirant Pagbilao) and
second, whether the 120-day period is mandatory and jurisdictional (applicability of Aichi vs. BIR
Ruling DA-489-03). In this case, only the second issue is applicable since the claim was clearly filed
before the two year period in either case.
 Key finding is when the judicial claim was filed. Since it was filed on 3 Jan 2007, BIR Ruling DA-489-
03 applies, and not Aichi which only applies to judicial claims made after 6 Oct 2010 or the
promulgation of Aichi. Thus, applying the said ruling, the taxpayer need not wait for the lapse of
the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review.
The judicial claim therefore in this case was not premature.
 The Court however further discussed the final rules in VAT refunds cases which were summarized
in CIR v. San Roque.
a. When to file an administrative claim with the CIR:
i. General rule - Sec. 112(A) and Mirant - within 2 years from the close of the taxable
quarter when the sales were made
ii. Exception - Atlas - within 2 years from the date of the payment of the output VAT, if
the administrative claim was filed from 8 Jun 2007 (promulgation of Atlas) to 12 Sep
2008 (promulgation of Mirant)
b. When to file a judicial claim with the CTA:
i. General rule - Sec. 112(D); not Section 229
1. Within 30 days from the full or partial denial of the administrative claim by the
CIR; or
2. Within 30 days from the expiration of the 120-day period provided to the CIR to
decide on the claim. This is mandatory and jurisdictional beginning 1 January
1998 (effectivity of 1997 NIRC)
ii. Exception - BIR Ruling No. DA-489-03 - the judicial claim need not await the expiration
of the 120-day period, if such was filed from 10 Dec 2003 (issuance of BIR Ruling No.
DA-489-03) to 6 Oct 2010 (promulgation of Aichi)
COMMISSIONER OF INTERNAL REVENUE vs. AICHI
FORGING COMPANY OF ASIA, INC.- Tax Refund

FACTS:

On September 30, 2004, Aichi Forging filed a claim for refund/credit of input VAT attributable to its zero-
rated sales for the period July 1, 2002 to September 30, 2002 with the CIR through the DOF One-Stop Shop.
On the same day, Aichi Forging filed a Petition for Review with the CTA for the same action. The BIR disputed
the claim and alleged that the same was filed beyond the two-year period given that 2004 was a leap year and
thus the claim should have been filed on September 29, 2004. The CIR also raised issues related to the
reckoning of the 2-year period and the simultaneous filing of the administrative and judicial claims.

ISSUES:

(1) Was the Petitioner’s administrative claim filed out of time?

(2) Was the filing of the judicial claim premature?

HELD:

(1) NO. The right to claim the refund must be reckoned from the “close of the taxable quarter when the sales
were made” – in this case September 30, 2004. The Court added that the rules under Sections 204 (C) and
229 as cross-referred to Section 114 do not apply as they only cover erroneous payments or illegal collections
of taxes which is not the case for refund of unutilized input VAT. Thus, the claim was filed on time even if
2004 was a leap year since the sanctioned method of counting is the number of months.

(2) YES. Section 112 mandates that the taxpayer filing the refund must either wait for the decision of the CIR
or the lapse of the 120-day period provided therein before filing its judicial claim. Failure to observe this rule
is fatal to a claim. Thus, Section 112 (A) was interpreted to refer only to claims filed with the CIR and not
appeals to the CTA given that the word used is “application”. Finally, the Court said that applying the 2-year
period even to judicial claims would render nugatory Section 112 (D) which already provides for a specific
period to appeal to the CTA --- i.e., (a) within 30 days after a decision within the 120-day period and (b) upon
expiry of the 120-day without a decision.


 COMMISSIONER OF INTERNAL REVENUE v. SAN ROQUE POWER CORPORATION,
 G.R. No. 196113
 Facts
 San Roque is a domestic corporation duly organized and existing under and by virtue of the
laws of the Philippines with principal office at Barangay San Roque, San Manuel, Pangasinan.
It was incorporated in October 1997 to design, construct, erect, assemble, own, commission
and operate power-generating plants and related facilities pursuant to and under contract with
the Government of the Republic of the Philippines, or any subdivision, instrumentality or
agency thereof, or any governmentowned or controlled corporation, or other entity engaged in
the development, supply, or distribution of energy.
 As a seller of services, San Roque is duly registered with the BIR with TIN/VAT No. 005-017-
501. It is likewise registered with the Board of Investments ("BOI") on a preferred pioneer
status, to engage in the design, construction, erection, assembly, as well as to own,
commission, and operate electric power-generating plants and related activities, for which it
was issued Certificate of Registration No. 97-356 on February 11, 1998.
 On October 11, 1997, San Roque entered into a Power Purchase Agreement ("PPA") with the
National Power Corporation to develop hydro-potential of the Lower Agno River and generate
additional power and energy for the Luzon Power Grid, by building the San Roque Multi-
Purpose Project located in San Manuel, Pangasinan. The PPA provides, among others, that
[San Roque] shall be responsible for the design, construction, installation, completion, testing
and commissioning of the Power Station and shall operate and maintain the same, subject to
NPC instructions. During the cooperation period of twenty-five (25) years commencing from
the completion date of the Power Station, NPC will take and pay for all electricity available
from the Power Station.
 On the construction and development of the San Roque Multi- Purpose Project which
comprises of the dam, spillway and power plant, San Roque allegedly incurred, excess input
VAT in the amount of ?559,709,337.54 for taxable year 2001 which it declared in its Quarterly
VAT Returns filed for the same year. [San Roque] duly filed with the BIR separate claims for
refund, in the total amount of ?559,709,337.54, representing unutilized input taxes as
declared in its VAT returns for taxable year 2001.
 However, on March 28, 2003,San Roque filed amended Quarterly VAT Returns for the year
2001 since it increased its unutilized input VAT to the amount of ?560,200,283.14.
Consequently, [San Roque] filed with the BIR on even date, separate amended claims for
refund in the aggregate amount of ?560,200,283.14.
 CIRs inaction on the subject claims led to the filing by San Roque of the Petition for Review
with the Court [of Tax Appeals] in Division on April 10, 2003.
 The CTA Second Division initially denied San Roques claim. The CTA Second Division required
San Roque to show that it complied with the requirements of Section 112(B) of Republic Act
No. 8424 (RA 8424) to be entitled to a tax refund or credit of input VAT attributable to capital
goods imported or locally purchased. San Roque filed a Motion for New Trial and/or
Reconsideration on 7 April 2006. In its 29 November 2007 Amended Decision, the CTA Second
Division found legal basis to partially grant San Roques claim.
 The Commissioner filed a Petition for Review before the CTA EB praying for the denial of San
Roques claim for refund or tax credit in its entirety as well as for the setting aside of the 29
November 2007 Amended Decision and the 11 July 2008 Resolution in CTA Case No. 6647.
 The CTA EB dismissed the CIRs petition for review and affirmed the challenged decision and
resolution.
 ISSUES:
 I. Whether or not the Court of Tax Appeals En Banc erred in holding that San Roques claim for
refund was not prematurely filed.
 II. Whether or not the Court of Tax Appeals En Banc erred in affirming the amended decision
of the Court of Tax Appeals (Second Division) granting San Roques claim for refund of alleged
unutilized input VAT on its purchases of capital goods and services for the taxable year 2001
 RULING:

 On 10 April 2003, a mere 13 days after it filed its amended administrative claim with the
Commissioner on 28 March 2003, San Roque filed a Petition for Review with the CTA docketed
as CTA Case No. 6647. From this we gather two crucial facts: first, San Roque did not wait for
the 120-day period to lapse before filing its judicial claim; second, San Roque filed its judicial
 claim more than four (4) years before the Atlas doctrine, which was promulgated by the
Court on 8 June 2007.
 Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given
by law to the Commissioner to decide whether to grant or deny San Roques application for tax
refund or credit. It is indisputable that compliance with the 120-day waiting period is
mandatory and jurisdictional. The waiting period, originally fixed at 60 days only, was part
of the provisions of the first VAT law, Executive Order No. 273, which took effect on 1 January
1988. The waiting period was extended to 120 days effective 1 January 1998 under RA 8424
or the Tax Reform Act of 1997. Thus, the waiting period has been in our statute books
for more than fifteen (15) years before San Roque filed its judicial claim.
 Failure to comply with the 120-day waiting period violates a mandatory provision of law. It
violates the doctrine of exhaustion of administrative remedies and renders the petition
premature and thus without a cause of action, with the effect that the CTA does not acquire
jurisdiction over the taxpayers petition. Philippine jurisprudence is replete with cases
upholding and reiterating these doctrinal principles. San Roques failure to comply with the
120-day mandatory period renders its petition for review with the CTA void. Article 5 of the
Civil Code provides, "Acts executed against provisions of mandatory or prohibitory laws shall
be void, except when the law itself authorizes their validity." San Roques void petition for
review cannot be legitimized by the CTA or this Court because Article 5 of the Civil Code states
that such void petition cannot be legitimized "except when the law itself authorizes validity."
There is no law authorizing the petitions validity.
 It is hornbook doctrine that a person committing a void act contrary to a mandatory provision
of law cannot claim or acquire any right from his void act. A right cannot spring in favor of a
person from his own void or illegal act. This doctrine is repeated in Article 2254 of the Civil
Code, which states, "No vested or acquired right can arise from acts or omissions which are
against the law or which infringe upon the rights of others." For violating a mandatory
provision of law in filing its petition with the CTA, San Roque cannot claim any right arising
from such void petition. Thus, San Roques petition with the CTA is a mere scrap of
paper. Well-settled is the rule that tax refunds or credits, just like tax exemptions,
are strictly construed against the taxpayer. The burden is on the taxpayer to show that
he has strictly complied with the conditions for the grant of the tax refund or credit.
 This Court cannot disregard mandatory and jurisdictional conditions mandated by law simply
because conditions.

 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.
 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.