TOSHIBA INFORMATION EQUIPMENT G.R. No.

157594
(PHILS.), INC.,
Petitioner, Present:

PUNO, C.J.,
Chairperson,
CARPIO MORALES,
- versus - LEONARDO-DE CASTRO,
BERSAMIN, and
VILLARAMA, JR., JJ.

COMMISSIONER OF INTERNAL REVENUE, Promulgated:

Respondent.
March 9, 2010

LEONARDO-DE CASTRO, J.:

In this Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court, petitioner
Toshiba Information Equipment (Philippines), Inc. (Toshiba) seeks the reversal and setting
aside of (1) the Decision[2] dated August 29, 2002 of the Court of Appeals in CA-G.R. SP No.
63047, which found that Toshiba was not entitled to the credit/refund of its unutilized input
Value-Added Tax (VAT) payments attributable to its export sales, because it was a tax-exempt
entity and its export sales were VAT-exempt transactions; and (2) the Resolution[3] dated
February 19, 2003 of the appellate court in the same case, which denied the Motion for
Reconsideration of Toshiba. The herein assailed judgment of the Court of Appeals reversed
and set aside the Decision[4] dated October 16, 2000 of the Court of Tax Appeals (CTA) in CTA
Case No. 5762 granting the claim for credit/refund of Toshiba in the amount of P1,385,282.08.

Toshiba is a domestic corporation principally engaged in the business of manufacturing

and exporting of electric machinery, equipment systems, accessories, parts, components,
materials and goods of all kinds, including those relating to office automation and information
technology and all types of computer hardware and software, such as but not limited to HDD-
CD-ROM and personal computer printed circuit board.[5] It is registered with the Philippine
Economic Zone Authority (PEZA) as an Economic Zone (ECOZONE) export enterprise in the
Laguna Technopark, Inc., as evidenced by Certificate of Registration No. 95-99 dated
September 27, 1995.[6] It is also registered with Regional District Office No. 57 of the Bureau of
Internal Revenue (BIR) in San Pedro, Laguna, as a VAT-taxpayer with Taxpayer Identification
No. (TIN) 004-739-137.[7]

In its VAT returns for the first and second quarters of 1997, [8] filed on April 14, 1997 and
July 21, 1997, respectively, Toshiba declared input VAT payments on its domestic purchases of
taxable goods and services in the aggregate sum of P3,875,139.65,[9] with no zero-rated
sales. Toshiba subsequently submitted to the BIR on July 23, 1997 its amended VAT returns
for the first and second quarters of 1997,[10] reporting the same amount of input VAT payments
but, this time, with zero-rated sales totaling P7,494,677,000.00.[11]

On March 30, 1999, Toshiba filed with the One-Stop Shop Inter-Agency Tax Credit and
Duty Drawback Center of the Department of Finance (DOF One-Stop Shop) two separate
applications for tax credit/refund[12] of its unutilized input VAT payments for the first half of 1997
in the total amount of P3,685,446.73.[13]

The next day, on March 31, 1999, Toshiba likewise filed with the CTA a Petition for
Review[14] to toll the running of the two-year prescriptive period under Section 230 of the Tax
Code of 1977,[15] as amended.[16] In said Petition, docketed as CTA Case No. 5762, Toshiba
prayed that –

[A]fter due hearing, judgment be rendered ordering [herein respondent

Commissioner of Internal Revenue (CIR)] to refund or issue to [Toshiba] a tax
refund/tax credit certificate in the amount of P3,875,139.65 representing
unutilized input taxes paid on its purchase of taxable goods and services for the
period January 1 to June 30, 1997.[17]

The Commissioner of Internal Revenue (CIR) opposed the claim for tax refund/credit of
Toshiba, setting up the following special and affirmative defenses in his Answer[18] –

5. [Toshiba’s] alleged claim for refund/tax credit is subject to

administrative routinary investigation/examination by [CIR’s] Bureau;

6. [Toshiba] failed miserably to show that the total amount

of P3,875,139.65 claimed as VAT input taxes, were erroneously or illegally
collected, or that the same are properly documented;

7. Taxes paid and collected are presumed to have been made in

accordance with law; hence, not refundable;
 8. In an action for tax refund, the burden is on the taxpayer to
establish its right to refund, and failure to sustain the burden is fatal to the claim
for refund;

9. It is incumbent upon [Toshiba] to show that it has complied with

the provisions of Section 204 in relation to Section 229 of the Tax Code;

10. Well-established is the rule that claims for refund/tax credit are
construed in strictissimi juris against the taxpayer as it partakes the nature of
exemption from tax.[19]

Upon being advised by the CTA,[20] Toshiba and the CIR filed a Joint Stipulation of Facts
and Issues,[21] wherein the opposing parties ―agreed and admitted‖ that –

1. [Toshiba] is a duly registered value-added tax entity in accordance

with Section 107 of the Tax Code, as amended.

2. [Toshiba] is subject to zero percent (0%) value-added tax on its

export sales in accordance with then Section 100(a)(2)(A) of the Tax Code, as
amended.

3. [Toshiba] filed its quarterly VAT returns for the first two quarters of
1997 within the legally prescribed period.

xxxx

7. [Toshiba] is subject to zero percent (0%) value-added tax on its

export sales.

8. [Toshiba] has duly filed the instant Petition for Review within the
two-year prescriptive period prescribed by then Section 230 of the Tax Code.[22]

In the same pleading, Toshiba and the CIR jointly submitted the following issues for
determination by the CTA –

Whether or not [Toshiba] has incurred input taxes in the amount

of P3,875,139.65 for the period January 1 to June 30, 1997 which are directly
attributable to its export sales[.]

Whether or not the input taxes incurred by [Toshiba] for the period January 1 to
June 30, 1997 have not been carried over to the succeeding quarters[.]

Whether or not input taxes incurred by [Toshiba] for the first two quarters of 1997
have not been offset against any output tax[.]
 Whether or not input taxes incurred by [Toshiba] for the first two quarters of 1997
are properly substantiated by official receipts and invoices.[23]

During the trial before the CTA, Toshiba presented documentary evidence in support of
its claim for tax credit/refund, while the CIR did not present any evidence at all.

With both parties waiving the right to submit their respective memoranda, the CTA
rendered its Decision in CTA Case No. 5762 on October 16, 2000 favoring Toshiba. According
to the CTA, the CIR himself admitted that the export sales of Toshiba were subject to zero
percent (0%) VAT based on Section 100(a)(2)(A)(i) of the Tax Code of 1977, as
amended. Toshiba could then claim tax credit or refund of input VAT paid on its purchases of
goods, properties, or services, directly attributable to such zero-rated sales, in accordance with
Section 4.102-2 of Revenue Regulations No. 7-95. The CTA, though, reduced the amount to be
credited or refunded to Toshiba to P1,385,292.02.

The dispositive portion of the October 16, 2000 Decision of the CTA fully reads –

WHEREFORE, [Toshiba’s] claim for refund of unutilized input VAT

payments is hereby GRANTED but in a reduced amount of P1,385,282.08
computed as follows:

1st Quarter 2nd Quarter Total

Amount of claimed input taxes filed
with the DOF One Stop Shop
Center P3,268,682.34 P416,764.39 P3,685,446.73
Less: 1) Input taxes not properly
supported by VAT invoices
and official receipts
a. Per SGV’s verification
(Exh. I) P 242,491.45 P154,391.13 P 396,882.58
b. Per this court’s further
verification (Annex
A) P1,852,437.65 P 35,108.00 P1,887,545.65
P189,499.13 P2,300,164.65
Amount
Refundable P1,158,016.82 P227,265.26 P1,385,282.08

Respondent Commissioner of Internal Revenue

is ORDERED to REFUND to [Toshiba] or in the alternative, ISSUE a TAX
CREDIT CERTIFICATE in the amount of P1,385,282.08 representing unutilized
input taxes paid by [Toshiba] on its purchases of taxable goods and services for
the period January 1 to June 30, 1997.[24]
 Both Toshiba and the CIR sought reconsideration of the foregoing CTA Decision.

Toshiba asserted in its Motion for Reconsideration[25] that it had presented proper
substantiation for the P1,887,545.65 input VAT disallowed by the CTA.

The CIR, on the other hand, argued in his Motion for Reconsideration[26] that Toshiba
was not entitled to the credit/refund of its input VAT payments because as a PEZA-registered
ECOZONE export enterprise, Toshiba was not subject to VAT. The CIR invoked the following
statutory and regulatory provisions –

Section 24 of Republic Act No. 7916[27]

SECTION 24. Exemption from Taxes Under the National Internal

Revenue Code. – Any provision of existing laws, rules and regulations to the
contrary notwithstanding, no taxes, local and national, shall be imposed on
business establishments operating within the ECOZONE. In lieu of paying taxes,
five percent (5%) of the gross income earned by all businesses and enterprises
within the ECOZONE shall be remitted to the national government. x x x.

Section 103(q) of the Tax Code of 1977, as amended

Sec. 103. Exempt transactions. – The following shall be exempt from the
value-added tax:

xxxx

(q) Transactions which are exempt under special laws, except those
granted under Presidential Decree Nos. 66, 529, 972, 1491, and 1950, and non-
electric cooperatives under Republic Act No. 6938, or international agreements
to which the Philippines is a signatory.

Section 4.103-1 of Revenue Regulations No. 7-95

SEC. 4.103-1. Exemptions. – (A) In general. – An exemption means that

the sale of goods or properties and/or services and the use or lease of properties
is not subject to VAT (output tax) and the seller is not allowed any tax credit on
VAT (input tax) previously paid.

The person making the exempt sale of goods, properties or services shall
not bill any output tax to his customers because the said transaction is not
subject to VAT. On the other hand, a VAT-registered purchaser of VAT-exempt
goods, properties or services which are exempt from VAT is not entitled to any
input tax on such purchase despite the issuance of a VAT invoice or receipt.
 The CIR contended that under Section 24 of Republic Act No. 7916, a special law, all
businesses and establishments within the ECOZONE were to remit to the government five
percent (5%) of their gross income earned within the zone, in lieu of all taxes, including
VAT. This placed Toshiba within the ambit of Section 103(q) of the Tax Code of 1977, as
amended, which exempted from VAT the transactions that were exempted under special
laws. Following Section 4.103-1(A) of Revenue Regulations No. 7-95, the VAT-exemption of
Toshiba meant that its sale of goods was not subject to output VAT and Toshiba as seller was
not allowed any tax credit on the input VAT it had previously paid.

On January 17, 2001, the CTA issued a Resolution[28] denying both Motions for
Reconsideration of Toshiba and the CIR.

The CTA took note that the pieces of evidence referred to by Toshiba in its Motion for
Reconsideration were insufficient substantiation, being mere schedules of input VAT payments
it had purportedly paid for the first and second quarters of 1997. While the CTA gives credence
to the report of its commissioned certified public accountant (CPA), it does not render its
decision based on the findings of the said CPA alone. The CTA has its own CPA and the tax
court itself conducts an investigation/examination of the documents presented. The CTA stood
by its earlier disallowance of the amount of P1,887,545.65 as tax credit/refund because it was
not supported by VAT invoices and/or official receipts.

The CTA refused to consider the argument that Toshiba was not entitled to a tax
credit/refund under Section 24 of Republic Act No. 7916 because it was only raised by the
CIR for the first time in his Motion for Reconsideration. Also, contrary to the assertions of the
CIR, the CTA held that Section 23, and not Section 24, of Republic Act No. 7916, applied to
Toshiba. According to Section 23 of Republic Act No. 7916 –

SECTION 23. Fiscal Incentives. – Business establishments operating

within the ECOZONES shall be entitled to the fiscal incentives as provided for
under Presidential Decree No. 66, the law creating the Export Processing Zone
Authority, or those provided under Book VI of Executive Order No. 226,
otherwise known as the Omnibus Investment Code of 1987.

Furthermore, tax credits for exporters using local materials as inputs shall
enjoy the benefits provided for in the Export Development Act of 1994.
 Among the fiscal incentives granted to PEZA-registered enterprises by the Omnibus
Investments Code of 1987 was the income tax holiday, to wit –

Art. 39. Incentives to Registered Enterprises. – All registered enterprises

shall be granted the following incentives to the extent engaged in a preferred
area of investment:

(a) Income Tax Holiday. —

(1) For six (6) years from commercial operation for pioneer firms and four
(4) years for non-pioneer firms, new registered firms shall be fully exempt from
income taxes levied by the national government. Subject to such guidelines as
may be prescribed by the Board, the income tax exemption will be extended for
another year in each of the following cases:
(i) The project meets the prescribed ratio of capital equipment to number
of workers set by the Board;
(ii) Utilization of indigenous raw materials at rates set by the Board;
(iii) The net foreign exchange savings or earnings amount to at least
US$500,000.00 annually during the first three (3) years of operation.
The preceding paragraph notwithstanding, no registered pioneer firm may
avail of this incentive for a period exceeding eight (8) years.
(2) For a period of three (3) years from commercial operation, registered
expanding firms shall be entitled to an exemption from income taxes levied by
the National Government proportionate to their expansion under such terms and
conditions as the Board may determine: Provided, however, That during the
period within which this incentive is availed of by the expanding firm it shall not
be entitled to additional deduction for incremental labor expense.
(3) The provision of Article 7(14) notwithstanding, registered firms shall
not be entitled to any extension of this incentive.

The CTA pointed out that Toshiba availed itself of the income tax holiday under the
Omnibus Investments Code of 1987, so Toshiba was exempt only from income tax but not from
other taxes such as VAT. As a result, Toshiba was liable for output VAT on its export sales, but
at zero percent (0%) rate, and entitled to the credit/refund of the input VAT paid on its
purchases of goods and services relative to such zero-rated export sales.

Unsatisfied, the CIR filed a Petition for Review[29] with the Court of Appeals, docketed as
CA-G.R. SP No. 63047.

In its Decision dated August 29, 2002, the Court of Appeals granted the appeal of the
CIR, and reversed and set aside the Decision dated October 16, 2000 and the Resolution dated
January 17, 2001 of the CTA. The appellate court ruled that Toshiba was not entitled to the
refund of its alleged unused input VAT payments because it was a tax-exempt entity under
Section 24 of Republic Act No. 7916. As a PEZA-registered corporation, Toshiba was liable for
remitting to the national government the five percent (5%) preferential rate on its gross income
earned within the ECOZONE, in lieu of all other national and local taxes, including VAT.

The Court of Appeals further adjudged that the export sales of Toshiba were VAT-
exempt, not zero-rated, transactions. The appellate court found that the Answer filed by the CIR
in CTA Case No. 5762 did not contain any admission that the export sales of Toshiba were
zero-rated transactions under Section 100(a)(2)(A) of the Tax Code of 1977, as amended. At
the least, what was admitted by the CIR in said Answer was that the Tax Code provisions cited
in the Petition for Review of Toshiba in CTA Case No. 5762 were correct. As to the Joint
Stipulation of Facts and Issues filed by the parties in CTA Case No. 5762, which stated that
Toshiba was subject to zero percent (0%) VAT on its export sales, the appellate court declared
that the CIR signed the said pleading through palpable mistake. This palpable mistake in the
stipulation of facts should not be taken against the CIR, for to do otherwise would result in
suppressing the truth through falsehood. In addition, the State could not be put in estoppel by
the mistakes or errors of its officials or agents.

Given that Toshiba was a tax-exempt entity under Republic Act No. 7916, a special law,
the Court of Appeals concluded that the export sales of Toshiba were VAT-exempt transactions
under Section 109(q) of the Tax Code of 1997, formerly Section 103(q) of the Tax Code of
1977. Therefore, Toshiba could not claim refund of its input VAT payments on its domestic
purchases of goods and services.

The Court of Appeals decreed at the end of its August 29, 2002 Decision –

WHEREFORE, premises considered, the appealed decision of the Court

of Tax Appeals in CTA Case No. 5762, is hereby REVERSED and SET ASIDE,
and a new one is hereby rendered finding [Toshiba], being a tax exempt entity
under R.A. No. 7916, not entitled to refund the VAT payments made in its
domestic purchases of goods and services.[30]

Toshiba filed a Motion for Reconsideration[31] of the aforementioned Decision, anchored

on the following arguments: (a) the CIR never raised as an issue before the CTA that Toshiba
was tax-exempt under Section 24 of Republic Act No. 7916; (b) Section 24 of Republic Act No.
7916, subjecting the gross income earned by a PEZA-registered enterprise within the
ECOZONE to a preferential rate of five percent (5%), in lieu of all taxes, did not apply to
Toshiba, which availed itself of the income tax holiday under Section 23 of the same statute; (c)
the conclusion of the CTA that the export sales of Toshiba were zero-rated was supported by
substantial evidence, other than the admission of the CIR in the Joint Stipulation of Facts and
Issues; and (d) the judgment of the CTA granting the refund of the input VAT payments was
supported by substantial evidence and should not have been set aside by the Court of Appeals.

In a Resolution dated February 19, 2003, the Court of Appeals denied the Motion for
Reconsideration of Toshiba since the arguments presented therein were mere reiterations of
those already passed upon and found to be without merit by the appellate court in its earlier
Decision. The Court of Appeals, however, mentioned that it was incorrect for Toshiba to say
that the issue of the applicability of Section 24 of Republic Act No. 7916 was only raised for the
first time on appeal before the appellate court. The said issue was adequately raised by the
CIR in his Motion for Reconsideration before the CTA, and was even ruled upon by the tax
court.

Hence, Toshiba filed the instant Petition for Review with the following assignment of
errors –

5.1 THE HONORABLE COURT OF APPEALS ERRED WHEN IT

RULED THAT [TOSHIBA], BEING A PEZA-REGISTERED ENTERPRISE, IS
EXEMPT FROM VAT UNDER SECTION 24 OF R.A. 7916, AND FURTHER
HOLDING THAT [TOSHIBA’S] EXPORT SALES ARE EXEMPT
TRANSACTIONS UNDER SECTION 109 OF THE TAX CODE.

5.2 THE HONORABLE COURT OF APPEALS ERRED WHEN IT

FAILED TO DISMISS OUTRIGHT AND GAVE DUE COURSE TO [CIR’S]
PETITION NOTWITHSTANDING [CIR’S] FAILURE TO ADEQUATELY RAISE IN
ISSUE DURING THE TRIAL IN THE COURT OF TAX APPEALS THE
APPLICABILITY OF SECTION 24 OF R.A. 7916 TO [TOSHIBA’S] CLAIM FOR
REFUND.

5.3 THE HONORABLE COURT OF APPEALS ERRED WHEN [IT]

RULED THAT THE COURT OF TAX APPEALS’ FINDINGS, WITH REGARD
[TOSHIBA’S] EXPORT SALES BEING ZERO RATED SALES FOR VAT
PURPOSES, WERE BASED MERELY ON THE ADMISSIONS MADE BY
[CIR’S] COUNSEL AND NOT SUPPORTED BY SUBSTANTIAL EVIDENCE.

5.4 THE HONORABLE COURT OF APPEALS ERRED WHEN IT

REVERSED THE DECISION OF THE COURT OF TAX APPEALS GRANTING
[TOSHIBA’S] CLAIM FOR REFUND[;][32]

and the following prayer –

 WHEREFORE, premises considered, Petitioner TOSHIBA
INFORMATION EQUIPMENT (PHILS.), INC. most respectfully prays that the
decision and resolution of the Honorable Court of Appeals, reversing the decision
of the CTA in CTA Case No. 5762, be set aside and further prays that a new one
be rendered AFFIRMING AND UPHOLDING the Decision of the CTA
promulgated on October 16, 2000 in CTA Case No. 5762.

Other reliefs, which the Honorable Court may deem just and equitable
under the circumstances, are likewise prayed for.[33]

The Petition is impressed with merit.

The CIR did not timely raise before the CTA the
issues on the VAT-exemptions of Toshiba and
its export sales.

Upon the failure of the CIR to timely plead and prove before the CTA the defenses or
objections that Toshiba was VAT-exempt under Section 24 of Republic Act No. 7916, and that
its export sales were VAT-exempt transactions under Section 103(q) of the Tax Code of 1977,
as amended, the CIR is deemed to have waived the same.

During the pendency of CTA Case No. 5762, the proceedings before the CTA were
governed by the Rules of the Court of Tax Appeals,[34] while the Rules of Court were applied
suppletorily.[35]

Rule 9, Section 1 of the Rules of Court provides:

SECTION 1. Defenses and objections not pleaded. – Defenses and

objections not pleaded either in a motion to dismiss or in the answer are deemed
waived. However, when it appears from the pleadings or the evidence on record
that the court has no jurisdiction over the subject matter, that there is another
action pending between the same parties for the same cause, or that the action
is barred by a prior judgment or by statute of limitations, the court shall dismiss
the claim.

The CIR did not argue straight away in his Answer in CTA Case No. 5762 that Toshiba
had no right to the credit/refund of its input VAT payments because the latter was VAT-exempt
and its export sales were VAT-exempt transactions. The Pre-Trial Brief[36] of the CIR was
equally bereft of such allegations or arguments. The CIR passed up the opportunity to prove
the supposed VAT-exemptions of Toshiba and its export sales when the CIR chose not to
present any evidence at all during the trial before the CTA.[37] He missed another opportunity to
present the said issues before the CTA when he waived the submission of a
Memorandum.[38] The CIR had waited until the CTA already rendered its Decision dated
October 16, 2000 in CTA Case No. 5762, which granted the claim for credit/refund of Toshiba,
before asserting in his Motion for Reconsideration that Toshiba was VAT-exempt and its export
sales were VAT-exempt transactions.

The CIR did not offer any explanation as to why he did not argue the VAT-exemptions of
Toshiba and its export sales before and during the trial held by the CTA, only doing so in his
Motion for Reconsideration of the adverse CTA judgment. Surely, said defenses or objections
were already available to the CIR when the CIR filed his Answer to the Petition for Review of
Toshiba in CTA Case No. 5762.

It is axiomatic in pleadings and practice that no new issue in a case can be raised in a
pleading which by due diligence could have been raised in previous pleadings.[39] The Court
cannot simply grant the plea of the CIR that the procedural rules be relaxed based on the
general averment of the interest of substantive justice. It should not be forgotten that the first
and fundamental concern of the rules of procedure is to secure a just determination of every
action.[40] Procedural rules are designed to facilitate the adjudication of cases. Courts and
litigants alike are enjoined to abide strictly by the rules. While in certain instances, the Court
allows a relaxation in the application of the rules, it never intends to forge a weapon for erring
litigants to violate the rules with impunity. The liberal interpretation and application of rules
apply only in proper cases of demonstrable merit and under justifiable causes and
circumstances. While it is true that litigation is not a game of technicalities, it is equally true that
every case must be prosecuted in accordance with the prescribed procedure to ensure an
orderly and speedy administration of justice. Party litigants and their counsel are well advised to
abide by, rather than flaunt, procedural rules for these rules illumine the path of the law and
rationalize the pursuit of justice.[41]

The CIR judicially admitted that Toshiba was

VAT-registered and its export sales were
subject to VAT at zero percent (0%) rate.

More importantly, the arguments of the CIR that Toshiba was VAT-exempt and the
latter’s export sales were VAT-exempt transactions are inconsistent with the explicit admissions
of the CIR in the Joint Stipulation of Facts and Issues (Joint Stipulation) that Toshiba was a
registered VAT entity and that it was subject to zero percent (0%) VAT on its export sales.

The Joint Stipulation was executed and submitted by Toshiba and the CIR upon being
advised to do so by the CTA at the end of the pre-trial conference held on June 23,
1999.[42] The approval of the Joint Stipulation by the CTA, in its Resolution[43] dated July 12,
1999, marked the culmination of the pre-trial process in CTA Case No. 5762.

Pre-trial is an answer to the clarion call for the speedy disposition of cases. Although it
was discretionary under the 1940 Rules of Court, it was made mandatory under the 1964 Rules
and the subsequent amendments in 1997. It has been hailed as ―the most important procedural
innovation in Anglo-Saxon justice in the nineteenth century.‖[44]

The nature and purpose of a pre-trial have been laid down in Rule 18, Section 2 of the
Rules of Court:

SECTION 2. Nature and purpose. – The pre-trial is mandatory. The

court shall consider:

(a) The possibility of an amicable settlement or of a submission to

alternative modes of dispute resolution;

(b) The simplification of the issues;

(c) The necessity or desirability of amendments to the pleadings;

(d) The possibility of obtaining stipulations or admissions of

facts and of documents to avoid unnecessary proof;

(e) The limitation of the number of witnesses;

(f) The advisability of a preliminary reference of issues to a

commissioner;

(g) The propriety of rendering judgment on the pleadings, or

summary judgment, or of dismissing the action should a valid ground therefor be
found to exist;

(h) The advisability or necessity of suspending the proceedings; and

(i) Such other matters as may aid in the prompt disposition of the
action. (Emphasis ours.)
 The admission having been made in a stipulation of facts at pre-trial by the parties, it
must be treated as a judicial admission.[45] Under Section 4, Rule 129 of the Rules of Court, a
judicial admission requires no proof. The admission may be contradicted only by a showing that
it was made through palpable mistake or that no such admission was made. The Court cannot
lightly set aside a judicial admission especially when the opposing party relied upon the same
and accordingly dispensed with further proof of the fact already admitted. An admission made
by a party in the course of the proceedings does not require proof.[46]

In the instant case, among the facts expressly admitted by the CIR and Toshiba in their
CTA-approved Joint Stipulation are that Toshiba ―is a duly registered value-added tax entity in
accordance with Section 107 of the Tax Code, as amended[,]‖[47] that ―is subject to zero percent
(0%) value-added tax on its export sales in accordance with then Section 100(a)(2)(A) of the
Tax Code, as amended.‖[48] The CIR was bound by these admissions, which he could not
eventually contradict in his Motion for Reconsideration of the CTA Decision dated October 16,
2000, by arguing that Toshiba was actually a VAT-exempt entity and its export sales were VAT-
exempt transactions. Obviously, Toshiba could not have been subject to VAT and exempt
from VAT at the same time. Similarly, the export sales of Toshiba could not have been subject
to zero percent (0%) VAT and exempt from VAT as well.

The CIR cannot escape the binding effect of his

judicial admissions.

The Court disagrees with the Court of Appeals when it ruled in its Decision dated August
29, 2002 that the CIR could not be bound by his admissions in the Joint Stipulation because (1)
the said admissions were ―made through palpable mistake‖[49] which, if countenanced, ―would
result in falsehood, unfairness and injustice‖;[50] and (2) the State could not be put in estoppel by
the mistakes of its officials or agents. This ruling of the Court of Appeals is rooted in its
conclusion that a ―palpable mistake‖ had been committed by the CIR in the signing of the Joint
Stipulation. However, this Court finds no evidence of the commission of a mistake, much more,
of a palpable one.

The CIR does not deny that his counsel, Atty. Joselito F. Biazon, Revenue Attorney II of
the BIR, signed the Joint Stipulation, together with the counsel of Toshiba, Atty. Patricia B.
Bisda. Considering the presumption of regularity in the performance of official duty, [51] Atty.
Biazon is presumed to have read, studied, and understood the contents of the Joint Stipulation
before he signed the same. It rests on the CIR to present evidence to the contrary.
 Yet, the Court observes that the CIR himself never alleged in his Motion for
Reconsideration of the CTA Decision dated October 16, 2000, nor in his Petition for Review
before the Court of Appeals, that Atty. Biazon committed a mistake in signing the Joint
Stipulation. Since the CIR did not make such an allegation, neither did he present any proof in
support thereof. The CIR began to aver the existence of a palpable mistake only after the Court
of Appeals made such a declaration in its Decision dated August 29, 2002.

Despite the absence of allegation and evidence by the CIR, the Court of Appeals, on its
own, concluded that the admissions of the CIR in the Joint Stipulation were due to a palpable
mistake based on the following deduction –

Scrutinizing the Answer filed by [the CIR], we rule that the Joint
Stipulation of Facts and Issues signed by [the CIR] was made through palpable
mistake. Quoting paragraph 4 of its Answer, [the CIR] states:

―4. He ADMITS the allegations contained in paragraph 5

of the petition only insofar as the cited provisions of Tax Code is
concerned, but SPECIFICALLY DENIES the rest of the allegations
therein for being mere opinions, arguments or gratuitous
assertions on the part of [Toshiba] and/or because they are mere
erroneous conclusions or interpretations of the quoted law
involved, the truth of the matter being those stated hereunder

x x x x‖

And paragraph 5 of the petition for review filed by [Toshiba] before the
CTA states:

―5. Petitioner is subject to zero percent (0%) value-added

tax on its export sales in accordance with then Section
100(a)(2)(A) of the Tax Code x x x.

x x x x‖

As we see it, nothing in said Answer did [the CIR] admit that the export
sales of [Toshiba] were indeed zero-rated transactions. At the least, what was
admitted only by [the CIR] concerning paragraph 4 of his Answer, is the fact that
the provisions of the Tax Code, as cited by [Toshiba] in its petition for review filed
before the CTA were correct.[52]

The Court of Appeals provided no explanation as to why the admissions of the CIR in his
Answer in CTA Case No. 5762 deserved more weight and credence than those he made in the
Joint Stipulation. The appellate court failed to appreciate that the CIR, through counsel, Atty.
Biazon, also signed the Joint Stipulation; and that absent evidence to the contrary, Atty. Biazon
is presumed to have signed the Joint Stipulation willingly and knowingly, in the regular
performance of his official duties. Additionally, the Joint Stipulation[53] of Toshiba and the CIR
was a more recent pleading than the Answer[54] of the CIR. It was submitted by the parties after
the pre-trial conference held by the CTA, and subsequently approved by the tax court. If there
was any discrepancy between the admissions of the CIR in his Answer and in the Joint
Stipulation, the more logical and reasonable explanation would be that the CIR changed his
mind or conceded some points to Toshiba during the pre-trial conference which immediately
preceded the execution of the Joint Stipulation. To automatically construe that the discrepancy
was the result of a palpable mistake is a wide leap which this Court is not prepared to take
without substantial basis.

The judicial admissions of the CIR in the Joint

Stipulation are not intrinsically false, wrong, or
illegal, and are consistent with the ruling on the
VAT treatment of PEZA-registered enterprises
in the previous Toshiba case.

There is no basis for believing that to bind the CIR to his judicial admissions in the Joint
Stipulation – that Toshiba was a VAT-registered entity and its export sales were zero-rated VAT
transactions – would result in ―falsehood, unfairness and injustice.‖ The judicial admissions of
the CIR are not intrinsically false, wrong, or illegal. On the contrary, they are consistent with the
ruling of this Court in a previous case involving the same parties, Commissioner of Internal
Revenue v. Toshiba Information Equipment (Phils.) Inc.[55] (Toshiba case), explaining the VAT
treatment of PEZA-registered enterprises.

In the Toshiba case, Toshiba sought the refund of its unutilized input VAT on its
purchase of capital goods and services for the first and second quarters of 1996, based on
Section 106(b) of the Tax Code of 1977, as amended.[56] In the Petition at bar, Toshiba is
claiming refund of its unutilized input VAT on its local purchase of goods and services which
are attributable to its export sales for the first and second quarters of 1997, pursuant to
Section 106(a), in relation to Section 100(a)(1)(A)(i) of the Tax Code of 1977, as amended,
which read –

SEC. 106. Refunds or tax credits of creditable input tax. – (a) 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 100(a)(2)(A)(i),(ii)
and (b) and Section 102(b)(1) and (2), the acceptable foreign currency exchange
proceeds thereof has been duly accounted for in accordance with the 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 of 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 sales.

SEC. 100. Value-added tax on sale of goods or properties. – (a) Rate

and base of tax. – x x x

xxxx

(2) The following sales by VAT-registered persons shall be subject to

0%:

(A) Export sales. – The term ―export sales‖ means:

(i) The sale and actual shipment of goods from the Philippines to a
foreign country, irrespective of any shipping arrangement that may be agreed
upon which may influence or determine the transfer of ownership of the goods so
exported and paid for in acceptable foreign currency or its equivalent in goods or
services, and accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipnas (BSP).

Despite the difference in the legal bases for the claims for credit/refund in the Toshiba
case and the case at bar, the CIR raised the very same defense or objection in both – that
Toshiba and its transactions were VAT-exempt. Hence, the ruling of the Court in the former
case is relevant to the present case.

At the outset, the Court establishes that there is a basic distinction in the VAT-exemption
of a person and the VAT-exemption of a transaction –

It would seem that petitioner CIR failed to differentiate between VAT-

exempt transactions from VAT-exempt entities. In the case of Commissioner of
Internal Revenue v. Seagate Technology (Philippines), this Court already made
such distinction –

An exempt transaction, on the one hand, involves goods or

services which, by their nature, are specifically listed in and
 expressly exempted from the VAT under the Tax Code, without
regard to the tax status – VAT-exempt or not – of the party to the
transaction…

An exempt party, on the other hand, is a person or entity

granted VAT exemption under the Tax Code, a special law or an
international agreement to which the Philippines is a signatory,
and by virtue of which its taxable transactions become exempt
from VAT x x x.[57]

In effect, the CIR is opposing the claim for credit/refund of input VAT of Toshiba on two
grounds: (1) that Toshiba was a VAT-exempt entity; and (2) that its export sales were VAT-
exempt transactions.

It is now a settled rule that based on the Cross Border Doctrine, PEZA-registered
enterprises, such as Toshiba, are VAT-exempt and no VAT can be passed on to them. The
Court explained in the Toshiba case that –

PEZA-registered enterprise, which would necessarily be located within

ECOZONES, are VAT-exempt entities, not because of Section 24 of Rep. Act
No. 7916, as amended, which imposes the five percent (5%) preferential tax rate
on gross income of PEZA-registered enterprises, in lieu of all taxes; but, rather,
because of Section 8 of the same statute which establishes the fiction that
ECOZONES are foreign territory.

xxxx

The Philippine VAT system adheres to the Cross Border Doctrine,

according to which, no VAT shall be imposed to form part of the cost of goods
destined for consumption outside of the territorial border of the taxing
authority. Hence, actual export of goods and services from the Philippines to a
foreign country must be free of VAT; while, those destined for use or
consumption within the Philippines shall be imposed with ten percent (10%) VAT.

Applying said doctrine to the sale of goods, properties, and services to

and from the ECOZONES, the BIR issued Revenue Memorandum Circular
(RMC) No. 74-99, on 15 October 1999. Of particular interest to the present
Petition is Section 3 thereof, which reads –

SECTION 3. Tax Treatment of Sales Made by a VAT

Registered Supplier from the Customs Territory, to a PEZA
Registered Enterprise. –

(1) If the Buyer is a PEZA registered enterprise which is

subject to the 5% special tax regime, in lieu of all taxes, except
real property tax, pursuant to R.A. No. 7916, as amended:
 (a) Sale of goods (i.e., merchandise). – This shall be
treated as indirect export hence, considered subject to zero
percent (0%) VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC and
Sec. 23 of R.A. No. 7916, in relation to ART. 77(2) of the Omnibus
Investments Code.

(b) Sale of service. – This shall be treated subject to zero

percent (0%) VAT under the ―cross border doctrine‖ of the VAT
System, pursuant to VAT Ruling No. 032-98 dated Nov. 5, 1998.

(2) If Buyer is a PEZA registered enterprise which is not

embraced by the 5% special tax regime, hence, subject to taxes
under the NIRC, e.g., Service Establishments which are subject to
taxes under the NIRC rather than the 5% special tax regime:

(a) Sale of goods (i.e., merchandise). – This shall be

treated as indirect export hence, considered subject to zero
percent (0%) VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC and
Sec. 23 of R.A. No. 7916 in relation to ART. 77(2) of the Omnibus
Investments Code.

(b) Sale of Service. – This shall be treated subject to zero

percent (0%) VAT under the ―cross border doctrine‖ of the VAT
System, pursuant to VAT Ruling No. 032-98 dated Nov. 5, 1998.

(3) In the final analysis, any sale of goods, property or

services made by a VAT registered supplier from the Customs
Territory to any registered enterprise operating in the ecozone,
regardless of the class or type of the latter’s PEZA registration, is
actually qualified and thus legally entitled to the zero percent (0%)
VAT. Accordingly, all sales of goods or property to such
enterprise made by a VAT registered supplier from the Customs
Territory shall be treated subject to 0% VAT, pursuant to Sec.
106(A)(2)(a)(5), NIRC, in relation to ART. 77(2) of the Omnibus
Investments Code, while all sales of services to the said
enterprises, made by VAT registered suppliers from the Customs
Territory, shall be treated effectively subject to the 0% VAT,
pursuant to Section 108(B)(3), NIRC, in relation to the provisions
of R.A. No. 7916 and the ―Cross Border Doctrine‖ of the VAT
system.

This Circular shall serve as a sufficient basis to entitle such

supplier of goods, property or services to the benefit of the zero
percent (0%) VAT for sales made to the aforementioned
ECOZONE enterprises and shall serve as sufficient compliance to
the requirement for prior approval of zero-rating imposed by
Revenue Regulations No. 7-95 effective as of the date of the
issuance of this Circular.
 Indubitably, no output VAT may be passed on to an ECOZONE enterprise
since it is a VAT-exempt entity. x x x.[58]

The Court, nevertheless, noted in the Toshiba case that the rule which considers any
sale by a supplier from the Customs Territory to a PEZA-registered enterprise as export sale,
which should not be burdened by output VAT, was only clearly established on October 15,
1999, upon the issuance by the BIR of RMC No. 74-99. Prior to October 15, 1999, whether a
PEZA-registered enterprise was exempt or subject to VAT depended on the type of fiscal
incentives availed of by the said enterprise.[59] The old rule, then followed by the BIR, and
recognized and affirmed by the CTA, the Court of Appeals, and this Court, was described as
follows –

According to the old rule, Section 23 of Rep. Act No. 7916, as amended,
gives the PEZA-registered enterprise the option to choose between two sets of
fiscal incentives: (a) The five percent (5%) preferential tax rate on its gross
income under Rep. Act No. 7916, as amended; and (b) the income tax holiday
provided under Executive Order No. 226, otherwise known as the Omnibus
Investment Code of 1987, as amended.

The five percent (5%) preferential tax rate on gross income under Rep.
Act No. 7916, as amended, is in lieu of all taxes. Except for real property taxes,
no other national or local tax may be imposed on a PEZA-registered enterprise
availing of this particular fiscal incentive, not even an indirect tax like VAT.

Alternatively, Book VI of Exec. Order No. 226, as amended, grants

income tax holiday to registered pioneer and non-pioneer enterprises for six-year
and four-year periods, respectively. Those availing of this incentive are exempt
only from income tax, but shall be subject to all other taxes, including the ten
percent (10%) VAT.

This old rule clearly did not take into consideration the Cross Border
Doctrine essential to the VAT system or the fiction of the ECOZONE as a foreign
territory. It relied totally on the choice of fiscal incentives of the PEZA-registered
enterprise. Again, for emphasis, the old VAT rule for PEZA-registered
enterprises was based on their choice of fiscal incentives: (1) If the PEZA-
registered enterprise chose the five percent (5%) preferential tax on its gross
income, in lieu of all taxes, as provided by Rep. Act No. 7916, as amended, then
it would be VAT-exempt; (2) If the PEZA-registered enterprise availed of the
income tax holiday under Exec. Order No. 226, as amended, it shall be subject to
VAT at ten percent (10%). Such distinction was abolished by RMC No. 74-99,
which categorically declared that all sales of goods, properties, and services
made by a VAT-registered supplier from the Customs Territory to an ECOZONE
enterprise shall be subject to VAT, at zero percent (0%) rate, regardless of the
latter’s type or class of PEZA registration; and, thus, affirming the nature of a
PEZA-registered or an ECOZONE enterprise as a VAT-exempt entity.[60]
 To recall, Toshiba is herein claiming the refund of unutilized input VAT payments on its
local purchases of goods and services attributable to its export sales for the first and second
quarters of 1997. Such export sales took place before October 15, 1999, when the old rule on
the VAT treatment of PEZA-registered enterprises still applied. Under this old rule, it was not
only possible, but even acceptable, for Toshiba, availing itself of the income tax holiday option
under Section 23 of Republic Act No. 7916, in relation to Section 39 of the Omnibus
Investments Code of 1987, to be subject to VAT, both indirectly (as purchaser to whom the
seller shifts the VAT burden) and directly (as seller whose sales were subject to VAT, either at
ten percent [10%] or zero percent [0%]).

A VAT-registered seller of goods and/or services who made zero-rated sales can claim
tax credit or refund of the input VAT paid on its purchases of goods, properties, or services
relative to such zero-rated sales, in accordance with Section 4.102-2 of Revenue Regulations
No. 7-95, which provides –

Sec. 4.102-2. Zero-rating. – (a) In general. - A zero-rated sale by a VAT-

registered person, which is a taxable transaction for VAT purposes, shall not
result in any output tax. However, the input tax on his purchases of goods,
properties or services related to such zero-rated sale shall be available as tax
credit or refund in accordance with these regulations.

The BIR, as late as July 15, 2003, when it issued RMC No. 42-2003, accepted
applications for credit/refund of input VAT on purchases prior to RMC No. 74-99, filed by PEZA-
registered enterprises which availed themselves of the income tax holiday. The BIR answered
Question Q-5(1) of RMC No. 42-2003 in this wise –

Q-5: Under Revenue Memorandum Circular (RMC) No. 74-99, purchases by

PEZA-registered firms automatically qualify as zero-rated without seeking
prior approval from the BIR effective October 1999.
1) Will the OSS-DOF Center still accept applications from PEZA-
registered claimants who were allegedly billed VAT by their suppliers
before and during the effectivity of the RMC by issuing VAT
invoices/receipts?

xxxx

A-5(1): If the PEZA-registered enterprise is paying the 5% preferential tax in lieu

of all other taxes, the said PEZA-registered taxpayer cannot claim TCC or
refund for the VAT paid on purchases. However, if the taxpayer is
availing of the income tax holiday, it can claim VAT credit provided:
 a. The taxpayer-claimant is VAT-registered;

b. Purchases are evidenced by VAT invoices or receipts,

whichever is applicable, with shifted VAT to the purchaser prior to
the implementation of RMC No. 74-99; and

c. The supplier issues a sworn statement under penalties of

perjury that it shifted the VAT and declared the sales to the PEZA-
registered purchaser as taxable sales in its VAT returns.

For invoices/receipts issued upon the effectivity of RMC No. 74-99, the claims for
input VAT by PEZA-registered companies, regardless of the type or class of
PEZA-registration, should be denied. (Emphases ours.)

Consequently, the CIR cannot herein insist that all PEZA-registered enterprises are
VAT-exempt in every instance. RMC No. 42-2003 contains an express acknowledgement by
the BIR that prior to RMC No. 74-99, there were PEZA-registered enterprises liable for VAT and
entitled to credit/refund of input VAT paid under certain conditions.

This Court already rejected in the Toshiba case the argument that sale transactions of a
PEZA-registered enterprise were VAT-exempt under Section 103(q) of the Tax Code of 1977,
as amended, ratiocinating that –

Section 103(q) of the Tax Code of 1977, as amended, relied upon by

petitioner CIR, relates to VAT-exempt transactions. These are transactions
exempted from VAT by special laws or international agreements to which the
Philippines is a signatory. Since such transactions are not subject to VAT, the
sellers cannot pass on any output VAT to the purchasers of goods, properties, or
services, and they may not claim tax credit/refund of the input VAT they had paid
thereon.

Section 103(q) of the Tax Code of 1977, as amended, cannot apply to

transactions of respondent Toshiba because although the said section
recognizes that transactions covered by special laws may be exempt from VAT,
the very same section provides that those falling under Presidential Decree No.
66 are not. Presidential Decree No. 66, creating the Export Processing Zone
Authority (EPZA), is the precursor of Rep. Act No. 7916, as amended, under
which the EPZA evolved into the PEZA. Consequently, the exception of
Presidential Decree No. 66 from Section 103(q) of the Tax Code of 1977, as
amended, extends likewise to Rep. Act No. 7916, as amended.[61] (Emphasis
ours.)

In light of the judicial admissions of Toshiba,

the CTA correctly confined itself to the other
factual issues submitted for resolution by the
parties.

In accord with the admitted facts – that Toshiba was a VAT-registered entity and that its
export sales were zero-rated transactions – the stated issues in the Joint Stipulation were
limited to other factual matters, particularly, on the compliance by Toshiba with the rest of the
requirements for credit/refund of input VAT on zero-rated transactions. Thus, during trial,
Toshiba concentrated on presenting evidence to establish that it incurred P3,875,139.65 of input
VAT for the first and second quarters of 1997 which were directly attributable to its export sales;
that said amount of input VAT were not carried over to the succeeding quarters; that said
amount of input VAT has not been applied or offset against any output VAT liability; and that
said amount of input VAT was properly substantiated by official receipts and invoices.

After what truly appears to be an exhaustive review of the evidence presented by

Toshiba, the CTA made the following findings –

(1) The amended quarterly VAT returns of Toshiba for 1997 showed that it made no
other sales, except zero-rated export sales, for the entire year, in the sum of P2,083,305,000.00
for the first quarter and P5,411,372,000.00 for the second quarter. That being the case, all input
VAT allegedly incurred by Toshiba for the first two quarters of 1997, in the amount
of P3,875,139.65, was directly attributable to its zero-rated sales for the same period.

(2) Toshiba did carry-over the P3,875,139.65 input VAT it reportedly incurred during the
first two quarters of 1997 to succeeding quarters, until the first quarter of 1999. Despite the
carry-over of the subject input VAT of P3,875,139.65, the claim of Toshiba was not affected
because it later on deducted the said amount as ―VAT Refund/TCC Claimed‖ from its total
available input VAT of P6,841,468.17 for the first quarter of 1999.

(3) Still, the CTA could not allow the credit/refund of the total input VAT
of P3,875,139.65 being claimed by Toshiba because not all of said amount was actually
incurred by the company and duly substantiated by invoices and official receipts. From
the P3,875,139.65 claim, the CTA deducted the amounts of (a) P189,692.92, which was in
excess of the P3,685,446.23 input VAT Toshiba originally claimed in its application for
credit/refund filed with the DOF One-Stop Shop; (b) P396,882.58, which SGV & Co., the
commissioned CPA, disallowed for being improperly substantiated, i.e., supported only by
provisional acknowledgement receipts, or by documents other than official receipts, or not
supported by TIN or TIN VAT or by any document at all; (c) P1,887,545.65, which the CTA itself
verified as not being substantiated in accordance with Section 4.104-5[62]of Revenue
Regulations No. 7-95, in relation to Sections 108[63] and 238[64] of the Tax Code of 1977, as
amended; and (d) P15,736.42, which Toshiba already applied to its output VAT liability for the
fourth quarter of 1998.

(4) Ultimately, Toshiba was entitled to the credit/refund of unutilized input VAT
payments attributable to its zero-rated sales in the amounts of P1,158,016.82 andP227,265.26,
for the first and second quarters of 1997, respectively, or in the total amount
of P1,385,282.08.

Since the aforementioned findings of fact of the CTA are borne by substantial evidence
on record, unrefuted by the CIR, and untouched by the Court of Appeals, they are given utmost
respect by this Court.

The Court will not lightly set aside the conclusions reached by the CTA which, by the
very nature of its functions, is dedicated exclusively to the resolution of tax problems and has
accordingly developed an expertise on the subject unless there has been an abuse or
improvident exercise of authority.[65] In Barcelon, Roxas Securities, Inc. (now known as UBP
Securities, Inc.) v. Commissioner of Internal Revenue,[66] this Court more explicitly pronounced –

Jurisprudence has consistently shown that this Court accords the findings
of fact by the CTA with the highest respect. In Sea-Land Service Inc. v. Court of
Appeals [G.R. No. 122605, 30 April 2001, 357 SCRA 441, 445-446], this Court
recognizes that the Court of Tax Appeals, which by the very nature of its function
is dedicated exclusively to the consideration of tax problems, has necessarily
developed an expertise on the subject, and its conclusions will not be overturned
unless there has been an abuse or improvident exercise of authority. Such
findings can only be disturbed on appeal if they are not supported by substantial
evidence or there is a showing of gross error or abuse on the part of the Tax
Court. In the absence of any clear and convincing proof to the contrary, this
Court must presume that the CTA rendered a decision which is valid in every
respect.

WHEREFORE, the assailed Decision dated August 29, 2002 and the Resolution dated
February 19, 2003 of the Court of Appeals in CA-G.R. SP No. 63047 are REVERSED and SET
ASIDE, and the Decision dated October 16, 2000 of the Court of Tax Appeals in CTA Case No.
5762 is REINSTATED. Respondent Commissioner of Internal Revenue
is ORDERED to REFUND or, in the alternative, to ISSUE a TAX CREDIT CERTIFICATE in
favor of petitioner Toshiba Information Equipment (Phils.), Inc. in the amount of P1,385,282.08,
representing the latter’s unutilized input VAT payments for the first and second quarters of
1997. No pronouncement as to costs.

SO ORDERED.

G.R. No. 191498 January 15, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
MINDANAO II GEOTHERMAL PARTNERSHIP, Respondent.

DECISION

SERENO, CJ:

This Rule 45 Petition1 requires this Court to address the question of timeliness with respect to
petitioner's administrative and judicial claims for refund and credit of accumulated unutilized
input Value Added Tax (VAT) under Section 112(A) and Section 112(D) of the 1997 Tax Code.
Petitioner Mindanao II Geothermal Partnership (Mindanao II) assails the Decision2 and
Resolution3 of the Court of Tax Appeals En Banc (CTA En Banc) in CTA En Banc Case No.
448, affirming the Decision in CTA Case No. 7507 of the CTA Second Division.4 The latter
ordered the refund or issuance of a tax credit certificate in the amount of P6,791,845.24
representing unutilized input VAT incurred for the second, third, and fourth quarters of taxable
year 2004 in favor of herein respondent, Mindanao II.

FACTS

Mindanao II is a partnership registered with the Securities and Exchange Commission.5 It is

engaged in the business of power generation and sale of electricity to the National Power
Corporation (NAPOCOR)6 and is accredited by the Department of Energy.7

Mindanao II filed its Quarterly VAT Returns for the second, third and fourth quarters of taxable
year 2004 on the following dates:8

Date filed
Quarter Taxable Year
Original Amended
26 July 2004 12 July 2005 2nd 2004
22 October 2004 12 July 2005 3rd 2004
25 January 2005 12 July 2005 4th 2004

On 6 October 2005, Mindanao II filed with the Bureau of Internal Revenue (BIR) an application
for the refund or credit of accumulated unutilized creditable input taxes.9 In support of the
administrative claim for refund or credit, Mindanao II alleged, among others, that it is registered
with the BIR as a value-added taxpayer10 and all its sales are zero-rated under the EPIRA
law.11 It further stated that for the second, third, and fourth quarters of taxable year 2004, it paid
input VAT in the aggregate amount of P7,167,005.84, which were directly attributable to the
zero-rated sales. The input taxes had not been applied against output tax.

Pursuant to Section 112(D) of the 1997 Tax Code, the Commissioner of Internal Revenue (CIR)
had a period of 120 days, or until 3 February 2006, to act on the claim. The administrative claim,
however, remained unresolved on 3 February 2006.

Under the same provision, Mindanao II could treat the inaction of the CIR as a denial of its
claim, in which case, the former would have 30 days to file an appeal to the CTA, that is, on 5
March 2006. Mindanao II, however, did not file an appeal within the 30-day period.

Apparently, Mindanao II believed that a judicial claim must be filed within the two-year
prescriptive period provided under Section 112(A) and that such time frame was to be reckoned
from the filing of its Quarterly VAT Returns for the second, third, and fourth quarters of taxable
year 2004, that is, from 26 July 2004, 22 October 2004, and 25 January 2005, respectively.
Thus, on 21 July 2006, Mindanao II, claiming inaction on the part of the CIR and that the two-
year prescriptive period was about to expire, filed a Petition for Review with the CTA docketed
as CTA Case No. 6133.12

On 8 June 2007, while the application for refund or credit of unutilized input VAT of Mindanao II
was pending before the CTA Second Division, this Court promulgated Atlas Consolidated
Mining and Development Corporation v. CIR13 (Atlas). Atlas held that the two-year prescriptive
period for the filing of a claim for an input VAT refund or credit is to be reckoned from the date of
filing of the corresponding quarterly VAT return and payment of the tax.

On 12 August 2008, the CTA Second Division rendered a Decision14 ordering the CIR to grant a
refund or a tax credit certificate, but only in the reduced amount of P6,791,845.24, representing
unutilized input VAT incurred for the second, third and fourth quarters of taxable year 2004.15

In support of its ruling, the CTA Second Division held that Mindanao II complied with the twin
requisites for VAT zero-rating under the EPIRA law: first, it is a generation company, and
second, it derived sales from power generation. It also ruled that Mindanao II satisfied the
requirements for the grant of a refund/credit under Section 112 of the Tax Code: (1) there must
be zero-rated or effectively zero-rated sales; (2) input taxes must have been incurred or paid;
(3) the creditable input tax due or paid must be attributable to zero-rated sales or effectively
zero-rated sales; (4) the input VAT payments must not have been applied against any output
liability; and (5) the claim must be filed within the two-year prescriptive period.16

As to the second requisite, however, the input tax claim to the extent of P375,160.60
corresponding to purchases of services from Mitsubishi Corporation was disallowed, since it
was not substantiated by official receipts.17

As regards to the fifth requirement in section 112 of the Tax Code, the tax court, citing Atlas,
counted from 26 July 2004, 22 October 2004, and 25 January 2005 – the dates when Mindanao
II filed its Quarterly VAT Returns for the second, third, and fourth quarters of taxable year 2004,
respectively – and determined that both the administrative claim filed on 6 October 2005 and the
judicial claim filed on 21 July 2006 fell within the two-year prescriptive period.18
On 1 September 2008, the CIR filed a Motion for Partial Reconsideration,19 pointing out that
prescription had already set in, since the appeal to the CTA was filed only on 21 July 2006,
which was way beyond the last day to appeal – 5 March 2006.20 As legal basis for this
argument, the CIR relied on Section 112(D) of the 1997 Tax Code.21

Meanwhile, on 12 September 2008, this Court promulgated CIR v. Mirant Pagbilao Corporation
(Mirant).22 Mirant fixed the reckoning date of the two-year prescriptive period for the application
for refund or credit of unutilized input VAT at the close of the taxable quarter when the relevant
sales were made , as stated in Section 112(A).23

On 3 December 2008, the CTA Second Division denied the CIR’s Motion for Partial
Reconsideration.24 The tax court stood by its reliance on Atlas25 and on its finding that both the
administrative and judicial claims of Mindanao II were timely filed.26

On 7 January 2009, the CIR elevated the matter to the CTA En Banc via a Petition for
Review.27 Apart from the contention that the judicial claim of Mindanao II was filed beyond the
30-day period fixed by Section 112(D) of the 1997 Tax Code,28 the CIR argued that Mindanao II
erroneously fixed 26 July 2004, the date when the return for the second quarter was filed, as the
date from which to reckon the two-year prescriptive period for filing an application for refund or
credit of unutilized input VAT under Section 112(A). As the two-year prescriptive period ended
on 30 June 2006, the Petition for Review of Mindanao II was filed out of time on 21 July
2006.29 The CIR invoked the recently promulgated Mirant to support this theory.

On 11 November 2009, the CTA En Banc rendered its Decision denying the CIR’s Petition for
Review.30 On the question whether the application for refund was timely filed, it held that the
CTA Second Division correctly applied the Atlas ruling.31 It reasoned that Atlas remained to be
the controlling doctrine. Mirant was a new doctrine and, as such, the latter should not apply
retroactively to Mindanao II who had relied on the old doctrine of Atlas and had acted on the
faith thereof.32

As to the issue of compliance with the 30-day period for appeal to the CTA, the CTA En Banc
held that this was a requirement only when the CIR actually denies the taxpayer’s claim. But in
cases of CIR inaction, the 30-day period is not a mandatory requirement; the judicial claim is
seasonably filed as long as it is filed after the lapse of the 120-day waiting period but within two
years from the date of filing of the return.33

The CIR filed a Motion for Partial Reconsideration34 of the Decision, but it was denied for lack of
merit.35

Dissatisfied, the CIR filed this Rule 45 Petition, raising the following arguments in support of its
appeal:

I.

THE CTA 2ND DIVISION LACKED JURISDICTION TO TAKE COGNIZANCE OF THE CASE.

II.

THE COURT A QUO’S RELIANCE ON THE RULING IN ATLAS IS MISPLACED.36

 ISSUES

The resolution of this case hinges on the question of compliance with the following time
requirements for the grant of a claim for refund or credit of unutilized input VAT: (1) the two-year
prescriptive period for filing an application for refund or credit of unutilized input VAT; and (2) the
120+30 day period for filing an appeal with the CTA.

THE COURT’S RULING

We deny Mindanao II’s claim for refund or credit of unutilized input VAT on the ground that its
judicial claims were filed out of time, even as we hold that its application for refund was filed on
time.

I.

MINDANAO II’S APPLICATION FOR

REFUND WAS FILED ON TIME

We find no error in the conclusion of the tax courts that the application for refund or credit of
unutilized input VAT was timely filed. The problem lies with their bases for the conclusion as to:
(1) what should be filed within the prescriptive period; and (2) the date from which to reckon the
prescriptive period.

We thus take a different route to reach the same conclusion, initially focusing our discussion on
what should be filed within the two-year prescriptive period.

A. The Judicial Claim Need Not Be Filed Within the Two-Year Prescriptive Period

Section 112(A) provides:

SEC. 112. Refunds or Tax Credits of Input Tax. —

(A) Zero-rated or Effectively Zero-rated Sales — Any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales, except transitional input tax, to the
extent that such input tax has not been applied against output tax: Provided, however, That in
the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108(B)(1)
and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted
for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP):
Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated
sale and also in taxable or exempt sale of goods or properties or services, and the amount of
creditable input tax due or paid cannot be directly and entirely attributed to any one of the
transactions, it shall be allocated proportionately on the basis of the volume of sales.

Both the CTA Second Division and CTA En Banc decisions held that the phrase "apply for the
issuance of a tax credit certificate or refund" in Section 112(A) is construed to refer to both the
administrative claim filed with the CIR and the judicial claim filed with the CTA. This view,
however, has no legal basis.
In Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (Aichi), we
dispelled the misconception that both the administrative and judicial claims must be filed within
the two-year prescriptive period:37

There is nothing in Section 112 of the NIRC to support respondent’s view. Subsection (A) of the
said provision states that "any VAT-registered person, whose sales are zero-rated or effectively
zero-rated may, within two years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or
paid attributable to such sales." The phrase "within two (2) years x x x apply for the issuance of
a tax credit certificate or refund" refers to applications for refund/credit filed with the CIR and not
to appeals made to the CTA. This is apparent in the first paragraph of subsection (D) of the
same provision, which states that the CIR has "120 days from the submission of complete
documents in support of the application filed in accordance with Subsections (A) and (B)" within
which to decide on the claim.

In fact, applying the two-year period to judicial claims would render nugatory Section 112 (D) of
the NIRC, which already provides for a specific period within which a taxpayer should appeal
the decision or inaction of the CIR. The second paragraph of Section 112 (D) of the NIRC
envisions two scenarios: (1) when a decision is issued by the CIR before the lapse of the 120-
day period; and (2) when no decision is made after the 120-day period. In both instances, the
taxpayer has 30 days within which to file an appeal with the CTA. As we see it then, the 120-day
period is crucial in filing an appeal with the CTA. (Emphasis supplied)

The message of Aichi is clear: it is only the administrative claim that must be filed within the two-
year prescriptive period; the judicial claim need not fall within the two-year prescriptive period.

Having disposed of this question, we proceed to the date for reckoning the prescriptive period
under Section 112(A).

B. Reckoning Date is the Close of the Taxable Quarter When the Relevant Sales Were Made.

The other flaw in the reasoning of the tax courts is their reliance on the Atlas ruling, which fixed
the reckoning point to the date of filing the return and payment of the tax.

The CIR’s Stand

The CIR’s stand is that Atlas is not applicable to the case at hand as it involves Section 230 of
the 1977 Tax Code, which contemplates recovery of tax payments erroneously or illegally
collected. On the other hand, this case deals with claims for tax refund or credit of unutilized
input VAT for the second, third, and fourth quarters of 2004, which are covered by Section 112
of the 1977 Tax Code.38

The CIR further contends that Mindanao II cannot claim good faith reliance on the Atlas doctrine
since the case was decided only on 8 June 2007, two years after Mindanao II filed its claim for
refund or credit with the CIR and one year after it filed a Petition for Review with the CTA on 21
July 2006.39

In lieu of Atlas, the CIR proposes that it is the Court's ruling in Mirant that should apply to this
case despite the fact that the latter was promulgated on 12 September 2008, after Mindanao II
had filed its administrative claim in 2005.40 It argues that Mirant can be applied retroactively to
this case, since the decision merely interprets Section 112, a provision that was already
effective when Mindanao II filed its claims for tax refund or credit.

The Taxpayer’s Defense

On the other hand, Mindanao II counters that Atlas, decided by the Third Division of this Court,
could not have been superseded by Mirant, a Second Division Decision of this Court. A doctrine
laid down by the Supreme Court in a Division may be modified or reversed only through a
decision of the Court sitting en banc.41

Mindanao II further contends that when it filed its Petition for Review, the prevailing rule in the
CTA reckons the two-year prescriptive period from the date of the filing of the VAT
return.42 Finally, after building its case on Atlas, Mindanao II assails the CIR’s reliance on the
Mirant doctrine stating that it cannot be applied retroactively to this case, lest it violate the rock-
solid rule that a judicial ruling cannot be given retroactive effect if it will impair vested rights. 43

Section 112(A) is the Applicable Rule

The issue posed is not novel. In the recent case of Commissioner of Internal Revenue v. San
Roque Power Corporation44 (San Roque), this Court resolved the threshold question of when to
reckon the two-year prescriptive period for filing an administrative claim for refund or credit of
unutilized input VAT under the 1997 Tax Code in view of our pronouncements in Atlas and
Mirant. In that case, we delineated the scope and effectivity of the Atlas and Mirant doctrines as
follows:

The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the
two-year prescriptive period under Section 229, should be effective only from its promulgation
on 8 June 2007 until its abandonment on 12 September 2008 in Mirant. The Atlas doctrine was
limited to the reckoning of the two-year prescriptive period from the date of payment of the
output VAT. Prior to the Atlas doctrine, the two-year prescriptive period for claiming refund or
credit of input VAT should be governed by Section 112(A) following the verba legis rule. The
Mirant ruling, which abandoned the Atlas doctrine, adopted the verba legis rule, thus applying
Section 112(A) in computing the two-year prescriptive period in claiming refund or credit of input
VAT. (Emphases supplied)

Furthermore, San Roque distinguished between Section 112 and Section 229 of the 1997 Tax
Code:

The input VAT is not "excessively" collected as understood under Section 229 because at the
time the input VAT is collected the amount paid is correct and proper. The input VAT is a tax
liability of, and legally paid by, a VAT-registered seller of goods, properties or services used as
input by another VAT-registered person in the sale of his own goods, properties, or services.
This tax liability is true even if the seller passes on the input VAT to the buyer as part of the
purchase price. The second VAT-registered person, who is not legally liable for the input VAT, is
the one who applies the input VAT as credit for his own output VAT. If the input VAT is in fact
"excessively" collected as understood under Section 229, then it is the first VAT-registered
person — the taxpayer who is legally liable and who is deemed to have legally paid for the input
VAT — who can ask for a tax refund or credit under Section 229 as an ordinary refund or credit
outside of the VAT System. In such event, the second VAT-registered taxpayer will have no
input VAT to offset against his own output VAT.
In a claim for refund or credit of "excess" input VAT under Section 110(B) and Section 112(A),
the input VAT is not "excessively" collected as understood under Section 229. At the time of
payment of the input VAT the amount paid is the correct and proper amount. Under the VAT
System, there is no claim or issue that the input VAT is "excessively" collected, that is, that the
input VAT paid is more than what is legally due. The person legally liable for the input VAT
cannot claim that he overpaid the input VAT by the mere existence of an "excess" input VAT.
The term "excess" input VAT simply means that the input VAT available as credit exceeds the
output VAT, not that the input VAT is excessively collected because it is more than what is
legally due. Thus, the taxpayer who legally paid the input VAT cannot claim for refund or credit
of the input VAT as "excessively" collected under Section 229.

Under Section 229, the prescriptive period for filing a judicial claim for refund is two years from
the date of payment of the tax "erroneously, . . . illegally, . . . excessively or in any manner
wrongfully collected." The prescriptive period is reckoned from the date the person liable for the
tax pays the tax. Thus, if the input VAT is in fact "excessively" collected, that is, the person
liable for the tax actually pays more than what is legally due, the taxpayer must file a judicial
claim for refund within two years from his date of payment. Only the person legally liable to pay
the tax can file the judicial claim for refund. The person to whom the tax is passed on as part of
the purchase price has no personality to file the judicial claim under Section 229.

Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for
"excess" input VAT is two years from the close of the taxable quarter when the sale was made
by the person legally liable to pay the output VAT. This prescriptive period has no relation to the
date of payment of the "excess" input VAT. The "excess" input VAT may have been paid for
more than two years but this does not bar the filing of a judicial claim for "excess" VAT under
Section 112(A), which has a different reckoning period from Section 229. Moreover, the person
claiming the refund or credit of the input VAT is not the person who legally paid the input VAT.
Such person seeking the VAT refund or credit does not claim that the input VAT was
"excessively" collected from him, or that he paid an input VAT that is more than what is legally
due. He is not the taxpayer who legally paid the input VAT.

As its name implies, the Value-Added Tax system is a tax on the value added by the taxpayer in
the chain of transactions. For simplicity and efficiency in tax collection, the VAT is imposed not
just on the value added by the taxpayer, but on the entire selling price of his goods, properties
or services. However, the taxpayer is allowed a refund or credit on the VAT previously paid by
those who sold him the inputs for his goods, properties, or services. The net effect is that the
taxpayer pays the VAT only on the value that he adds to the goods, properties, or services that
he actually sells.

Under Section 110(B), a taxpayer can apply his input VAT only against his output VAT. The only
exception is when the taxpayer is expressly "zero-rated or effectively zero-rated" under the law,
like companies generating power through renewable sources of energy. Thus, a non zero-rated
VAT-registered taxpayer who has no output VAT because he has no sales cannot claim a tax
refund or credit of his unused input VAT under the VAT System. Even if the taxpayer has sales
but his input VAT exceeds his output VAT, he cannot seek a tax refund or credit of his "excess"
input VAT under the VAT System. He can only carry-over and apply his "excess" input VAT
against his future output VAT. If such "excess" input VAT is an "excessively" collected tax, the
taxpayer should be able to seek a refund or credit for such "excess" input VAT whether or not
he has output VAT. The VAT System does not allow such refund or credit. Such "excess" input
VAT is not an "excessively" collected tax under Section 229. The "excess" input VAT is a
correctly and properly collected tax. However, such "excess" input VAT can be applied against
the output VAT because the VAT is a tax imposed only on the value added by the taxpayer. If
the input VAT is in fact "excessively" collected under Section 229, then it is the person legally
liable to pay the input VAT, not the person to whom the tax was passed on as part of the
purchase price and claiming credit for the input VAT under the VAT System, who can file the
judicial claim under Section 229.

Any suggestion that the "excess" input VAT under the VAT System is an "excessively" collected
tax under Section 229 may lead taxpayers to file a claim for refund or credit for such "excess"
input VAT under Section 229 as an ordinary tax refund or credit outside of the VAT System.
Under Section 229, mere payment of a tax beyond what is legally due can be claimed as a
refund or credit. There is no requirement under Section 229 for an output VAT or subsequent
sale of goods, properties, or services using materials subject to input VAT.

From the plain text of Section 229, it is clear that what can be refunded or credited is a tax that
is "erroneously . . . illegally, . . . excessively or in any manner wrongfully collected." In short,
there must be a wrongful payment because what is paid, or part of it, is not legally due. As the
Court held in Mirant, Section 229 should "apply only to instances of erroneous payment or
illegal collection of internal revenue taxes." Erroneous or wrongful payment includes excessive
payment because they all refer to payment of taxes not legally due. Under the VAT System,
there is no claim or issue that the "excess" input VAT is "excessively or in any manner
wrongfully collected." In fact, if the "excess" input VAT is an "excessively" collected tax under
Section 229, then the taxpayer claiming to apply such "excessively" collected input VAT to offset
his output VAT may have no legal basis to make such offsetting. The person legally liable to pay
the input VAT can claim a refund or credit for such "excessively" collected tax, and thus there
will no longer be any "excess" input VAT. This will upend the present VAT System as we know
it.45

Two things are clear from the above quoted San Roque disquisitions. First, when it comes to
recovery of unutilized input VAT, Section 112, and not Section 229 of the 1997 Tax Code, is the
governing law. Second, prior to 8 June 2007, the applicable rule is neither Atlas nor Mirant, but
Section 112(A).

We present the rules laid down by San Roque in determining the proper reckoning date of the
two-year prescriptive period through the following timeline:

Thus, the task at hand is to determine the applicable period for this case.

In this case, Mindanao II filed its administrative claims for refund or credit for the second, third
and fourth quarters of 2004 on 6 October 2005. The case thus falls within the first period as
indicated in the above timeline. In other words, it is covered by the rule prior to the advent of
either Atlas or Mirant.
Accordingly, the proper reckoning date in this case, as provided by Section 112(A) of the 1997
Tax Code, is the close of the taxable quarter when the relevant sales were made.

C. The Administrative Claims Were Timely Filed

We sum up our conclusions so far: (1) it is only the administrative claim that must be filed within
the two-year prescriptive period; and (2) the two-year prescriptive period begins to run from the
close of the taxable quarter when the relevant sales were made.

Bearing these in mind, we now proceed to determine whether Mindanao II's administrative
claims for the second, third, and fourth quarters of 2004 were timely filed.

Second Quarter

Since the zero-rated sales were made in the second quarter of 2004, the date of reckoning the
two-year prescriptive period is the close of the second quarter, which is on 30 June 2004.
Applying Section 112(A), Mindanao II had two years from 30 June 2004, or until 30 June 2006
to file an administrative claim with the CIR. Mindanao II filed its administrative claim on 6
October 2005, which is within the two-year prescriptive period. The administrative claim for the
second quarter of 2004 was thus timely filed. For clarity, we present the rules laid down by San
Roque in determining the proper reckoning date of the two-year prescriptive period through the
following timeline:

Third Quarter

As regards the claim for the third quarter of 2004, the two-year prescriptive period started to run
on 30 September 2004, the close of the taxable quarter. It ended on 30 September 2006,
pursuant to Section 112(A) of the 1997 Tax Code. Mindanao II filed its administrative claim on 6
October 2005. Thus, since the administrative claim was filed well within the two-year
prescriptive period, the administrative claim for the third quarter of 2004 was timely filed. (See
timeline below)
Fourth Quarter

Here, the two-year prescriptive period is counted starting from the close of the fourth quarter
which is on 31 December 2004. The last day of the prescriptive period for filing an application
for tax refund/credit with the CIR was on 31 December 2006. Mindanao II filed its administrative
claim with the CIR on 6 October 2005. Hence, the claims were filed on time, pursuant to Section
112(A) of the 1997 Tax Code. (See timeline below)

II.

MINDANAO II’S JUDICIAL CLAIMS WERE FILED OUT OF TIME

Notwithstanding the timely filing of the administrative claims, we find that the CTA En Banc
erred in holding that Mindanao II’s judicial claims were timely filed.

A. 30-Day Period Also Applies to Appeals from Inaction

Section 112(D) of the 1997 Tax Code states the time requirements for filing a judicial claim for
refund or tax credit of input VAT:

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. — In proper cases,
the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes
within one hundred twenty (120) days from the date of submission of complete documents in
support of the application filed in accordance with Subsection (A) and (B) hereof. In case of full
or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer
affected may, within thirty (30) days from the receipt of the decision denying the claim or after
the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim
with the Court of Tax Appeals. (Emphases supplied)

Section 112(D) speaks of two periods: the period of 120 days, which serves as a waiting period
to give time for the CIR to act on the administrative claim for refund or credit, and the period of
30 days, which refers to the period for interposing an appeal with the CTA. It is with the 30-day
period that there is an issue in this case.

The CTA En Banc’s holding is that, since the word "or" – a disjunctive term that signifies
dissociation and independence of one thing from another – is used in Section 112(D), the
taxpayer is given two options: 1) file an appeal within 30 days from the CIR’s denial of the
administrative claim; or 2) file an appeal with the CTA after expiration of the 120-day period, in
which case the 30-day appeal period does not apply. The judicial claim is seasonably filed so
long as it is filed after the lapse of the 120-day waiting period but before the lapse of the two-
year prescriptive period under Section 112(A).46
We do not agree.

The 30-day period applies not only to instances of actual denial by the CIR of the claim for
refund or tax credit, but to cases of inaction by the CIR as well. This is the correct interpretation
of the law, as held in San Roque:47

Section 112(C)48 also expressly grants the taxpayer a 30-day period to appeal to the CTA the
decision or inaction of the Commissioner, thus:

x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision denying
the claim or after the expiration of the one hundred twenty day-period, appeal the decision or
the unacted claim with the Court of Tax Appeals.

This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law
should be applied exactly as worded since it is clear, plain, and unequivocal. As this law states,
the taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30
days from receipt of the Commissioner's decision, or if the Commissioner does not act on the
taxpayer's claim within the 120-day period, the taxpayer may appeal to the CTA within 30 days
from the expiration of the 120-day period. (Emphasis supplied)

The San Roque pronouncement is clear. The taxpayer can file the appeal in one of two ways:
(1) file the judicial claim within thirty days after the Commissioner denies the claim within the
120-day period, or (2) file the judicial claim within thirty days from the expiration of the 120-day
period if the Commissioner does not act within the 120-day period.

B. The Judicial Claim Was Belatedly Filed

In this case, the facts are not up for debate. Mindanao II filed its administrative claim for refund
or credit for the second, third, and fourth quarters of 2004 on 6 October 2005. The CIR,
therefore, had a period of 120 days, or until 3 February 2006, to act on the claim. The CIR,
however, failed to do so. Mindanao II then could treat the inaction as a denial and appeal it to
the CTA within 30 days from 3 February 2006, or until 5 March 2006.

Mindanao II, however, filed a Petition for Review only on 21 July 2006, 138 days after the lapse
of the 30-day period on 5 March 2006. The judicial claim was therefore filed late. (See timeline
below.)

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

However, what is up for debate is the nature of the 30-day time requirement. The CIR posits
that it is mandatory. Mindanao II contends that the requirement of judicial recourse within 30
days is only directory and permissive, as indicated by the use of the word "may" in Section
112(D).49

The answer is found in San Roque. There, we declared that the 30-day period to appeal is both
mandatory and jurisdictional:

Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the
decision or inaction of the Commissioner, thus:

x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision denying
the claim or after the expiration of the one hundred twenty day-period, appeal the decision or
the unacted claim with the Court of Tax Appeals. (Emphasis supplied)

This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law
should be applied exactly as worded since it is clear, plain, and unequivocal. As this law states,
the taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30
days from receipt of the Commissioner's decision, or if the Commissioner does not act on the
taxpayer's claim within the 120-day period, the taxpayer may appeal to the CTA within 30 days
from the expiration of the 120-day period.

xxxx

Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal
language. The taxpayer can file his administrative claim for refund or credit at anytime within the
two-year prescriptive period. If he files his claim on the last day of the two-year prescriptive
period, his claim is still filed on time. The Commissioner will have 120 days from such filing to
decide the claim. If the Commissioner decides the claim on the 120th day, or does not decide it
on that day, the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only
the plain meaning but also the only logical interpretation of Section 112(A) and (C).

xxxx

When Section 112(C) states that "the taxpayer affected may, within thirty (30) days from receipt
of the decision denying the claim or after the expiration of the one hundred twenty-day period,
appeal the decision or the unacted claim with the Court of Tax Appeals," the law does not make
the 120+30 day periods optional just because the law uses the word " may." The word "may"
simply means that the taxpayer may or may not appeal the decision of the Commissioner within
30 days from receipt of the decision, or within 30 days from the expiration of the 120-day period.
x x x.50

D. Exception to the mandatory and jurisdictional nature of the 120+30 day period not applicable

Nevertheless, San Roque provides an exception to the mandatory and jurisdictional nature of
the 120+30 day period ─ BIR Ruling No. DA-489-03 dated 10 December 2003. The BIR ruling
declares that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it
could seek judicial relief with the CTA by way of Petition for Review."

Although Mindanao II has not invoked the BIR ruling, we deem it prudent as well as necessary
to dwell on this issue to determine whether this case falls under the exception.
For this question, we come back to San Roque, which provides that BIR Ruling No. DA-489-03
is a general interpretative rule; thus, taxpayers can rely on it from the time of its issuance on 10
December 2003 until its reversal by this Court in Aichi on 6 October 2010, when the 120+30 day
periods were held to be mandatory and jurisdictional. The Court reasoned as follows:

Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner,

particularly on a difficult question of law. The abandonment of the Atlas doctrine by Mirant and
Aichi is proof that the reckoning of the prescriptive periods for input VAT tax refund or credit is a
difficult question of law. The abandonment of the Atlas doctrine did not result in Atlas, or other
taxpayers similarly situated, being made to return the tax refund or credit they received or could
have received under Atlas prior to its abandonment. This Court is applying Mirant and Aichi
prospectively. Absent fraud, bad faith or misrepresentation, the reversal by this Court of a
general interpretative rule issued by the Commissioner, like the reversal of a specific BIR ruling
under Section 246, should also apply prospectively. x x x.

xxxx

Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule
applicable to all taxpayers or a specific ruling applicable only to a particular taxpayer.

BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query
made, not by a particular taxpayer, but by a government agency tasked with processing tax
refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center
of the Department of Finance . This government agency is also the addressee, or the entity
responded to, in BIR Ruling No. DA-489-03. Thus, while this government agency mentions in its
query to the Commissioner the administrative claim of Lazi Bay Resources Development, Inc.,
the agency was in fact asking the Commissioner what to do in cases like the tax claim of Lazi
Bay Resources Development, Inc., where the taxpayer did not wait for the lapse of the 120-day
period.

Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can rely
on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its
reversal by this Court in Aichi on 6 October 2010, where this Court held that the 120+30 day
periods are mandatory and jurisdictional.51

Thus, in San Roque, the Court applied this exception to Taganito Mining Corporation (Taganito),
one of the taxpayers in San Roque. Taganito filed its judicial claim on 14 February 2007, after
the BIR ruling took effect on 10 December 2003 and before the promulgation of Mirant. The
Court stated:

Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the issuance
of BIR Ruling No. DA-489-03 on 10 December 2003. Truly, Taganito can claim that in filing its
judicial claim prematurely without waiting for the 120-day period to expire, it was misled by BIR
Ruling No. DA-489-03. Thus, Taganito can claim the benefit of BIR Ruling No. DA-489-03,
which shields the filing of its judicial claim from the vice of prematurity.52

San Roque was also careful to point out that the BIR ruling does not retroactively apply to
premature judicial claims filed before the issuance of the BIR ruling:
However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four reasons: first, it
is admittedly an erroneous interpretation of the law; second, prior to its issuance, the BIR held
that the 120-day period was mandatory and jurisdictional, which is the correct interpretation of
the law; third, prior to its issuance, no taxpayer can claim that it was misled by the BIR into filing
a judicial claim prematurely; and fourth, a claim for tax refund or credit, like a claim for tax
exemption, is strictly construed against the taxpayer.53

Thus, San Roque held that taxpayer San Roque Power Corporation, could not seek refuge in
the BIR ruling as it jumped the gun when it filed its judicial claim on 10 April 2003, prior to the
issuance of the BIR ruling on 10 December 2003.1âwphi1 The Court stated:

San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its judicial
claim prematurely on 10 April 2003, before the issuance of BIR Ruling No. DA-489-03 on 10
December 2003. To repeat, San Roque cannot claim that it was misled by the BIR into filing its
judicial claim prematurely because BIR Ruling No. DA-489-03 was issued only after San Roque
filed its judicial claim. At the time San Roque filed its judicial claim, the law as applied and
administered by the BIR was that the Commissioner had 120 days to act on administrative
claims. This was in fact the position of the BIR prior to the issuance of BIR Ruling No. DA-489-
03. Indeed, San Roque never claimed the benefit of BIR Ruling No. DA-489-03 or RMC 49-03,
whether in this Court, the CTA, or before the Commissioner.54

San Roque likewise ruled out the application of the BIR ruling to cases of late filing. The Court
held that the BIR ruling, as an exception to the mandatory and jurisdictional nature of the
120+30 day periods, is limited to premature filing and does not extend to late filing of a judicial
claim. Thus, the Court found that since Philex Mining Corporation, the other party in the
consolidated case San Roque, filed its claim 426 days after the lapse of the 30-day period, it
could not avail itself of the benefit of the BIR ruling:

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 days after the lapse of
the 30-day period.55

We sum up the rules established by San Roque on the mandatory and jurisdictional nature of
the 30-day period to appeal through the following timeline:

Bearing in mind the foregoing rules for the timely filing of a judicial claim for refund or credit of
unutilized input VAT, we rule on the present case of Mindanao II as follows:
We find that Mindanao II’s situation is similar to that of Philex in San Roque.

As mentioned above, Mindanao II filed its judicial claim with the CTA on 21 July 2006. This was
after the issuance of BIR Ruling No. DA-489-03 on 10 December 2003, but before its reversal
on 5 October 2010. However, while the BIR ruling was in effect when Mindanao II filed its
judicial claim, the rule cannot be properly invoked. The BIR ruling, as discussed earlier,
contemplates premature filing. The situation of Mindanao II is one of late filing. To repeat, its
judicial claim was filed on 21 July 2006 – long after 5 March 2006, the last day of the 30-day
period for appeal. In fact, it filed its judicial claim 138 days after the lapse of the 30-day period.
(See timeline below)

E. Undersigned dissented in San Roque to the retroactive application of the mandatory and
jurisdictional nature of the 120+30 day period.

It is worthy to note that in San Roque, this ponente registered her dissent to the retroactive
application of the mandatory and jurisdictional nature of the 120+30 day period provided under
Section 112(D) of the Tax Code which, in her view, is unfair to taxpayers. It has been the view
of this ponente that the mandatory nature of 120+30 day period must be completely applied
prospectively or, at the earliest, only upon the finality of Aichi in order to create stability and
consistency in our tax laws. Nevertheless, this ponente is mindful of the fact that judicial
precedents cannot be ignored. Hence, the majority view expressed in San Roque must be
applied.

SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR CLAIMING REFUND OR CREDIT

OF INPUT VAT

The lessons of this case may be summed up as follows:

A. Two-Year Prescriptive Period

1. It is only the administrative claim that must be filed within the two-year prescriptive
period. (Aichi) 2. The proper reckoning date for the two-year prescriptive period is the
close of the taxable quarter when the relevant sales were made. (San Roque)

3. The only other rule is the Atlas ruling, which applied only from 8 June 2007 to 12
September 2008. Atlas states that the two-year prescriptive period for filing a claim for
tax refund or credit of unutilized input VAT payments should be counted from the date of
filing of the VAT return and payment of the tax. (San Roque)

B. 120+30 Day Period

 1. The taxpayer can file an appeal in one of two ways: (1) file the judicial claim within
thirty days after the Commissioner denies the claim within the 120-day period, or (2) file
the judicial claim within thirty days from the expiration of the 120-day period if the
Commissioner does not act within the 120-day period.

2. The 30-day period always applies, whether there is a denial or inaction on the part of
the CIR.

3. As a general rule, the 3 0-day period to appeal is both mandatory and jurisdictional.
(Aichi and San Roque)

4. As an exception to the general rule, premature filing is allowed only if filed between 10
December 2003 and 5 October 2010, when BIR Ruling No. DA-489-03 was still in force.
(San Roque)

5. Late filing is absolutely prohibited, even during the time when BIR Ruling No. DA-489-
03 was in force. (San Roque)

SUMMARY AND CONCLUSION

In sum, our finding is that the three administrative claims for the refund or credit of unutilized
input VAT were all timely filed, while the corresponding judicial claims were belatedly filed.

The foregoing considered, the CT A lost jurisdiction over Mindanao Il’s claims for refund or
credit.1âwphi1 The CTA EB erred in granting these claims.

WHEREFORE, we GRANT the Petition. The assailed Court of Tax Appeals En Banc Decision
dated 11 November 2009 and Resolution dated 3 March 2010 of the in CTA EB Case No. 448
(CTA Case No. 7507) are hereby REVERSED and SET ASIDE. A new ruling is entered
DENYING respondent s claim for a tax refund or credit of P6,791,845.24.

SO ORDERED.

MICROSOFT PHILIPPINES, INC., G.R. No. 180173

Petitioner,

Present:

CARPIO, J., Chairperson,

- versus - PERALTA,

ABAD,
 MENDOZA, and

SERENO,* JJ.

COMMISSIONER OF INTERNAL REVENUE, Promulgated:

Respondent.

April 6, 2011

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION

CARPIO, J.:

The Case

Before the Court is a petition1 for review on certiorari assailing the Decision2 dated 24 October
2007 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 258, which affirmed the
Decision3 dated 31 August 2006 and Resolution4 dated 8 January 2007 of the CTA Second
Division in CTA Case No. 6681.

The Facts
Petitioner Microsoft Philippines, Inc. (Microsoft) is a value-added tax (VAT) taxpayer duly
registered with the Bureau of Internal Revenue (BIR). Microsoft renders marketing services to
Microsoft Operations Pte Ltd. (MOP) and Microsoft Licensing, Inc. (MLI), both affiliated non-
resident foreign corporations. The services are paid for in acceptable foreign currency and
qualify as zero-rated sales for VAT purposes under Section 108(B)(2) of the National Internal
Revenue Code (NIRC) of 1997,5 as amended. Section 108(B)(2) states:

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties.

(B) Transactions Subject to Zero Percent (0%) Rate. The following services
performed in the Philippines by VAT-registered persons shall be subject to zero
percent (0%) rate:

(1) Processing, manufacturing or repacking goods for other persons doing

business outside the Philippines which goods are subsequently exported
x x x;

(2) Services other than those mentioned in the preceding paragraph, the
consideration for which is paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP); x x x

For the year 2001, Microsoft yielded total sales in the amount of P261,901,858.99. Of this
amount, P235,724,614.68 pertain to sales derived from services rendered to MOP and MLI
while P26,177,244.31 refer to sales to various local customers. Microsoft paid VAT input taxes
in the amount of P11,449,814.99 on its domestic purchases of taxable goods and services.

On 27 December 2002, Microsoft filed an administrative claim for tax credit of VAT input taxes
in the amount of P11,449,814.99 with the BIR. The administrative claim for tax credit was filed
within two years from the close of the taxable quarters when the zero-rated sales were made.

On 23 April 2003, due to the BIR's inaction, Microsoft filed a petition for review with the
CTA.6 Microsoft claimed to be entitled to a refund of unutilized input VAT attributable to its zero-
rated sales and prayed that judgment be rendered directing the claim for tax credit or refund of
VAT input taxes for taxable year 2001.

On 16 June 2003, respondent Commissioner of Internal Revenue (CIR) filed his answer and
prayed for the dismissal of the petition for review.

In a Decision dated 31 August 2006, the CTA Second Division denied the claim for tax credit of
VAT input taxes. The CTA explained that Microsoft failed to comply with the invoicing
requirements of Sections 113 and 237 of the NIRC as well as Section 4.108-1 of Revenue
Regulations No. 7-957 (RR 7-95). The CTA stated that Microsoft's official receipts do not bear
the imprinted word zero-rated on its face, thus, the official receipts cannot be considered as
valid evidence to prove zero-rated sales for VAT purposes.

Microsoft filed a motion for reconsideration which was denied by the CTA Second Division in a
Resolution dated 8 January 2007.

Microsoft then filed a petition for review with the CTA En Banc.8 In a Decision dated 24 October
2007, the CTA En Banc denied the petition for review and affirmed in toto the Decision dated 31
August 2006 and Resolution dated 8 January 2007 of the CTA Second Division. The CTA En
Banc found no new matters that have not been considered and passed upon by the CTA
Second Division and stated that the petition had only been a mere rehash of the arguments
earlier raised.

Hence, this petition.

The Issue
The main issue is whether Microsoft is entitled to a claim for a tax credit or refund of VAT input
taxes on domestic purchases of goods or services attributable to zero-rated sales for the year
2001 even if the word zero-rated is not imprinted on Microsoft's official receipts.

The Courts Ruling

The petition lacks merit.

Microsoft insists that Sections 113 and 237 of the NIRC and Section 4.108-1 of RR 7-95 do not
provide that failure to indicate the word zero-rated in the invoices or receipts would result in the
outright invalidation of these invoices or receipts and the disallowance of a claim for tax credit or
refund.

At the outset, a tax credit or refund, like tax exemption, is strictly construed against the
taxpayer.9 The taxpayer claiming the tax credit or refund has the burden of proving that he is
entitled to the refund or credit, in this case VAT input tax, by submitting evidence that he has
complied with the requirements laid down in the tax code and the BIR's revenue regulations
under which such privilege of credit or refund is accorded.

Sections 113(A) and 237 of the NIRC which provide for the invoicing requirements for VAT-
registered persons state:

SEC. 113. Invoicing and Accounting Requirements for VAT-Registered

Persons.

(A) Invoicing Requirements. A VAT-registered person shall, for every sale, issue
an invoice or receipt. In addition to the information required under Section 237,
the following information shall be indicated in the invoice or receipt:

(1) A statement that the seller is a VAT-registered person, followed by his

taxpayer's identification number (TIN); and
 (2) The total amount which the purchaser pays or is obligated to pay to the seller
with the indication that such amount includes the value-added tax. x x x

SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. All

persons subject to an internal revenue tax shall, for each sale or transfer of
merchandise or for services rendered valued at Twenty-five pesos (P25.00) or
more, issue duly registered receipts or sales or commercial invoices, prepared at
least in duplicate, showing the date of transaction, quantity, unit cost and
description of merchandise or nature of service: Provided, however, That in the
case of sales, receipts or transfers in the amount of One hundred pesos
(P100.00) or more, or regardless of the amount, where the sale or transfer is
made by a person liable to value-added tax to another person also liable to
value-added tax; or where the receipt is issued to cover payment made as
rentals, commissions, compensations or fees, receipts or invoices shall be issued
which shall show the name, business style, if any, and address of the purchaser,
customer or client: Provided, further, That where the purchaser is a VAT-
registered person, in addition to the information herein required, the invoice or
receipt shall further show the Taxpayer Identification Number (TIN) of the
purchaser.

The original of each receipt or invoice shall be issued to the purchaser, customer
or client at the time the transaction is effected, who, if engaged in business or in
the exercise of profession, shall keep and preserve the same in his place of
business for a period of three (3) years from the close of the taxable year in
which such invoice or receipt was issued, while the duplicate shall be kept and
preserved by the issuer, also in his place of business, for a like period.

The Commissioner may, in meritorious cases, exempt any person subject to

internal revenue tax from compliance with the provisions of this Section.

Related to these provisions, Section 4.108-1 of RR 7-95 enumerates the information which must
appear on the face of the official receipts or invoices for every sale of goods by VAT-registered
persons. At the time Microsoft filed its claim for credit of VAT input tax, RR 7-95 was already in
effect. The provision states:

Sec. 4.108-1. Invoicing Requirements. All VAT-registered persons shall, for

every sale or lease of goods or properties or services, issue duly registered
receipts or sales or commercial invoices which must show:

1. the name, TIN and address of seller;

2. date of transaction;
3. quantity, unit cost and description of merchandise or nature of service;
 4. the name, TIN, business style, if any, and address of the VAT-
registered purchaser, customer or client;
5. the word zero-rated imprinted on the invoice covering zero-rated
sales; and
6. the invoice value or consideration.

xxx

Only VAT-registered persons are required to print their TIN followed by the
word VAT in their invoices or receipts and this shall be considered as a
VAT invoice. All purchases covered by invoices other than a VAT invoice
shall not give rise to any input tax. (Emphasis supplied)

The invoicing requirements for a VAT-registered taxpayer as provided in the NIRC and revenue
regulations are clear. A VAT-registered taxpayer is required to comply with all the VAT invoicing
requirements to be able to file a claim for input taxes on domestic purchases for goods or
services attributable to zero-rated sales. A VAT invoice is an invoice that meets the
requirements of Section 4.108-1 of RR 7-95. Contrary to Microsoft's claim, RR 7-95 expressly
states that [A]ll purchases covered by invoices other than a VAT invoice shall not give rise
to any input tax. Microsoft's invoice, lacking the word zero-rated, is not a VAT invoice, and thus
cannot give rise to any input tax.

The subsequent enactment of Republic Act No. 933710 on 1 November 2005 elevating
provisions of RR 7-95 into law merely codified into law administrative regulations that already
had the force and effect of law. Such codification does not mean that prior to the codification the
administrative regulations were not enforceable.

We have ruled in several cases11 that the printing of the word zero-rated is required to be placed
on VAT invoices or receipts covering zero-rated sales in order to be entitled to claim for tax
credit or refund. In Panasonic v. Commissioner of Internal Revenue,12 we held that the
appearance of the word zero-rated on the face of invoices covering zero-rated sales prevents
buyers from falsely claiming input VAT from their purchases when no VAT is actually paid.
Absent such word, the government may be refunding taxes it did not collect.

Here, both the CTA Second Division and CTA En Banc found that Microsoft's receipts did not
indicate the word zero-rated on its official receipts. The findings of fact of the CTA are not to be
disturbed unless clearly shown to be unsupported by substantial evidence.13 We see no reason
to disturb the CTA's findings. Indisputably, Microsoft failed to comply with the invoicing
requirements of the NIRC and its implementing revenue regulation to claim a tax credit or refund
of VAT input tax for taxable year 2001.

WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 24 October 2007 of the
Court of Tax Appeals En Banc in CTA EB No. 258.

SO ORDERED.

G.R. No. 184823 October 6, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
AICHI FORGING COMPANY OF ASIA, INC., Respondent.

DECISION

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 Decision1 and the October 6, 2008 Resolution2 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) entity4 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

Proceedings before the Second Division of the CTA

On even date, respondent filed a Petition for Review7 with the CTA for the refund/credit of the
same input VAT. The case was docketed as CTA Case No. 7065 and was raffled to the Second
Division of the CTA.

In the Petition for Review, respondent alleged that for the period July 1, 2002 to September 30,
2002, it generated and recorded zero-rated sales in the amount of P131,791,399.00,8 which
was paid pursuant to Section 106(A) (2) (a) (1), (2) and (3) of the National Internal Revenue
Code of 1997 (NIRC);9 that for 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;10and 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 Answer12 raising the following special and affirmative defenses,
to wit:

4. Petitioner’s 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 respondent’s 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:
 Amount of Claimed Input VAT P 3,891,123.82
Less:
Exceptions as found by the ICPA 41,020.37

Net Creditable Input VAT P 3,850,103.45

Less:
Output VAT Due 610,984.20
Excess Creditable Input VAT P 3,239,119.25

WHEREFORE, premises considered, the present Petition for Review is PARTIALLY

GRANTED. Accordingly, respondent is hereby ORDERED TO REFUND OR ISSUE A TAX
CREDIT CERTIFICATE in favor of petitioner [in] the reduced amount of THREE MILLION TWO
HUNDRED THIRTY NINE THOUSAND ONE HUNDRED NINETEEN AND 25/100 PESOS
(P3,239,119.25), representing the unutilized input VAT incurred for the months of July to
September 2002.

SO ORDERED.14

Dissatisfied with the above-quoted Decision, petitioner filed a Motion for Partial
Reconsideration,15 insisting that the administrative and the judicial claims were filed beyond the
two-year period to claim a tax refund/credit provided for under Sections 112(A) and 229 of the
NIRC. He reasoned that 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, 2004.16 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 petitioner’s Motion for Partial
Reconsideration for lack of merit. Petitioner thus elevated the matter to the CTA En Banc via a
Petition for Review.21

Ruling of the CTA En Banc

On July 30, 2008, the CTA En Banc affirmed the Second Division’s Decision allowing the partial
tax refund/credit in favor of respondent. However, as to the reckoning point for counting the two-
year period, the CTA En Banc ruled:

Petitioner argues that the administrative and judicial claims were filed beyond the period allowed
by law and hence, the honorable Court has no jurisdiction over the same. In addition, petitioner
further contends that respondent's filing of the administrative and judicial [claims] effectively
eliminates the authority of the honorable Court to exercise jurisdiction over the judicial claim.

We are not persuaded.

Section 114 of the 1997 NIRC, and We quote, to wit:

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.

[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, 2004 were 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 denied23 his Motion for Reconsideration.

Issue
Hence, the present recourse where petitioner interposes the issue of whether respondent’s
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

Petitioner’s Arguments

Petitioner maintains that respondent’s 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

Respondent’s Arguments

For its part, respondent claims that it is entitled to a refund/credit of its unutilized input VAT for
the period July 1, 2002 to September 30, 2002 as a matter of right because it has substantially
complied with all the requirements provided by law.33 Respondent likewise defends the CTA En
Banc in applying Section 114(A) of the NIRC in computing the prescriptive period for the claim
for 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. 4970236 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.

Unutilized input VAT must be claimed within two years after the close of the taxable quarter
when the sales were made

In computing the two-year prescriptive period for claiming a refund/credit of unutilized input
VAT, the Second Division of the CTA applied Section 112(A) of the NIRC, which states:

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, MPC’s 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 inapplicable

To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of the NIRC
which, for the purpose of refund, prescribes a different starting point for the two-year
prescriptive limit for the filing of a claim therefor. Secs. 204(C) and 229 respectively provide:
Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. –
The Commissioner may –

xxxx

(c) Credit or refund taxes erroneously or illegally received or penalties imposed without
authority, refund the value of internal revenue stamps when they are returned in good condition
by the purchaser, and, in his discretion, redeem or change unused stamps that have been
rendered unfit for use and refund their value upon proof of destruction. No credit or refund of
taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a
claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided,
however, That a return filed showing an overpayment shall be considered as a written claim for
credit or refund.

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, of any sum alleged to have been excessively or in any manner
wrongfully 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 a 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.

Notably, the above provisions also set a two-year prescriptive period, reckoned from date of
payment of the tax or penalty, for the filing of a claim of refund or tax credit. Notably too, both
provisions apply only to instances of erroneous payment or illegal collection of internal
revenue taxes.

MPC’s 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 administrative 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 the
Administrative 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 manifest 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 1 1st calendar month April 15, 1998 to May 14, 1998
2nd calendar month May 15, 1998 to June 14, 1998
3rd calendar month June 15, 1998 to July 14, 1998
4th calendar month July 15, 1998 to August 14, 1998
5th calendar month August 15, 1998 to September 14, 1998
 6th calendar month September 15, 1998 to October 14, 1998
7th calendar month October 15, 1998 to November 14, 1998
8th calendar month November 15, 1998 to December 14, 1998
9th calendar month December 15, 1998 to January 14, 1999
10th calendar month January 15, 1999 to February 14, 1999
11th calendar month February 15, 1999 to March 14, 1999
12th calendar month March 15, 1999 to April 14, 1999
Year 2 13th calendar month April 15, 1999 to May 14, 1999
14th calendar month May 15, 1999 to June 14, 1999
15th calendar month June 15, 1999 to July 14, 1999
16th calendar month July 15, 1999 to August 14, 1999
17th calendar month August 15, 1999 to September 14, 1999
18th calendar month September 15, 1999 to October 14, 1999
19th calendar month October 15, 1999 to November 14, 1999
20th calendar month November 15, 1999 to December 14, 1999
21st calendar month December 15, 1999 to January 14, 2000
22nd calendar month January 15, 2000 to February 14, 2000
23rd calendar month February 15, 2000 to March 14, 2000
24th calendar month March 15, 2000 to April 14, 2000

We therefore hold that respondent's petition (filed on April 14, 2000) was filed on the last day of
the 24th calendar month from the day respondent filed its final adjusted return. Hence, it was
filed within the reglementary period.51

Applying this to the present case, 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 30, 2004. Hence,
respondent’s administrative claim was timely filed.

The filing of the judicial claim was premature

However, notwithstanding the timely filing of the administrative claim, we

are constrained to deny respondent’s claim for tax refund/credit for having been filed in violation
of Section 112(D) of the NIRC, which provides that:

SEC. 112. Refunds or Tax Credits of Input Tax. –

xxxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. – In proper cases,
the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes
within one hundred twenty (120) days from the date of submission of complete documents in
support of the application filed in accordance with Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of
the Commissioner to act on the application within the period prescribed above, the taxpayer
affected may, within thirty (30) days from the receipt of the decision denying the claim or after
the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim
with the Court of Tax Appeals. (Emphasis supplied.)

Section 112(D) of the NIRC clearly provides that the CIR has "120 days, from the date of the
submission of the complete documents in support of the application [for tax refund/credit],"
within which to grant or deny the claim. In case of full or partial denial by the CIR, the taxpayer’s
recourse is to file an appeal before the CTA within 30 days from 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 taxpayer is to appeal the inaction of the CIR to CTA within 30
days.

In this case, the administrative and the judicial claims were simultaneously filed on September
30, 2004. Obviously, respondent did not wait for the decision of the CIR or the lapse of the 120-
day period. For this reason, we find the filing of the judicial claim with the CTA premature.

Respondent’s assertion that the non-observance of the 120-day period is not fatal to the filing of
a judicial claim as long as both the administrative and the judicial claims are filed within the two-
year prescriptive period52 has no legal basis.

There is nothing in Section 112 of the NIRC to support respondent’s view. Subsection (A) of the
said provision states that "any VAT-registered person, whose sales are zero-rated or effectively
zero-rated may, within two years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or
paid attributable to such sales." The phrase "within two (2) years x x x apply for the issuance of
a tax credit certificate or refund" refers to applications for refund/credit filed with the CIR and not
to appeals made to the CTA. This is apparent in the first paragraph of subsection (D) of the
same provision, which states that the CIR has "120 days from the submission of complete
documents in support of the application filed in accordance with Subsections (A) and (B)" within
which to decide on the claim.

In fact, applying the two-year period to judicial claims would render nugatory Section 112(D) of
the NIRC, which already provides for a specific period within which a taxpayer should appeal
the decision or inaction of the CIR. The second paragraph of Section 112(D) of the NIRC
envisions two scenarios: (1) when a decision is issued by the CIR before the lapse of the 120-
day period; and (2) when no decision is made after the 120-day period. In both instances, the
taxpayer has 30 days within which to file an appeal with the CTA. As we see it then, the 120-day
period is crucial in filing an appeal with the CTA.

With regard to Commissioner of Internal Revenue v. Victorias Milling, Co., Inc.53 relied upon by
respondent, we find the same inapplicable as the tax provision involved in that case is Section
306, now Section 229 of the NIRC. And as already discussed, Section 229 does not apply to
refunds/credits of input VAT, such as the instant case.
In fine, the premature filing of respondent’s claim for refund/credit of input VAT before the CTA
warrants a dismissal inasmuch as no jurisdiction was acquired by the CTA.

WHEREFORE, the Petition is hereby GRANTED. The assailed July 30, 2008 Decision and the
October 6, 2008 Resolution of the Court of Tax Appeals are hereby REVERSED and SET
ASIDE. The Court of Tax Appeals Second Division is DIRECTED to dismiss CTA Case No.
7065 for having been prematurely filed.

SO ORDERED.

G.R. No. 169778, March 12, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. SILICON PHILIPPINES, INC.

(FORMERLY INTEL PHILIPPINES MANUFACTURING, INC.), Respondent.

DECISION

PEREZ, J.:

To obviate the possibility that its decision may be rendered void, the Court can, by its own
initiative, rule on the question of jurisdiction, although not raised by the parties.1 As a corollary
thereto, to inquire into the existence of jurisdiction over the subject matter is the primary concern
of a court, for thereon would depend the validity of its entire proceedings.2

Before the Court is a Petition for Review on Certiorari seeking to reverse and set aside the 16
September 2005 Decision3 of the Court of Appeals (CA) in CA–G.R. SP No. 80886 granting
respondent’s claim for refund of input Value Added Tax (VAT) on domestic purchases of goods
and services attributable to zero–rated sales in the amount of P21,338,910.44 for the period
covering 1 April 1998 to 30 June 1998.

The Facts

The factual antecedents of the case are as follows:chanRoblesvirtualLawlibrary

Petitioner is the duly appointed Commissioner of Internal Revenue empowered to perform the
duties of said office including, among others, the power to decide, approve and grant refunds or
tax credits of erroneously or excessively paid taxes.

Respondent Silicon Philippines, Inc., on the other hand, is a corporation duly organized and
existing under and by virtue of the laws of the Philippines, engaged primarily in the business of
designing, developing, manufacturing, and exporting advance and large–scale integrated
circuits components (ICs).

On 6 May 1999, respondent filed with the One–Stop Shop Inter–Agency Tax Credit and Duty
Drawback Center of the Department of Finance (DOF) an application for Tax Credit/Refund of
VAT paid for the second quarter of 1998 in the aggregate amount of P29,559,050.44,
representing its alleged unutilized input tax.
Thereafter, since no final action has been taken by petitioner on respondent’s administrative
claim for refund, respondent filed a Petition for Review before the Court of Tax Appeals (CTA)
on 30 June 2000 docketed as CTA Case No. 6129.

The Ruling of the CTA

In a Decision dated 26 May 2003,4 the CTA partially granted respondent’s Petition and ordered
petitioner to issue a tax credit certificate in favor of the former in the reduced amount of
P8,179,049.00 representing input VAT on importation of capital goods, the dispositive portion of
which are quoted hereunder as follows:chanRoblesvirtualLawlibrary

WHEREFORE, the instant petition is PARTIALLY GRANTED. [Petitioner] is

hereby ORDERED to ISSUE A TAX CREDIT CERTIFICATE to [respondent] in the amount of
P8,179,049.00 representing input VAT on importation of capital goods. However, petitioner’s
(respondent’s) claim for refund of input VAT in the sum of P21,338,910.44 attributable to zero–
rated sales is hereby DENIED for lack of merit.5

The CTA denied respondent’s claim for refund of input VAT on domestic purchases of goods
and services attributable to zero–rated sales on the ground that the export sales invoices
presented in support thereto do not have Bureau of Internal Revenue (BIR) permit to print, while
the sales invoices do not show that the sale was ―zero–rated,‖ all in violation of Sections
1136 and 2387 of the National Internal Revenue Code (NIRC) of 1997, as amended, and Section
4.108–1 of Revenue Regulations (RR) No. 7–95.8

As to respondent’s claim for refund of input VAT on capital goods, the CTA looked into
respondent’s compliance with the requirements set forth in the case of Air Liquid Philippines v.
Commissioner of Internal Revenue and Commissioner of Customs, CTA Case No. 5652, 26
July 2000, and held that said claim be partially denied considering that only the amount of
P8,179,049.00 have been validly supported by documentary evidence such as suppliers’
invoices, official receipts, import declarations, import remittances and airway bills, showing the
actual payment of VAT on the importation of capital goods as required by Section 4.104–5(b) of
RR No. 7–95.9

Relevant thereto, the CTA likewise made a factual finding that both the administrative and
judicial claims of respondent were timely filed within the two–year prescriptive period required
by the NIRC of 1997, as amended, reckoned from the date of filing the original quarterly VAT
Return for the second quarter of taxable year 1998, or on 27 July 1998.10

On 4 November 2003, the CTA denied respondent’s Partial Motion for Reconsideration (on the
denial of its claim for tax credit or refund of input VAT paid in the sum of P21,338,910.44) for
lack of merit.11

Aggrieved, respondent appealed to the CA by filing a Petition for Review under Rule 43 of the
Rules of Court on 10 December 2003, docketed as CA–G.R. SP No. 80886.

The Ruling of the CA

The CA found that respondent’s failure to secure a BIR authority or permit to print invoices or
receipts does not completely destroy the integrity of its export sales invoices in support of its
claim for refund, since the BIR permit to print is not among those required to be stated in the
sales invoices or receipts to be issued by a taxpayer pursuant to Sections 113 and 237 of the
NIRC of 1997, as amended. In addition, the BIR permit to print was only mentioned under
Section 238 of the same code, which merely stated that the securement of the BIR authority to
print by all persons engaged in business is necessary before a printer can print receipts or sales
or commercial invoices issued in the course of one’s business. Clearly, it does not state that the
same must be shown in the receipts or invoices. Thus, the omission to indicate the said BIR
authority or permit to print does not totally militate against the evidentiary weight of respondent’s
export sales invoices as to defeat its claim for refund.

Moreover, it was the CA’s ruling that the omission to reflect the word ―zero–rated‖ in its invoices
is not fatal to respondent’s case considering that the absence of the word ―zero–rated‖ in the
invoices, although truly helpful in facilitating the determination of whether the sales are subject
to the normal rate of ten percent (10%) tax or the preferential rate at zero percent, does not
necessarily mean that the sales are not in fact ―zero–rated.‖ Sections 113 and 237 of the NIRC
of 1997, as amended, are silent on the requisite of printing the word ―zero–rated‖ in the invoices.

Accordingly, upon its findings of compliance with Section 112(A) of the NIRC of 1997, as
amended, the CA reversed and set–aside the CTA decision dated 26 May 2003, and granted
respondent’s claim for tax refund/credit in the total amount of P21,338,910.44 in its Decision
dated 16 September 2005.12

Consequently, this Petition for Review wherein petitioner seeks the reversal of the
aforementioned decision on the sole ground that the CA gravely erred on a question of law
when it ordered a refund of respondent’s VAT Input taxes on the basis of unauthorized and
illegally printed receipts in violation of the provisions of the NIRC of 1997, as amended.13

The Issue

The core issue for the Court’s resolution is whether or not respondent is entitled to its claim for
refund or issuance of a tax credit certificate in its favor in the amount of P21,338,910.44
representing its unutilized creditable input taxes for the period covering 1 April 1998 to 30 June
1998 (second quarter), pursuant to the applicable provisions of the NIRC of 1997, as amended.

Our Ruling

At the outset, it bears emphasis that the determination of the issue presented in this case
requires a review of the factual findings of the CTA, and of the CA.

It is well settled that in a petition for review on certiorari under Rule 45 of the Rules of Court,
only questions of law may be raised.14 The Court is not a trier of facts and does not normally
undertake the re–examination of the evidence presented by the contending parties during the
trial of the case considering that the findings of facts of the CA are conclusive and binding on
the Court15 – and they carry even more weight when the CA affirms the factual findings of the
trial court.16 However, the Court had recognized several exceptions to this rule, to wit: (1) when
the findings are grounded entirely on speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings
of facts are conflicting; (6) when in making its findings the CA went beyond the issues of the
case, or its findings are contrary to the admissions of both the appellant and the appellee; (7)
when the findings are contrary to the trial court; (8) when the findings are conclusions without
citation of specific evidence on which they are based; (9) when the facts set forth in the petition
as well as in the petitioner’s main and reply briefs are not disputed by the respondent; (10) when
the findings of fact are premised on the supposed absence of evidence and contradicted by the
evidence on record; and (11) when the CA manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would justify a different
conclusion.17

Records of this case reveal that the CTA made a factual finding that both the administrative and
judicial claims of respondent were timely filed within the two–year prescriptive period required
by the NIRC of 1997, as amended, reckoned from the date of filing the original quarterly VAT
Return for the second quarter of taxable year 1998, or on 27 July 1998.18 This was the CTA’s
legal basis why it took cognizance of the appeal, tried the case on the merits, and rendered its
judgment on 26 May 2003.19 Likewise, the same finding was affirmed and adopted by the CA in
the assailed 16 September 2005 decision20 by expressing that respondent ―filed the application
for tax refund or credit within the prescribed period of two (2) years after the close of the taxable
quarter when the sales were made‖21 in accordance with Section 112(A) of the NIRC of 1997,
as amended.

However, upon an assiduous review of the said factual findings, applicable provisions of the
NIRC of 1997, as amended, and existing jurisprudential pronouncements, this Court finds it
apropos to determine whether or not the CTA indeed properly acquired jurisdiction over
respondent’s instant claim taking into consideration the timeliness of the filing of its judicial claim
as provided under Section 112 of the NIRC of 1997, as amended. Simply put, a negative
finding as to the timeliness of respondent’s judicial claim, once properly considered, would
definitely result in a different conclusion, being jurisdictional in nature.

It should be recalled that the CTA is a court of special jurisdiction. As such, it can only take
cognizance of such matters as are clearly within its jurisdiction.22 In view thereof, although the
parties have not raised the issue of jurisdiction, nevertheless, this Court may motu
proprio determine whether or not the CTA has jurisdiction over respondent’s judicial claim for
refund taking into consideration, the factual and legal allegations contained in the pleadings filed
by both parties and found by the court a quo.

Section 7 of Republic Act (RA) No. 1125,23 which was thereafter amended by RA No.
9282,24 defines the appellate jurisdiction of the CTA. The said provision, in part,
reads:chanRoblesvirtualLawlibrary

Section 7. Jurisdiction. – The Court of Tax Appeals shall exercise exclusive appellate
jurisdiction to review by appeal, as herein provided.

(1) Decisions of the Collector of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the National Internal Revenue Code or other law
or part of law administered by the Bureau of Internal Revenue;

x x x x25 (Emphasis supplied)

Furthermore, Section 11 of the same law prescribes how the said appeal should be taken, to
wit:chanRoblesvirtualLawlibrary

Section 11. Who may appeal; effect of appeal. – Any person, association or corporation
adversely affected by a decision or ruling of the Collector of Internal Revenue, the Collector of
Customs or any provincial or city Board of Assessment Appeals may file an appeal in the
Court of Tax Appeals within thirty days after the receipt of such decision or ruling.

x x x x26 (Emphasis and underscoring supplied)

Pertinent to the instant case, it is worth mentioning that Section 112 of the NIRC of 1997, as
amended, was already the applicable law at the time that respondent filed its administrative and
judicial claims, which categorically provides as follows:chanRoblesvirtualLawlibrary

Section 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

xxxx

(D)27 Period within which Refund or Tax Credit of Input Taxes shall be Made. – In proper cases,
the Commissioner shall grant a refund or issue the tax credit certificate for creditable input
taxes within one hundred twenty (120) days from the date of submission of complete
documents in support of the application filed in accordance with Subsections (A) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part
of the Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from the receipt of the decision denying the
claim or after the expiration of the one hundred twenty–day period, appeal the decision
or the unacted claim with the Court of Tax Appeals.

x x x x (Emphasis and underscoring supplied)

Based on the foregoing provisions, prior to seeking judicial recourse before the CTA, a VAT–
registered person may apply for the issuance of a tax credit certificate or refund of creditable
input tax attributable to zero–rated or effectively zero–rated sales within two (2) years after the
close of taxable quarter when the sales or purchases were made.

Additionally, further reading of the provisions of Section 112 shows that under paragraph (D)
thereof, the Commissioner of Internal Revenue is given a 120–day period, from submission
of complete documents in support of the administrative claim within which to act on claims
for refund/applications for issuance of the tax credit certificate. Upon denial of the claim or
application, or upon expiration of the 120–day period, the taxpayer only has 30 days within
which to appeal said adverse decision or unacted claim before the CTA.

In the consolidated cases of Commissioner of Internal Revenue v. San Roque Power

Corporation, Taganito Mining Corporation v. Commissioner of Internal Revenue, and Philex
Mining Corporation v. Commissioner of Internal Revenue (San Roque),28 the Court En Banc
finally settled the issue on the proper interpretation of Section 112 of the NIRC of 1997, as
amended, pertaining to the proper observance of the prescriptive periods provided therein. The
relevant portion of the discussions pertinent to the focal issue in the present case are quoted
hereunder as follows:chanRoblesvirtualLawlibrary
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 unappealable. 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. Philex failed to
comply with the statutory conditions and must thus bear the consequences.29(Emphasis and
italics supplied)

Undoubtedly, it becomes apparent from the foregoing jurisprudential pronouncements and the
applicable provisions of Section 112 of the NIRC of 1997, as amended, that a taxpayer–
claimant only had a limited period of thirty (30) days from the expiration of the 120–day period of
inaction of the Commissioner of Internal Revenue to file its judicial claim with this Court. Failure
to do so, the judicial claim shall prescribe or be considered as filed out of time.

Applying the foregoing discussion in the case at bench, although respondent has indeed
complied with the required two–year period within which to file a refund/tax credit claim with the
BIR by filing its administrative claim on 6 May 1999 (within the period from the close of the
subject second quarter of taxable year 1998 when the relevant sales or purchases were made),
it appears however, that respondent’s corresponding judicial claim filed with the CTA on 30
June 2000 was filed beyond the 30–day period, detailed hereunder as
follows:chanRoblesvirtualLawlibrary

Last day of the 120–day

Last day of the Filing date
Filing date of the period under Section 112(C)
Taxable year 30–day period to of the
administrative from the date of filing of the
1998 judicially appeal Petition for
claim administrative claim in case of
said inaction Review
inaction
2nd Quarter (1
30 June
April 1998 to 6 May 1999 3 September 199930 3 October 1999
2000
30 June 1998)

Notably, Section 112(D) specifically states that in case of failure on the part of the
Commissioner of Internal Revenue to act on the application within the 120–day period
prescribed by law, respondent only has thirty (30) days after the expiration of the 120–day
period to appeal the unacted claim with the CTA. Since respondent’s judicial claim for the
aforementioned quarter was filed before the CTA only on 30 June 2000,31 which was way
beyond the mandatory 120+30 days to seek judicial recourse, such non–compliance with the
said mandatory period of thirty (30) days is fatal to its refund claim on the ground of prescription.

In the more recent consolidated cases of Mindanao II Geothermal Partnership v. Commissioner

of Internal Revenue, and Mindanao I Geothermal Partnership v. Commissioner of Internal
Revenue,32the Second Division of this Court, in applying therein the ruling in the San Roque
case, provided a Summary of Rules on Prescriptive Periods Involving VAT as a guide for all
parties concerned, to wit:chanRoblesvirtualLawlibrary

We summarize the rules on the determination of the prescriptive period for filing a tax
refund or credit of unutilized input VAT as provided in Section 112 of the 1997 Tax Code,
as follows:chanRoblesvirtualLawlibrary

(1) An administrative claim must be filed with the CIR within two years after the close of the
taxable quarter when the zero–rated or effectively zero–rated sales were made.

(2) The CIR has 120 days from the date of submission of complete documents in support of the
administrative claim within which to decide whether to grant a refund or issue a tax credit
certificate. The 120–day period may extend beyond the two–year period from the filing of the
administrative claim if the claim is filed in the later part of the two–year period. If the 120–day
period expires without any decision from the CIR, then the administrative claim may be
considered to be denied by inaction.

(3) A judicial claim must be filed with the CTA within 30 days from the receipt of the CIR’s
decision denying the administrative claim or from the expiration of the 120–day period
without any action from the CIR.

(4) All taxpayers, however, can rely on BIR Ruling No. DA–489–03 from the time of its issuance
on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010, as an
exception to the mandatory and jurisdictional 120+30 day periods.33(Emphasis supplied)

To recapitulate, the mandatory rule is that a judicial claim must be filed with the CTA within thirty
(30) days from the receipt of the Commissioner’s decision denying the administrative claim or
from the expiration of the 120–day period without any action from the Commissioner.
Otherwise, said judicial claim shall be considered as filed out of time.

This Court is mindful that when respondent filed its administrative claim on 6 May 1999, and its
corresponding judicial claim on 30 June 2000, the NIRC of 1997, as amended, was already in
effect. Clearly therefore, the strict observance in applying the provisions of Section 112 of the
NIRC of 1997 is proper. Hence, failure of respondent to observe the 30–day period under said
Section through its belated filing of the Petition for Review before the CTA warrants a dismissal
with prejudice for lack of jurisdiction.

Parenthetically, it must be emphasized that jurisdiction over the subject matter or nature of an
action is fundamental for a court to act on a given controversy,34 and is conferred only by law
and not by the consent or waiver upon a court which, otherwise, would have no jurisdiction over
the subject matter or nature of an action. Lack of jurisdiction of the court over an action or the
subject matter of an action cannot be cured by the silence, acquiescence, or even by express
consent of the parties.35 If the court has no jurisdiction over the nature of an action, its only
jurisdiction is to dismiss the case. The court could not decide the case on the merits.36
As regards the prints on the supporting receipts or invoices, it is worth mentioning that the High
Court already ruled on the significance of imprinting the word ―zero–rated‖ for zero–rated sales
covered by its receipts or invoices, pursuant to Section 4.108–1 of Revenue Regulations No. 7–
95.37 Thus, in Panasonic Communications Imaging Corporation of the Philippines v.
Commissioner of Internal Revenue,38 the Second Division of this Court
enunciated:chanRoblesvirtualLawlibrary

But when petitioner Panasonic made the export sales subject of this case, i.e., from April 1998
to March 1999, the rule that applied was Section 4.108–1 of RR 7–95, otherwise known as
the Consolidated Value–Added Tax Regulations, which the Secretary of Finance issued
on 9 December 1995 and took effect on 1 January 1996. It already required the printing of
the word ―zero–rated‖ on the invoices covering zero–rated sales. When R.A. 9337
amended the 1997 NIRC on November 1, 2005, it made this particular revenue regulation a part
of the tax code. This conversion from regulation to law did not diminish the binding force of
such regulation with respect to acts committed prior to the enactment of that law.

Section 4.108–1 of RR 7–95 proceeds from the rule–making authority granted to the Secretary
of Finance under Section 245 of the 1977 NIRC (Presidential Decree 1158) for the efficient
enforcement of the tax code and of course its amendments. The requirement is reasonable and
is in accord with the efficient collection of VAT from the covered sales of goods and services.
As aptly explained by the CTA’s First Division, the appearance of the word ―zero–rated‖ on
the face of invoices covering zero–rated sales prevents buyers from falsely claiming
input VAT from their purchases when no VAT was actually paid. If, absent such word, a
successful claim for input VAT is made, the government would be refunding money it did
not collect.

Further, the printing of the word ―zero–rated‖ on the invoice helps segregate sales that are
subject to 10% (now 12%) VAT from those sales that are zero–rated. Unable to submit the
proper invoices, petitioner Panasonic has been unable to substantiate its claim for refund.

xxxx

This Court held that, since the ―BIR authority to print‖ is not one of the items required to be
indicated on the invoices or receipts, the BIR erred in denying the claim for refund. Here,
however, the ground for denial of petitioner Panasonic’s claim for tax refund—the
absence of the word ―zero–rated‖ on its invoices—is one which is specifically and
precisely included in the above enumeration. Consequently, the BIR correctly denied
Panasonic’s claim for tax refund.39 (Emphasis supplied)

Clearly, the foregoing pronouncement affirms that absence or non–printing of the word ―zero–
rated‖ in respondent’s invoices is fatal to its claim for the refund and/or tax credit representing its
unutilized input VAT attributable to its zero–rated sales.

On the other hand, while this Court considers the importance of imprinting the word ―zero–rated‖
in said invoices, the same does not apply to the phrase ―BIR authority to print.‖ In Intel
Technology Philippines, Inc. v. Commissioner of Internal Revenue,40 the Court ruled that there
is no law or BIR rule or regulation requiring the taxpayer–claimant’s authority from the BIR to
print its sales invoices (BIR authority to print) to be reflected or indicated therein. It stressed
―that while entities engaged in business are required to secure from the BIR an authority to print
receipts or invoices and to issue duly registered receipts or invoices, it is not required that the
BIR authority to print be reflected or indicated therein.‖41
All told, the CTA has no jurisdiction over respondent’s judicial appeal considering that its
Petition for Review was filed beyond the mandatory 30–day period pursuant to Section 112(D)
of the NIRC of 1997, as amended. Consequently, respondent’s instant claim for refund must be
denied.

WHEREFORE, the petition is GRANTED. Accordingly, the 16 September 2005 Decision of the
Court of Appeals in CA–G.R. SP No. 80886 is hereby REVERSED and SET ASIDE. The
Petition for Review filed before the Court of Tax Appeals docketed as CTA Case No. 6129 is
DISMISSED for lack of jurisdiction. No costs.

SO ORDERED.

G.R. No. 169778, March 12, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. SILICON PHILIPPINES, INC.

(FORMERLY INTEL PHILIPPINES MANUFACTURING, INC.), Respondent.

DECISION

PEREZ, J.:

To obviate the possibility that its decision may be rendered void, the Court can, by its own
initiative, rule on the question of jurisdiction, although not raised by the parties.1 As a corollary
thereto, to inquire into the existence of jurisdiction over the subject matter is the primary concern
of a court, for thereon would depend the validity of its entire proceedings.2

Before the Court is a Petition for Review on Certiorari seeking to reverse and set aside the 16
September 2005 Decision3 of the Court of Appeals (CA) in CA–G.R. SP No. 80886 granting
respondent’s claim for refund of input Value Added Tax (VAT) on domestic purchases of goods
and services attributable to zero–rated sales in the amount of P21,338,910.44 for the period
covering 1 April 1998 to 30 June 1998.

The Facts

The factual antecedents of the case are as follows:chanRoblesvirtualLawlibrary

Petitioner is the duly appointed Commissioner of Internal Revenue empowered to perform the
duties of said office including, among others, the power to decide, approve and grant refunds or
tax credits of erroneously or excessively paid taxes.

Respondent Silicon Philippines, Inc., on the other hand, is a corporation duly organized and
existing under and by virtue of the laws of the Philippines, engaged primarily in the business of
designing, developing, manufacturing, and exporting advance and large–scale integrated
circuits components (ICs).

On 6 May 1999, respondent filed with the One–Stop Shop Inter–Agency Tax Credit and Duty
Drawback Center of the Department of Finance (DOF) an application for Tax Credit/Refund of
VAT paid for the second quarter of 1998 in the aggregate amount of P29,559,050.44,
representing its alleged unutilized input tax.

Thereafter, since no final action has been taken by petitioner on respondent’s administrative
claim for refund, respondent filed a Petition for Review before the Court of Tax Appeals (CTA)
on 30 June 2000 docketed as CTA Case No. 6129.

The Ruling of the CTA

In a Decision dated 26 May 2003,4 the CTA partially granted respondent’s Petition and ordered
petitioner to issue a tax credit certificate in favor of the former in the reduced amount of
P8,179,049.00 representing input VAT on importation of capital goods, the dispositive portion of
which are quoted hereunder as follows:chanRoblesvirtualLawlibrary

WHEREFORE, the instant petition is PARTIALLY GRANTED. [Petitioner] is

hereby ORDERED to ISSUE A TAX CREDIT CERTIFICATE to [respondent] in the amount of
P8,179,049.00 representing input VAT on importation of capital goods. However, petitioner’s
(respondent’s) claim for refund of input VAT in the sum of P21,338,910.44 attributable to zero–
rated sales is hereby DENIED for lack of merit.5

The CTA denied respondent’s claim for refund of input VAT on domestic purchases of goods
and services attributable to zero–rated sales on the ground that the export sales invoices
presented in support thereto do not have Bureau of Internal Revenue (BIR) permit to print, while
the sales invoices do not show that the sale was ―zero–rated,‖ all in violation of Sections
1136 and 2387 of the National Internal Revenue Code (NIRC) of 1997, as amended, and Section
4.108–1 of Revenue Regulations (RR) No. 7–95.8

As to respondent’s claim for refund of input VAT on capital goods, the CTA looked into
respondent’s compliance with the requirements set forth in the case of Air Liquid Philippines v.
Commissioner of Internal Revenue and Commissioner of Customs, CTA Case No. 5652, 26
July 2000, and held that said claim be partially denied considering that only the amount of
P8,179,049.00 have been validly supported by documentary evidence such as suppliers’
invoices, official receipts, import declarations, import remittances and airway bills, showing the
actual payment of VAT on the importation of capital goods as required by Section 4.104–5(b) of
RR No. 7–95.9

Relevant thereto, the CTA likewise made a factual finding that both the administrative and
judicial claims of respondent were timely filed within the two–year prescriptive period required
by the NIRC of 1997, as amended, reckoned from the date of filing the original quarterly VAT
Return for the second quarter of taxable year 1998, or on 27 July 1998.10

On 4 November 2003, the CTA denied respondent’s Partial Motion for Reconsideration (on the
denial of its claim for tax credit or refund of input VAT paid in the sum of P21,338,910.44) for
lack of merit.11

Aggrieved, respondent appealed to the CA by filing a Petition for Review under Rule 43 of the
Rules of Court on 10 December 2003, docketed as CA–G.R. SP No. 80886.

The Ruling of the CA

The CA found that respondent’s failure to secure a BIR authority or permit to print invoices or
receipts does not completely destroy the integrity of its export sales invoices in support of its
claim for refund, since the BIR permit to print is not among those required to be stated in the
sales invoices or receipts to be issued by a taxpayer pursuant to Sections 113 and 237 of the
NIRC of 1997, as amended. In addition, the BIR permit to print was only mentioned under
Section 238 of the same code, which merely stated that the securement of the BIR authority to
print by all persons engaged in business is necessary before a printer can print receipts or sales
or commercial invoices issued in the course of one’s business. Clearly, it does not state that the
same must be shown in the receipts or invoices. Thus, the omission to indicate the said BIR
authority or permit to print does not totally militate against the evidentiary weight of respondent’s
export sales invoices as to defeat its claim for refund.

Moreover, it was the CA’s ruling that the omission to reflect the word ―zero–rated‖ in its invoices
is not fatal to respondent’s case considering that the absence of the word ―zero–rated‖ in the
invoices, although truly helpful in facilitating the determination of whether the sales are subject
to the normal rate of ten percent (10%) tax or the preferential rate at zero percent, does not
necessarily mean that the sales are not in fact ―zero–rated.‖ Sections 113 and 237 of the NIRC
of 1997, as amended, are silent on the requisite of printing the word ―zero–rated‖ in the invoices.

Accordingly, upon its findings of compliance with Section 112(A) of the NIRC of 1997, as
amended, the CA reversed and set–aside the CTA decision dated 26 May 2003, and granted
respondent’s claim for tax refund/credit in the total amount of P21,338,910.44 in its Decision
dated 16 September 2005.12

Consequently, this Petition for Review wherein petitioner seeks the reversal of the
aforementioned decision on the sole ground that the CA gravely erred on a question of law
when it ordered a refund of respondent’s VAT Input taxes on the basis of unauthorized and
illegally printed receipts in violation of the provisions of the NIRC of 1997, as amended.13

The Issue

The core issue for the Court’s resolution is whether or not respondent is entitled to its claim for
refund or issuance of a tax credit certificate in its favor in the amount of P21,338,910.44
representing its unutilized creditable input taxes for the period covering 1 April 1998 to 30 June
1998 (second quarter), pursuant to the applicable provisions of the NIRC of 1997, as amended.

Our Ruling

At the outset, it bears emphasis that the determination of the issue presented in this case
requires a review of the factual findings of the CTA, and of the CA.

It is well settled that in a petition for review on certiorari under Rule 45 of the Rules of Court,
only questions of law may be raised.14 The Court is not a trier of facts and does not normally
undertake the re–examination of the evidence presented by the contending parties during the
trial of the case considering that the findings of facts of the CA are conclusive and binding on
the Court15 – and they carry even more weight when the CA affirms the factual findings of the
trial court.16 However, the Court had recognized several exceptions to this rule, to wit: (1) when
the findings are grounded entirely on speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings
of facts are conflicting; (6) when in making its findings the CA went beyond the issues of the
case, or its findings are contrary to the admissions of both the appellant and the appellee; (7)
when the findings are contrary to the trial court; (8) when the findings are conclusions without
citation of specific evidence on which they are based; (9) when the facts set forth in the petition
as well as in the petitioner’s main and reply briefs are not disputed by the respondent; (10) when
the findings of fact are premised on the supposed absence of evidence and contradicted by the
evidence on record; and (11) when the CA manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would justify a different
conclusion.17

Records of this case reveal that the CTA made a factual finding that both the administrative and
judicial claims of respondent were timely filed within the two–year prescriptive period required
by the NIRC of 1997, as amended, reckoned from the date of filing the original quarterly VAT
Return for the second quarter of taxable year 1998, or on 27 July 1998.18 This was the CTA’s
legal basis why it took cognizance of the appeal, tried the case on the merits, and rendered its
judgment on 26 May 2003.19 Likewise, the same finding was affirmed and adopted by the CA in
the assailed 16 September 2005 decision20 by expressing that respondent ―filed the application
for tax refund or credit within the prescribed period of two (2) years after the close of the taxable
quarter when the sales were made‖21 in accordance with Section 112(A) of the NIRC of 1997,
as amended.

However, upon an assiduous review of the said factual findings, applicable provisions of the
NIRC of 1997, as amended, and existing jurisprudential pronouncements, this Court finds it
apropos to determine whether or not the CTA indeed properly acquired jurisdiction over
respondent’s instant claim taking into consideration the timeliness of the filing of its judicial claim
as provided under Section 112 of the NIRC of 1997, as amended. Simply put, a negative
finding as to the timeliness of respondent’s judicial claim, once properly considered, would
definitely result in a different conclusion, being jurisdictional in nature.

It should be recalled that the CTA is a court of special jurisdiction. As such, it can only take
cognizance of such matters as are clearly within its jurisdiction.22 In view thereof, although the
parties have not raised the issue of jurisdiction, nevertheless, this Court may motu
proprio determine whether or not the CTA has jurisdiction over respondent’s judicial claim for
refund taking into consideration, the factual and legal allegations contained in the pleadings filed
by both parties and found by the court a quo.

Section 7 of Republic Act (RA) No. 1125,23 which was thereafter amended by RA No.
9282,24 defines the appellate jurisdiction of the CTA. The said provision, in part,
reads:chanRoblesvirtualLawlibrary

Section 7. Jurisdiction. – The Court of Tax Appeals shall exercise exclusive appellate
jurisdiction to review by appeal, as herein provided.

(1) Decisions of the Collector of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the National Internal Revenue Code or other law
or part of law administered by the Bureau of Internal Revenue;

x x x x25 (Emphasis supplied)

Furthermore, Section 11 of the same law prescribes how the said appeal should be taken, to
wit:chanRoblesvirtualLawlibrary
Section 11. Who may appeal; effect of appeal. – Any person, association or corporation
adversely affected by a decision or ruling of the Collector of Internal Revenue, the Collector of
Customs or any provincial or city Board of Assessment Appeals may file an appeal in the
Court of Tax Appeals within thirty days after the receipt of such decision or ruling.

x x x x26 (Emphasis and underscoring supplied)

Pertinent to the instant case, it is worth mentioning that Section 112 of the NIRC of 1997, as
amended, was already the applicable law at the time that respondent filed its administrative and
judicial claims, which categorically provides as follows:chanRoblesvirtualLawlibrary

Section 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

xxxx

(D)27 Period within which Refund or Tax Credit of Input Taxes shall be Made. – In proper cases,
the Commissioner shall grant a refund or issue the tax credit certificate for creditable input
taxes within one hundred twenty (120) days from the date of submission of complete
documents in support of the application filed in accordance with Subsections (A) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part
of the Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from the receipt of the decision denying the
claim or after the expiration of the one hundred twenty–day period, appeal the decision
or the unacted claim with the Court of Tax Appeals.

x x x x (Emphasis and underscoring supplied)

Based on the foregoing provisions, prior to seeking judicial recourse before the CTA, a VAT–
registered person may apply for the issuance of a tax credit certificate or refund of creditable
input tax attributable to zero–rated or effectively zero–rated sales within two (2) years after the
close of taxable quarter when the sales or purchases were made.

Additionally, further reading of the provisions of Section 112 shows that under paragraph (D)
thereof, the Commissioner of Internal Revenue is given a 120–day period, from submission
of complete documents in support of the administrative claim within which to act on claims
for refund/applications for issuance of the tax credit certificate. Upon denial of the claim or
application, or upon expiration of the 120–day period, the taxpayer only has 30 days within
which to appeal said adverse decision or unacted claim before the CTA.

In the consolidated cases of Commissioner of Internal Revenue v. San Roque Power

Corporation, Taganito Mining Corporation v. Commissioner of Internal Revenue, and Philex
Mining Corporation v. Commissioner of Internal Revenue (San Roque),28 the Court En Banc
finally settled the issue on the proper interpretation of Section 112 of the NIRC of 1997, as
amended, pertaining to the proper observance of the prescriptive periods provided therein. The
relevant portion of the discussions pertinent to the focal issue in the present case are quoted
hereunder as follows:chanRoblesvirtualLawlibrary

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 unappealable. 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. Philex failed to
comply with the statutory conditions and must thus bear the consequences.29(Emphasis and
italics supplied)

Undoubtedly, it becomes apparent from the foregoing jurisprudential pronouncements and the
applicable provisions of Section 112 of the NIRC of 1997, as amended, that a taxpayer–
claimant only had a limited period of thirty (30) days from the expiration of the 120–day period of
inaction of the Commissioner of Internal Revenue to file its judicial claim with this Court. Failure
to do so, the judicial claim shall prescribe or be considered as filed out of time.

Applying the foregoing discussion in the case at bench, although respondent has indeed
complied with the required two–year period within which to file a refund/tax credit claim with the
BIR by filing its administrative claim on 6 May 1999 (within the period from the close of the
subject second quarter of taxable year 1998 when the relevant sales or purchases were made),
it appears however, that respondent’s corresponding judicial claim filed with the CTA on 30
June 2000 was filed beyond the 30–day period, detailed hereunder as
follows:chanRoblesvirtualLawlibrary

Last day of the 120–day

Last day of the Filing date
Filing date of the period under Section 112(C)
Taxable year 30–day period to of the
administrative from the date of filing of the
1998 judicially appeal Petition for
claim administrative claim in case of
said inaction Review
inaction
2nd Quarter (1
30 June
April 1998 to 6 May 1999 3 September 199930 3 October 1999
2000
30 June 1998)

Notably, Section 112(D) specifically states that in case of failure on the part of the
Commissioner of Internal Revenue to act on the application within the 120–day period
prescribed by law, respondent only has thirty (30) days after the expiration of the 120–day
period to appeal the unacted claim with the CTA. Since respondent’s judicial claim for the
aforementioned quarter was filed before the CTA only on 30 June 2000,31 which was way
beyond the mandatory 120+30 days to seek judicial recourse, such non–compliance with the
said mandatory period of thirty (30) days is fatal to its refund claim on the ground of prescription.

In the more recent consolidated cases of Mindanao II Geothermal Partnership v. Commissioner

of Internal Revenue, and Mindanao I Geothermal Partnership v. Commissioner of Internal
Revenue,32the Second Division of this Court, in applying therein the ruling in the San Roque
case, provided a Summary of Rules on Prescriptive Periods Involving VAT as a guide for all
parties concerned, to wit:chanRoblesvirtualLawlibrary

We summarize the rules on the determination of the prescriptive period for filing a tax
refund or credit of unutilized input VAT as provided in Section 112 of the 1997 Tax Code,
as follows:chanRoblesvirtualLawlibrary

(1) An administrative claim must be filed with the CIR within two years after the close of the
taxable quarter when the zero–rated or effectively zero–rated sales were made.

(2) The CIR has 120 days from the date of submission of complete documents in support of the
administrative claim within which to decide whether to grant a refund or issue a tax credit
certificate. The 120–day period may extend beyond the two–year period from the filing of the
administrative claim if the claim is filed in the later part of the two–year period. If the 120–day
period expires without any decision from the CIR, then the administrative claim may be
considered to be denied by inaction.

(3) A judicial claim must be filed with the CTA within 30 days from the receipt of the CIR’s
decision denying the administrative claim or from the expiration of the 120–day period
without any action from the CIR.

(4) All taxpayers, however, can rely on BIR Ruling No. DA–489–03 from the time of its issuance
on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010, as an
exception to the mandatory and jurisdictional 120+30 day periods.33(Emphasis supplied)

To recapitulate, the mandatory rule is that a judicial claim must be filed with the CTA within thirty
(30) days from the receipt of the Commissioner’s decision denying the administrative claim or
from the expiration of the 120–day period without any action from the Commissioner.
Otherwise, said judicial claim shall be considered as filed out of time.

This Court is mindful that when respondent filed its administrative claim on 6 May 1999, and its
corresponding judicial claim on 30 June 2000, the NIRC of 1997, as amended, was already in
effect. Clearly therefore, the strict observance in applying the provisions of Section 112 of the
NIRC of 1997 is proper. Hence, failure of respondent to observe the 30–day period under said
Section through its belated filing of the Petition for Review before the CTA warrants a dismissal
with prejudice for lack of jurisdiction.

Parenthetically, it must be emphasized that jurisdiction over the subject matter or nature of an
action is fundamental for a court to act on a given controversy,34 and is conferred only by law
and not by the consent or waiver upon a court which, otherwise, would have no jurisdiction over
the subject matter or nature of an action. Lack of jurisdiction of the court over an action or the
subject matter of an action cannot be cured by the silence, acquiescence, or even by express
consent of the parties.35 If the court has no jurisdiction over the nature of an action, its only
jurisdiction is to dismiss the case. The court could not decide the case on the merits.36

As regards the prints on the supporting receipts or invoices, it is worth mentioning that the High
Court already ruled on the significance of imprinting the word ―zero–rated‖ for zero–rated sales
covered by its receipts or invoices, pursuant to Section 4.108–1 of Revenue Regulations No. 7–
95.37 Thus, in Panasonic Communications Imaging Corporation of the Philippines v.
Commissioner of Internal Revenue,38 the Second Division of this Court
enunciated:chanRoblesvirtualLawlibrary

But when petitioner Panasonic made the export sales subject of this case, i.e., from April 1998
to March 1999, the rule that applied was Section 4.108–1 of RR 7–95, otherwise known as
the Consolidated Value–Added Tax Regulations, which the Secretary of Finance issued
on 9 December 1995 and took effect on 1 January 1996. It already required the printing of
the word ―zero–rated‖ on the invoices covering zero–rated sales. When R.A. 9337
amended the 1997 NIRC on November 1, 2005, it made this particular revenue regulation a part
of the tax code. This conversion from regulation to law did not diminish the binding force of
such regulation with respect to acts committed prior to the enactment of that law.

Section 4.108–1 of RR 7–95 proceeds from the rule–making authority granted to the Secretary
of Finance under Section 245 of the 1977 NIRC (Presidential Decree 1158) for the efficient
enforcement of the tax code and of course its amendments. The requirement is reasonable and
is in accord with the efficient collection of VAT from the covered sales of goods and services.
As aptly explained by the CTA’s First Division, the appearance of the word ―zero–rated‖ on
the face of invoices covering zero–rated sales prevents buyers from falsely claiming
input VAT from their purchases when no VAT was actually paid. If, absent such word, a
successful claim for input VAT is made, the government would be refunding money it did
not collect.

Further, the printing of the word ―zero–rated‖ on the invoice helps segregate sales that are
subject to 10% (now 12%) VAT from those sales that are zero–rated. Unable to submit the
proper invoices, petitioner Panasonic has been unable to substantiate its claim for refund.

xxxx

This Court held that, since the ―BIR authority to print‖ is not one of the items required to be
indicated on the invoices or receipts, the BIR erred in denying the claim for refund. Here,
however, the ground for denial of petitioner Panasonic’s claim for tax refund—the
absence of the word ―zero–rated‖ on its invoices—is one which is specifically and
precisely included in the above enumeration. Consequently, the BIR correctly denied
Panasonic’s claim for tax refund.39 (Emphasis supplied)

Clearly, the foregoing pronouncement affirms that absence or non–printing of the word ―zero–
rated‖ in respondent’s invoices is fatal to its claim for the refund and/or tax credit representing its
unutilized input VAT attributable to its zero–rated sales.

On the other hand, while this Court considers the importance of imprinting the word ―zero–rated‖
in said invoices, the same does not apply to the phrase ―BIR authority to print.‖ In Intel
Technology Philippines, Inc. v. Commissioner of Internal Revenue,40 the Court ruled that there
is no law or BIR rule or regulation requiring the taxpayer–claimant’s authority from the BIR to
print its sales invoices (BIR authority to print) to be reflected or indicated therein. It stressed
―that while entities engaged in business are required to secure from the BIR an authority to print
receipts or invoices and to issue duly registered receipts or invoices, it is not required that the
BIR authority to print be reflected or indicated therein.‖41

All told, the CTA has no jurisdiction over respondent’s judicial appeal considering that its
Petition for Review was filed beyond the mandatory 30–day period pursuant to Section 112(D)
of the NIRC of 1997, as amended. Consequently, respondent’s instant claim for refund must be
denied.

WHEREFORE, the petition is GRANTED. Accordingly, the 16 September 2005 Decision of the
Court of Appeals in CA–G.R. SP No. 80886 is hereby REVERSED and SET ASIDE. The
Petition for Review filed before the Court of Tax Appeals docketed as CTA Case No. 6129 is
DISMISSED for lack of jurisdiction. No costs.

SO ORDERED.

G.R. No. 204429 February 18, 2014

SMART COMMUNICATIONS, INC., Petitioner,

vs.
MUNICIPALITY OF MALVAR, BATANGAS, Respondent.

DECISION

CARPIO, J.:

The Case

This petition for review1 challenges the 26 June 2012 Decision2 and 13 November 2012
Resolution3 of the Court of Tax. Appeals (CTA) En Banc.

Th e CTA En Banc affirmed the 17 December 2010 Decision4 and 7 April 2011 Resolution5 of
the CTA First Division, which in turn affirmed the 2 December 2008 Decision6 and 21 May 2009
Order7 of the Regional Trial Court of Tanauan City, Batangas, Branch 6. The trial court declared
void the assessment imposed by respondent Municipality of Malvar, Batangas against petitioner
Smart Communications, Inc. for its telecommunications tower for 2001 to July 2003 and directed
respondent to assess petitioner only for the period starting 1 October 2003.

The Facts

Petitioner Smart Communications, Inc. (Smart) is a domestic corporation engaged in the

business of providing telecommunications services to the general public while respondent
Municipality of Malvar, Batangas (Municipality) is a local government unit created by law.

In the course of its business, Smart constructed a telecommunications tower within the territorial
jurisdiction of the Municipality. The construction of the tower was for the purpose of receiving
and transmitting cellular communications within the covered area.

On 30 July 2003, the Municipality passed Ordinance No. 18, series of 2003, entitled "An
Ordinance Regulating the Establishment of Special Projects."
On 24 August 2004, Smart received from the Permit and Licensing Division of the Office of the
Mayor of the Municipality an assessment letter with a schedule of payment for the total amount
of P389,950.00 for Smart’s telecommunications tower. The letter reads as follows:

This is to formally submit to your good office your schedule of payments in the Municipal
Treasury of the Local Government Unit of Malvar, province of Batangas which corresponds to
the tower of your company built in the premises of the municipality, to wit:

TOTAL PROJECT COST: PHP

11,000,000.00
For the Year 2001-2003
50% of 1% of the total project cost Php55,000.00
Add: 45% surcharge 24,750.00

Php79,750.00
Multiply by 3 yrs. (2001, 2002, 2003) Php239,250.00
For the year 2004
1% of the total project cost Php110,000.00
37% surcharge 40,700.00
==========
Php150,700.00
TOTAL Php389,950.00

Hoping that you will give this matter your preferential attention.8

Due to the alleged arrears in the payment of the assessment, the Municipality also caused the
posting of a closure notice on the telecommunications tower.

On 9 September 2004, Smart filed a protest, claiming lack of due process in the issuance of the
assessment and closure notice. In the same protest, Smart challenged the validity of Ordinance
No. 18 on which the assessment was based.

In a letter dated 28 September 2004, the Municipality denied Smart’s protest.

On 17 November 2004, Smart filed with Regional Trial Court of Tanauan City, Batangas, Branch
6, an "Appeal/Petition" assailing the validity of Ordinance No. 18. The case was docketed as SP
Civil Case No. 04-11-1920.

On 2 December 2008, the trial court rendered a Decision partly granting Smart’s
Appeal/Petition. The trial court confined its resolution of the case to the validity of the
assessment, and did not rule on the legality of Ordinance No. 18. The trial court held that the
assessment covering the period from 2001 to July 2003 was void since Ordinance No. 18 was
approved only on 30 July 2003. However, the trial court declared valid the assessment starting
1 October 2003, citing Article 4 of the Civil Code of the Philippines,9 in relation to the provisions
of Ordinance No. 18 and Section 166 of Republic Act No. 7160 or the Local Government Code
of 1991 (LGC).10 The dispositive portion of the trial court’s Decision reads:

WHEREFORE, in light of the foregoing, the Petition is partly GRANTED. The assessment dated
August 24, 2004 against petitioner is hereby declared null and void insofar as the assessment
made from year 2001 to July 2003 and respondent is hereby prohibited from assessing and
collecting, from petitioner, fees during the said period and the Municipal Government of Malvar,
Batangas is directed to assess Smart Communications, Inc. only for the period starting October
1, 2003.

No costs.

SO ORDERED.11

The trial court denied the motion for reconsideration in its Order of 21 May 2009.

On 8 July 2009, Smart filed a petition for review with the CTA First Division, docketed as CTA
AC No. 58.

On 17 December 2010, the CTA First Division denied the petition for review. The dispositive
portion of the decision reads:

WHEREFORE, the Petition for Review is hereby DENIED, for lack of merit. Accordingly, the
assailed Decision dated December 2, 2008 and the Order dated May 21, 2009 of Branch 6 of
the Regional Trial Court of Tanauan City, Batangas in SP. Civil Case No. 04-11-1920 entitled
"Smart Communications, Inc. vs. Municipality of Malvar, Batangas" are AFFIRMED.

SO ORDERED.12

On 7 April 2011, the CTA First Division issued a Resolution denying the motion for
reconsideration.

Smart filed a petition for review with the CTA En Banc, which affirmed the CTA First Division’s
decision and resolution. The dispositive portion of the CTA En Banc’s 26 June 2012 decision
reads:

WHEREFORE, premises considered, the present Petition for Review is hereby DISMISSED for
lack of merit.1âwphi1

Accordingly, the assailed Decision dated December 17, 2010 and Resolution dated April 7,
2011 are hereby AFFIRMED.

SO ORDERED.13

The CTA En Banc denied the motion for reconsideration.

Hence, this petition.

 The Ruling of the CTA En Banc

The CTA En Banc dismissed the petition on the ground of lack of jurisdiction. The CTA En Banc
declared that it is a court of special jurisdiction and as such, it can take cognizance only of such
matters as are clearly within its jurisdiction. Citing Section 7(a), paragraph 3, of Republic Act No.
9282, the CTA En Banc held that the CTA has exclusive appellate jurisdiction to review on
appeal, decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally
resolved by them in the exercise of their original or appellate jurisdiction. However, the same
provision does not confer on the CTA jurisdiction to resolve cases where the constitutionality of
a law or rule is challenged.

The Issues

The petition raises the following arguments:

1. The [CTA En Banc Decision and Resolution] should be reversed and set aside for
being contrary to law and jurisprudence considering that the CTA En Banc should have
exercised its jurisdiction and declared the Ordinance as illegal.

2. The [CTA En Banc Decision and Resolution] should be reversed and set aside for
being contrary to law and jurisprudence considering that the doctrine of exhaustion of
administrative remedies does not apply in [this case].

3. The [CTA En Banc Decision and Resolution] should be reversed and set aside for
being contrary to law and jurisprudence considering that the respondent has no authority
to impose the so-called "fees" on the basis of the void ordinance.14

The Ruling of the Court

The Court denies the petition.

On whether the CTA has jurisdiction over the present case

Smart contends that the CTA erred in dismissing the case for lack of jurisdiction. Smart
maintains that the CTA has jurisdiction over the present case considering the "unique" factual
circumstances involved.

The CTA refuses to take cognizance of this case since it challenges the constitutionality of
Ordinance No. 18, which is outside the province of the CTA.

Jurisdiction is conferred by law. Republic Act No. 1125, as amended by Republic Act No. 9282,
created the Court of Tax Appeals. Section 7, paragraph (a), sub-paragraph (3)15 of the law vests
the CTA with the exclusive appellate jurisdiction over "decisions, orders or resolutions of the
Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of
their original or appellate jurisdiction."

The question now is whether the trial court resolved a local tax case in order to fall within the
ambit of the CTA’s appellate jurisdiction This question, in turn, depends ultimately on whether
the fees imposed under Ordinance No. 18 are in fact taxes.
Smart argues that the "fees" in Ordinance No. 18 are actually taxes since they are not
regulatory, but revenue-raising. Citing Philippine Airlines, Inc. v. Edu,16 Smart contends that the
designation of "fees" in Ordinance No. 18 is not controlling.

The Court finds that the fees imposed under Ordinance No. 18 are not taxes.

Section 5, Article X of the 1987 Constitution provides that "each local government unit shall
have the power to create its own sources of revenues and to levy taxes, fees, and charges
subject to such guidelines and limitations as the Congress may provide, consistent with the
basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the
local government."

Consistent with this constitutional mandate, the LGC grants the taxing powers to each local
government unit. Specifically, Section 142 of the LGC grants municipalities the power to levy
taxes, fees, and charges not otherwise levied by provinces. Section 143 of the LGC provides for
the scale of taxes on business that may be imposed by municipalities17 while Section 14718 of
the same law provides for the fees and charges that may be imposed by municipalities on
business and occupation.

The LGC defines the term "charges" as referring to pecuniary liability, as rents or fees against
persons or property, while the term "fee" means "a charge fixed by law or ordinance for the
regulation or inspection of a business or activity."19

In this case, the Municipality issued Ordinance No. 18, which is entitled "An Ordinance
Regulating the Establishment of Special Projects," to regulate the "placing, stringing, attaching,
installing, repair and construction of all gas mains, electric, telegraph and telephone wires,
conduits, meters and other apparatus, and provide for the correction, condemnation or removal
of the same when found to be dangerous, defective or otherwise hazardous to the welfare of the
inhabitant[s]."20 It was also envisioned to address the foreseen "environmental depredation" to
be brought about by these "special projects" to the Municipality.21 Pursuant to these objectives,
the Municipality imposed fees on various structures, which included telecommunications towers.

As clearly stated in its whereas clauses, the primary purpose of Ordinance No. 18 is to regulate
the "placing, stringing, attaching, installing, repair and construction of all gas mains, electric,
telegraph and telephone wires, conduits, meters and other apparatus" listed therein, which
included Smart’s telecommunications tower. Clearly, the purpose of the assailed Ordinance is to
regulate the enumerated activities particularly related to the construction and maintenance of
various structures. The fees in Ordinance No. 18 are not impositions on the building or structure
itself; rather, they are impositions on the activity subject of government regulation, such as the
installation and construction of the structures.22

Since the main purpose of Ordinance No. 18 is to regulate certain construction activities of the
identified special projects, which included "cell sites" or telecommunications towers, the fees
imposed in Ordinance No. 18 are primarily regulatory in nature, and not primarily revenue-
raising. While the fees may contribute to the revenues of the Municipality, this effect is merely
incidental. Thus, the fees imposed in Ordinance No. 18 are not taxes.

In Progressive Development Corporation v. Quezon City,23 the Court declared that "if the
generating of revenue is the primary purpose and regulation is merely incidental, the imposition
is a tax; but if regulation is the primary purpose, the fact that incidentally revenue is also
obtained does not make the imposition a tax."

In Victorias Milling Co., Inc. v. Municipality of Victorias,24 the Court reiterated that the purpose
and effect of the imposition determine whether it is a tax or a fee, and that the lack of any
standards for such imposition gives the presumption that the same is a tax.

We accordingly say that the designation given by the municipal authorities does not decide
whether the imposition is properly a license tax or a license fee. The determining factors are the
purpose and effect of the imposition as may be apparent from the provisions of the ordinance.
Thus, "[w]hen no police inspection, supervision, or regulation is provided, nor any standard set
for the applicant to establish, or that he agrees to attain or maintain, but any and all persons
engaged in the business designated, without qualification or hindrance, may come, and a
license on payment of the stipulated sum will issue, to do business, subject to no prescribed rule
of conduct and under no guardian eye, but according to the unrestrained judgment or fancy of
the applicant and licensee, the presumption is strong that the power of taxation, and not the
police power, is being exercised."

Contrary to Smart’s contention, Ordinance No. 18 expressly provides for the standards which
Smart must satisfy prior to the issuance of the specified permits, clearly indicating that the fees
are regulatory in nature.

These requirements are as follows:

SECTION 5. Requirements and Procedures in Securing Preliminary Development Permit.

The following documents shall be submitted to the SB Secretary in triplicate:

a) zoning clearance

b) Vicinity Map

c) Site Plan

d) Evidence of ownership

e) Certificate true copy of NTC Provisional Authority in case of Cellsites, telephone or

telegraph line, ERB in case of gasoline station, power plant, and other concerned
national agencies

f) Conversion order from DAR is located within agricultural zone.

g) Radiation Protection Evaluation.

h) Written consent from subdivision association or the residence of the area concerned if
the special projects is located within the residential zone.

i) Barangay Council Resolution endorsing the special projects.

SECTION 6. Requirement for Final Development Permit – Upon the expiration of 180 days and
the proponents of special projects shall apply for final [development permit] and they are
require[d] to submit the following:

a) evaluation from the committee where the Vice Mayor refers the special project

b) Certification that all local fees have been paid.

Considering that the fees in Ordinance No. 18 are not in the nature of local taxes, and Smart is
questioning the constitutionality of the ordinance, the CTA correctly dismissed the petition for
lack of jurisdiction. Likewise, Section 187 of the LGC,25 which outlines the procedure for
questioning the constitutionality of a tax ordinance, is inapplicable, rendering unnecessary the
resolution of the issue on non-exhaustion of administrative remedies.

On whether the imposition of the fees in Ordinance No. 18 is ultra vire Smart argues that the
Municipality exceeded its power to impose taxes and fees as provided in Book II, Title One,
Chapter 2, Article II of the LGC. Smart maintains that the mayor’s permit fees in Ordinance No.
18 (equivalent to 1% of the project cost) are not among those expressly enumerated in the LGC.

As discussed, the fees in Ordinance No.18 are not taxes. Logically, the imposition does not
appear in the enumeration of taxes under Section 143 of the LGC.

Moreover, even if the fees do not appear in Section 143 or any other provision in the LGC, the
Municipality is empowered to impose taxes, fees and charges, not specifically enumerated in
the LGC or taxed under the Tax Code or other applicable law. Section 186 of the LGC, granting
local government units wide latitude in imposing fees, expressly provides:

Section 186. Power To Levy Other Taxes, Fees or Charges. - Local government units may
exercise the power to levy taxes, fees or charges on any base or subject not otherwise
specifically enumerated herein or taxed under the provisions of the National Internal Revenue
Code, as amended, or other applicable laws: Provided, That the taxes, fees, or charges shall
not be unjust, excessive, oppressive, confiscatory or contrary to declared national policy:
Provided, further, That the ordinance levying such taxes, fees or charges shall not be enacted
without any prior public hearing conducted for the purpose.

Smart further argues that the Municipality is encroaching on the regulatory powers of the
National Telecommunications Commission (NTC). Smart cites Section 5(g) of Republic Act No.
7925 which provides that the National Telecommunications Commission (NTC), in the exercise
of its regulatory powers, shall impose such fees and charges as may be necessary to cover
reasonable costs and expenses for the regulation and supervision of the operations of
telecommunications entities. Thus, Smart alleges that the regulation of telecommunications
entities and all aspects of its operations is specifically lodged by law on the NTC.

To repeat, Ordinance No. 18 aims to regulate the "placing, stringing, attaching, installing, repair
and construction of all gas mains, electric, telegraph and telephone wires, conduits, meters and
other apparatus" within the Municipality. The fees are not imposed to regulate the
administrative, technical, financial, or marketing operations of telecommunications entities, such
as Smart’s; rather, to regulate the installation and maintenance of physical structures – Smart’s
cell sites or telecommunications tower. The regulation of the installation and maintenance of
such physical structures is an exercise of the police power of the Municipality. Clearly, the
Municipality does not encroach on NTC’s regulatory powers.

The Court likewise rejects Smart’s contention that the power to fix the fees for the issuance of
development permits and locational clearances is exercised by the Housing and Land Use
Regulatory Board (HLURB). Suffice it to state that the HLURB itself recognizes the local
government units’ power to collect fees related to land use and development. Significantly, the
HLURB issued locational guidelines governing telecommunications
infrastructure.1âwphi1 Guideline No. VI relates to the collection of locational clearance fees
either by the HLURB or the concerned local government unit, to wit:

VI. Fees

The Housing and Land Use Regulatory Board in the performance of its functions shall collect
the locational clearance fee based on the revised schedule of fees under the special use project
as per Resolution No. 622, series of 1998 or by the concerned LGUs subject to EO 72.26

On whether Ordinance No. 18 is valid and constitutional

Smart contends that Ordinance No. 18 violates Sections 130(b)(3)27 and 186 of the LGC since
the fees are unjust, excessive, oppressive and confiscatory. Aside from this bare allegation,
Smart did not present any evidence substantiating its claims. In Victorias Milling Co., Inc. v.
Municipality of Victorias,28 the Court rejected the argument that the fees imposed by respondent
therein are excessive for lack of evidence supporting such claim, to wit:

An ordinance carries with it the presumption of validity. The question of reasonableness though
is open to judicial inquiry. Much should be left thus to the discretion of municipal authorities.
Courts will go slow in writing off an ordinance as unreasonable unless the amount is so
excessive as to be prohibitive, arbitrary, unreasonable, oppressive, or confiscatory. A rule which
has gained acceptance is that factors relevant to such an inquiry are the municipal conditions as
a whole and the nature of the business made subject to imposition.

Plaintiff, has however not sufficiently proven that, taking these factors together, the license
taxes are unreasonable. The presumption of validity subsists. For, plaintiff has limited itself to
insisting that the amounts levied exceed the cost of regulation and the municipality has
adequate funds for the alleged purposes as evidenced by the municipality’s cash surplus for the
fiscal year ending 1956.

On the constitutionality issue, Smart merely pleaded for the declaration of unconstitutionality of
Ordinance No. 18 in the Prayer of the Petition, without any argument or evidence to support its
plea. Nowhere in the body of the Petition was this issue specifically raised and discussed.
Significantly, Smart failed to cite any constitutional provision allegedly violated by respondent
when it issued Ordinance No. 18.

Settled is the rule that every law, in this case an ordinance, is presumed valid. To strike down a
law as unconstitutional, Smart has the burden to prove a clear and unequivocal breach of the
Constitution, which Smart miserably failed to do. In Lawyers Against Monopoly and Poverty
(LAMP) v. Secretary of Budget and Management,29 the Court held, thus:
To justify the nullification of the law or its implementation, there must be a clear and
unequivocal, not a doubtful, breach of the Constitution. In case of doubt in the sufficiency of
proof establishing unconstitutionality, the Court must sustain legislation because "to invalidate [a
law] based on xx x baseless supposition is an affront to the wisdom not only of the legislature
that passed it but also of the executive which approved it." This presumption of constitutionality
can be overcome only by the clearest showing that there was indeed an infraction of the
Constitution, and only when such a conclusion is reached by the required majority may the
Court pronounce, in the discharge of the duty it cannot escape, that the challenged act must be
struck down.

WHEREFORE, the Court DENIES the petition.

SO ORDERED.

COMMISSIONER OF INTERNAL G.R. No. 162155

REVENUE and ARTURO V.
PARCERO in his official
capacity as Revenue District
Officer of Revenue District
No. 049 (Makati),
Petitioners, Present:

PUNO, C.J., Chairperson,

SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA,
AZCUNA and
GARCIA, JJ.

PRIMETOWN PROPERTY
GROUP, INC.,
Respondent. Promulgated:
August 28, 2007

x-----------------------------------------x

DECISION

CORONA, J.:

This petition for review on certiorari[1] seeks to set aside the August 1, 2003 decision[2] of the

Court of Appeals (CA) in CA-G.R. SP No. 64782 and its February 9, 2004 resolution denying

reconsideration.[3]
On March 11, 1999, Gilbert Yap, vice chair of respondent Primetown Property Group, Inc.,

applied for the refund or credit of income tax respondent paid in 1997. In Yap's letter to

petitioner revenue district officer Arturo V. Parcero of Revenue District No. 049 (Makati) of the

Bureau of Internal Revenue (BIR),[4] he explained that the increase in the cost of labor and

materials and difficulty in obtaining financing for projects and collecting receivables caused the

real estate industry to slowdown.[5] As a consequence, while business was good during the first

quarter of 1997, respondent suffered losses amounting to P71,879,228 that year.[6]

According to Yap, because respondent suffered losses, it was not liable for income

taxes.[7] Nevertheless, respondent paid its quarterly corporate income tax and remitted

creditable withholding tax from real estate sales to the BIR in the total amount

of P26,318,398.32.[8] Therefore, respondent was entitled to tax refund or tax credit.[9]

On May 13, 1999, revenue officer Elizabeth Y. Santos required respondent to submit additional

documents to support its claim.[10] Respondent complied but its claim was not acted upon. Thus,

on April 14, 2000, it filed a petition for review[11] in the Court of Tax Appeals (CTA).

On December 15, 2000, the CTA dismissed the petition as it was filed beyond the two-year

prescriptive period for filing a judicial claim for tax refund or tax credit.[12] It invoked Section 229

of the National Internal Revenue Code (NIRC):

Sec. 229. Recovery of Taxes 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 a 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)

The CTA found that respondent filed its final adjusted return on April 14, 1998. Thus, its right to

claim a refund or credit commenced on that date.[13]

The tax court applied Article 13 of the Civil Code which states:

Art. 13. When the law speaks of years, months, days or nights, it shall be
understood that years are of three hundred sixty-five days each; months, of
thirty days; days, of twenty-four hours, and nights from sunset to sunrise.

If the months are designated by their name, they shall be computed by the
number of days which they respectively have.

In computing a period, the first day shall be excluded, and the last included.
(emphasis supplied)

Thus, according to the CTA, the two-year prescriptive period under Section 229 of the NIRC for

the filing of judicial claims was equivalent to 730 days. Because the year 2000 was a leap year,

respondent's petition, which was filed 731 days[14] after respondent filed its final adjusted return,

was filed beyond the reglementary period.[15]

Respondent moved for reconsideration but it was denied.[16] Hence, it filed an appeal in the

CA.[17]

On August 1, 2003, the CA reversed and set aside the decision of the CTA.[18] It ruled that

Article 13 of the Civil Code did not distinguish between a regular year and a leap year.

According to the CA:

The rule that a year has 365 days applies, notwithstanding the fact that a
particular year is a leap year.[19]
In other words, even if the year 2000 was a leap year, the periods covered by April 15, 1998 to

April 14, 1999 and April 15, 1999 to April 14, 2000 should still be counted as 365 days each or a

total of 730 days. A statute which is clear and explicit shall be neither interpreted nor

construed.[20]

Petitioners moved for reconsideration but it was denied.[21] Thus, this appeal.

Petitioners contend that tax refunds, being in the nature of an exemption, should be strictly

construed against claimants.[22] Section 229 of the NIRC should be strictly appliedagainst

respondent inasmuch as it has been consistently held that the prescriptive period (for the filing

of tax refunds and tax credits) begins to run on the day claimants file their final adjusted

returns.[23] Hence, the claim should have been filed on or before April 13, 2000 or within 730

days, reckoned from the time respondent filed its final adjusted return.

The conclusion of the CA that respondent filed its petition for review in the CTA within the two-

year prescriptive period provided in Section 229 of the NIRC is correct. Its basis, however, is

not.

The rule is that the two-year prescriptive period is reckoned from the filing of the final adjusted

return.[24] But how should the two-year prescriptive period be computed?

As already quoted, Article 13 of the Civil Code provides that when the law speaks of a year, it is

understood to be equivalent to 365 days. In National Marketing Corporation v. Tecson,[25] we

ruled that a year is equivalent to 365 days regardless of whether it is a regular year or a leap

year.[26]

However, in 1987, EO[27] 292 or the Administrative Code of 1987 was enacted. Section 31,

Chapter VIII, Book I thereof provides:

Sec. 31. Legal Periods. Year shall be understood to be twelve calendar

months; month of thirty days, unless it refers to a specific calendar month in
 which case it shall be computed according to the number of days the specific
month contains; day, to a day of twenty-four hours and; night from sunrise to
sunset. (emphasis supplied)

A calendar month is a month designated in the calendar without regard to the number of days it

may contain.[28] It is the period of time running from the beginning of a certain numbered day up

to, but not including, the corresponding numbered day of the next month, and if there is not a

sufficient number of days in the next month, then up to and including the last day of that

month.[29] To illustrate, one calendar month from December 31, 2007 will be from January 1,

2008 to January 31, 2008; one calendar month from January 31, 2008 will be from February 1,

2008 until February 29, 2008.[30]

A law may be repealed expressly (by a categorical declaration that the law is revoked and

abrogated by another) or impliedly (when the provisions of a more recent law cannot be

reasonably reconciled with the previous one).[31] Section 27, Book VII (Final Provisions) of the

Administrative Code of 1987 states:

Sec. 27. Repealing clause. All laws, decrees, orders, rules and regulation, or
portions thereof, inconsistent with this Code are hereby repealed or modified
accordingly.

A repealing clause like Sec. 27 above is not an express repealing clause because it fails to

identify or designate the laws to be abolished.[32] Thus, the provision above

only impliedly repealed all laws inconsistent with the Administrative Code of 1987.

Implied repeals, however, are not favored. An implied repeal must have been clearly and

unmistakably intended by the legislature. The test is whether the subsequent law encompasses

entirely the subject matter of the former law and they cannot be logically or reasonably

reconciled.[33]
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 manifest 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[34] on April 14, 1998) consisted of 24 calendar months, computed as follows:

Year 1st calendar April 15, 1998 to May 14, 1998

1 month
2nd calendar May 15, 1998 to June 14, 1998
month
3rd calendar June 15, 1998 to July 14, 1998
month
4th calendar July 15, 1998 to August 14, 1998
month
5th calendar August 15, 1998 to September 14,
month 1998
6th calendar September 15, to October 14, 1998
month 1998
7th calendar October 15, to November 14,
month 1998 1998
8th calendar November 15, to December 14,
month 1998 1998
9th calendar December 15, to January 14, 1999
month 1998
10th calendar January 15, to February 14,
month 1999 1999
11th calendar February 15, to March 14, 1999
month 1999
12th calendar March 15, 1999 to April 14, 1999
month
Year 13th calendar April 15, 1999 to May 14, 1999
 2 month
14th calendar May 15, 1999 to June 14, 1999
month
15th calendar June 15, 1999 to July 14, 1999
month
16th calendar July 15, 1999 to August 14, 1999
month
17th calendar August 15, 1999 to September 14,
month 1999
18th calendar September 15, to October 14, 1999
month 1999
19th calendar October 15, to November 14,
month 1999 1999
20th calendar November 15, to December 14,
month 1999 1999
21st calendar December 15, to January 14, 2000
month 1999
22nd calendar January 15, to February 14,
month 2000 2000
23rd calendar February 15, to March 14, 2000
month 2000
24th calendar March 15, 2000 to April 14, 2000
month

We therefore hold that respondent's petition (filed on April 14, 2000) was filed on the last day of

the 24th calendar month from the day respondent filed its final adjusted return. Hence, it was

filed within the reglementary period.

Accordingly, the petition is hereby DENIED. The case is REMANDED to the Court of Tax

Appeals which is ordered to expeditiously proceed to hear C.T.A. Case No. 6113

entitled Primetown Property Group, Inc. v. Commissioner of Internal Revenue and Arturo V.

Parcero.

No costs.

G.R. No. 190680 September 13, 2012

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
COURT OF TAX APPEALS and AYALA LAND, INC., Respondents.
 RESOLUTION

REYES, J.:

Subject of this petition for certiorari under Rule 65 of the Rules of Court is the Resolution1 dated
October 30, 2009 of the Court of Tax Appeals (CTA) en bane in CTA EB No. 402, which
dismissed herein petitioner Commissioner of Internal Revenue's (CIR) petition for relief from
judgment under Rule 38 of the Rules of Court.

The factual antecedents that led to the filing of this petition are as follows: In 2005, private
respondent Ayala Land, Inc. (ALI) filed with the CTA a petition for review2 to question the CIR’s
assessment against it for deficiency value-added tax (VAT) for the calendar year 2003. Before
the tax court, the CIR and ALI filed their Joint Stipulation of Facts and Issues, which was cited in
the present petition to read in part:

Petitioner (herein private respondent) is primarily engaged in the sale and/or lease of real
properties and, among others, likewise owns and operates theatres or cinemas.

Petitioner received respondent’s (herein petitioner) Final Assessment Notice (hereinafter

referred to as the 2003 FAN) dated 29 October 2004 whereby respondent was assessing
petitioner alleged deficiency 10% value added tax (VAT) on its alleged income from cinema
operations for the taxable year 2003 in the aggregate amount of One Hundred Three Million
Three Hundred Forty-Six Thousand Six Hundred Ninety-One and 40/100 Pesos
(P 103,346,691.40) inclusive of 20% interest.

On 10 December 2004, petitioner filed its protest with the office of respondent contesting the
factual and legal bases of the VAT assessment.

On 28 April 2005, petitioner received respondent’s 25 April 2005 Decision denying petitioner’s
protest, with a notation that the same constitutes respondent’s Final Decision on the matter.

Petitioner received on 23 November 2004, respondent’s 19 November 2004 Letter of Authority

No. 0002949 for the examination of ALL INTERNAL REVENUE TAXES of petitioner from 1
January 2003 to 31 December 2003.

In order to protect its right, petitioner filed the Petition for Review pursuant to Section 228 of the
Tax Code.3

Proceedings ensued. On April 11, 2008, the CTA Second Division rendered its Decision
granting ALI’s petition for review. The assessment against ALI for deficiency VAT in the amount
of P 103,346,691.40 for the calendar year 2003 was ordered cancelled and set aside. The CIR’s
motion for reconsideration was denied, prompting him to file an appeal to the CTA en banc.

On February 12, 2009, the CTA en banc rendered its Decision affirming the decision of the CTA
Second Division. Feeling aggrieved, the CIR filed a motion for reconsideration, but this was
denied by the CTA en banc in its Resolution dated March 25, 2009.

The CIR claims that neither he nor his statutory counsel, the Office of the Solicitor General
(OSG), received a copy of the CTA en banc’s resolution denying his motion for reconsideration.
It then came as a surprise to him when he received on June 17, 2009 a copy of the CTA en
banc’s Resolution dated June 10, 2009 which provided that the CTA Decision dated February
12, 2009 had become final and executory. The CIR then filed on July 2, 2009 a Manifestation
with the Motion to Reconsider Resolution Ordering Entry of Judgment,4 questioning the CTA’s
entry of judgment and seeking the following reliefs: (1) for the CTA to withdraw its resolution
ordering the issuance of entry of judgment; (2) for the CTA to resolve the CIR’s motion for
reconsideration filed on March 4, 2009; and (3) should there be an existing resolution of the
motion for reconsideration, for the CTA to serve a copy thereof upon the CIR and his counsel.
The petitioner explained in his manifestation:

On 17 June 2009, he received Resolution dated 10 June 2009 holding that in the absence of an
appeal, the Honorable Court’s Decision dated 12 February 2009 has become final and
executory.

Thus, the Honorable Court ordered the issuance of an Entry of Judgment in this case.

Respondent respectfully manifests that on 4 March 2009, he filed a Motion for Reconsideration
of the Honorable Court’s Decision dated 12 February 2009, the same decision which the
Honorable Court has now deemed to be final and executory.

Further, a check with his records reveals that there is no Resolution which has been issued by
the Honorable Court denying his Motion for Reconsideration. To double check, on three (3)
occasions he has inquired from his counsel the Office of the Solicitor General, particularly State
Solicitor Bernardo C. Villar, on whether he has received any Resolution on the Motion for
Reconsideration. Respondent was informed that there was none.

Finally, he checked with the Honorable Court and was informed that there is a Resolution dated
25 March 2009. In short, while petitioner and his counsel were of the mind that the Motion for
Reconsideration still had to be resolved, it appears that it already was.

However, it is respectfully manifested that petitioner and his counsel have not received the said
Resolution and thus, such failure has prevented petitioner from filing the necessary Petition for
Review before the Honorable Supreme Court. Such petition would have barred the Decision
dated 12 February 2009 from attaining finality and eventual entry in the Book of
Judgements.5 (Emphasis ours)

On July 29, 2009, the CTA en banc issued its Resolution denying the motion. It reasoned that
per its records, the CIR and OSG had received on March 27, 2009 and March 30, 2009,
respectively, a copy of the resolution denying the motion for reconsideration.6 The CIR received
its copy of said Resolution dated July 29, 2009 on August 3, 2009.

The CIR then filed on October 2, 2009 with the CTA en banc a petition for relief7 asking that the
entry of judgment in the case be recalled, and for the CIR and OSG to be served with copies of
the Resolution dated March 25, 2009. To show the timeliness of the petition for relief, the CIR
claimed that he knew of the Resolution dated March 25, 2009 only on August 3, 2009, when he
received a copy of the Resolution dated July 29, 2009. He then claimed that the sixty (60)-day
period for the filing of the petition for relief should be reckoned from August 3, 2009, giving him
until October 2, 2009 to file it. Further, CIR’s counsel Atty. Felix Paul R. Velasco III (Atty.
Velasco) tried to explain the CIR’s and OSG’s alleged failure to receive the CTA’s Resolution
dated March 25, 2009, notwithstanding the CTA’s records showing the contrary, by alleging in
his Affidavit of Merit8 attached to the petition for relief that:

14. I noted that, as stated by the Honorable CTA in its 29 July 2009 Resolution, there were
rubber stamps of both petitioner and the OSG signifying receipt of the resolution. But given the
fact that both petitioner and the OSG did not have copies of this Resolution, the only logical
explanation is that the front notice page was indeed correct and stamped by both offices but the
received enclosed order of the Honorable Court probably contained a different one. This error
has happened to petitioner in other cases but these were subsequently and timely noticed and
no detrimental effects occurred.9

On October 30, 2009, the CTA en banc dismissed the petition for relief for having been filed out
time, via the assailed resolution which reads in part:

The Supreme Court has ruled that "a party filing a petition for relief from judgment must strictly
comply with two reglementary periods; first, the petition must be filed within sixty (60) days from
knowledge of the judgment, order or other proceeding to be set aside; and second, within a
fixed period of six (6) months from entry of such judgment, order or other proceeding. Strict
compliance with these periods is required because a petition for relief from judgment is a final
act of liberality on the part of the State, which remedy cannot be allowed to erode any further
the fundamental principle that a judgment, order or proceeding must, at some definite time,
attain finality in order to put at last an end to litigation."

xxxx

In this case, petitioner seeks relief from judgment of the Court En Banc’s Resolution dated
March 25, 2009. Records show that petitioner learned of the Resolution dated March 25, 2009
when he received on June 17, 2009, the Resolution of the Court En Banc dated June 10, 2009
ordering the Entry of Judgment. This was in fact stated in petitioner’s "Manifestation with Motion
to Reconsider Resolution Ordering Entry of Judgment" which petitioner filed on July 2, 2009.
Hence, the 60 days should be counted from June 17, 2009 and the 60th day fell on August 16,
2009 which was a Sunday. Hence, the last day for the filing of the petition for relief was on
August 17, 2009. Even if the 60-day period is counted from petitioner’s receipt of the Entry of
Judgment on July 1, 2009, with the 60th day falling on August 30, 2009, the petition for relief
filed on October 2, 2009 will still be filed beyond the 60-day period.10 (Emphasis ours)

Without filing a motion for reconsideration with the CTA en banc, the CIR filed the present
petition for certiorari. The CIR argues that his 60-day period under Rule 38 should have been
counted from August 3, 2009, when he received a copy of the Resolution dated July 29, 2009
and claimed to have first learned about the Resolution dated March 25, 2009 denying his motion
for reconsideration.11

The issue then for this Court’s resolution is: Whether or not the CTA committed grave abuse of
discretion amounting to lack or excess of jurisdiction in ruling that the petition for relief of the
CIR was filed beyond the 60-day reglementary period under Rule 38.

At the outset, this Court holds that a dismissal of the petition is warranted in view of the
petitioner’s failure to file before the CTA en banc a motion for reconsideration of the assailed
resolution. The settled rule is that a motion for reconsideration is a condition sine qua non for
the filing of a petition for certiorari. Its purpose is to grant an opportunity for the court to correct
any actual or perceived error attributed to it by the re-examination of the legal and factual
circumstances of the case. The rationale of the rule rests upon the presumption that the court or
administrative body which issued the assailed order or resolution may amend the same, if given
the chance to correct its mistake or error. The "plain speedy, and adequate remedy" referred to
in Section 1, Rule 65 of the Rules of Court is a motion for reconsideration of the questioned
order or resolution.12 While the rule is not absolute and admits of settled exceptions, none of the
exceptions attend the present petition.

Even if we set aside this procedural infirmity, the petition is dismissible. In resolving the
substantive issue, it is crucial to determine the date when the petitioner learned of the CTA en
banc’s Resolution dated March 25, 2009, as Section 3, Rule 38 of the Rules of Court provides:

Sec. 3. Time for filing petition; contents and verification. – A petition provided for in either of the
preceding sections of this Rule must be verified, filed within sixty (60) days after the petitioner
learns of the judgment, final order, or other proceeding to be set aside, and not more than six
(6) months after such judgment or final order was entered, or such proceeding was taken; and
must be accompanied with affidavits showing the fraud, accident, mistake, or excusable
negligence relied upon, and the facts constituting the petitioner’s good and substantial cause of
action or defense, as the case may be. (Emphasis ours)

By the CIR’s own evidence and admissions, particularly in the narration of facts in the petition
for relief, the OSG’s letter and the affidavit of merit attached thereto, it is evident that both the
CIR and the OSG had known of the CTA’s Resolution dated March 25, 2009 long before August
3,

2009. Granting that we give credence to the CIR’s argument that he could not have known of
the Resolution dated March 25, 2009 by his receipt on June 17, 2009 of the Resolution dated
June 10, 2009, the CIR’s petition for relief was still filed out of time.

The CIR’s claim that it was only on August 3, 2009 that he learned of the CTA’s denial of his
motion for reconsideration is belied by records showing that as of June 22, 2009, he already
knew of such fact. The information was relayed by the CTA to the CIR, when the latter inquired
from the court about the status of the case and the court’s action on his motion for
reconsideration. It was precisely because of such knowledge that he filed on July 2, 2009 the
manifestation and motion pertaining to the CTA’s order of entry of judgment. Pertinent portions
of his petition for relief read:

On 17 June 2009, he received a Resolution of the Honorable Court dated 10 June 2009
ordering the issuance of the Entry of Judgment in the present case, x x x:

xxxx

Petitioner’s handling counsel was surprised that the above emphasized decision dated 12
February 2009 had become final considering that he had filed a timely Motion for
Reconsideration on 4 March 2009.

Investigating further, he called the Honorable Court and was informed that his Motion for
Reconsideration filed by registered mail on 4 March 2009 was received by the Honorable Court
on 11 March 2009. He was also informed that the last document on file there was a Resolution
dated 25 March 2009. He then searched his records and found no such Resolution. Petitioner
then tried to confirm the same from petitioner’s official counsel, the Office of the Solicitor
General (OSG) through the assigned Solicitor, Atty. Bernardo C. Villar. He was then informed
that, same as handling counsel, the latter was also waiting for the resolution of the Motion for
Reconsideration filed on 4 March 2009 and likewise, did not receive any copy of any resolution
for that matter. The OSG then formalized this information through a letter dated 24 June 2009. x
x x.13 (Emphasis ours)

In the letter14 dated June 24, 2009 attached to the petition for relief as Annex "A", State Solicitor
Bernardo C. Villar mentioned that on June 22, 2009, he and Atty. Velasco had discussed the
CTA’s prior issuance of a resolution denying their motion for reconsideration, thus:

This pertains to the CTA Notice of Resolution dated June 10, 2009 (directing entry of judgment),
a copy of which was received by the OSG on June 17, 2009, and further to our telephone
discussion on Monday, June 22, 2009.

As we have discussed, the OSG has not previously received any resolution on the motion for
reconsideration which you filed with the CTA. However, you pointed out that CTA records tend
to show that there had been such a resolution and that BIR was already notified of the same
sometime in March 2009.15 (Emphasis ours)

The CIR then can no longer validly dispute that he had known of the CTA’s Resolution dated
March 25, 2009 on June 22, 2009. Even as we reckon the 60-day period under Section 3, Rule
38 from said date, the petitioner only had until August 21, 2009 within which to file a petition for
relief. Since August 21, 2009, a Friday, was a non-working holiday, the petitioner should have
filed the petition at the latest on August 24, 2009. The CIR’s filing with the CTA of the petition for
relief on October 2, 2009 then did not conform to the 60-day requirement.

Significantly, the OSG also opined, and had so advised the CIR, that the petition for relief was
indeed filed out of time. Attached to the petitioner’s Compliance16 with this Court’s
Resolution17 dated May 30, 2011 is the OSG’s letter18 dated September 22, 2009, addressed to
the BIR and which reads:

We regret to inform you that we cannot be of help to you in filing a petition for relief since you
are the ones on record representing the BIR before the Court of Tax Appeals. As you well know,
our participation in these matters are limited to filing an appeal with the Supreme Court in due
time. This is precisely what we meant in our previous letters as the kind of assistance that we
can provide you.

Furthermore, as far as we are concerned, there is doubt in the propriety of filing a petition for
relief at this time. Please note that from your receipt on June 17, 2009 of the entry of judgment,
you filed a "Manifestation and Motion to Reconsider Resolution Ordering Entry of Judgment"
dated July 1, 2009 instead of a petition for relief. In the meantime, the 60 days period (from
actual knowledge) under Section 3, Rule 38 within which to file the edition for relief continued to
run and has expired already.19 (Emphasis ours)

Given the foregoing, this Court finds no cogent reason to grant petitioner's plea for the issuance
of a writ of certiorari. An act of a court or tribunal may only be considered as committed in grave
abuse of discretion when the same is performed in a capricious or whimsical exercise of
judgment, which is equivalent to lack of jurisdiction. The abuse of discretion must be so patent
and gross as to amount to an evasion of positive duty or to a vi1iual refusal to perform a duty
enjoined by law or to act at all in contemplation of law, as where the power is exercised in an
arbitrary and despotic manner by reason of passion or personal hostility.20 There was no such
grave abuse of discretion in this case because the CIR's petition for relief was indeed filed out of
time.

WHEREFORE, premises considered, the petition is DISMISSED.

SO ORDERED.

COMMISSIONER OF INTERNAL G.R. No. 185371

REVENUE,
Petitioner, Present:

CARPIO, J., Chairperson,

NACHURA,
PERALTA,
- versus - ABAD, and
MENDOZA, JJ.

Promulgated:
METRO STAR SUPERAMA, INC.,
Respondent. December 8, 2010

x -------------------------------------------------------------------------------------- x

DECISION

MENDOZA, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court filed by the
petitioner Commissioner of Internal Revenue (CIR) seeks to reverse and set aside the 1]
September 16, 2008 Decision[1] of the Court of Tax Appeals En Banc (CTA-En Banc), in C.T.A.
EB No. 306 and 2] its November 18, 2008 Resolution[2] denying petitioners motion for
reconsideration.

The CTA-En Banc affirmed in toto the decision of its Second Division (CTA-Second
Division) in CTA Case No. 7169 reversing the February 8, 2005 Decision of the CIR which
assessed respondent Metro Star Superama, Inc. (Metro Star) of deficiency value-added tax and
withholding tax for the taxable year 1999.
Based on a Joint Stipulation of Facts and Issues[3] of the parties, the CTA Second Division
summarized the factual and procedural antecedents of the case, the pertinent portions of which
read:

Petitioner is a domestic corporation duly organized and existing by virtue

of the laws of the Republic of the Philippines, x x x.

On January 26, 2001, the Regional Director of Revenue Region No.

10, Legazpi City, issued Letter of Authority No. 00006561 for Revenue Officer
Daisy G. Justiniana to examine petitioners books of accounts and other
accounting records for income tax and other internal revenue taxes for the
taxable year 1999. Said Letter of Authority was revalidated on August 10,
2001 by Regional Director Leonardo Sacamos.

For petitioners failure to comply with several requests for the presentation
of records and Subpoena Duces Tecum, [the] OIC of BIR Legal Division issued
an Indorsement dated September 26, 2001 informing Revenue District Officer of
Revenue Region No. 67, Legazpi City to proceed with the investigation based on
the best evidence obtainable preparatory to the issuance of assessment notice.

On November 8, 2001, Revenue District Officer Socorro O. Ramos-

Lafuente issued a Preliminary 15-day Letter, which petitioner received
on November 9, 2001. The said letter stated that a post audit review was held
and it was ascertained that there was deficiency value-added and withholding
taxes due from petitioner in the amount of P 292,874.16.

On April 11, 2002, petitioner received a Formal Letter of Demand dated

April 3, 2002 from Revenue District No. 67, Legazpi City, assessing petitioner the
amount of Two Hundred Ninety Two Thousand Eight Hundred Seventy Four
Pesos and Sixteen Centavos (P292,874.16.) for deficiency value-added and
withholding taxes for the taxable year 1999, computed as follows:

ASSESSMENT NOTICE NO. 067-99-003-579-072

VALUE ADDED TAX

Gross Sales P1,697,718.90
Output Tax P 154,338.08
Less: Input Tax
VAT Payable P 154,338.08
Add: 25% Surcharge P 38,584.54
20% Interest 79,746.49
Compromise Penalty
Late Payment P16,000.00
Failure to File VAT returns 2,400.00 18,400.00 136,731.01
TOTAL P 291,069.09
WITHHOLDING TAX
Compensation 2,772.91
Expanded 110,103.92
Total Tax Due P 112,876.83
Less: Tax Withheld 111,848.27
Deficiency Withholding Tax P 1,028.56
Add: 20% Interest p.a. 576.51
Compromise Penalty 200.00
TOTAL P 1,805.07

*Expanded Withholding Tax P1,949,334.25 x 5% 97,466.71

Film Rental 10,000.25 x 10% 1,000.00
Audit Fee 193,261.20 x 5% 9,663.00
Rental Expense 41,272.73 x 1% 412.73
Security Service 156,142.01 x 1% 1,561.42
Service Contractor P 110,103.92
Total

SUMMARIES OF DEFICIENCIES
VALUE ADDED TAX P 291,069.09
WITHHOLDING TAX 1,805.07
TOTAL P 292,874.16

Subsequently, Revenue District Office No. 67 sent a copy of the Final

Notice of Seizure dated May 12, 2003, which petitioner received on May 15,
2003, giving the latter last opportunity to settle its deficiency tax liabilities within
ten (10) [days] from receipt thereof, otherwise respondent BIR shall be
constrained to serve and execute the Warrants of Distraint and/or Levy and
Garnishment to enforce collection.

On February 6, 2004, petitioner received from Revenue District Office No.

67 a Warrant of Distraint and/or Levy No. 67-0029-23 dated May 12, 2003
demanding payment of deficiency value-added tax and withholding tax payment
in the amount of P292,874.16.

On July 30, 2004, petitioner filed with the Office of respondent

Commissioner a Motion for Reconsideration pursuant to Section 3.1.5 of
Revenue Regulations No. 12-99.

On February 8, 2005, respondent Commissioner, through its authorized

representative, Revenue Regional Director of Revenue Region 10, Legaspi City,
issued a Decision denying petitioners Motion for Reconsideration. Petitioner,
through counsel received said Decision on February 18, 2005.

x x x.
 Denying that it received a Preliminary Assessment Notice (PAN) and claiming that it was
not accorded due process, Metro Star filed a petition for review[4] with the CTA. The parties then
stipulated on the following issues to be decided by the tax court:

1. Whether the respondent complied with the due process requirement as

provided under the National Internal Revenue Code and Revenue
Regulations No. 12-99 with regard to the issuance of a deficiency tax
assessment;

1.1 Whether petitioner is liable for the respective amounts

of P291,069.09 and P1,805.07 as deficiency VAT and
withholding tax for the year 1999;

1.2. Whether the assessment has become final and executory and
demandable for failure of petitioner to protest the same within 30
days from its receipt thereof on April 11, 2002, pursuant to
Section 228 of the National Internal Revenue Code;

2. Whether the deficiency assessments issued by the respondent are void for
failure to state the law and/or facts upon which they are based.

2.2 Whether petitioner was informed of the law and facts on which
the assessment is made in compliance with Section 228 of the
National Internal Revenue Code;

3. Whether or not petitioner, as owner/operator of a movie/cinema house, is

subject to VAT on sales of services under Section 108(A) of the National
Internal Revenue Code;
4. Whether or not the assessment is based on the best evidence obtainable
pursuant to Section 6(b) of the National Internal Revenue Code.

The CTA-Second Division found merit in the petition of Metro Star and, on March 21,
2007, rendered a decision, the decretal portion of which reads:

WHEREFORE, premises considered, the Petition for Review is

hereby GRANTED. Accordingly, the assailed Decision dated February 8, 2005 is
hereby REVERSED and SET ASIDE and respondent is ORDERED TO DESIST
from collecting the subject taxes against petitioner.

The CTA-Second Division opined that [w]hile there [is] a disputable presumption that a
mailed letter [is] deemed received by the addressee in the ordinary course of mail, a direct
denial of the receipt of mail shifts the burden upon the party favored by the presumption to
prove that the mailed letter was indeed received by the addressee.[5] It also found that there was
no clear showing that Metro Star actually received the alleged PAN, dated January 16, 2002. It,
accordingly, ruled that the Formal Letter of Demand dated April 3, 2002, as well as the Warrant
of Distraint and/or Levy dated May 12, 2003 were void, as Metro Star was denied due
process.[6]

The CIR sought reconsideration[7] of the decision of the CTA-Second Division, but the motion
was denied in the latters July 24, 2007 Resolution.[8]

Aggrieved, the CIR filed a petition for review[9] with the CTA-En Banc, but the petition was
dismissed after a determination that no new matters were raised. The CTA-En Bancdisposed:

WHEREFORE, the instant Petition for Review is hereby DENIED DUE

COURSE and DISMISSED for lack of merit. Accordingly, the March 21, 2007
Decision and July 27, 2007 Resolution of the CTA Second Division in CTA Case
No. 7169 entitled, Metro Star Superama, Inc., petitioner vs. Commissioner of
Internal Revenue, respondent are hereby AFFIRMED in toto.

SO ORDERED.

The motion for reconsideration[10] filed by the CIR was likewise denied by the CTA-En Banc in
its November 18, 2008 Resolution.[11]

The CIR, insisting that Metro Star received the PAN, dated January 16, 2002, and that
due process was served nonetheless because the latter received the Final Assessment Notice
(FAN), comes now before this Court with the sole issue of whether or not Metro Star was denied
due process.

The general rule is that the Court will not lightly set aside the conclusions reached by the
CTA which, by the very nature of its functions, has accordingly developed an exclusive
expertise on the resolution unless there has been an abuse or improvident exercise of
authority.[12] In Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v.
Commissioner of Internal Revenue,[13] the Court wrote:

Jurisprudence has consistently shown that this Court accords the findings
of fact by the CTA with the highest respect. In Sea-Land Service Inc. v. Court of
Appeals[G.R. No. 122605, 30 April 2001, 357 SCRA 441, 445-446], this Court
recognizes that the Court of Tax Appeals, which by the very nature of its function
is dedicated exclusively to the consideration of tax problems, has necessarily
developed an expertise on the subject, and its conclusions will not be overturned
unless there has been an abuse or improvident exercise of authority. Such
findings can only be disturbed on appeal if they are not supported by substantial
 evidence or there is a showing of gross error or abuse on the part of the Tax
Court. In the absence of any clear and convincing proof to the contrary, this
Court must presume that the CTA rendered a decision which is valid in every
respect.

On the matter of service of a tax assessment, a further perusal of our ruling

in Barcelon is instructive, viz:

Jurisprudence is replete with cases holding that if the taxpayer denies

ever having received an assessment from the BIR, it is incumbent upon the
latter to prove by competent evidence that such notice was indeed received
by the addressee. The onus probandi was shifted to respondent to prove
by contrary evidence that the Petitioner received the assessment in the due
course of mail. The Supreme Court has consistently held that while a mailed
letter is deemed received by the addressee in the course of mail, this is merely a
disputable presumption subject to controversion and a direct denial thereof shifts
the burden to the party favored by the presumption to prove that the mailed letter
was indeed received by the addressee (Republic vs. Court of Appeals, 149
SCRA 351). Thus as held by the Supreme Court in Gonzalo P. Nava vs.
Commissioner of Internal Revenue, 13 SCRA 104, January 30, 1965:

"The facts to be proved to raise this presumption are

(a) that the letter was properly addressed with postage
prepaid, and (b) that it was mailed. Once these facts are
proved, the presumption is that the letter was received by the
addressee as soon as it could have been transmitted to him in the
ordinary course of the mail. But if one of the said facts fails to
appear, the presumption does not lie. (VI, Moran, Comments on
the Rules of Court, 1963 ed, 56-57 citing Enriquez vs. Sunlife
Assurance of Canada, 41 Phil 269)."

x x x. What is essential to prove the fact of mailing is the registry

receipt issued by the Bureau of Posts or the Registry return card which
would have been signed by the Petitioner or its authorized representative.
And if said documents cannot be located, Respondent at the very least,
should have submitted to the Court a certification issued by the Bureau of
Posts and any other pertinent document which is executed with the
intervention of the Bureau of Posts. This Court does not put much credence to
the self serving documentations made by the BIR personnel especially if they are
unsupported by substantial evidence establishing the fact of mailing. Thus:

"While we have held that an assessment is made when

sent within the prescribed period, even if received by the taxpayer
after its expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-
12259, May 27, 1959), this ruling makes it the more imperative
that the release, mailing or sending of the notice be clearly and
satisfactorily proved. Mere notations made without the taxpayers
intervention, notice or control, without adequate supporting
evidence cannot suffice; otherwise, the taxpayer would be at the
 mercy of the revenue offices, without adequate protection or
defense." (Nava vs. CIR, 13 SCRA 104, January 30, 1965).

x x x.

The failure of the respondent to prove receipt of the assessment by the

Petitioner leads to the conclusion that no assessment was issued. Consequently,
the governments right to issue an assessment for the said period has already
prescribed. (Industrial Textile Manufacturing Co. of the Phils., Inc. vs. CIR CTA
Case 4885, August 22, 1996). (Emphases supplied.)

The Court agrees with the CTA that the CIR failed to discharge its duty and present any
evidence to show that Metro Star indeed received the PAN dated January 16, 2002. It could
have simply presented the registry receipt or the certification from the postmaster that it mailed
the PAN, but failed. Neither did it offer any explanation on why it failed to comply with the
requirement of service of the PAN. It merely accepted the letter of Metro Stars chairman
dated April 29, 2002, that stated that he had received the FAN dated April 3, 2002, but not
the PAN; that he was willing to pay the tax as computed by the CIR; and that he just wanted to
clarify some matters with the hope of lessening its tax liability.

This now leads to the question: Is the failure to strictly comply with notice requirements
prescribed under Section 228 of the National Internal Revenue Code of 1997 and Revenue
Regulations (R.R.) No. 12-99 tantamount to a denial of due process? Specifically, are the
requirements of due process satisfied if only the FAN stating the computation of tax liabilities
and a demand to pay within the prescribed period was sent to the taxpayer?

The answer to these questions require an examination of Section 228 of the Tax Code
which reads:

SEC. 228. Protesting of Assessment. - When the Commissioner or his

duly authorized representative finds that proper taxes should be assessed,
he shall first notify the taxpayer of his findings: provided, however, that a
preassessment notice shall not be required in the following cases:

(a) When the finding for any deficiency tax is the result of mathematical
error in the computation of the tax as appearing on the face of the return; or

(b) When a discrepancy has been determined between the tax withheld
and the amount actually remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess
creditable withholding tax for a taxable period was determined to have carried
 over and automatically applied the same amount claimed against the estimated
tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or
(d) When the excise tax due on exciseable articles has not been paid; or
(e) When the article locally purchased or imported by an exempt person,
such as, but not limited to, vehicles, capital equipment, machineries and spare
parts, has been sold, traded or transferred to non-exempt persons.

The taxpayers shall be informed in writing of the law and the facts
on which the assessment is made; otherwise, the assessment shall be
void.

Within a period to be prescribed by implementing rules and regulations,

the taxpayer shall be required to respond to said notice. If the taxpayer fails to
respond, the Commissioner or his duly authorized representative shall issue an
assessment based on his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the
assessment in such form and manner as may be prescribed by implementing
rules and regulations. Within sixty (60) days from filing of the protest, all relevant
supporting documents shall have been submitted; otherwise, the assessment
shall become final.

If the protest is denied in whole or in part, or is not acted upon within one
hundred eighty (180) days from submission of documents, the taxpayer
adversely affected by the decision or inaction may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the said decision, or from the lapse
of one hundred eighty (180)-day period; otherwise, the decision shall become
final, executory and demandable. (Emphasis supplied).

Indeed, Section 228 of the Tax Code clearly requires that the taxpayer must first be
informed that he is liable for deficiency taxes through the sending of a PAN. He must be
informed of the facts and the law upon which the assessment is made. The law imposes a
substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without
first establishing a valid assessment is evidently violative of the cardinal principle in
administrative investigations - that taxpayers should be able to present their case and adduce
supporting evidence.[14]

This is confirmed under the provisions R.R. No. 12-99 of the BIR which pertinently
provide:

SECTION 3. Due Process Requirement in the Issuance of a Deficiency

Tax Assessment.

3.1 Mode of procedures in the issuance of a deficiency tax assessment:

 3.1.1 Notice for informal conference. The Revenue Officer who audited
the taxpayer's records shall, among others, state in his report whether or not the
taxpayer agrees with his findings that the taxpayer is liable for deficiency tax or
taxes. If the taxpayer is not amenable, based on the said Officer's submitted
report of investigation, the taxpayer shall be informed, in writing, by the Revenue
District Office or by the Special Investigation Division, as the case may be (in the
case Revenue Regional Offices) or by the Chief of Division concerned (in the
case of the BIR National Office) of the discrepancy or discrepancies in the
taxpayer's payment of his internal revenue taxes, for the purpose of "Informal
Conference," in order to afford the taxpayer with an opportunity to present his
side of the case. If the taxpayer fails to respond within fifteen (15) days from date
of receipt of the notice for informal conference, he shall be considered in default,
in which case, the Revenue District Officer or the Chief of the Special
Investigation Division of the Revenue Regional Office, or the Chief of Division in
the National Office, as the case may be, shall endorse the case with the least
possible delay to the Assessment Division of the Revenue Regional Office or to
the Commissioner or his duly authorized representative, as the case may be, for
appropriate review and issuance of a deficiency tax assessment, if warranted.

3.1.2 Preliminary Assessment Notice (PAN). If after review and evaluation

by the Assessment Division or by the Commissioner or his duly authorized
representative, as the case may be, it is determined that there exists sufficient
basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall
issue to the taxpayer, at least by registered mail, a Preliminary Assessment
Notice (PAN) for the proposed assessment, showing in detail, the facts and the
law, rules and regulations, or jurisprudence on which the proposed assessment
is based (see illustration in ANNEX A hereof). If the taxpayer fails to respond
within fifteen (15) days from date of receipt of the PAN, he shall be considered in
default, in which case, a formal letter of demand and assessment notice shall be
caused to be issued by the said Office, calling for payment of the taxpayer's
deficiency tax liability, inclusive of the applicable penalties.

3.1.3 Exceptions to Prior Notice of the Assessment. The notice for

informal conference and the preliminary assessment notice shall not be required
in any of the following cases, in which case, issuance of the formal assessment
notice for the payment of the taxpayer's deficiency tax liability shall be sufficient:

(i) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax appearing on
the face of the tax return filed by the taxpayer; or

(ii) When a discrepancy has been determined between the tax

withheld and the amount actually remitted by the withholding
agent; or

(iii) When a taxpayer who opted to claim a refund or tax credit of

excess creditable withholding tax for a taxable period was
determined to have carried over and automatically applied the
same amount claimed against the estimated tax liabilities for
the taxable quarter or quarters of the succeeding taxable year;
or
 (iv) When the excise tax due on excisable articles has not been
paid; or

(v) When an article locally purchased or imported by an exempt

person, such as, but not limited to, vehicles, capital equipment,
machineries and spare parts, has been sold, traded or
transferred to non-exempt persons.

3.1.4 Formal Letter of Demand and Assessment Notice. The formal letter
of demand and assessment notice shall be issued by the Commissioner or his
duly authorized representative. The letter of demand calling for payment of the
taxpayer's deficiency tax or taxes shall state the facts, the law, rules and
regulations, or jurisprudence on which the assessment is based, otherwise, the
formal letter of demand and assessment notice shall be void (see illustration in
ANNEX B hereof).

The same shall be sent to the taxpayer only by registered mail or by

personal delivery.

If sent by personal delivery, the taxpayer or his duly authorized

representative shall acknowledge receipt thereof in the duplicate copy of the
letter of demand, showing the following: (a) His name; (b) signature; (c)
designation and authority to act for and in behalf of the taxpayer, if acknowledged
received by a person other than the taxpayer himself; and (d) date of receipt
thereof.

x x x.

From the provision quoted above, it is clear that the sending of a PAN to taxpayer to
inform him of the assessment made is but part of the due process requirement in the issuance
of a deficiency tax assessment, the absence of which renders nugatory any assessment made
by the tax authorities. The use of the word shall in subsection 3.1.2 describes the mandatory
nature of the service of a PAN. The persuasiveness of the right to due process reaches both
substantial and procedural rights and the failure of the CIR to strictly comply with the
requirements laid down by law and its own rules is a denial of Metro Stars right to due
process.[15] Thus, for its failure to send the PAN stating the facts and the law on which the
assessment was made as required by Section 228 of R.A. No. 8424, the assessment made by
the CIR is void.

The case of CIR v. Menguito[16] cited by the CIR in support of its argument that only the
non-service of the FAN is fatal to the validity of an assessment, cannot apply to this case
because the issue therein was the non-compliance with the provisions of R. R. No. 12-85 which
sought to interpret Section 229 of the old tax law. RA No. 8424 has already amended the
provision of Section 229 on protesting an assessment. The old requirement of
merely notifying the taxpayer of the CIRs findings was changed in 1998 to informing the
taxpayer of not only the law, but also of the facts on which an assessment would be made.
Otherwise, the assessment itself would be invalid.[17] The regulation then, on the other hand,
simply provided that a notice be sent to the respondent in the form prescribed, and that no
consequence would ensue for failure to comply with that form.

The Court need not belabor to discuss the matter of Metro Stars failure to file its protest,
for it is well-settled that a void assessment bears no fruit.[18]

It is an elementary rule enshrined in the 1987 Constitution that no person shall be

deprived of property without due process of law.[19] In balancing the scales between the power
of the State to tax and its inherent right to prosecute perceived transgressors of the law on one
side, and the constitutional rights of a citizen to due process of law and the equal protection of
the laws on the other, the scales must tilt in favor of the individual, for a citizens right is amply
protected by the Bill of Rights under the Constitution. Thus, while taxes are the lifeblood of the
government, the power to tax has its limits, in spite of all its plenitude. Hence in Commissioner
of Internal Revenue v. Algue, Inc.,[20] it was said

Taxes are the lifeblood of the government and so should be collected

without unnecessary hindrance. On the other hand, such collection should be
made in accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real purpose of taxation,
which is the promotion of the common good, may be achieved.

xxx xxx xxx

It is said that taxes are what we pay for civilized society. Without taxes,
the government would be paralyzed for the lack of the motive power to activate
and operate it. Hence, despite the natural reluctance to surrender part of ones
hard-earned income to taxing authorities, every person who is able to must
contribute his share in the running of the government. The government for its part
is expected to respond in the form of tangible and intangible benefits intended to
improve the lives of the people and enhance their moral and material values.
This symbiotic relationship is the rationale of taxation and should dispel the
erroneous notion that it is an arbitrary method of exaction by those in the seat of
power.
 But even as we concede the inevitability and indispensability of
taxation, it is a requirement in all democratic regimes that it be exercised
reasonably and in accordance with the prescribed procedure. If it is not,
then the taxpayer has a right to complain and the courts will then come to his
succor. For all the awesome power of the tax collector, he may still be stopped in
his tracks if the taxpayer can demonstrate x x x that the law has not
been observed.[21] (Emphasis supplied).

WHEREFORE, the petition is DENIED.

SO ORDERED.

COMMISSIONER OF INTERNAL G. R. No. 167146

REVENUE
Petitioner,
Present :

PANG ANIBAN, C.J.,

Chairman,
YNARES-SANTIAGO
AUSTRI A- MARTINEZ,
- versus - CALLEJO, SR., an d
CHICO-NAZARIO, JJ.

Promulgated:
PHILIPPINE GLOBAL
COMMUNICATION, INC.,
October 31, 2006
Respondent.
x--------------------------------------------------x

DECISION
CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court, seeking to set
aside the en banc Decision of the Court of Tax Appeals (CTA) in CTA EB No. 37 dated 22
February 2005,[1] ordering the petitioner to withdraw and cancel Assessment Notice No.
000688-80-7333 issued against respondent Philippine Global Communication, Inc. for its 1990
income tax deficiency. The CTA, in its assailed en banc Decision, affirmed the Decision of the
First Division of the CTA dated 9 June 2004[2] and its Resolution dated 22 September 2004 in
C.T.A. Case No. 6568.

Respondent, a corporation engaged in telecommunications, filed its Annual Income Tax Return
for taxable year 1990 on 15 April 1991. 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 respondents 1990 income tax
liability. 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.
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, inclusive of surcharge, interest, and
compromise penalty, arising from deductions that were disallowed for failure to pay the
withholding tax and interest expenses that were likewise disallowed. 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.[3]

On 6 May 1994, respondent, through its counsel Ponce Enrile Cayetano Reyes
and Manalastas Law Offices, filed a formal protest letter against Assessment Notice No.
000688-80-7333. Respondent filed another protest letter on 23 May 1994, through another
counsel Siguion Reyna Montecillo & Ongsiako Law Offices. In both letters, respondent
requested for the cancellation of the tax assessment, which they alleged was invalid for lack of
factual and legal basis.[4]

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 respondents protest against
Assessment Notice No. 000688-80-7333, and affirming the said assessment in toto.[5]
 On 15 November 2002, respondent filed a Petition for Review with the CTA. After
due notice and hearing, the CTA rendered a Decision in favor of respondent on 9 June
2004.[6] The CTA ruled on the primary issue of prescription and found it unnecessary to
decide the issues on the validity and propriety of the assessment. 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 CIRs right to collect the same has prescribed in
conformity with Section 269 of the National Internal Revenue Code of 1977[8] (Tax Code of
1977). The dispositive portion of this decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in

favor of the petitioner. Accordingly, respondents Final Decision dated October 8,
2002 is hereby REVERSED and SET ASIDE and respondent is hereby
ORDERED to WITHDRAW and CANCEL Assessment Notice No. 000688-80-
7333 issued against the petitioner for its 1990 income tax deficiency because
respondents right to collect the same has prescribed.[9]

The CIR moved for reconsideration of the aforesaid Decision but was denied by the
CTA in a Resolution dated 22 September 2004.[10] Thereafter, the CIR filed a Petition for
Review with the CTA en banc, questioning the aforesaid Decision and Resolution. In its en
banc Decision, the CTA affirmed the Decision and Resolution in CTA Case No. 6568. The
dispositive part reads:

WHEREFORE, premises considered, the Petition for Review is hereby

DISMISSED for lack of merit. Accordingly, the assailed Decision and Resolution
in CTA Case No. 6568 are hereby AFFIRMED in toto.[11]

Hence, this Petition for Review on Certiorari raising the following grounds:

THE COURT OF TAX APPEALS, SITTING EN BANC, COMMITTED

REVERSIBLE ERROR IN AFFIRMING THE ASSAILED DECISION AND
RESOLUTION IN CTA CASE NO.6568 DECLARING THAT THE RIGHT OF THE
 GOVERNMENT TO COLLECT THE DEFICIENCY INCOME TAX FROM
RESPONDENT FOR THE YEAR 1990 HAS PRESCRIBED

A. THE PRESCRIPTIVE PERIOD WAS INTERUPTED WHEN

RESPONDENT FILED TWO LETTERS OF PROTEST
DISPUTING IN DETAIL THE DEFICIENCY ASSESSMENT IN
QUESTION AND REQUESTING THE CANCELLATION OF
SAID ASSESSMENT. THE TWO LETTERS OF PROTEST
ARE, BY NATURE, REQUESTS FOR REINVESTIGATION
OF THE DISPUTED ASSESSMENT.

B. THE REQUESTS FOR REINVESTIGATION OF

RESPONDENT WERE GRANTED BY THE BUREAU OF
INTERNAL REVENUE.[12]

This Court finds no merit in this Petition.

The main issue in this case is whether or not CIRs right to collect respondents
alleged deficiency income tax is barred by prescription under Section 269(c) of the Tax
Code of 1977, which reads:

Section 269. Exceptions as to the period of limitation of assessment and

collection of taxes. x x x

xxxx

c. 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.[16]

The assessment, in this case, was presumably issued on 14 April 1994 since the
respondent did not dispute the CIRs 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.

The provisions on prescription in the assessment and collection of national internal

revenue taxes became law upon the recommendation of the tax commissioner of
the Philippines. The report submitted by the tax commission clearly states that these provisions
on prescription should be enacted to benefit and protect taxpayers:

Under the former law, the right of the Government to collect the tax does not
prescribe. However, in fairness to the taxpayer, the Government should
be estopped from collecting the tax where it failed to make the necessary
investigation and assessment within 5 years after the filing of the return and
where it failed to collect the tax within 5 years from the date of assessment
thereof. Just as the government is interested in the stability of its collections, so
also are the taxpayers entitled to an assurance that they will not be subjected to
further investigation for tax purposes after the expiration of a reasonable period
of time. (Vol. II, Report of the Tax Commission of the Philippines, pp. 321-322).[17]

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. In these cases, the
Court further illustrated the harmful effects that the delay in the assessment and collection of
taxes inflicts upon taxpayers. In Collector of Internal Revenue v. Suyoc Consolidated Mining
Company,[18] Justice Montemayor, in his dissenting opinion, identified the potential loss to the
taxpayer if the assessment and collection of taxes are not promptly made.

Prescription in the assessment and in the collection of taxes is provided by the

Legislature for the benefit of both the Government and the taxpayer; for the
Government for the purpose of expediting the collection of taxes, so that the
agency charged with the assessment and collection may not tarry too long or
indefinitely to the prejudice of the interests of the Government, which needs
taxes to run it; and for the taxpayer so that within a reasonable time after filing his
return, he may know the amount of the assessment he is required to pay,
whether or not such assessment is well founded and reasonable so that he may
either pay the amount of the assessment or contest its validity in court x x x. It
would surely be prejudicial to the interest of the taxpayer for the Government
collecting agency to unduly delay the assessment and the collection because by
the time the collecting agency finally gets around to making the assessment or
making the collection, the taxpayer may then have lost his papers and books to
support his claim and contest that of the Government, and what is more, the tax
is in the meantime accumulating interest which the taxpayer eventually has
to pay .

In Republic of the Philippines v. Ablaza,[19] this Court emphatically explained that the
statute of limitations of actions for the collection of taxes is justified by the need to protect law-
abiding citizens from possible harassment:

The law prescribing a limitation of actions for the collection of the income tax is
beneficial both to the Government and to its citizens; to the Government because
tax officers would be obliged to act promptly in the making of assessment, and to
citizens because after the lapse of the period of prescription citizens would have
a feeling of security against unscrupulous tax agents who will always find an
excuse to inspect the books of taxpayers, not to determine the latters real
liability, but to take advantage of every opportunity to molest, peaceful, law-
abiding citizens.Without such legal defense taxpayers would furthermore be
under obligation to always keep their books and keep them open for inspection
subject to harassment by unscrupulous tax agents.The law on prescription being
a remedial measure should be interpreted in a way conducive to bringing about
the beneficient purpose of affording protection to the taxpayer within the
contemplation of the Commission which recommended the approval of the law.
And again in the recent case Bank of the Philippine Islands v. Commissioner of Internal
Revenue,[20] this Court, in confirming these earlier rulings, pronounced that:

Though the statute of limitations on assessment and collection of national

internal revenue taxes benefits both the Government and the taxpayer, it
principally intends to afford protection to the taxpayer against unreasonable
investigation. The indefinite extension of the period for assessment is
unreasonable because it deprives the said taxpayer of the assurance that he will
no longer be subjected to further investigation for taxes after the expiration of a
reasonable period of time.

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, under Section 271 thereof which reads:

Section 224. Suspension of running of statute. The running of the statute of

limitation provided in Sections 268 and 269 on the making of assessments and
the beginning of distraint or levy or a proceeding in court for collection in respect
of any deficiency, shall be suspended for the period during which the
Commissioner is prohibited from making the assessment or beginning distraintor
levy or a proceeding in court and for sixty days thereafter; 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 reinvestigationrefers 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 Revenue[22] 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 CIRs 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. This much was
admitted in the Decision dated 8 October 2002 issued by then CIR Guillermo Payarno, Jr.

In the said conference-hearing, Revenue Officer Alameda basically testified

that Philcom, despite repeated demands, failed to submit documentary
evidences in support of its claimed deductible expenses. Hence, except for the
item of interest expense which was disallowed for being not ordinary and
necessary, the rest of the claimed expenses were disallowed for non-
withholding. In the same token, Revenue Officer Escober testified that upon his
assignment to conduct the re-investigation, he immediately requested the
taxpayer to present various accounting records for the year 1990, in addition to
other documents in relation to the disallowed items (p.171). This was followed by
other requests for submission of documents (pp.199 &217) but these were not
heeded by the taxpayer. Essentially, he stated that Philcom did not cooperate in
his reinvestigation of the case.

In response to the testimonies of the Revenue Officers, Philcom thru

Atty. Consunji, emphasized that it was denied due process because of the
issuance of the Pre-Assessment Notice and the Assessment Notice on
successive dates. x x x Counsel for the taxpayer even questioned the propriety of
the conference-hearing inasmuch as the only question to resolved (sic) is the
legality of the issuance of the assessment. On the disallowed items, Philcom thru
counsel manifested that it has no intention to present documents and/or
evidences allegedly because of the pending legal question on the validity of the
assessment.[23]
 Prior to the issuance of Revenue Regulations No. 12-85, which distinguishes a request
for reconsideration and a request for reinvestigation, there have been cases wherein these two
terms were used interchangeably. But upon closer examination, these cases all involved a
reinvestigation that was requested by the taxpayer and granted by the BIR.

In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,[24] the Court

weighed the considerable time spent by the BIR to actually conduct the reinvestigations
requested by the taxpayer in deciding that the prescription period was suspended during this
time.

Because of such requests, several reinvestigations were made and a hearing

was even held by the Conference Staff organized in the collection office to
consider claims of such nature which, as the record shows, lasted for several
months. After inducing petitioner to delay collection as he in fact did, it is most
unfair for respondent to now take advantage of such desistance to elude his
deficiency income tax liability to the prejudice of the Government invoking the
technical ground of prescription.

Although the Court used the term requests for reconsideration in reference to the letters
sent by the taxpayer in the case of Querol v. Collector of Internal Revenue,[25] it took into
account the reinvestigation conducted soon after these letters were received and the revised
assessment that resulted from the reinvestigations.

It is true that the Collector revised the original assessment on February 9, 1955;
and appellant avers that this revision was invalid in that it was not made
within the five-year prescriptive period provided by law (Collector vs. Pineda, 112
Phil. 321). But that fact is that the revised assessment was merely a result of
petitioner Querols requests for reconsideration of the original assessment,
contained in his letters of December 14, 1951 and May 25, 1953. The records of
the Bureau of Internal Revenue show that after receiving the letters, the Bureau
conducted a reinvestigation of petitioners tax liabilities, and, in fact, sent a tax
examiner to San Fernando, La Union, for that purpose; that because of the
examiners report, the Bureau revised the original assessment, x x x. In other
words, the reconsideration was granted in part, and the original assessment was
altered. Consequently, the period between the petition for reconsideration and
the revised assessment should be subtracted from the total prescriptive period
(Republic vs. Ablaza, 108 Phil 1105).
 The Court, in Republic v. Lopez,[26] even gave a detailed accounting of the time the BIR
spent for each reinvestigation in order to deduct it from the five-year period set at that time in
the statute of limitations:

It is now a settled ruled in our jurisdiction that the five-year prescriptive period
fixed by Section 332(c) of the Internal Revenue Code within which the
Government may sue to collect an assessed tax is to be computed from the last
revised assessment resulting from a reinvestigation asked for by the taxpayer
and (2) that where a taxpayer demands a reinvestigation, the time employed in
reinvestigating should be deducted from the total period of limitation.

xxxx

The first reinvestigation was granted, and a reduced assessment issued on 29

May 1954, from which date the Government had five years for bringing an action
to collect.

The second reinvestigation was asked on 16 January 1956, and lasted until it
was decided on 22 April 1960, or a period of 4 years, 3 months, and 6 days,
during which the limitation period was interrupted.

The Court reiterated the ruling in Republic v. Lopez in the case of Commissioner of
Internal Revenue v. Sison,[27] that where a taxpayer demands a reinvestigation, the time
employed in reinvestigating should be deducted from the total period of limitation. Finally,
in Republic v. Arcache,[28] the Court enumerated the reasons why the taxpayer is barred from
invoking the defense of prescription, one of which was that, In the first place, it appears obvious
that the delay in the collection of his 1946 tax liability was due to his own repeated requests for
reinvestigation and similarly repeated requests for extension of time to pay.

In this case, the BIR admitted that there was no new or additional evidence
presented. Considering that the BIR issued its Preliminary Assessment Notice on 13 April
1994and its Formal Assessment Notice on 14 April 1994, just one day before the three-year
prescription period for issuing the assessment expired on 15 April 1994, it had ample time to
make a factually and legally well-founded assessment. Added to the fact that the Final
Decision that the CIR issued on 8 October 2002 merely affirmed its earlier findings,
whatever examination that the BIR may have conducted cannot possibly outlast the entire
three-year prescriptive period provided by law to collect the assessed tax, not to mention the
eight years it actually took the BIR to decide the respondents protest. The factual and legal
 issues involved in the assessment are relatively simple, that is, whether certain income tax
deductions should be disallowed, mostly for failure to pay withholding taxes. Thus, there is
no reason to suspend the running of the statute of limitations in this case.

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.

The Court, in sustaining for the first time the suspension of the running of the statute of
limitations in cases where the taxpayer requested for a reinvestigation, gave this justification:

A taxpayer may be prevented from setting up the defense of prescription even if

he has not previously waived it in writing as when by his repeated requests or
positive acts the Government has been, for good reasons, persuaded to
postpone collection to make him feel that the demand was not unreasonable
or that no harassment or injustice is meant by the Government.

xxxx

This case has no precedent in this jurisdiction for it is the first time that such has
risen, but there are several precedents that may be invoked in American
jurisprudence. As Mr. Justice Cardozohas said: The applicable principle is
fundamental and unquestioned. He who prevents a thing from being done
may not avail himself of the nonperformance which he himself occasioned,
for the law says to him in effect this is your own act, and therefore you are
not damnified. (R.H. Stearns Co. v. U.S., 78 L. ed., 647). (Emphasis
supplied.)[30]
 This rationale is not applicable to the present case where 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 respondents 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. There was no legal, or even a moral, obligation
preventing the CIR from collecting the assessed tax. In a similar case, Cordero v. Conda,[31] the
Court did not suspend the running of the prescription period where the acts of the taxpayer did
not prevent the government from collecting the tax.

The government also urges that partial payment is acknowledgement of the tax
obligation, hence a waiver on the defense of prescription. But partial payment
would not prevent the government from suing the taxpayer. Because, by such act
of payment, the government is not thereby persuaded to postpone collection to
make him feel that the demand was not unreasonable or that no harassment or
injustice is meant. Which, as stated in Collector v. Suyoc Consolidated Mining
Co., et al., L-11527, November 25, 1958, is the underlying reason behind the rule
that prescriptive period is arrested by the taxpayers request for reexamination or
reinvestigation even if he has not previously waived it [prescription] in writing.

The Court reminds us, in the case of Commissioner of Internal Revenue v. Algue,
[32]
Inc., of the need to balance the conflicting interests of the government and the taxpayers.

Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance. On the other hand, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently conflicting
interest of the authorities and the taxpayers so that the real purpose of taxation,
which is the promotion of common good, may be achieved.
 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.

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The assailed en

banc Decision of the CTA in CTA EB No. 37 dated 22 February
2005, cancellingAssessment Notice No. 000688-80-7333 issued against Philippine Global
Communication, Inc. for its 1990 income tax deficiency for the reason that it is barred by
prescription, is hereby AFFIRMED. No costs.

SO ORDERED.

G.R. No. L-12518 October 28, 1961

COLLECTOR OF INTERNAL REVENUE, petitioner,

vs.
J.C. YUSECO and The COURT OF TAX APPEALS, respondents.

Office of the Solicitor General and Antonio H. Garces for petitioner.

Yuseco, Abdon, Yuseco and Narvasa for respondents.

PADILLA, J.:

The Collector of Internal Revenue seeks a review, under section 18, Republic Act No. 1125, and
prays for the setting aside, of the judgment rendered by the Court of Tax Appeals on 25 March
1957, in C.T.A. Case No. 217, the dispositive part of which is, as follows:
 WHEREFORE, pursuant to section 51(d) of the National Internal Revenue Code,
judgment is hereby rendered declaring the warrant of distraint and levy issued by
respondent on January 20, 1955 to effect collection of "the amount of P2,447.30 as
income tax for the year 1946 plus 5% surcharge and the 1% monthly interest from
August 16, 1953" allegedly due from petitioner, is hereby declared null and void and of
no legal force and effect and respondent is hereby directed to return to petitioner the
properties seized from the latter under said warrant. The respondent Collector of Internal
Revenue is likewise enjoined from taking any further proceeding to effect by summary
methods the collection of the alleged income taxes assessed against petitioner J. C.
Yuseco in the sums of P134.14 and P2,447.30 for the years 1945 and 1946,
respectively. Without pronouncement as to costs. (Appendix N)

and the resolution entered by the same Court on 17 June 1957 denying his motion for
reconsideration (Appendix P).

The facts, which are not disputed, are, as summarized by the Court, as follows:

The facts established in this case show that petitioner did not file income tax returns for the
calendar years 1945 and 1946. This fact having come to the knowledge of revenue examiners,
they accordingly made income tax returns for petitioner upon which respondent on August 20,
1948, assessed against and demanded from petitioner the sums of P134.14 and P7,563.28
representing alleged income taxes and corresponding surcharges for the years 1945 and 1946.
On September 1, 1948, petitioner wrote the respondent, requesting that he be informed as to
how the assessments were arrived at. In reply thereto, respondent in a letter dated September
17, 1948 furnished the information sought and at the same time demanded the payment of the
aforesaid assessments. On October 4, 1948, petitioner asked that he be given an opportunity to
present his side of the matter. However, respondent on December 13, 1948, denied
reconsideration of the assessment and reiterated his demand upon petitioner for payment
thereof which was followed with another demand on June 29, 1949. On July 28, 1949, petitioner
once more requested for a reinvestigation of the case but the same was denied by respondent
in his letter dated February 7, 1951 wherein he repeated his demand for payment. On April 3,
1951, petitioner renewed his request for reinvestigation and nothing was heard of the matter for
almost three years thereafter.

On January 6, 1953, respondent issued a warrant of distraint and levy upon petitioner's
properties which, however, was not executed. On January 16, 1953 petitioner sought the
withdrawal and/or reconsideration of said warrant. Meanwhile, on July 2, 1953, respondent
issued a revised assessment notice which reduced the original assessment for the 1946 income
tax to P2,447.30, including surcharge. On July 18, 1953, petitioner asked that he be informed of
the action upon his petition for reinvestigation. This request was reiterated in his letter of August
18, 1953 wherein he acknowledged receipt of the modified assessment for the 1946 income tax.
On September 1, 1953, respondent wrote petitioner demanding from the latter payment of the
said sum of P2,447.30 as income tax for the year 1946 plus penalties incident to delinquency,
and reiterating the demand for the unrevised income tax assessment for 1945 in the sum of
P134.14, but respondent did not take any further action thereafter to effect collection of the
assessment.

On January 20, 1955, respondent again issued a warrant of distraint and levy on the properties
of petitioner, this time only to effect collection of the said sum of P2,447.80 as income tax for
1946. The distraint being still enforce, petitioner on December 12, 1955 filed his petition for
prohibition with this Court.

The petitioner Collector of Internal Revenue assails the jurisdiction of the respondent Court of
Tax Appeals to take cognizance of the respondent taxpayer's petition that seeks to enjoin him
(the petitioner) from collecting his income taxes due for the years 1945 and 1946 and
surcharges by summary distraint of and levy upon his personal and real properties, under the
provisions of sections 316 to 330 of the National Internal Revenue Code. The petitioner's
contention is that the respondent taxpayer cannot bring in the respondent Court an independent
special civil action for prohibition without taking to said Court an appeal from the decision or
ruling of the Collector of Internal Revenue in the cases provided for in sections 7 and 11 of
Republic Act No. 1125.

Sections 7, 9 and 11 of Republic No. 1125, creating the Court of Tax Appeals, provides:

SEC. 7. Jurisdiction. — The Court of Tax Appeals shall exercise exclusive appellate
jurisdiction to review by appeal, as herein provided —

(1) Decisions of the Collector of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under the National Internal Revenue
Code or other law or part of law administered by the Bureau of Internal Revenue;

(2) Decisions of the Commissioner of Customs in cases involving liability for customs
duties, fees or other money charges; seizure, detention or release of property affected;
fines; forfeitures or other penalties imposed in relation thereto; or other matters arising
under the Customs Law or other law or part of law administered by the Bureau of
Customs; and

(3) Decisions of provincial or city Boards of Assessment Appeals in cases involving the
assessment and taxation of real property or other matters arising under the Assessment
Law, including rules and regulations relative thereto.

SEC. 9. Fees. — The Court shall fix reasonable fees for the filing of an appeal, for
certified document, and for other authorized services rendered by the Court or its
personnel.

SEC. 11. Who may appeal; effect of appeal. — Any person, association or corporation
adversely affected by a decision or ruling of the Collector of Internal Revenue, the
Collector of Customs or any provincial or city Board of Assessment Appeals may file an
appeal in the Court of Tax Appeals within thirty days after the receipt of such decision or
ruling.

No appeal taken to the Court of Tax Appeals from the decision of the Collector of
Internal Revenue or the Collector of Customs shall suspend the payment, levy, distraint,
and/or sale of any property of the taxpayer for the satisfaction of his tax liability as
provided by existing law; Provided, however, That when in the opinion of the Court the
collection by the Bureau of Internal Revenue or the Commissioner of Customs may
jeopardize the interest of the Government and/or the taxpayer the Court at any stage of
the proceeding may suspend the said collection and require the taxpayer either to
 deposit the amount claimed or to file a surety bond for not more than double the amount
with the Court. (Emphasis supplied.)

The foregoing provisions of the law refer and limit only to appeals from decisions or rulings of
the Collector of Internal Revenue, Commissioner of Customs and Provincial or City Boards of
Assessment Appeals in the proper cases. Nowhere does the law expressly vest in the Court of
Tax Appeals original jurisdiction to issue writs of prohibition and injunction independently of, and
apart from, an appealed case. The writ of prohibition or injunction that it may issue under the
provisions of section 11, Republic Act No. 1125, to suspend the collection of taxes, is merely
ancillary to and in furtherance of its appellate jurisdiction in the cases mentioned in section 7 of
the Act. The power to issue the writ exists only in cases appealed to it. This is reflected on the
explanatory note of the bill (House No. 175), creating the Court of Tax Appeals. We quote from
the explanatory note:

... It is proposed in the attached bill to establish not merely an administrative body but a
regular court vested with exclusive appellate jurisdiction over cases arising under the
National Internal Revenue Code, Customs Law and the Assessment Law. (Emphasis
supplied, p. 2202, Congressional Record, Third Congress, Vol. I, Part II.)

Congressman Castañeda, one of the proponents of the bill, in his opening remarks sponsoring
its enactment into law, said that "House Bill No. 175 has for its purpose the creation of a regular
court of tax appeals." (p. 2204, supra.) Answering a question from Congressman Alonzo
whether the Court of Tax Appeals would have only appellate jurisdiction and no concurrent or
original jurisdiction, the proponent said that "It has exclusive jurisdiction with reference to
matters or cases arising from the Internal Revenue Code, the Customs Law and the
Assessment Law." (pp. 2209-2210, supra). Dwelling further on the subject, the two members of
the House of Representatives — continued their discussion, as follows:

Mr. Alonzo. So that under this proposal you will bring the case immediately to this court
that you are proposing to create, without first having it decided by the Commissioner of
Customs or the Collector of Internal Revenue, as the case may be.

Mr. Castañeda. It will have to be appealed from the decision of the Collector of Internal
Revenue, the Collector of Customs or the Assessors, to the Court of Tax Appeals, then
to the Supreme Court. (pp. 2209-2210, supra.)

These statements made during the proceedings indicate that the intention of Congress was to
vest the Court of Tax Appeals with jurisdiction to issue writs of prohibition and injunction only in
aid of its appellate jurisdiction in cases appealed to it and not to clothe it with original jurisdiction
to issue them. Such intent is reflected on the second paragraph of section 11, Republic Act No.
1125 quoted above. Taxes being the chief source of revenue for the Government to keep it
running must be paid immediately and without delay. A taxpayer who feels aggrieved by the
decision or ruling handed down by a revenue officer and appeals from his decision or ruling to
the Court of Tax Appeals must pay the tax assessed, except that, if in the opinion of the Court
the collection would jeopardize the interest of the Government and/or the taxpayer, it could
suspend the collection and require the taxpayer either to deposit the amount claimed or to file a
surety bond for not more than double the amount of the tax assessed.

The judgment under review is annulled and set aside, without pronouncement as to costs.