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TAXATION II- Compilation of doctrines based on the syllabus of Atty.

Bobby Lock
PART III- VALUE-ADDED TAX
Sections 105-115 of the NIRC, amended by RA Nos. 9337 and 10378
Implemented by RR No. 16-05 as amended by RR Nos. 4-07 and RR No. 16-2011 (among others)
I.

PRELIMINARY MATTERS
A. Nature and characteristic of VAT in general
Sec. 4.105.-2 of RR No. 16-05

CIR vs. Magsaysay Lines GR No. 146984 dated July 28, 2006
A brief reiteration of the basic principles governing VAT is in
order. VAT is ultimately a tax on consumption, even though it is
assessed on many levels of transactions on the basis of a fixed
percentage. It is the end user of consumer goods or services which
ultimately shoulders the tax, as the liability therefrom is passed on to
the end users by the providers of these goods or services who in turn
may credit their own VAT liability (or input VAT) from the VAT payments
they receive from the final consumer (or output VAT).
CIR vs. Seagate Technology (Phils) GR No. 153866 February 11,
2005
Viewed broadly, the VAT is a uniform tax ranging, at present,
from 0 percent to 10 percent levied on every importation of goods,
whether or not in the course of trade or business, or imposed on each
sale, barter, exchange or lease of goods or properties or on each
rendition of services in the course of trade or business as they pass
along the production and distribution chain, the tax being limited only
to the value added to such goods, properties or services by the seller,
transferor or lessor. It is an indirect tax that may be shifted or passed
on to the buyer, transferee or lessee of the goods, properties or
services. As such, it should be understood not in the context of the
person or entity that is primarily, directly and legally liable for its
payment, but in terms of its nature as a tax on consumption. In either
case, though, the same conclusion is arrived at.

Contex vs. CIR GR No. 151135 dated July 2, 2004
At this juncture, it must be stressed that the VAT is an indirect
tax. As such, the amount of tax paid on the goods, properties or
services bought, transferred, or leased may be shifted or passed on by
the seller, transferor, or lessor to the buyer, transferee or lessee. Unlike
a direct tax, such as the income tax, which primarily taxes an
individual’s ability to pay based on his income or net wealth, an indirect
tax, such as the VAT, is a tax on consumption of goods, services, or
certain transactions involving the same. The VAT, thus, forms a
substantial portion of consumer expenditures.
The amount of tax paid may be shifted or passed on by the
seller to the buyer. What is transferred in such instances is not the
liability for the tax, but the tax burden. In adding or including the VAT
due to the selling price, the seller remains the person primarily and
legally liable for the payment of the tax. What is shifted only to the
intermediate buyer and ultimately to the final purchaser is the burden
of the tax. Stated differently, a seller who is directly and legally liable
for payment of an indirect tax, such as the VAT on goods or services is
not necessarily the person who ultimately bears the burden of the
same tax. It is the final purchaser or consumer of such goods or
services who, although not directly and legally liable for the payment
thereof, ultimately bears the burden of the tax.
C. Persons Liable (Sec. 105)
1. Persons liable in general
CIR vs. CA and Commonwealth Management Services GR No.
125355 dated March 30, 2000.
The definition of the term "in the course of trade or business"
incorporated in the present law applies to all transactions even to 


B. VAT as an indirect tax

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TAXATION II- Compilation of doctrines based on the syllabus of Atty. Bobby Lock
those made prior to its enactment. Executive Order No. 273 stated that
any person who, in the course of trade or business, sells, barters or
exchanges goods and services, was already liable to pay VAT. The
present law merely stresses that even a nonstock, nonprofit
organization or government entity is liable to pay VAT for the sale of
goods and services.
Both the Commissioner of Internal Revenue and the Court of
Tax Appeals correctly ruled that the services rendered by
COMASERCO to Philamlife and its affiliates are subject to VAT. As
pointed out by the Commissioner, the performance of all kinds of
services for others for a fee, remuneration or consideration is
considered as sale of services subject to VAT. As the government
agency charged with the enforcement of the law, the opinion of the
Commissioner of Internal Revenue, in the absence of any showing that
it is plainly wrong, is entitled to great weight. Also, it has been the long
standing policy and practice of this Court to respect the conclusions of
quasijudicial agencies, such as the Court of Tax Appeals which, by the
nature of its functions, is dedicated exclusively to the study and
consideration of tax cases and has necessarily developed an expertise
on the subject, unless there has been an abuse or improvident
exercise of its authority.
2. Who are required to register for VAT (Sec. 236 G) [Sec.
9.236-1 of RR No. 16-05]
3. Optional VAT Registration (Sec. 236 H) [Sec. 9.236-1 of RR
No. 16-05]
D. Meaning of the phrase “in the course of trade of
business” (Sec. 105)
Sec. 4.105-3 of RR No. 16-05
CIR vs. Magsaysay Lines GR No. 146984 dated July 28, 2006
VAT is not a singular-minded tax on every transactional level.
Its assessment bears direct relevance to the taxpayer’s role or link in
the production chain. Hence, as affirmed by Section 99 of the Tax
Code and its subsequent incarnations, the tax is levied only on the

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sale, barter or exchange of goods or services by persons who engage
in such activities, in the course of trade or business. These
transactions outside the course of trade or business may invariably
contribute to the production chain, but they do so only as a matter of
accident or incident. As the sales of goods or services do not occur
within the course of trade or business, the providers of such goods or
services would hardly, if at all, have the opportunity to appropriately
credit any VAT liability as against their own accumulated VAT
collections since the accumulation of output VAT arises in the first
place only through the ordinary course of trade or business.
The conclusion that the sale was not in the course of trade or
business, which the CIR does not dispute before this Court, should
have definitively settled the matter. Any sale, barter or exchange of
goods or services not in the course of trade or business is not subject
to VAT.
Mindanao II Geothermal Partnership vs. CIR, GR No. 193301 dated
March 11, 2013.
Mindanao II’s sale of the Nissan Patrol is said to be an isolated
transaction. However, it does not follow that an isolated transaction
cannot be an incidental transaction for purposes of VAT liability.
Indeed, a reading of Section 105 of the 1997 Tax Code would show
that a transaction “in the course of trade or business” includes
“transactions incidental thereto.” Mindanao II’s business is to convert
the steam supplied to it by PNOC-EDC into electricity and to deliver
the electricity to NPC. In the course of its business, Mindanao II bought
and eventually sold a Nissan Patrol. Prior to the sale, the Nissan Patrol
was part of Mindanao II’s property, plant, and equipment. Therefore,
the sale of the Nissan Patrol is an incidental transaction made in the
course of Mindanao II’s business which should be liable for VAT.
E. Exceptions to the Rule of Regularity f. Output Tax vs. Input
Taxes
1. Sources of Input Tax (Sec. 110 A)

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TAXATION II- Compilation of doctrines based on the syllabus of Atty. Bobby Lock
2. Excess Output or Input Tax (Sec. 111 B)
3. Rule on Input Tax on Capital Goods (Sec. 4.110-3 of RR
No. 16-05)
4. Substantiation of Input Tax Credits (Sec. 4.110-8 of RR No.
16-05)
II. VAT ON GOODS AND SERVICES
A. Definition of goods and services (Sec. 106 and Sec. 108)
B. VAT base for goods and services (Sec. 106 and Sec.108)
C. Meaning of gross selling price and gross receipts (Sec. 106 and
Sec.108)
D. Rules on sales of Real Property
1. Rule on Sales on Instalment [RR No. Sec. 4.106-3 of RR
No. 16-05 as amended by Sec. 3 of RR No. 4-07]
2. See also rule on sale of real property use in business (Sec.
14 (l) of RR No. 4-07)
3. Correlate with Sec. 109 on exempt sales of Real Property
E. VAT on Importations (Sec. 107)
1. Exempt Importations under Sec. 109
2. Transfer of Goods by Tax-exempt Persons (Sec. 107 B)
F. Transactions deemed sale (Sec. 106 B)
1. Rationale of Imposition
2. Enumeration – Sec. 4.106-7 RR No. 16-05
3. Tax Base of Transactions Deemed Sale
4. Change or Cessation of Status as a VAT-Registered Person
(Sec. 4.106-8 of RR No. 16-2005 as amended by RR Nos.
4-07 and 10-11)
G. Rules for Certain Services
1. Common Carriers
(1) Sec. 4.108-2 Nos. 11 and 12 of RR No. 16-05
(2) Sec. 4.108-3 of RR No. 16-05
2. Lease of Properties
(1) Sec. 4.108-3 of RR No. 16-05
(2) Lease of Residential Units – [Sec. 4.109-1 (B)(q) of
RR No. 16-05]
3. Professional Services

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4. Medical Services
(3) 1. Sec. 4.109-1 (B)(g) of RR No. 16-05
CIR vs. Philippine Healthcare Providers GR No. 168129 dated
April 24, 2007
Section 103 of the same Code specifies the exempt
transactions from the provision of Section 102, thus: SEC. 103.
Exempt Transactions.—The following shall be exempt from the valueadded tax: xx x (1) Medical, dental, hospital and veterinary services
except those rendered by professionals x x x The import of the above
provision is plain. It requires no interpretation. It contemplates the
exemption from VAT of taxpayers engaged in the performance of
medical, dental, hospital, and veterinary services. In Commissioner of
International Revenue v. Seagate Technology (Philippines), 451 SCRA
132 (2005), we defined an exempt transaction as one involving 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 of the party in the transaction. In Commissioner of
Internal Revenue v. Toshiba Information Equipment (Phils.) Inc., 466
SCRA 211 (2005), we reiterated this definition.
Where an entity does not actually provide medical and/or
hospital services, as provided under Section 103 on exempt
transactions, but merely arranges for the same, its services are not
VAT-exempt; Findings of fact of the CTA, a special court exercising
particular expertise on the subject of tax, are generally regarded as
final, binding, and conclusive upon this Court, more so when these do
not conflict with the findings of the Court of Appeals.—We note that
these factual findings of the CTA were neither modified nor reversed by
the Court of Appeals. It is a doctrine that findings of fact of the CTA, a
special court exercising particular expertise on the subject of tax, are
generally regarded final, binding, and conclusive upon this Court, more
so where these do not conflict with the findings of the Court of Appeals.
—Perforce, as respondent does not actually provide medical and/or
hospital services, as provided under Section 103 on exempt

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TAXATION II- Compilation of doctrines based on the syllabus of Atty. Bobby Lock
transactions, but merely arranges for the same, its services are not
VAT-exempt.
5. Cinema Operators / Proprietors
CIR vs. SM Prime Holdings, Inc. GR No. 183505 dated February
26, 2010
Re: vat on motion pictures- Gross receipts derived by
respondents from admission tickets in showing motion pictures, films
or movies are not subject to value-added tax under Section 108 of the
National Internal Revenue Code of 1997.
The repeal of the Local Tax Code by the LGC of 1991 is not a
legal basis for the imposition of VAT on the gross receipts of cinema/
theater operators or proprietors derived from admission tickets. The
removal of the prohibition under the Local Tax Code did not grant nor
restore to the national government the power to impose amusement
tax on cinema/theater operators or proprietors. Neither did it expand
the coverage of VAT. Since the imposition of a tax is a burden on the
taxpayer, it cannot be presumed nor can it be extended by implication.
A law will not be construed as imposing a tax unless it does so clearly,
expressly, and unambiguously.As it is, the power to impose
amusement tax on cinema/theater operators or proprietors remains
with the local government.
Considering that there is no provision of law imposing VAT on
the gross receipts of cinema/theater operators or proprietors derived
from admission tickets, RMC No. 282001 which imposes VAT on the
gross receipts from admission to cinema houses must be struck down.
We cannot overemphasize that RMCs must not override, supplant, or
modify the law, but must remain consistent and in harmony with, the
law they seek to apply and implement.
6. VAT on Toll Fees
7.

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Diaz vs. The Secretary of Finance and CIR, GR No. 193007. July
19, 2011
It is plain from the above that the law imposes VAT on “all kinds
of services” rendered in the Philippines for a fee, including those
specified in the list. The enumeration of affected services is not
exclusive. By qualifying “services” with the words “all kinds,” Congress
has given the term “services” an all-encompassing meaning. The
listing of specific services are intended to illustrate how pervasive and
broad is the VAT’s reach rather than establish concrete limits to its
application. Thus, every activity that can be imagined as a form of
“service” rendered for a fee should be deemed included unless some
provision of law especially excludes it.
Now, do tollway operators render services for a fee?
Presidential Decree (P.D.) 1112 or the Toll Operation Decree
establishes the legal basis for the services that tollway operators
render. Essentially, tollway operators construct, maintain, and operate
expressways, also called tollways, at the operators’ expense. Tollways
serve as alternatives to regular public highways that meander through
populated areas and branch out to local roads. Traffic in the regular
public highways is for this reason slow moving. In consideration for
constructing tollways at their expense, the operators are allowed to
collect government-approved fees from motorists using the tollways
until such operators could fully recover their expenses and earn
reasonable returns from their investments. When a tollway operator
takes a toll fee from a motorist, the fee is in effect for the latter’s use of
the tollway facilities over which the operator enjoys private proprietary
rights that its contract and the law recognize. In this sense, the tollway
operator is no different from the following service providers under
Section 108 who allow others to use their properties or facilities for a
fee: 1. Lessors of property, whether personal or real; 2. Warehousing
service operators; 3. Lessors or distributors of cinematographic films;
4. Proprietors, operators or keepers of hotels, motels, resthouses,
pension houses, inns, resorts; 5. Lending investors (for use of money);
6.Transportation contractors on their transport of goods or cargoes,
including persons who transport goods or cargoes for hire and other

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TAXATION II- Compilation of doctrines based on the syllabus of Atty. Bobby Lock
domestic common carriers by land relative to their transport of goods
or cargoes; and 7. Common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one place in the
Philippines to another place in the Philippines.

legislative intent, as shown by the discussions in the Bicameral
Conference Meeting, is to require PAGCOR to pay corporate income
tax; hence, the omission or removal of PAGCOR from exemption from
the payment of corporate income tax.

**
Parenthetically, VAT on tollway operations cannot be deemed a
tax on tax due to the nature of VAT as an indirect tax. In indirect
taxation, a distinction is made between the liability for the tax and
burden of the tax. The seller who is liable for the VAT may shift or pass
on the amount of VAT it paid on goods, properties or services to the
buyer. In such a case, what is transferred is not the selle’s liability but
merely the burden of the VAT. Thus, the seller remains directly and
legally liable for payment of the VAT, but the buyer bears its burden
since the amount of VAT paid by the former is added to the selling
price. Once shifted, the VAT ceases to be a tax and simply becomes
part of the cost that the buyer must pay in order to purchase the good,
property or service. Consequently, VAT on tollway operations is not
really a tax on the tollway user, but on the tollway operator. Under
Section 105 of the Code, VAT is imposed on any person who, in the
course of trade or business, sells or renders services for a fee. In other
words, the seller of services, who in this case is the tollway operator, is
the person liable for VAT. The latter merely shifts the burden of VAT to
the tollway user as part of the toll fees.

Anent the validity of RR No. 16-2005, the Court holds that the
provision subjecting PAGCOR to 10% VAT is invalid for being contrary
to R.A. No. 9337. Nowhere in R.A. No. 9337 is it provided that
petitioner can be subjected to VAT. R.A. No. 9337 is clear only as to
the removal of petitioner’s exemption from the payment of corporate
income tax, which was already addressed above by this Court.

8. Franchise Grantees (PAGCOR)
PAGCOR vs. The BIR, G.R. No. 172087. March 15, 2011
Taxation is the rule and exemption is the exception. The burden
of proof rests upon the party claiming exemption to prove that it is, in
fact, covered by the exemption so claimed. As a rule, tax exemptions
are construed strongly against the claimant. Exemptions must be
shown to exist clearly and categorically, and supported by clear legal
provision. In this case, PAGCOR failed to prove that it is still exempt
from the payment of corporate income tax, considering that Section 1
of R.A. No. 9337 amended Section 27 (c) of the National Internal
Revenue Code of 1997 by omitting PAGCOR from the exemption. The

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Petitioner is exempt from the payment of VAT, because
PAGCOR’s charter, P.D. No. 1869, is a special law that grants
petitioner exemption from taxes.
III. ZERO RATED SALES OF GOODS AND SERVICES and VAT
EXEMPT SALES
A. Nature of Zero Rated Sales
B. Zero Rated Sale of Goods (Sec. 106)
C. Zero Rated Sale of Services (Sec. 108 B)
CIR vs. American Express GR No. 152609 dated June 29, 2005
Services performed by VAT-registered persons in the
Philippines (other than the processing, manufacturing or repacking of
goods for persons doing business outside the Philippines), when paid
in acceptable foreign currency and accounted for in accordance with
the rules and regulations of the BSP, are zero-rated.
Respondent is a VAT-registered person that facilitates the
collection and payment of receivables belonging to its nonresident
foreign client, for which it gets paid in acceptable foreign currency
inwardly remitted and accounted for in conformity with BSP rules and
regulations. Certainly, the service it renders in the Philippines is not in
the same category as “processing, manufacturing or repacking of
goods” and should, therefore, be zero-rated. In reply to a query of

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TAXATION II- Compilation of doctrines based on the syllabus of Atty. Bobby Lock
respondent, the BIR opined in VAT Ruling No. 080-89 that the income
respondent earned from its parent company’s regional operating
centers (ROCs) was automatically zero-rated effective January 1,
1988.
The VAT is a tax on consumption “expressed as a percentage
of the value added to goods or services” purchased by the producer or
taxpayer. As an indirect tax on services, its main object is the
transaction itself or, more concretely, the performance of all kinds of
services conducted in the course of trade or business in the
Philippines. These services must be regularly conducted in this
country; undertaken in “pursuit of a commercial or an economic
activity;” for a valuable consideration; and not exempt under the Tax
Code, other special laws, or any international agreement.
CIR vs. Burmeister and Wain GR No. 153205 dated Jaunary 22,
2007
The Tax Code not only requires that the services be other than
“processing, manufacturing or repacking of goods” and that payment
for such services be in acceptable foreign currency accounted for in
accordance with BSP rules. Another essential condition for qualification
to zero-rating under Section 102(b)(2) is that the recipient of such
services is doing business outside the Philippines. While this
requirement is not expressly stated in the second paragraph of Section
102(b), this is clearly provided in the first paragraph of Section 102(b)
where the listed services must be “for other persons doing business
outside the Philippines.” The phrase “for other persons doing
business outside the Philippines” not only refers to the services
enumerated in the first paragraph of Section 102(b), but also pertains
to the general term “services” appearing in the second paragraph of
Section 102(b). In short, services other than processing,
manufacturing, or repacking of goods must likewise be performed for
persons doing business outside the Philippines.

recipient of services to be doing business outside the Philippines. Only
those not doing business in the Philippines can be required under BSP
rules to pay in acceptable foreign currency for their purchase of goods
or services from the Philippines. In a domestic transaction, where the
provider and recipient of services are both doing business in the
Philippines, the BSP cannot require any party to make payment in
foreign currency. Services covered by Section 102(b) (1) and (2) are in
the nature of export sales since the payer-recipient of services is doing
business outside the Philippines. Under BSP rules, the proceeds of
export sales must be reported to the Bangko Sentral ng Pilipinas.
Thus, there is reason to require the provider of services under Section
102(b) (1) and (2) to account for the foreign currency proceeds to the
BSP. The same rationale does not apply if the provider and recipient of
the services are both doing business in the Philippines since their
transaction is not in the nature of an export sale even if payment is
denominated in foreign currency.
Respondent, as subcontractor of the Consortium, operates and
maintains NAPOCOR’s power barges in the Philippines. NAPOCOR
pays the Consortium, through its non-resident partners, partly in
foreign currency outwardly remitted. In turn, the Consortium pays
respondent also in foreign currency inwardly remitted and accounted
for in accordance with BSP rules. This payment scheme does not
entitle respondent to 0% VAT. As the Court held in Commissioner of
Internal Revenue v. American Express International, Inc. (Philippine
Branch), 462 SCRA 197 (2005), the place of payment is immaterial,
much less is the place where the output of the service is ultimately
used. An essential condition for entitlement to 0% VAT under Section
102(b)(1) and (2) is that the recipient of the services is a person doing
business outside the Philippines. In this case, the recipient of the
services is the Consortium, which is doing business not outside,
but within the Philippines because it has a 15-year contract to
operate and maintain NAPOCOR’s two 100-megawatt power
barges in Mindanao.

When Section 102(b)(2) stipulates payment in “acceptable
foreign currency” under BSP rules, the law clearly envisions the payer-

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TAXATION II- Compilation of doctrines based on the syllabus of Atty. Bobby Lock
CIR vs. Acesite GR No. GR No. 147295 dated February 16, 2007
While it was proper for PAGCOR not to pay the 10% VAT
charged by Acesite, the latter is not liable for the payment of it as it is
exempt in this particular transaction by operation of law to pay the
indirect tax. Such exemption falls within the former Section 102 (b) (3)
of the 1977 Tax Code, as amended (now Sec. 108 [b] [3] of R.A. 8424).
The rationale for the exemption from indirect taxes provided for
in P.D. 1869 and the extension of such exemption to entities or
individuals dealing with PAGCOR in casino operations are best
elucidated from the 1987 case of Commissioner of Internal Revenue v.
John Gotamco & Sons, Inc., 148 SCRA 36 (1987), where the absolute
tax exemption of the World Health Organization (WHO) upon an
international agreement was upheld. We held in said case that the
exemption of contractee WHO should be implemented to mean that
the entity or person exempt is the contractor itself who constructed the
building owned by contractee WHO, and such does not violate the rule
that tax exemptions are personal because the manifest intention of the
agreement is to exempt the contractor so that no contractor’s tax may
be shifted to the contractee WHO. Thus, the proviso in P.D. 1869,
extending the exemption to entities or individuals dealing with
PAGCOR in casino operations, is clearly to proscribe any indirect tax,
like VAT, that may be shifted to PAGCOR.
Considering the foregoing discussion, there are undoubtedly
erroneous payments of the VAT pertaining to the effectively zero-rate
transactions between Acesite and PAGCOR. Verily, Acesite has clearly
shown that it paid the subject taxes under a mistake of fact, that is,
when it was not aware that the transactions it had with PAGCOR were
zero-rated at the time it made the payments. In UST Cooperative Store
v. City of Manila, 15 SCRA 656 (1965), we explained that “there is
erroneous payment of taxes when a taxpayer pays under a mistake of
fact, as for the instance in a case where he is not aware of an existing
exemption in his favor at the time the payment was made.” Such
payment is held to be not voluntary and, therefore, can be recovered
or refunded.

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Tax refunds are based on the principle of quasi-contract or
solutio indebiti and the pertinent laws governing this principle are found
in Arts. 2142 and 2154 of the Civil Code, x x x When money is paid to
another under the influence of a mistake of fact, that is to say, on the
mistaken supposition of the existence of a specific fact, where it would
not have been known that the fact was otherwise, it may be recovered.
The ground upon which the right of recovery rests is that money paid
through misapprehension of facts belongs in equity and in good
conscience to the person who paid it.
The Government comes within the scope of solutio indebiti
principle as elucidated in Commissioner of Internal Revenue v.
Fireman’s Fund Insurance Company, 148 SCRA 315 (1987), where we
held that: “Enshrined in the basic legal principles is the time-honored
doctrine that no person shall unjustly enrich himself at the expense of
another. It goes without saying that the Government is not exempted
from the application of this doctrine.”
D. Automatic zero-rate vs. Effectively zero-rate
CIR vs. Seagate Technology (Phils) GR No. 153866 February 11,
2005
Zero-rated transactions generally refer to the export sale of
goods and supply of services. The tax rate is set at zero. When applied
to the tax base, such rate obviously results in no tax chargeable
against the purchaser. The seller of such transactions charges no
output tax, but can claim a refund of or a tax credit certificate for the
VAT previously charged by suppliers.
CIR vs. Toshiba Information Equipment GR No. 150154 dated
August 9, 2005
Sales of goods, properties and services by a VAT-registered
supplier from the Customs Territory to an ECOZONE enterprise shall
be treated as export sales. If such sales are made by a VATregistered
supplier, they shall be subject to VAT at zero percent (0%). In zero-

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TAXATION II- Compilation of doctrines based on the syllabus of Atty. Bobby Lock
rated transactions, the VAT-registered supplier shall not pass on any
output VAT to the ECOZONE enterprise, and at the same time, shall be
entitled to claim tax credit/refund of its input VAT attributable to such
sales. Zero-rating of export sales primarily intends to benefit the
exporter (i.e., the supplier from the Customs Territory), who is directly
and legally liable for the VAT, making it internationally competitive by
allowing it to credit/refund the input VAT attributable to its export sales.
Meanwhile, sales to an ECOZONE enterprise made by a non-VAT or
unregistered supplier would only be exempt from VAT and the supplier
shall not be able to claim credit/refund of its input VAT.

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.

The rule that any sale by a VAT-registered supplier from the
Customs Territory to a PEZA-registered enterprise shall be considered
an export sale and subject to zero percent (0%) VAT was clearly
established only on 15 October 1999, upon the issuance of RMC No.
74-99. Prior to the said date, however, whether or not a PEZAregistered enterprise was VAT-exempt depended on the type of fiscal
incentives availed of by the said enterprise. This old rule on VAT
exemption or liability of PEZA-registered enterprises, followed by the
BIR, also recognized and affirmed by the CTA, the Court of Appeals,
and even this Court, cannot be lightly disregarded considering the
great number of PEZA-registered enterprises which did rely on it to
determine its tax liabilities, as well as, its privileges. 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 nonpioneer enterprises for six-year and four-year periods, respectively.

The law clearly provides for an exception to the destination
principle; that is, for a zero percent VAT rate for services that are
performed in the Philippines, “paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the
[BSP].” Thus, for the supply of service to be zero-rated as an
exception, the law merely requires that first, the service be performed
in the Philippines; second, the service fall under any of the categories
in Section 102(b) of the Tax Code; and, third,it be paid in acceptable
foreign currency accounted for in accordance with BSP rules and
regulations.

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E. Destination principle and cross border doctrine
CIR vs. American Express GR No. 152609 dated June 29, 2005
As a general rule, the VAT system uses the destination principle
as a basis for the jurisdictional reach of the tax. Goods and services
are taxed only in the country where they are consumed. Thus, exports
are zero-rated, while imports are taxed.

The law neither makes a qualification nor adds a condition in
determining the tax situs of a zero-rated service. Under this criterion,
the place where the service is rendered determines the jurisdiction to
impose the VAT. Performed in the Philippines, such service is
necessarily subject to its jurisdiction, for the State necessarily has to
have “a substantial connection”
CIR vs. Toshiba Information Equipment GR No. 150154 dated
August 9, 2005
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

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TAXATION II- Compilation of doctrines based on the syllabus of Atty. Bobby Lock
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.
F. Zero Rated Sales vs. Exempt Sales
CIR vs. Cebu Toyo Corp. GR No. 149073 dated February 16, 2005
Taxable transactions are those transactions which are subject
to value-added tax either at the rate of ten percent (10%) or zero
percent (0%). In taxable transactions, the seller shall be entitled to tax
credit for the value-added tax paid on purchases and leases of goods,
properties or services. An exemption means that the sale of goods,
properties 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. Thus, a
VAT-registered purchaser of goods, properties or services that are VAT
exempt, is not entitled to any input tax on such purchases despite the
issuance of a VAT invoice or receipt.
Now, having determined that respondent is engaged in taxable
transactions subject to VAT, let us then proceed to determine whether it
is subject to 10% or zero (0%) rate of VAT. To begin with, it must be
recalled that generally, sale of goods and supply of services performed

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in the Philippines are taxable at the rate of 10%. However, export
sales, or sales outside the Philippines, shall be subject to value-added
tax at 0% if made by a VAT-registered person. Under the value-added
tax system, 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 purchase of goods, properties or services
related to such zero-rated sale shall be available as tax credit or
refund.
In principle, the purpose of applying a zero percent (0%) rate
on a taxable transaction is to exempt the transaction completely from
VAT previously collected on inputs. It is thus the only true way to
ensure that goods are provided free of VAT. While the zero rating and
the exemption are computationally the same, they actually differ in
several aspects, to wit: (a) A zero-rated sale is a taxable transaction
but does not result in an output tax while an exempted transaction is
not subject to the output tax; (b) The input VAT on the purchases of a
VAT-registered person with zero-rated sales may be allowed as tax
credits or refunded while the seller in an exempt transaction is not
entitled to any input tax on his purchases despite the issuance of a
VAT invoice or receipt; (c) Persons engaged in transactions which are
zero-rated, being subject to VAT, are required to register while
registration is optional for VAT-exempt persons.
G. Enumeration of Exempt Transactions (Sec. 109) Sec. 4.109-1
(B) of RR No. 16-05
H. Exempt Persons vs. Exempt Transactions
CIR vs. Seagate Technology (Phils) GR No. 153866 February 11,
2005
Respondent as an entity is exempt from internal revenue laws
and regulations. This exemption covers both direct and indirect taxes,
stemming from the very nature of the VAT as a tax on consumption, for
which the direct liability is imposed on one person but the indirect
burden is passed on to another. Respondent, as an exempt entity, can
neither be directly charged for the VAT on its sales nor indirectly made

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TAXATION II- Compilation of doctrines based on the syllabus of Atty. Bobby Lock
to bear, as added cost to such sales, the equivalent VAT on its
purchases. Ubi lex non distinguit, nec nos distinguere debemus.
Where the law does not distinguish, we ought not to distinguish.
IV. TRANSITIONAL AND PRESUMPTIVE INPUT TAX
Sec. 4.111-1 of RR No. 16-05
Fort Bonifacio Development vs. CIR GR No. 158885 dated April 2,
2009
“It is apparent that the transitional input tax credit operates to
benefit newly VAT-registered persons, whether or not they previously
paid taxes in the acquisition of their beginning inventory of goods,
materials and supplies. During that period of transition from non-VAT to
VAT status, the transitional input tax credit serves to alleviate the
impact of the VAT on the taxpayer. At the very beginning, the VATregistered taxpayer is obliged to remit a significant portion of the
income it derived from its sales as output VAT. The transitional input
tax credit mitigates this initial diminution of the taxpayer’s income by
affording the opportunity to offset the losses incurred through the
remittance of the output VAT at a stage when the person is yet unable
to credit input VAT payments.”
As pointed out in Our Decision of April 2, 2009, to give Section
105 a restrictive construction that transitional input tax credit applies
only when taxes were previously paid on the properties in the
beginning inventory and there is a law imposing the tax which is
presumed to have been paid, is to impose conditions or requisites to
the application of the transitional tax input credit which are not found in
the law. The courts must not read into the law what is not there. To do
so will violate the principle of separation of powers which prohibits this
Court from engaging in judicial legislation
V. VAT REFUND
A. Compare with Sec. 204 and 229
B. Grounds c. Periods

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Contex vs. CIR GR No. 151135 dated July 2, 2004
Petitioner rightly claims that it is indeed VAT-Exempt and this
fact is not controverted by the respondent. In fact, petitioner is
registered as a NON-VAT taxpayer per Certificate of Registration
issued by the BIR. As such, it is exempt from VAT on all its sales and
importations of goods and services. Petitioner’s claim, however, for
exemption from VAT for its purchases of supplies and raw materials is
incongruous with its claim that it is VAT-Exempt, for only VATRegistered entities can claim Input VAT Credit/Refund.
The point of contention here is whether or not the petitioner
may claim a refund on the Input VAT erroneously passed on to it by its
suppliers. While it is true that the petitioner should not have been liable
for the VAT inadvertently passed on to it by its supplier since such is a
zerorated sale on the part of the supplier, the petitioner is not the
proper party to claim such VAT refund.
Atlas Consolidated Mining vs. CIR GR Nos. 141104 and 148763
dated June 8, 2007
The prescriptive period for filing an application for tax refund/
credit of input VAT on zerorated sales made in 1990 and 1992 was
governed by Section 106(b) and (c) of the Tax Code of 1977, as
amended, which provided that—SEC. 106. Refunds or tax credits of
input tax.—x x x. (b) Zero-rated or effectively zero-rated sales.—Any
person, except those covered by paragraph (a) above, whose sales
are zero-rated may, within two years after the close of the quarter
when such sales were made, apply for the issuance of a tax credit
certificate or refund of the input taxes attributable to such sales to the
extent that such input tax has not been applied against output tax. x x
x x (e) Period within which refund of input taxes may be made by the
Commissioner.—The Commissioner shall refund input taxes within 60
days from the date the application for refund was filed with him or his
duly authorized representative. No refund of input taxes shall be
allowed unless the VAT-registered person files an application for refund
within the period prescribed in paragraphs (a), (b) and (c) as the case
may be. By a plain reading of the foregoing provision, the two-year

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TAXATION II- Compilation of doctrines based on the syllabus of Atty. Bobby Lock
prescriptive period for filing the application for refund/credit of input
VAT on zero-rated sales shall be determined from the close of the
quarter when such sales were made.
It is true that unlike corporate income tax, which is reported and
paid on installment every quarter, but is eventually subjected to a final
adjustment at the end of the taxable year, VAT is computed and paid
on a purely quarterly basis without need for a final adjustment at the
end of the taxable year. However, it is also equally true that until and
unless the VAT-registered taxpayer prepares and submits to the BIR its
quarterly VAT return, there is no way of knowing with certainty just how
much input VAT the taxpayer may apply against its output VAT; how
much output VAT it is due to pay for the quarter or how much excess
input VAT it may carry-over to the following quarter; or how much of its
input VAT it may claim as refund/credit. It should be recalled that not
only may a VAT-registered taxpayer directly apply against his output
VAT due the input VAT it had paid on its importation or local purchases
of goods and services during the quarter; the taxpayer is also given the
option to either (1) carry over any excess input VAT to the succeeding
quarters for application against its future output VAT liabilities, or (2) file
an application for refund or issuance of a tax credit certificate covering
the amount of such input VAT. Hence, even in the absence of a final
adjustment return, the determination of any output VAT payable
necessarily requires that the VAT-registered taxpayer make
adjustments in its VAT return every quarter, taking into consideration
the input VAT which are creditable for the present quarter or had been
carried over from the previous quarters.

CIR vs. Mirant Pagbilao Corp. GR No. 172129 dated September 12,
2008
The divergent factual findings and rulings of the CTA and CA
impel us to evaluate the evidence adduced below, particularly the April
14, 1998 OR 0189 in the amount of PhP 135,996,570 [for US$
5,190,000 at US$1: PhP 26.203 rate of exchange]. Verily, a claim for
tax refund may be based on a statute granting tax exemption, or, as

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Commissioner of Internal Revenue v. Fortune Tobacco Corporation,
559 SCRA 160 (2008), would have it, the result of legislative grace. In
such case, the claim is to be construed strictissimi juris against the
taxpayer, meaning that the claim cannot be made to rest on vague
inference. Where the rule of strict interpretation against the taxpayer is
applicable as the claim for refund partakes of the nature of an
exemption, the claimant must show that he clearly falls under the
exempting statute. On the other hand, a tax refund may be, as usually
it is, predicated on tax refund provisions allowing a refund of erroneous
or excess payment of tax. The return of what was erroneously paid is
founded on the principle of solutio indebiti, a basic postulate that no
one should unjustly enrich himself at the expense of another. The
caveat against unjust enrichment covers the government. And as
decisional law teaches, a claim for tax refund proper, as here,
necessitates only the preponderance-of-evidence threshold like in any
ordinary civil case.
Without necessarily saying that the BIR is precluded from
requiring additional evidence to prove that input tax had indeed paid or,
in fine, that the taxpayer is indeed entitled to a tax refund or credit for
input VAT, we agree with the CA’s above disposition. As the Court
distinctly notes, the law considers a duly-executed VAT invoice or OR
referred to in the above provision as sufficient evidence to support a
claim for input tax credit. And any doubt as to what OR No. 0189 was
for or tended to prove should reasonably be put to rest by the SGV
report on which the CTA notably placed much reliance. The SGV report
stated that “[OR] No. 0189 dated April 14, 1998 is for the payment of
the VAT on the progress billings” from Mitsubishi Japan “for the period
April 7, 1993 to September 6, 1996 for the E & M Equipment Erection
Portion of the Company’s contract with Mitsubishi Corporation
(Japan).”
The above proviso 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

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TAXATION II- Compilation of doctrines based on the syllabus of Atty. Bobby Lock
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.
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: x x x
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.
CIR vs. Aichi Forging Company, GR No. 184823 dated October 6,
2010
The pivotal question of when to reckon the running of the twoyear prescriptive period, however, has already been resolved in
Commissioner of Internal Revenue v. Mirant Pagbilao Corporation, 565
SCRA 154 (2008), where we ruled that Section 112(A) of the NIRC is
the applicable provision in determining the start of the two-year period

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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.”
In Commissioner of Internal Revenue v. Primetown Property
Group, Inc., 531 SCRA 436 (2007), 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
12calendar months, it is the latter that must prevail following the legal
maxim, Lex posteriori derogat priori. 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.
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

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TAXATION II- Compilation of doctrines based on the syllabus of Atty. Bobby Lock
120-day period. For this reason, we find the filing of the judicial claim
with the CTA premature.
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 zerorated 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.
CIR vs. San Roque Power (GR No. 187485 dated February 12,
2013) and other cases
Clearly, San Roque failed to comply with the 120-day waiting
period, the time expressly given by law to the Commissioner to decide
whether to grant or deny San Roque’s application for tax refund or
credit. It is indisputable that compliance with the 120-day waiting
period is mandatory and jurisdictional. The waiting period, originally
fixed at 60 days only, was part of the provisions of the first VAT law,
Executive Order No. 273, which took effect on 1 January 1988. The
waiting period was extended to 120 days effective 1 January 1998

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under RA 8424 or the Tax Reform Act of 1997. Thus, the waiting period
has been in our statute books for more than fifteen (15) years before
San Roque filed its judicial claim. Failure to comply with the 120-day
waiting period violates a mandatory provision of law. It violates the
doctrine of exhaustion of administrative remedies and renders the
petition premature and thus without a cause of action, with the effect
that the CTA does not acquire jurisdiction over the taxpayer’s petition.
Philippine jurisprudence is replete with cases upholding and reiterating
these doctrinal principles.
The charter of the CTA expressly provides that its jurisdiction is
to review on appeal “decisions of the Commissioner of Internal
Revenue in cases involving x x x refunds of internal revenue taxes.”
When a taxpayer prematurely files a judicial claim for tax refund or
credit with the CTA without waiting for the decision of the
Commissioner, there is no “decision” of the Commissioner to review
and thus the CTA as a court of special jurisdiction has no jurisdiction
over the appeal. The charter of the CTA also expressly provides that if
the Commissioner fails to decide within “a specific period” required by
law, such “inaction shall be deemed a denial” of the application for tax
refund or credit. It is the Commissioner’s decision, or inaction “deemed
a denial,” that the taxpayer can take to the CTA for review. Without a
decision or an “inaction x x x deemed a denial” of the Commissioner,
the CTA has no jurisdiction over a petition for review.
It is hornbook doctrine that a person committing a void act
contrary to a mandatory provision of law cannot claim or acquire any
right from his void act. A right cannot spring in favor of a person from
his own void or illegal act. This doctrine is repeated in Article 2254 of
the Civil Code, which states, “No vested or acquired right can arise
from acts or omissions which are against the law or which infringe
upon the rights of others.” For violating a mandatory provision of law in
filing its petition with the CTA, San Roque cannot claim any right
arising from such void petition. Thus, San Roque’s petition with the
CTA is a mere scrap of paper.

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TAXATION II- Compilation of doctrines based on the syllabus of Atty. Bobby Lock
This Court cannot disregard mandatory and jurisdictional
conditions mandated by law simply because the Commissioner chose
not to contest the numerical correctness of the claim for tax refund or
credit of the taxpayer. Noncompliance with mandatory periods, nonobservance of prescriptive periods, and non-adherence to exhaustion
of administrative remedies bar a taxpayer’s claim for tax refund or
credit, whether or not the Commissioner questions the numerical
correctness of the claim of the taxpayer. This Court should not
establish the precedent that non-compliance with mandatory and
jurisdictional conditions can be excused if the claim is otherwise
meritorious, particularly in claims for tax refunds or credit. Such
precedent will render meaningless compliance with mandatory and
jurisdictional requirements, for then every tax refund case will have to
be decided on the numerical correctness of the amounts claimed,
regardless of non-compliance with mandatory and jurisdictional
conditions.
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 wellsettled 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.
Section 112(A) clearly, plainly, and unequivocally provides that
the taxpayer “may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax
credit certificate or refund of the creditable input tax due or paid to

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such sales.” In short, the law states that the taxpayer may apply with
the Commissioner for a refund or credit “within two (2) years,” which
means at anytime within two years. Thus, the application for refund or
credit may be filed by the taxpayer with the Commissioner on the last
day of the two-year prescriptive period and it will still strictly comply
with the law. The two-year prescriptive period is a grace period in favor
of the taxpayer and he can avail of the full period before his right to
apply for a tax refund or credit is barred by prescription.
Section 112(C) provides that the Commissioner shall decide the
application for refund or credit “within one hundred twenty (120) days
from the date of submission of complete documents in support of the
application filed in accordance with Subsection (A).” The reference in
Section 112(C) of the submission of documents “in support of the
application filed in accordance with Subsection A” means that the
application in Section 112(A) is the administrative claim that the
Commissioner must decide within the 120-day period. In short, the
two-year prescriptive period in Section 112(A) refers to the period
within which the taxpayer can file an administrative claim for tax refund
or credit. Stated otherwise, the two year prescriptive period does not
refer to the filing of the judicial claim with the CTA but to the filing of the
administrative claim with the Commissioner. As held in Aichi, the
“phrase ‘within two years x x x apply for the issuance of a tax credit or
refund’ refers to applications for refund/credit with the CIR and not to
appeals made to the CTA.”
If the 30-day period, or any part of it, is required to fall within
the two-year prescriptive period (equivalent to 730 days), then the
taxpayer must file his administrative claim for refund or credit within the
first 610 days of the two-year prescriptive period. Otherwise, the filing
of the administrative claim beyond the first 610 days will result in the
appeal to the CTA being filed beyond the two-year prescriptive period.
Thus, if the taxpayer files his administrative claim on the 611th day, the
Commissioner, with his 120-day period, will have until the 731st day to
decide the claim. If the Commissioner decides only on the 731st day,
or does not decide at all, the taxpayer can no longer file his judicial

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TAXATION II- Compilation of doctrines based on the syllabus of Atty. Bobby Lock
claim with the CTA because the two year prescriptive period
(equivalent to 730 days) has lapsed. The 30-day period granted by law
to the taxpayer to file an appeal before the CTA becomes utterly
useless, even if the taxpayer complied with the law by filing his
administrative claim within the two-year prescriptive period.
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.
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

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

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TAXATION II- Compilation of doctrines based on the syllabus of Atty. Bobby Lock
no longer be any “excess” input VAT. This will upend the present VAT
System as we know it.
A claim for tax refund or credit, like a claim for tax exemption, is
construed strictly against the taxpayer. One of the conditions for a
judicial claim of refund or credit under the VAT System is compliance
with the 120+30 day mandatory and jurisdictional periods. Thus, strict
compliance with the 120+30 day periods is necessary for such a claim
to prosper, whether before, during, or after the effectivity of the Atlas
doctrine, except for the period from the issuance of BIR Ruling No.
DA-489-03 on 10 December 2003 to 6 October 2010 when the Aichi
doctrine was adopted, which again reinstated the 120+30 day periods
as mandatory and jurisdictional.
Since the Commissioner has exclusive and original jurisdiction
to interpret tax laws, taxpayers acting in good faith should not be made
to suffer for adhering to general interpretative rules of the
Commissioner interpreting tax laws, should such interpretation later
turn out to be erroneous and be reversed by the Commissioner or this
Court. Indeed, Section 246 of the Tax Code expressly provides that a
reversal of a BIR regulation or ruling cannot adversely prejudice a
taxpayer who in good faith relied on the BIR regulation or ruling prior to
its reversal.
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.

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Under the novel amendment introduced by RA 7716, mere
inaction by the Commissioner during the 60-day period is deemed a
denial of the claim. Thus, Section 4.106-2(c) states that “if no action on
the claim for tax refund/credit has been taken by the Commissioner
after the sixty (60) day period,” the taxpayer “may” already file the
judicial claim even long before the lapse of the two-year prescriptive
period. Prior to the amendment by RA 7716, the taxpayer had to wait
until the two-year prescriptive period was about to expire if the
Commissioner did not act on the claim. With the amendment by RA
7716, the taxpayer need not wait until the two-year prescriptive period
is about to expire before filing the judicial claim because mere inaction
by the Commissioner during the 60-day period is deemed a denial of
the claim. This is the meaning of the phrase “but before the lapse of
the two (2) year period” in Section 4.106-2(c). As Section 4.106- 2(c)
reiterates that the judicial claim can be filed only “after the sixty (60)
day period,” this period remains mandatory and jurisdictional. Clearly,
Section 4.106-2(c) did not amend Section 106(d) but merely faithfully
implemented it.
Mindanao II Geothermal Partnership vs. CIR, GR No. 193301 dated
March 11, 2013.
In determining whether the administrative claims of Mindanao I
and Mindanao II for 2003 have prescribed, we see no need to rely on
either Atlas or Mirant. Section 112(A) of the 1997 Tax Code is clear:
“[A]ny 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 x x x.”
In determining whether the claims for the second, third and
fourth quarters of 2003 have been properly appealed, we still see no
need to refer to either Atlas or Mirant, or even to Section 229 of the
1997 Tax Code. The second paragraph of Section 112(C) of the 1997
Tax Code is clear: “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

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TAXATION II- Compilation of doctrines based on the syllabus of Atty. Bobby Lock
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.”
In the consolidated cases of San Roque, the Court En Banc
examined and ruled on the different claims for tax refund or credit of
three different companies. In San Roque, we reiterated that “[f]ollowing
the verba legis doctrine, [Section 112(C)] must be applied exactly as
worded since it is clear, plain, and unequivocal. The taxpayer cannot
simply file a petition with the CTA without waiting for the
Commissioner’s decision within the 120-day mandatory and
jurisdictional period. The CTA will have no jurisdiction because there
will be no ‘decision’ or ‘deemed a denial decision’ of the Commissioner
for the CTA to review.”
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: (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

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2010, as an exception to the mandatory and jurisdictional 120+30 day
periods.
VI. OTHER MATTERS
A. Invoicing Requirements (Sec. 113) [Sec. 4.1113-1 of RR No.
16-05]
B. Information which must be contained (Sec. 113)
C. Consequences of Issuing Erroneous VAT Invoice (Sec. 113)
[ RR No. 4.113-4 of RR No. 16- 05]
D. Filing of Monthly and Quarterly VAT Returns and Payment of
VAT (Sec. 114)
E. Withholding VAT (Sec. 114 C) [Sec. 4.114-2 of RR No. 16-05 as
amended by Sec. 22 of RR No. 4-07]
1. Government payments
2. Services Rendered by Non-residents
3. Withholding VAT Returns/Time of Payment
F. Power of the Commissioner to Suspend Business Operations
(Sec. 5) [Sec. 4.115-1 of RR No. 16-05]
G. VAT – Senior Citizens
4. RA No. 9994
5. Revenue Regulations No. 7-2010 and 8-2010.
H. VAT on Condominium Corporations and Homeowner’s
association
RMC Nos. 65-2012 and 9-2013

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