G.R. No.

173425 : January 22, 2013

FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner, v. COMMISSIONER OF

INTERNAL REVENUE and REVENUE DISTRICT OFFICER, REVENUE DISTRICT NO. 44,
TAGUIG and PATEROS, BUREAU OF INTERNAL REVENUE, Respondents.

RESOLUTION
DEL CASTILLO, J.:
1
This resolves respondents' Motion for Reconsideration. Respondents raise the following arguments: "1)
Prior payment of tax is inherent in the nature and payment of the 8% transitional input tax;2 2) Revenue
Regulations No. 7-95 providing for 8% transitional input tax based on the value of the improvements on the real
properties is a valid legislative rule;3 3) For failure to clearly prove its entitlement to the transitional input tax
credit, petitioner's claim for tax refund must fail in light of the basic doctrine that tax refund partakes of the
nature of a tax exemption which should be construed strictissimi juris against the taxpayer."4?r?l1

We deny with finality the Motion for Reconsideration filed by respondents; the basic issues presented
have already been passed upon and no substantial argument has been adduced to warrant the reconsideration
sought.

In his Dissent, Justice Carpio cites four grounds as follows: "first, petitioner is not entitled to any refund
of input [Value-added tax] VAT, since the sale by the national government of the Global City land to petitioner
was not subject to any input VAT; second, the Tax Code does not allow any cash refund of input VAT, only a
tax credit; third, even for zero-rated or effectively zero-rated VAT-registered taxpayers, the Tax Code does not
allow any cash refund or credit of transitional input tax; and fourth, the cash refund, not being supported by any
prior actual tax payment, is unconstitutional since public funds will be used to pay for the refund which is for
the exclusive benefit of petitioner, a private entity."5?r?l1

At the outset, it must be pointed out that all these arguments have already been extensively discussed
and argued, not only during the deliberations but likewise in the exchange of comments/opinions.
Nevertheless, we will discuss them again for emphasis. First argument: "Petitioner is not entitled to any refund
of input VAT since the sale by the national government of the Global City land to petitioner was not subject to
any input VAT."6?r?l1

Otherwise stated, it is argued that prior payment of taxes is a prerequisite before a taxpayer could avail
of the transitional input tax credit.

This argument has long been settled. To reiterate, prior payment of taxes is not necessary before a
taxpayer could avail of the 8% transitional input tax credit. This position is solidly supported by law and
jurisprudence, viz:cralawlibrary

First. Section 105 of the old National Internal Revenue Code (NIRC) clearly provides that for a taxpayer
to avail of the 8% transitional input tax credit, all that is required from the taxpayer is to file a beginning
inventory with the Bureau of Internal Revenue (BIR). It was never mentioned in Section 105 that prior payment
of taxes is a requirement. For clarity and reference, Section 105 is reproduced below:cralawlibrary

SEC. 105. Transitional input tax credits. A person who becomes liable to value-added tax or any person
who elects to be a VAT-registered person shall, subject to the filing of an inventory as prescribed by
regulations, be allowed input tax on his beginning inventory of goods, materials and supplies equivalent to 8%
of the value of such inventory or the actual value-added tax paid onsuch goods, materials and supplies,
whichever is higher, which shall be creditable against the output tax. (Emphasis
supplied.) ???ñr?bl?š ??r†??l l?? l?br?rÿ

Second. Since the law (Section 105 of the NIRC) does not provide for prior payment of taxes, to require
it now would be tantamount to judicial legislation which, to state the obvious, is not allowed.

Third. A transitional input tax credit is not a tax refund per se but a tax credit. Logically, prior payment
of taxes is not required before a taxpayer could avail of transitional input tax credit. As we have declared in our
September 4, 2012 Decision,7 "tax credit is not synonymous to tax refund. Tax refund is defined as the money
that a taxpayer overpaid and is thus returned by the taxing authority. Tax credit, on the other hand, is an amount
subtracted directly from ones total tax liability. It is any amount given to a taxpayer as a subsidy, a refund, or an
incentive to encourage investment."8?r?l1

Fourth. The issue of whether prior payment of taxes is necessary to avail of transitional input tax credit
is no longer novel. It has long been settled by jurisprudence. In fact, in the earlier case of Fort Bonifacio
Development Corporation v. Commissioner of Internal Revenue,9 this Court had already ruled that
x x x. If the intent of the law were to limit the input tax to cases where actual VAT was paid, it could have
simply said that the tax base shall be the actual value-added tax paid. Instead, the law as framed contemplates a
situation where a transitional input tax credit is claimed even if there was no actual payment of VAT in the
underlying transaction. In such cases, the tax base used shall be the value of the beginning inventory of goods,
materials and supplies.10?r?l1

Fifth. Moreover, in Commissioner of Internal Revenue v. Central Luzon Drug Corp.,11 this Court had
already declared that prior payment of taxes is not required in order to avail of a tax credit.12 Pertinent portions
of the Decision read:cralawlibrary ???ñr?bl?š ??r†??l l?? l?br?rÿ

While a tax liability is essential to the availment or use of any tax credit, prior tax payments are not. On
the contrary, for the existence or grant solely of such credit, neither a tax liability nor a prior tax payment is
needed. The Tax Code is in fact replete with provisions granting or allowing tax credits, even though no taxes
have been previously paid.

For example, in computing the estate tax due, Section 86(E) allows a tax credit?subject to certain
limitations?for estate taxes paid to a foreign country. Also found in Section 101(C) is a similar provision for
donors taxes?again when paid to a foreign countryin computing for the donors tax due. The tax credits in both
instances allude to the prior payment of taxes, even if not made to our government.

Under Section 110, a VAT (Value-Added Tax)-registered person engaging in transactionswhether or not
subject to the VATis also allowed a tax credit that includes a ratable portion of any input tax not directly
attributable to either activity. This input tax may either be the VAT on the purchase or importation of goods or
services that is merely due fromnot necessarily paid bysuch VAT-registered person in the course of trade or
business; or the transitional input tax determined in accordance with Section 111(A). The latter type may in fact
be an amount equivalent to only eight percent of the value of a VAT-registered persons beginning inventory of
goods, materials and supplies, when such amount?as computed?is higher than the actual VAT paid on the said
items. Clearly from this provision, the tax credit refers to an input tax that is either due only or given a value by
mere comparison with the VAT actually paidthen later prorated. No tax is actually paid prior to the availment of
such credit.

In Section 111(B), a one and a half percent input tax credit that is merely presumptive is allowed. For
the purchase of primary agricultural products used as inputseither in the processing of sardines, mackerel and
milk, or in the manufacture of refined sugar and cooking oiland for the contract price of public works contracts
entered into with the government, again, no prior tax payments are needed for the use of the tax credit.

More important, a VAT-registered person whose sales are zero-rated or effectively zero-rated may,
under Section 112(A), apply for the issuance of a tax credit certificate for the amount of creditable input taxes
merely due again not necessarily paid to the government and attributable to such sales, to the extent that the
input taxes have not been applied against output taxes. Where a taxpayer is engaged in zero-rated or effectively
zero-rated sales and also in taxable or exempt sales, the amount of creditable input taxes due that are not
directly and entirely attributable to any one of these transactions shall be proportionately allocated on the basis
of the volume of sales. Indeed, in availing of such tax credit for VAT purposes, this provision as well as the one
earlier mentioned shows that the prior payment of taxes is not a requisite.

It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of a tax credit allowed,
even though no prior tax payments are not required. Specifically, in this provision, the imposition of a final
withholding tax rate on cash and/or property dividends received by a nonresident foreign corporation from a
domestic corporation is subjected to the condition that a foreign tax credit will be given by the domiciliary
country in an amount equivalent to taxes that are merely deemed paid. Although true, this provision actually
refers to the tax credit as a condition only for the imposition of a lower tax rate, not as a deduction from the
corresponding tax liability. Besides, it is not our government but the domiciliary country that credits against the
income tax payable to the latter by the foreign corporation, the tax to be foregone or spared.

In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as credits, against
the income tax imposable under Title II, the amount of income taxes merely incurrednot necessarily paidby a
domestic corporation during a taxable year in any foreign country. Moreover, Section 34(C)(5) provides that for
such taxes incurred but not paid, a tax credit may be allowed, subject to the condition precedent that the
taxpayer shall simply give a bond with sureties satisfactory to and approved by petitioner, in such sum as may
be required; and further conditioned upon payment by the taxpayer of any tax found due, upon petitioners
redetermination of it.

In addition to the above-cited provisions in the Tax Code, there are also tax treaties and special laws that
grant or allow tax credits, even though no prior tax payments have been made.

Under the treaties in which the tax credit method is used as a relief to avoid double taxation, income that
is taxed in the state of source is also taxable in the state of residence, but the tax paid in the former is merely
allowed as a credit against the tax levied in the latter. Apparently, payment is made to the state of source, not
the state of residence. No tax, therefore, has been previously paid to the latter.
 Under special laws that particularly affect businesses, there can also be tax credit incentives. To
illustrate, the incentives provided for in Article 48 of Presidential Decree No. (PD) 1789, as amended by Batas
Pambansa Blg. (BP) 391, include tax credits equivalent to either five percent of the net value earned, or five or
ten percent of the net local content of export. In order to avail of such credits under the said law and still
achieve its objectives, no prior tax payments are necessary.

From all the foregoing instances, it is evident that prior tax payments are not indispensable to the
availment of a tax credit. Thus, the CA correctly held that the availment under RA 7432 did not require prior tax
payments by private establishments concerned. However, we do not agree with its finding that the carry-over of
tax credits under the said special law to succeeding taxable periods, and even their application against internal
revenue taxes, did not necessitate the existence of a tax liability.

The examples above show that a tax liability is certainly important in the availment or use, not the
existence or grant, of a tax credit. Regarding this matter, a private establishment reporting a net loss in its
financial statements is no different from another that presents a net income. Both are entitled to the tax credit
provided for under RA 7432, since the law itself accords that unconditional benefit. However, for the losing
establishment to immediately apply such credit, where no tax is due, will be an improvident usance.13?r?l1
Second and third arguments: "The Tax Code does not allow any cash refund of input VAT, only a tax credit;"
and "even for zero-rated or effectively zero-rated VAT-registered taxpayers, the Tax Code does not allow any
cash refund or credit of transitional input tax."14?r?l1

Citing Sections 110 and 112 of the Tax Code, it is argued that the Tax Code does not allow a cash
refund, only a tax credit.

This is inaccurate.

First. Section 112 of the Tax Code speaks of zero-rated or effectively zero-rated sales. Notably, the
transaction involved in this case is not zero-rated or effectively zero-rated sales.

Second. A careful reading of Section 112 of the Tax Code would show that it allows either a cash refund
or a tax credit for input VAT on zero-rated or effectively zero-rated sales. For reference, Section 112 is herein
quoted, viz:cralawlibrary

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. (Emphasis supplied.)

Third. Contrary to the Dissent, Section 112 of the Tax Code does not prohibit cash refund or tax credit
of transitional input tax in the case of zero-rated or effectively zero-rated VAT registered taxpayers, who do not
have any output VAT. The phrase "except transitional input tax" in Section 112 of the Tax Code was inserted to
distinguish creditable input tax from transitional input tax credit. Transitional input tax credits are input taxes on
a taxpayers beginning inventory of goods, materials, and supplies equivalent to 8% (then 2%) or the actual VAT
paid on such goods, materials and supplies, whichever is higher. It may only be availed of once by first-time
VAT taxpayers. Creditable input taxes, on the other hand, are input taxes of VAT taxpayers in the course of
their trade or business, which should be applied within two years after the close of the taxable quarter when the
sales were made.

Fourth. As regards Section 110, while the law only provides for a tax credit, a taxpayer who erroneously
or excessively pays his output tax is still entitled to recover the payments he made either as a tax credit or a tax
refund. In this case, since petitioner still has available transitional input tax credit, it filed a claim for refund to
recover the output VAT it erroneously or excessively paid for the 1st quarter of 1997. Thus, there is no reason
for denying its claim for tax refund/credit.

Fifth. Significantly, the dispositive portion of our September 4, 2012 Decision15 directed the respondent
Commissioner of Internal Revenue (CIR) to either refund the amount paid as output VAT for the 1st quarter of
1997 or to issue a tax credit certificate. We did not outrightly direct the cash refund of the amount claimed,
thus:cralawlibrary

WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated July 7, 2006 of the Court
of Appeals in CA-G.R. SP No. 61436 is REVERSED and SET ASIDE. Respondent Commissioner of Internal
Revenue is ordered to refund to petitioner Fort Bonifacio Development Corporation the amount
of P359,652,009.47 paid as output VAT for the first quarter of 1997 in light of the transitional input tax credit
available to petitioner for the said quarter, or in the alternative, to issue a tax credit certificate corresponding to
such amount.

SO ORDERED.16?r?l1

Sixth. Notably, in the earlier case of Fort Bonifacio, we likewise directed the respondent to either refund
or issue a tax credit certificate. It bears emphasis that this Decision already became final and executory and
entry of judgment was made in due course. The dispositive portion of our Decision in said case
reads:cralawlibrary

WHEREFORE, the petitions are GRANTED. The assailed decisions of the Court of Tax Appeals and
the Court of Appeals are REVERSED and SET ASIDE. Respondents are hereby (1) restrained from collecting
from petitioner the amount of P28,413,783.00 representing the transitional input tax credit due it for the fourth
quarter of 1996; and (2) directed to refund to petitioner the amount of P347,741,695.74 paid as output VAT for
the third quarter of 1997 in light of the persisting transitional input tax credit available to petitioner for the said
quarter, or to issue a tax credit corresponding to such amount. No pronouncement as to costs.17?r?l1

Clearly, the CIR has the option to return the amount claimed either in the form of tax credit or refund.
Fourth argument. "The cash refund, not being supported by any prior actual tax payment, is unconstitutional
since public funds will be used to pay for the refund which is for the exclusive benefit of petitioner, a private
entity."18?r?l1 ???ñr?bl?š ??r†??l l?? l?br?rÿ

Otherwise stated, it is argued that the refund or issuance of tax credit certificate violates the mandate in
Section 4(2) of the Government Auditing Code of the Philippines that "Government funds or property shall be
spent or used solely for public purposes." Again, this is inaccurate. On the contrary, the grant of a refund or
issuance of tax credit certificate in this case would not contravene the above provision. The refund or tax credit
would not be unconstitutional because it is precisely pursuant to Section 105 of the old NIRC which allows
refund/tax credit.
Final Note

As earlier mentioned, the issues in this case are not novel. These same issues had been squarely ruled
upon by this Court in the earlier Fort Bonifacio case. This earlier Fort Bonifacio case already attained finality
and entry of judgment was already made in due course. To reverse our Decision in this case would logically
affect our Decision in the earlier Fort Bonifacio case. Once again, this Court will become an easy target for
charges of "flip-flopping."

ACCORDINGLY, the Motion for Reconsideration is DENIED with FINALITY, the basic issues
presented having been passed upon and no substantial argument having been adduced to warrant the
reconsideration sought. No further pleadings or motions shall be entertained in this case. Let entry of final
judgment be made in due course.

SO ORDERED.

G.R. No. 169899 February 06, 2013

PHILACOR CREDIT CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

BRION, J.:

Before us is a petition for review on certiorari1under Rule 45 of the Rules of Court seeking the reversal of the
decision2 dated September 23, 2005 of the Court of Tax Appeals (CTA) en bane in C.T.A, E.B. No. 19 (C.T.A.
Case No. 5674). In the assailed decision, the CTA en banc affirmed the CTA Division’s resolution3 of April 6,
2004. Both courts held that petitioner Philacor Credit Corporation (Philacor), as an assignee of promissory
notes, is liable for deficiency documentary stamp tax (DST) on (1) the issuance of promissory notes; and (2) the
assignment of promissory notes for the fiscal year ended 1993.

The facts are not disputed.

Philacor is a domestic corporation organized under Philippine laws and is engaged in the business of retail
financing. Through retail financing, a prospective buyer of a home appliance – with neither cash nor any credit
card – may purchase appliances on installment basis from an appliance dealer. After Philacor conducts a credit
investigation and approves the buyer’s application, the buyer executes a unilateral promissory note in favor of
the appliance dealer. The same promissory note is subsequently assigned by the appliance dealer to Philacor.4

Pursuant to Letter of Authority No. 17107 dated July 6, 1974, Revenue Officer Celestino Mejia examined
Philacor’s books of accounts and other accounting records for the fiscal year August 1, 1992 to July 31, 1993.
Philacor received tentative computations of deficiency taxes for this year. Philacor’s Finance Manager, Leticia
Pangan, contested the tentative computations of deficiency taxes (totaling P20,037,013.83) through a letter
dated April 17, 1995.5

On May 16, 1995, Mr. Mejia sent a letter to Philacor revising the preliminary assessments as follows:

Deficiency Income Tax P 9,832,098.22

Deficiency Percentage Tax 866,287.60
Deficiency Documentary Stamp Tax 3,368,169. 45
Total ==============
P14,066,555.276
==============
Philacor then received Pre-Assessment Notices (PANs), all dated July 18, 1996, covering the alleged deficiency
income, percentage and DSTs, including increments.7

On February 3, 1998, Philacor received demand letters and the corresponding assessment notices, all dated
January 28, 1998. The assessments, inclusive of increments, cover the following:

Deficiency Income Tax P12, 888,085.09

Deficiency Percentage Tax 1,185,977.07
Deficiency DST Tax 3,368,196. 45
Total ==============
P17,442,231.618
==============
On March 4, 1998, Philacor protested the PANs, with a request for reconsideration and reinvestigation. It
alleged that the assessed deficiency income tax was erroneously computed when it failed to take into account
the reversing entries of the revenue accounts and income adjustments, such as repossessions, write-offs and
legal accounts. Similarly, the Bureau of Internal Revenue (BIR) failed to take into account the reversing entries
of repossessions, legal accounts, and write-offs when it computed the percentage tax; thus, the total income
reported, that the BIR arrived at, was not equal to the actual receipts of payment from the customers. As for the
deficiency DST, Philacor claims that the accredited appliance dealers were required by law to affix the
documentary stamps on all promissory notes purchased until the enactment of Republic Act No. 7660,
otherwise known as An Act Rationalizing Further the Structure and Administration of the Documentary Stamp
Tax,9 which took effect on January 15, 1994. In addition, Philacor filed, on the following day, a supplemental
protest, arguing that the assessments were void for failure to state the law and the facts on which they were
based.10

On September 30, 1998, Philacor filed a petition for review before the CTA Division, docketed as C.T.A. Case
No. 5674. 11

The CTA Division rendered its decision on August 14, 2003.12 After examining the documents submitted by
the parties, it concluded that Philacor failed to declare part of its income, making it liable for deficiency income
tax and percentage tax. However, it also found that the Commissioner of Internal Revenue (CIR) erred in his
analysis of the entries in Philacor’s books thereby considerably reducing Philacor’s liability to a deficiency
income tax of P1,757,262.47 and a deficiency percentage tax of P613,987.86. The CTA also ruled that Philacor
is liable for the DST on the issuance of the promissory notes and their subsequent transfer or assignment.
Noting that Philacor failed to prove that the DST on its promissory notes had been paid for these two
transactions, the CTA held Philacor liable for deficiency DST of P673,633.88, which is computed as follows:

Total Notes purchased during the taxable year P 269,453,556.94

Divided by rate under Section 180 200.00
Basis of DST P 1,347,267.78
Multiply by DST rate (Section 180, 1993Tax Code .20
DST on notes purchased P 269,453.55
Add: Total DST on Notes assigned (Section 180) 269,453.55

P 538,907.10
Deficiency Documentary Stamp Tax
Add: 25% surcharge 134,726.78
Total Deficiency Documentary Stamp Tax
P 673,633.8813
===============
All sums for deficiency taxes included surcharge and interest.

Both parties filed their motions for reconsideration. The CIR’s motion was denied for having been filed out of
time.14 On the other hand, the CTA partially granted Philacor’s motion in the resolution of April 6, 2004,15
wherein it cancelled the assessment for deficiency income tax and deficiency percentage tax. These assessments
were withdrawn because the CTA found that Philacor had correctly declared its income; the discrepancy of
P2,180,564.00 had been properly accounted for as proper adjustments to Philacor’s net revenues. Nevertheless,
the CTA Division sustained the assessment for deficiency DST in the amount of P673,633.88.

Philacor filed a petition for review before the CTA en banc.16

In its decision17 dated September 23, 2005, the CTA en banc affirmed the resolution of April 6, 2004 of the
CTA Division. It reiterated that Philacor is liable for the DST due on two transactions – the issuance of
promissory notes and their subsequent assignment in favor of Philacor. With respect to the issuance of the
promissory notes, Philacor is liable as the transferee which "accepted" the promissory notes from the appliance
dealer in accordance with Section 180 of Presidential Decree No. 1158, as amended (1986 Tax Code).18
Further citing Section 4219 of Regulations No. 26,20 the CTA en banc held that a person "using" a promissory
note is one of the persons who can be held liable to pay the DST. Since the subject promissory notes do not bear
documentary stamps, Philacor can be held liable for DST. As for the assignment of the promissory notes, the
CTA en banc held that each and every transaction involving promissory notes is subject to the DST under
Section 173 of the 1986 Tax Code; Philacor is liable as the transferee and assignee of the promissory notes.

On November 18, 2005, Philacor filed the present petition, raising the following assignment of errors:

"USING" IN REGULATIONS NO. 26 DOES NOT APPEAR IN SECTIONS [SIC] 173 NOR 180 OF THE
TAX CODE; AND, THEREFORE WENT BEYOND THE LAW [SIC]

II

"ACCEPTING" IN SECTION 173 OF THE TAX CODE DOES NOT APPLY TO PROMISSORY NOTES

III

THE CTA EN BANC DECISION EXTENDED THE WORDS "ASSIGNMENT" AND "TRANSFERRING"
IN SECTION 173 TO THE PROMISSORY NOTES; SUCH THAT, THE "ASSIGNMENT" OR
"TRANSFERRING" OF PROMISSORY NOTES IS SUBJECT TO DST. HOWEVER SECTIONS 176, 178,
AND 198 OF TITLE VII OF THE TAX CODE EXPRESSLY IMPOSES [SIC] DST ON THE
TRANSFER/ASSIGNMENT OF CERTAIN DOCUMENTS WHICH REVEALS THE LEGISLATIVE
INTENT THAT ONLY THE ASSIGNMENT/TRANSFER OF CERTAIN DOCUMENTS IN SECTIONS 176,
178, AND 198 ARE SUBJECT TO DST

IV

BIR RULING 139-97 RULED THAT THE ASSIGNMENT OF A LOAN, WHICH IN SECTION 180 IS
TREATED IN THE SAME BREATH AS A PROMISSORY NOTE, IS NOT SUBJECT TO DST21
We find the petition meritorious.

Philacor is not liable for the DST on the issuance of the promissory notes.

Neither party questions that the issuances of promissory notes are transactions which are taxable under the DST.
The 1986 Tax Code clearly states that:

Section 180. Stamp tax on promissory notes, bills of exchange, drafts, certificates of deposit, debt instruments
used for deposit substitutes and others not payable on sight or demand.—On all bills of exchange (between
points within the Philippines), drafts, or certificates of deposits, debt instruments used for deposit substitutes or
orders for the payment of any sum of money otherwise than at sight or on demand, on all promissory notes,
whether negotiable or non-negotiable except bank notes issued for circulation, and on each renewal of any such
note, there shall be collected a documentary stamp tax of twenty centavos on each two hundred pesos, or
fractional part thereof, of the face value of any such bill of exchange, draft certificate of deposit, debt
instrument, or note. [emphasis supplied; underscores ours]

Under the undisputed facts and the above law, the issue that emerges is: who is liable for the tax?

Section 173 of the 1997 National Internal Revenue Code (1997 NIRC) names those who are primarily liable for
the DST and those who would be secondarily liable:

Section 173. Stamp taxes upon documents, instruments, and papers. – Upon documents, instruments, and
papers, and upon acceptances, assignments, sales, and transfers of the obligation, right, or property incident
thereto, there shall be levied, collected and paid for, and in respect of the transaction so had or accomplished,
the corresponding documentary stamp taxes prescribed in the following sections of this Title, by the person
making, signing, issuing, accepting, or transferring the same, and at the same time such act is done or
transaction had: Provided, that wherever one party to the taxable document enjoys exemption from the tax
herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax. [emphases
supplied; underscores ours]

The persons primarily liable for the payment of the DST are the person (1) making; (2) signing; (3) issuing; (4)
accepting; or (5) transferring the taxable documents, instruments or papers. Should these parties be exempted
from paying tax, the other party who is not exempt would then be liable.

Philacor did not make, sign, issue, accept or transfer the promissory notes. The acts of making, signing, issuing
and transferring are unambiguous. The buyers of the appliances made, signed and issued the documents subject
to tax, while the appliance dealer transferred these documents to Philacor which likewise indisputably received
or "accepted" them. "Acceptance," however, is an act that is not even applicable to promissory notes, but only
to bills of exchange.22 Under Section 13223 of the Negotiable Instruments Law (which provides for how
acceptance should be made), the act of acceptance refers solely to bills of exchange. Its object is to bind the
drawee of a bill and make him an actual and bound party to the instrument.24 Further, in a ruling adopted by the
BIR as early as 1955, acceptance has already been given a narrow definition with respect to incoming foreign
bills of exchange, not the common usage of the word "accepting" as in receiving:

The word "accepting" appearing in Section 210 of the National Internal Revenue Code has reference to
incoming foreign bills of exchange which are accepted in the Philippines by the drawees thereof. Accordingly,
the documentary stamp tax on freight receipts is due at the time the receipts are issued and from the
transportation company issuing the same. The fact that the transportation contractor issuing the freight receipts
shifts the burden of the tax to the shipper does not make the latter primarily liable to the payment of the tax.25
(underscore ours)

This ruling, to our mind, further clarifies that a party to a taxable transaction who "accepts" any documents or
instruments in the plain and ordinary meaning of the act (such as the shipper in the cited case) does not become
primarily liable for the tax. In the same way, Philacor cannot be made primarily liable for the DST on the
issuance of the subject promissory notes, just because it had "accepted" the promissory notes in the plain and
ordinary meaning. In this regard, Section 173 of the 1997 NIRC assumes materiality as it determines liability
should the parties who are primarily liable turn out to be exempted from paying tax; the other party to the
transaction then becomes liable.
Revenue Regulations No. 9-200026 interprets the law more widely so that all parties to a transaction are
primarily liable for the DST, and not only the person making, signing, issuing, accepting or transferring the
same becomes liable as the law provides. It provides:

SEC. 2. Nature of the Documentary Stamp Tax and Persons Liable for the Tax. –

(a) In General. - The documentary stamp taxes under Title VII of the Code is a tax on certain transactions. It is
imposed against "the person making, signing, issuing, accepting, or transferring" the document or facility
evidencing the aforesaid transactions. Thus, in general, it may be imposed on the transaction itself or upon the
document underlying such act. Any of the parties thereto shall be liable for the full amount of the tax due:
Provided, however, that as between themselves, the said parties may agree on who shall be liable or how they
may share on the cost of the tax.

(b) Exception. - Whenever one of the parties to the taxable transaction is exempt from the tax imposed under
Title VII of the Code, the other party thereto who is not exempt shall be the one directly liable for the tax.
[emphasis ours]

But even under these terms, the liability of Philacor is not a foregone conclusion as from the face of the
promissory note itself, Philacor is not a party to the issuance of the promissory notes, but merely to their
assignment. On the face of the documents, the parties to the issuance of the promissory notes would be the
buyer of the appliance, as the maker, and the appliance dealer, as the payee.

We are aware that while Philacor denies being a party to the issuance of the promissory notes,27 the appliance
buyer is made to sign a promissory note only after Philacor has approved its credit application. Moreover, the
note Philacor marked as Annex "J" of its petition for review28 is the standard pro forma promissory note that
Philacor uses in all similar transactions;29 the same document contains the issuance of the notes in favor of the
appliance dealer and their assignments to Philacor. The promissory notes are also transferred to Philacor by the
appliance dealer on the same date that the appliance buyer issues the promissory note in favor of the appliance
buyer. Thus, it would seem that Philacor is the person who ultimately benefits from the issuance of the notes, if
not the intended payee of these notes.

These observations, however, pertain to facts and implications that are found outside the terms of the documents
under discussion and are contradictory to their outright terms. To consider these externalities would go against
the doctrine that the liability for the DST and the amount due are determined from the document itself –
examined through its form and face – and cannot be affected by proof of facts outside it.30

Nor can the CIR justify his position that Philacor is liable for the tax by citing Section 42 of Regulations No. 26,
which was issued by the Department of Finance on March 26, 1924:

Section 42. Responsibility for payment of tax on promissory notes. - The person who signs or issues a
promissory note and any person transferring or using a promissory note can be held responsible for the payment
of the documentary stamp tax. [emphasis ours; italics supplied]

The rule uses the word "can" which is permissive, rather than the word "shall," which would make the liability
of the persons named definite and unconditional. In this sense, a person using a promissory note can be made
liable for the DST if he or she is: (1) among those persons enumerated under the law - i.e., the person who
makes, issues, signs, accepts or transfers the document or instrument; or (2) if these persons are exempt, a non-
exempt party to the transaction. Such interpretation would avoid any conflict between Section 173 of the 1997
NIRC and Section 42 of Regulations No. 26 and would make it unnecessary for us to strike down the latter as
having gone beyond the law it seeks to interpret.

However, we cannot interpret Section 42 of Regulations No. 26 to mean that anyone who "uses" the document,
regardless of whether such person is a party to the transaction, should be liable, as this reading would go beyond
Section 173 of the 1986 Tax Code – the law that the rule seeks to implement. Implementing rules and
regulations cannot amend a law for they are intended to carry out, not supplant or modify, the law.31 To allow
Regulations No. 26 to extend the liability for DST to persons who are not even mentioned in the relevant
provisions of any of our Tax Codes, particularly the 1986 Tax Code (the relevant law at the time of the subject
transactions) would be a clear breach of the rule that a statute must always be superior to its implementing
regulations.
This expansive interpretation of Regulations No. 26 becomes even more untenable when we look at the
difference between the way our law has been phrased and the way the Internal Revenue Law of the United
States (US) identified the persons liable for its stamp tax. We also note that despite the subsequent amendments
to our DST provisions, our Congress never saw it fit to phrase our laws using the US phraseologies.

In Section 110 of our Internal Revenue Code of 1904, the persons liable for the stamp tax are the "persons who
shall make, sign or issue the same[.]" Although our 1904 Tax Code was patterned after the then existing US
Internal Revenue Code, also known as the Act of Congress of July 13, 1866,32 the US provisions on the stamp
tax provide for a wider set of taxpayers: Section 158 thereof places the burden on "persons who shall make, sign
or issue, or who shall cause to be made, signed or issued any instrument, document, or paper of any kind or
description whatsoever, or shall accept, negotiate or pay or cause to be accepted, negotiated and paid, any bill of
exchange, draft, or order, or promissory note for the payment of money." It goes on further by extending the
liability not only to the parties mentioned but also to "any party having an interest therein." Another US law, the
War Revenue Act of June 13, 1898, provides in Section 6 thereof a more succinct phrase whose coverage is just
as extensive: "any persons or party who shall make, sign or issue the same, or for whose use or benefit the same
shall be made, signed or issued." These provisions have been adopted by various states such as Florida, South
Carolina, New Jersey and Pennsylvania.33

Under US laws, liability for the DST is placed on any person who has an interest in the transaction or document
and whoever may benefit from it. A person who would use it or benefit from it, including parties who are not
named in the instrument, would be liable for the tax. In comparison, our legislators chose to limit the DST
liability only to "persons who shall make, sign or issue [the document or instrument]."

Notably, our revenue laws regarding persons liable for the DST have been repeatedly amended. In subsequent
amendments, the coverage of the liability for DST included persons who "accept" and "transfer" the instrument,
document or paper of the taxable transaction. Thereafter, we included the proviso that should any of the parties
be exempt, the other party to the transaction would become liable. However, none of these amendments had
ever extended the liability to persons who have any interest in or who would benefit from the document or
instrument subject to tax. Thus, we cannot allow Regulations No. 26 to be interpreted in such a way as to extend
the DST liability to persons who are not the parties named in the taxable document or instrument and are merely
using or benefiting from it, against the clear intention of our legislature.

In our view, it makes more sense to include persons who benefit from or have an interest in the taxable
document, instrument or transaction. There appears no reason for distinguishing between the persons who
make, sign, issue, transfer or accept these documents and the persons who have an interest in these and/or have
caused them to be made, signed or issued. This also limits the opportunities for avoiding tax. Moreover, there
are cases when making all relevant parties taxable could help our administrative officers collect tax more
efficiently. In this case, the BIR could simply collect from the financing companies, rather than go after each
and every appliance buyer or appliance seller. However, these are matters that are within the prerogatives of
Congress so that any interference from the Court, no matter how well-meaning, would constitute judicial
legislation. At best, we can only air our views in the hope that Congress would take notice.

Philacor is not liable for the DST on the assignment of promissory notes.

Philacor, as an assignee or transferee of the promissory notes, is not liable for the assignment or transfer of
promissory notes as this transaction is not taxed under the law.

The CIR argues that the DST is levied on the exercise of privileges through the execution of specific
instruments, or the privilege to enter into a transaction. Therefore, the DST should be imposed on every exercise
of the privilege to enter into a transaction.34 There is nothing in Section 180 of the 1986 Tax Code that supports
this argument; the argument is even contradicted by the way the provisions on DST were drafted.1âwphi1

As Philacor correctly points out, there are provisions in the 1997 NIRC that specifically impose the DST on the
transfer and/or assignment of documents evidencing particular transactions. Section 176 imposes a DST on the
transfer of due bills, certificates of obligation, or shares or certificates of stock in a corporation, apart from
Section 175 which imposes the DST on the issuance of shares of stock in a corporation. Section 178 imposes
the DST on certificates of profits, or any certificate or memorandum showing interest in a property or
accumulations of any corporation, and on all transfers of such certificate or memoranda. Section 198 imposes
the DST on the assignment or transfer of any mortgage, lease or policy of insurance, apart from Sections 183,
184, 185, 194 and 195 which impose it on the issuances of mortgages, leases and policies of insurance. Indeed,
the law has set a pattern of expressly providing for the imposition of DST on the transfer and/or assignment of
documents evidencing certain transactions. Thus, we can safely conclude that where the law did not specify that
such transfer and/or assignment is to be taxed, there would be no basis to recognize an imposition.

A good illustrative example is Section 198 of the 1986 Tax Code which provides that:

Section 198. Stamp tax on assignments and renewals of certain instruments. – Upon each and every assignment
or transfer of any mortgage, lease or policy of insurance, or the renewal or continuance of any agreement,
contract, charter, or any evidence of obligation or indebtedness by altering or otherwise, there shall be levied,
collected and paid a documentary stamp tax, at the same rate as that imposed on the original instrument.

If we look closely at this provision, we would find that an assignment or transfer becomes taxable only in
connection with mortgages, leases and policies of insurance. The list does not include the assignment or transfer
of evidences of indebtedness; rather, it is the renewal of these that is taxable. The present case does not involve
a renewal, but a mere transfer or assignment of the evidences of indebtedness or promissory notes. A renewal
would involve an increase in the amount of indebtedness or an extension of a period, and not the mere change in
person of the payee.35

In BIR Ruling No. 139-97 issued on December 29, 1997, then CIR Liwayway Vinzons-Chato pronounced that
the assignment of a loan that is not for a renewal or a continuance does not result in a liability for DST.
Revenue Regulations No. 13-2004, issued on December 23, 2004, states that "[t]he DST on all debt instruments
shall be imposed only on every original issue and the tax shall be based on the issue price thereof. Hence, the
sale of a debt instrument in the secondary market will not be subject to the DST." Included in the enumeration
of debt instruments is a promissory note.

The BIR Ruling and Revenue Regulation cited are still applicable to this case, even if they were issued after the
transactions in question had already taken place. They apply because they are issuances interpreting the same
rule imposing a DST on promissory notes. At the time BIR Ruling No. 139-97 was issued, the law in effect was
the 1986 Tax Code; the 1997 NIRC took effect only on January 1, 1998. Moreover, the BIR Ruling referred to a
transaction entered into in 1992, when the 1986 Tax Code had been in effect. On the other hand, the BIR issued
Revenue Regulations No. 13-2004 when Section 180 of the 1986 Tax Code had already been amended.
Nevertheless, the rule would still apply to this case because the pertinent part of Section 180 – the part dealing
with promissory notes – remained the same; it imposed the DST on the promissory notes’ issuances and
renewals, but not on their assignment or transfer:

Section 180 of the 1986 Tax Code, as

amended
Section 180 of the 1997 NIRC, as
amended by Republic Act No. 9243
Section 180. Stamp tax on promissory notes, bills of exchange, drafts, certificates of deposit, debt instruments
used for deposit substitutes and others not payable on sight or demand on all promissory notes, whether
negotiable or nonnegotiable except bank notes issued for circulation, and on each renewal of any such note,
there shall be collected a documentary stamp tax of twenty centavos on each two hundred pesos, or fractional
part thereof, of the face value of any such bill of exchange, draft certificate of deposit, debt instrument, or note.
– On all bills of exchange (between points within the Philippines), drafts, or certificates of deposits, debt
instruments used for deposit substitutes or orders for the payment of any sum of money otherwise than at sight
or on demand,

Section 180. Stamp Tax on All Bonds, Loan Agreements, Promissory Notes, Bills of Exchange, Drafts,
Instruments and Securities Issued by the Government or Any of its Instrumentalities, Deposit Substitute Debt
Instruments, Certificates of Deposits Bearing Interest and Others Not Payable on Sight or Demand. - On all
bonds, loan agreements, including those signed abroad, wherein the object of the contract is located or used in
the Philippines, bills of exchange (between points within the Philippines), drafts, instruments and securities
issued by the Government or any of its instrumentalities, deposit substitute debt instruments, certificates of
deposits drawing interest, orders for the payment of any sum of money otherwise than at sight or on demand, on
all promissory notes, whether negotiable or non-negotiable, except bank notes issued for circulation, and on
each renewal of any such note, there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on
each Two hundred pesos (P200), or fractional part thereof, of the face value of any such agreement, bill of
exchange, draft, certificate of deposit, or note: Provided, That only one documentary stamp tax shall be imposed
on either loan agreement, or promissory notes issued to secure such loan, whichever will yield a higher tax.
Provided, however, That loan agreements or promissory notes the aggregate of which does not exceed Two
hundred fifty thousand pesos (P250,000) executed by individual for his purchase on installment for his personal
use or that of his family and not for business resale, barter or hire of a house, lot, motor vehicle, appliance or
furniture shall be exempt from the payment of the documentary stamp tax provided under this Section.

The settled rule is that in case of doubt, tax laws must be construed strictly against the State and liberally in
favor of the taxpayer. The reason for this ruling is not hard to grasp taxes, as burdens which must be endured by
the taxpayer, should not be presumed to go beyond what the law expressly and clearly declares. That such strict
construction is necessary in this case is evidenced by the change in the subject provision as presently worded,
which now expressly levies the tax on shares of stock as against the previlege of issuing certificates of stock as
formerly provided.36

WHEREFORE, premises considered, we GRANT the petition. The September 23, 2005 Decision of the Court
of Tax Appeals en banc in C.T.A. E.B. No. 19 (C.T.A. Case No. 5674), ordering Philacor Credit Corporation to
pay a deficiency documentary stamp tax in connection with the issuances and transfers or assignments of
promissory notes for the fiscal year ended July 31, 1993, is SET ASIDE. No costs.

SO ORDERED.

G.R. No. 187485 February 12, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
SAN ROQUE POWER CORPORATION, Respondent.

X----------------------------X

G.R. No. 196113

TAGANITO MINING CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

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

G.R. No. 197156

PHILEX MINING CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

CARPIO, J.:

The Cases

G.R. No. 187485 is a petitiOn for review1 assailing the Decision2 promulgated on 25 March 2009 as well as the
Resolution3 promulgated on 24 April 2009 by the Court of Tax Appeals En Banc (CTA EB) in CTA EB No.
408. The CTA EB affirmed the 29 November 2007 Amended Decision4 as well as the 11 July 2008
Resolution5 of the Second Division of the Court of Tax Appeals (CTA Second Division) in CTA Case No.
6647. The CTA Second Division ordered the Commissioner of Internal Revenue (Commissioner) to refund or
issue a tax credit for P483,797,599.65 to San Roque Power Corporation (San Roque) for unutilized input value-
added tax (VAT) on purchases of capital goods and services for the taxable year 2001.
G.R. No. 196113 is a petition for review6 assailing the Decision7 promulgated on 8 December 2010 as well as
the Resolution8 promulgated on 14 March 2011 by the CTA EB in CTA EB No. 624. In its Decision, the CTA
EB reversed the 8 January 2010 Decision9 as well as the 7 April 2010 Resolution10of the CTA Second
Division and granted the CIR’s petition for review in CTA Case No. 7574. The CTA EB dismissed, for having
been prematurely filed, Taganito Mining Corporation’s (Taganito) judicial claim for P8,365,664.38 tax refund
or credit.

G.R. No. 197156 is a petition for review11 assailing the Decision12promulgated on 3 December 2010 as well as
the Resolution13 promulgated on 17 May 2011 by the CTA EB in CTA EB No. 569. The CTA EB affirmed the
20 July 2009 Decision as well as the 10 November 2009 Resolution of the CTA Second Division in CTA Case
No. 7687. The CTA Second Division denied, due to prescription, Philex Mining Corporation’s (Philex) judicial
claim for P23,956,732.44 tax refund or credit.

On 3 August 2011, the Second Division of this Court resolved14 to consolidate G.R. No. 197156 with G.R. No.
196113, which were pending in the same Division, and with G.R. No. 187485, which was assigned to the Court
En Banc. The Second Division also resolved to refer G.R. Nos. 197156 and 196113 to the Court En Banc,
where G.R. No. 187485, the lower-numbered case, was assigned.

G.R. No. 187485

CIR v. San Roque Power Corporation

The Facts

The CTA EB’s narration of the pertinent facts is as follows:

[CIR] is the duly appointed Commissioner of Internal Revenue, empowered, among others, to act upon and
approve claims for refund or tax credit, with office at the Bureau of Internal Revenue ("BIR") National Office
Building, Diliman, Quezon City.

[San Roque] is a domestic corporation duly organized and existing under and by virtue of the laws of the
Philippines with principal office at Barangay San Roque, San Manuel, Pangasinan. It was incorporated in
October 1997 to design, construct, erect, assemble, own, commission and operate power-generating plants and
related facilities pursuant to and under contract with the Government of the Republic of the Philippines, or any
subdivision, instrumentality or agency thereof, or any governmentowned or controlled corporation, or other
entity engaged in the development, supply, or distribution of energy.

As a seller of services, [San Roque] is duly registered with the BIR with TIN/VAT No. 005-017-501. It is
likewise registered with the Board of Investments ("BOI") on a preferred pioneer status, to engage in the design,
construction, erection, assembly, as well as to own, commission, and operate electric power-generating plants
and related activities, for which it was issued Certificate of Registration No. 97-356 on February 11, 1998.

On October 11, 1997, [San Roque] entered into a Power Purchase Agreement ("PPA") with the National Power
Corporation ("NPC") to develop hydro-potential of the Lower Agno River and generate additional power and
energy for the Luzon Power Grid, by building the San Roque Multi-Purpose Project located in San Manuel,
Pangasinan. The PPA provides, among others, that [San Roque] shall be responsible for the design,
construction, installation, completion, testing and commissioning of the Power Station and shall operate and
maintain the same, subject to NPC instructions. During the cooperation period of twenty-five (25) years
commencing from the completion date of the Power Station, NPC will take and pay for all electricity available
from the Power Station.

On the construction and development of the San Roque Multi- Purpose Project which comprises of the dam,
spillway and power plant, [San Roque] allegedly incurred, excess input VAT in the amount of ₱559,709,337.54
for taxable year 2001 which it declared in its Quarterly VAT Returns filed for the same year. [San Roque] duly
filed with the BIR separate claims for refund, in the total amount of ₱559,709,337.54, representing unutilized
input taxes as declared in its VAT returns for taxable year 2001.

However, on March 28, 2003, [San Roque] filed amended Quarterly VAT Returns for the year 2001 since it
increased its unutilized input VAT to the amount of ₱560,200,283.14. Consequently, [San Roque] filed with the
BIR on even date, separate amended claims for refund in the aggregate amount of ₱560,200,283.14.
[CIR’s] inaction on the subject claims led to the filing by [San Roque] of the Petition for Review with the Court
[of Tax Appeals] in Division on April 10, 2003.

Trial of the case ensued and on July 20, 2005, the case was submitted for decision.15

The Court of Tax Appeals’ Ruling: Division

The CTA Second Division initially denied San Roque’s claim. In its Decision16 dated 8 March 2006, it cited
the following as bases for the denial of San Roque’s claim: lack of recorded zero-rated or effectively zero-rated
sales; failure to submit documents specifically identifying the purchased goods/services related to the claimed
input VAT which were included in its Property, Plant and Equipment account; and failure to prove that the
related construction costs were capitalized in its books of account and subjected to depreciation.

The CTA Second Division required San Roque to show that it complied with the following requirements of
Section 112(B) of Republic Act No. 8424 (RA 8424)17 to be entitled to a tax refund or credit of input VAT
attributable to capital goods imported or locally purchased: (1) it is a VAT-registered entity; (2) its input taxes
claimed were paid on capital goods duly supported by VAT invoices and/or official receipts; (3) it did not offset
or apply the claimed input VAT payments on capital goods against any output VAT liability; and (4) its claim
for refund was filed within the two-year prescriptive period both in the administrative and judicial levels.

The CTA Second Division found that San Roque complied with the first, third, and fourth requirements, thus:

The fact that [San Roque] is a VAT registered entity is admitted (par. 4, Facts Admitted, Joint Stipulation of
Facts, Records, p. 157). It was also established that the instant claim of ₱560,200,823.14 is already net of the
₱11,509.09 output tax declared by [San Roque] in its amended VAT return for the first quarter of 2001.
Moreover, the entire amount of ₱560,200,823.14 was deducted by [San Roque] from the total available input
tax reflected in its amended VAT returns for the last two quarters of 2001 and first two quarters of 2002
(Exhibits M-6, O-6, OO-1 & QQ-1). This means that the claimed input taxes of ₱560,200,823.14 did not form
part of the excess input taxes of ₱83,692,257.83, as of the second quarter of 2002 that was to be carried-over to
the succeeding quarters. Further, [San Roque’s] claim for refund/tax credit certificate of excess input VAT was
filed within the two-year prescriptive period reckoned from the dates of filing of the corresponding quarterly
VAT returns.

For the first, second, third, and fourth quarters of 2001, [San Roque] filed its VAT returns on April 25, 2001,
July 25, 2001, October 23, 2001 and January 24, 2002, respectively (Exhibits "H, J, L, and N"). These returns
were all subsequently amended on March 28, 2003 (Exhibits "I, K, M, and O"). On the other hand, [San Roque]
originally filed its separate claims for refund on July 10, 2001, October 10, 2001, February 21, 2002, and May
9, 2002 for the first, second, third, and fourth quarters of 2001, respectively, (Exhibits "EE, FF, GG, and HH")
and subsequently filed amended claims for all quarters on March 28, 2003 (Exhibits "II, JJ, KK, and LL").
Moreover, the Petition for Review was filed on April 10, 2003. Counting from the respective dates when [San
Roque] originally filed its VAT returns for the first, second, third and fourth quarters of 2001, the administrative
claims for refund (original and amended) and the Petition for Review fall within the two-year prescriptive
period.18

San Roque filed a Motion for New Trial and/or Reconsideration on 7 April 2006. In its 29 November 2007
Amended Decision,19 the CTA Second Division found legal basis to partially grant San Roque’s claim. The
CTA Second Division ordered the Commissioner to refund or issue a tax credit in favor of San Roque in the
amount of ₱483,797,599.65, which represents San Roque’s unutilized input VAT on its purchases of capital
goods and services for the taxable year 2001. The CTA based the adjustment in the amount on the findings of
the independent certified public accountant. The following reasons were cited for the disallowed claims:
erroneous computation; failure to ascertain whether the related purchases are in the nature of capital goods; and
the purchases pertain to capital goods. Moreover, the reduction of claims was based on the following: the
difference between San Roque’s claim and that appearing on its books; the official receipts covering the
claimed input VAT on purchases of local services are not within the period of the claim; and the amount of
VAT cannot be determined from the submitted official receipts and invoices. The CTA Second Division denied
San Roque’s claim for refund or tax credit of its unutilized input VAT attributable to its zero-rated or effectively
zero-rated sales because San Roque had no record of such sales for the four quarters of 2001.
The dispositive portion of the CTA Second Division’s 29 November 2007 Amended Decision reads:

WHEREFORE, [San Roque’s] "Motion for New Trial and/or Reconsideration" is hereby PARTIALLY
GRANTED and this Court’s Decision promulgated on March 8, 2006 in the instant case is hereby MODIFIED.

Accordingly, [the CIR] is hereby ORDERED to REFUND or in the alternative, to ISSUE A TAX CREDIT
CERTIFICATE in favor of [San Roque] in the reduced amount of Four Hundred Eighty Three Million Seven
Hundred Ninety Seven Thousand Five Hundred Ninety Nine Pesos and Sixty Five Centavos (₱483,797,599.65)
representing unutilized input VAT on purchases of capital goods and services for the taxable year 2001.

SO ORDERED.20

The Commissioner filed a Motion for Partial Reconsideration on 20 December 2007. The CTA Second Division
issued a Resolution dated 11 July 2008 which denied the CIR’s motion for lack of merit.

The Court of Tax Appeals’ Ruling: En Banc

The Commissioner filed a Petition for Review before the CTA EB praying for the denial of San Roque’s claim
for refund or tax credit in its entirety as well as for the setting aside of the 29 November 2007 Amended
Decision and the 11 July 2008 Resolution in CTA Case No. 6647.

The CTA EB dismissed the CIR’s petition for review and affirmed the challenged decision and resolution.

The CTA EB cited Commissioner of Internal Revenue v. Toledo Power, Inc.21 and Revenue Memorandum
Circular No. 49-03,22 as its bases for ruling that San Roque’s judicial claim was not prematurely filed. The
pertinent portions of the Decision state:

More importantly, the Court En Banc has squarely and exhaustively ruled on this issue in this wise:

It is true that Section 112(D) of the abovementioned provision applies to the present case. However, what the
petitioner failed to consider is Section 112(A) of the same provision. The respondent is also covered by the two
(2) year prescriptive period. We have repeatedly held that the claim for refund with the BIR and the subsequent
appeal to the Court of Tax Appeals must be filed within the two-year period.

Accordingly, the Supreme Court held in the case of Atlas Consolidated Mining and Development Corporation
vs. Commissioner of Internal Revenue that the two-year prescriptive period for filing a claim for input tax is
reckoned from the date of the filing of the quarterly VAT return and payment of the tax due. If the said period is
about to expire but the BIR has not yet acted on the application for refund, the taxpayer may interpose a petition
for review with this Court within the two year period.

In the case of Gibbs vs. Collector, the Supreme Court held that if, however, the Collector (now Commissioner)
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 Court of Tax Appeals before the end of the two-year period without awaiting the decision of the
Collector.

Furthermore, in the case of Commissioner of Customs and Commissioner of Internal Revenue vs. The
Honorable Court of Tax Appeals and Planters Products, Inc., the Supreme Court held that the taxpayer need not
wait indefinitely for a decision or ruling which may or may not be forthcoming and which he has no legal right
to expect. It is disheartening enough to a taxpayer to keep him waiting for an indefinite period of time for a
ruling or decision of the Collector (now Commissioner) of Internal Revenue on his claim for refund. It would
make matters more exasperating for the taxpayer if we were to close the doors of the courts of justice for such a
relief until after the Collector (now Commissioner) of Internal Revenue, would have, at his personal
convenience, given his go signal.

This Court ruled in several cases that once the petition is filed, the Court has already acquired jurisdiction over
the claims and the Court is not bound to wait indefinitely for no reason for whatever action respondent (herein
petitioner) may take. At stake are claims for refund and unlike disputed assessments, no decision of respondent
(herein petitioner) is required before one can go to this Court. (Emphasis supplied and citations omitted)
Lastly, it is apparent from the following provisions of Revenue Memorandum Circular No. 49-03 dated August
18, 2003, that [the CIR] knows that claims for VAT refund or tax credit filed with the Court [of Tax Appeals]
can proceed simultaneously with the ones filed with the BIR and that taxpayers need not wait for the lapse of
the subject 120-day period, to wit:

In response to [the] request of selected taxpayers for adoption of procedures in handling refund cases that are
aligned to the statutory requirements that refund cases should be elevated to the Court of Tax Appeals before
the lapse of the period prescribed by law, certain provisions of RMC No. 42-2003 are hereby amended and new
provisions are added thereto.

In consonance therewith, the following amendments are being introduced to RMC No. 42-2003, to wit:

I.) A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as follows:

In cases where the taxpayer has filed a "Petition for Review" with the Court of Tax Appeals involving a claim
for refund/TCC that is pending at the administrative agency (Bureau of Internal Revenue or OSS-DOF), the
administrative agency and the tax court may act on the case separately. While the case is pending in the tax
court and at the same time is still under process by the administrative agency, the litigation lawyer of the BIR,
upon receipt of the summons from the tax court, shall request from the head of the investigating/processing
office for the docket containing certified true copies of all the documents pertinent to the claim. The docket
shall be presented to the court as evidence for the BIR in its defense on the tax credit/refund case filed by the
taxpayer. In the meantime, the investigating/processing office of the administrative agency shall continue
processing the refund/TCC case until such time that a final decision has been reached by either the CTA or the
administrative agency.

If the CTA is able to release its decision ahead of the evaluation of the administrative agency, the latter shall
cease from processing the claim. On the other hand, if the administrative agency is able to process the claim of
the taxpayer ahead of the CTA and the taxpayer is amenable to the findings thereof, the concerned taxpayer
must file a motion to withdraw the claim with the CTA.23 (Emphasis supplied)

G.R. No. 196113

Taganito Mining Corporation v. CIR

The Facts

The CTA Second Division’s narration of the pertinent facts is as follows:

Petitioner, Taganito Mining Corporation, is a corporation duly organized and existing under and by virtue of the
laws of the Philippines, with principal office at 4th Floor, Solid Mills Building, De La Rosa St., Lega[s]pi
Village, Makati City. It is duly registered with the Securities and Exchange Commission with Certificate of
Registration No. 138682 issued on March 4, 1987 with the following primary purpose:

To carry on the business, for itself and for others, of mining lode and/or placer mining, developing, exploiting,
extracting, milling, concentrating, converting, smelting, treating, refining, preparing for market, manufacturing,
buying, selling, exchanging, shipping, transporting, and otherwise producing and dealing in nickel, chromite,
cobalt, gold, silver, copper, lead, zinc, brass, iron, steel, limestone, and all kinds of ores, metals and their by-
products and which by-products thereof of every kind and description and by whatsoever process the same can
be or may hereafter be produced, and generally and without limit as to amount, to buy, sell, locate, exchange,
lease, acquire and deal in lands, mines, and mineral rights and claims and to conduct all business appertaining
thereto, to purchase, locate, lease or otherwise acquire, mining claims and rights, timber rights, water rights,
concessions and mines, buildings, dwellings, plants machinery, spare parts, tools and other properties
whatsoever which this corporation may from time to time find to be to its advantage to mine lands, and to
explore, work, exercise, develop or turn to account the same, and to acquire, develop and utilize water rights in
such manner as may be authorized or permitted by law; to purchase, hire, make, construct or otherwise, acquire,
provide, maintain, equip, alter, erect, improve, repair, manage, work and operate private roads, barges, vessels,
aircraft and vehicles, private telegraph and telephone lines, and other communication media, as may be needed
by the corporation for its own purpose, and to purchase, import, construct, machine, fabricate, or otherwise
acquire, and maintain and operate bridges, piers, wharves, wells, reservoirs, plumes, watercourses, waterworks,
aqueducts, shafts, tunnels, furnaces, cook ovens, crushing works, gasworks, electric lights and power plants and
compressed air plants, chemical works of all kinds, concentrators, smelters, smelting plants, and refineries,
matting plants, warehouses, workshops, factories, dwelling houses, stores, hotels or other buildings, engines,
machinery, spare parts, tools, implements and other works, conveniences and properties of any description in
connection with or which may be directly or indirectly conducive to any of the objects of the corporation, and to
contribute to, subsidize or otherwise aid or take part in any operations;

and is a VAT-registered entity, with Certificate of Registration (BIR Form No. 2303) No. OCN
8RC0000017494. Likewise, [Taganito] is registered with the Board of Investments (BOI) as an exporter of
beneficiated nickel silicate and chromite ores, with BOI Certificate of Registration No. EP-88-306.

Respondent, on the other hand, is the duly appointed Commissioner of Internal Revenue vested with authority
to exercise the functions of the said office, including inter alia, the power to decide refunds of internal revenue
taxes, fees and other charges, penalties imposed in relation thereto, or other matters arising under the National
Internal Revenue Code (NIRC) or other laws administered by Bureau of Internal Revenue (BIR) under Section
4 of the NIRC. He holds office at the BIR National Office Building, Diliman, Quezon City.

[Taganito] filed all its Monthly VAT Declarations and Quarterly Vat Returns for the period January 1, 2005 to
December 31, 2005. For easy reference, a summary of the filing dates of the original and amended Quarterly
VAT Returns for taxable year 2005 of [Taganito] is as follows:

Exhibit(s) Quarter Nature of

the Return Mode of filing Filing Date
L to L-4 1st Original Electronic April 15, 2005
M to M-3 Amended Electronic July 20, 2005
N to N-4 Amended Electronic October 18, 2006
Q to Q-3 2nd Original Electronic July 20, 2005
R to R-4 Amended Electronic October 18, 2006
U to U-4 3rd Original Electronic October 19, 2005
V to V-4 Amended Electronic October 18, 2006
Y to Y-4 4th Original Electronic January 20, 2006
Z to Z-4 Amended Electronic October 18, 2006
As can be gleaned from its amended Quarterly VAT Returns, [Taganito] reported zero-rated sales amounting to
P1,446,854,034.68; input VAT on its domestic purchases and importations of goods (other than capital goods)
and services amounting to P2,314,730.43; and input VAT on its domestic purchases and importations of capital
goods amounting to P6,050,933.95, the details of which are summarized as follows:

Period
Covered Zero-Rated Sales Input VAT on
Domestic
Purchases and
Importations
of Goods and
Services Input VAT on
Domestic
Purchases and
Importations
of Capital
Goods Total Input VAT
01/01/05 -
03/31/05 P551,179,871.58 P1,491,880.56 P239,803.22 P1,731,683.78
04/01/05 -
06/30/05 64,677,530.78 204,364.17 5,811,130.73 6,015,494.90
07/01/05 -
09/30/05 480,784,287.30 144,887.67 - 144,887.67
10/01/05 -
12/31/05 350,212,345.02 473,598.03 - 473,598.03
TOTAL P1,446,854,034.68 P2,314,730.43 P6,050,933.95 P8,365,664.38
On November 14, 2006, [Taganito] filed with [the CIR], through BIR’s Large Taxpayers Audit and
Investigation Division II (LTAID II), a letter dated November 13, 2006 claiming a tax credit/refund of its
supposed input VAT amounting to ₱8,365,664.38 for the period covering January 1, 2004 to December 31,
2004. On the same date, [Taganito] likewise filed an Application for Tax Credits/Refunds for the period
covering January 1, 2005 to December 31, 2005 for the same amount.

On November 29, 2006, [Taganito] sent again another letter dated November 29, 2004 to [the CIR], to correct
the period of the above claim for tax credit/refund in the said amount of ₱8,365,664.38 as actually referring to
the period covering January 1, 2005 to December 31, 2005.

As the statutory period within which to file a claim for refund for said input VAT is about to lapse without
action on the part of the [CIR], [Taganito] filed the instant Petition for Review on February 17, 2007.

In his Answer filed on March 28, 2007, [the CIR] interposes the following defenses:

4. [Taganito’s] alleged claim for refund is subject to administrative investigation/examination by the Bureau of
Internal Revenue (BIR);

5. The amount of ₱8,365,664.38 being claimed by [Taganito] as alleged unutilized input VAT on domestic
purchases of goods and services and on importation of capital goods for the period January 1, 2005 to
December 31, 2005 is not properly documented;

6. [Taganito] must prove that it has complied with the provisions of Sections 112 (A) and (D) and 229 of the
National Internal Revenue Code of 1997 (1997 Tax Code) on the prescriptive period for claiming tax
refund/credit;

7. Proof of compliance with the prescribed checklist of requirements to be submitted involving claim for VAT
refund pursuant to Revenue Memorandum Order No. 53-98, otherwise there would be no sufficient compliance
with the filing of administrative claim for refund, the administrative claim thereof being mere proforma, which
is a condition sine qua non prior to the filing of judicial claim in accordance with the provision of Section 229
of the 1997 Tax Code. Further, Section 112 (D) of the Tax Code, as amended, requires the submission of
complete documents in support of the application filed with the BIR before the 120-day audit period shall apply,
and before the taxpayer could avail of judicial remedies as provided for in the law. Hence, [Taganito’s] failure
to submit proof of compliance with the above-stated requirements warrants immediate dismissal of the petition
for review.

8. [Taganito] must prove that it has complied with the invoicing requirements mentioned in Sections 110 and
113 of the 1997 Tax Code, as amended, in relation to provisions of Revenue Regulations No. 7-95.

9. In an action for refund/credit, the burden of proof is on the taxpayer to establish its right to refund, and failure
to sustain the burden is fatal to the claim for refund/credit (Asiatic Petroleum Co. vs. Llanes, 49 Phil. 466 cited
in Collector of Internal Revenue vs. Manila Jockey Club, Inc., 98 Phil. 670);

10. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption
from taxation (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95) and as such, they are looked upon
with disfavor (Western Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 1211).

SPECIAL AND AFFIRMATIVE DEFENSES

11. The Court of Tax Appeals has no jurisdiction to entertain the instant petition for review for failure on the
part of [Taganito] to comply with the provision of Section 112 (D) of the 1997 Tax Code which provides, thus:

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

xxx xxx xxx

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

12. As stated, [Taganito] filed the administrative claim for refund with the Bureau of Internal Revenue on
November 14, 2006. Subsequently on February 14, 2007, the instant petition was filed. Obviously the 120 days
given to the Commissioner to decide on the claim has not yet lapsed when the petition was filed. The petition
was prematurely filed, hence it must be dismissed for lack of jurisdiction.

During trial, [Taganito] presented testimonial and documentary evidence primarily aimed at proving its
supposed entitlement to the refund in the amount of ₱8,365,664.38, representing input taxes for the period
covering January 1, 2005 to December 31, 2005. [The CIR], on the other hand, opted not to present evidence.
Thus, in the Resolution promulgated on January 22, 2009, this case was submitted for decision as of such date,
considering [Taganito’s] "Memorandum" filed on January 19, 2009 and [the CIR’s] "Memorandum" filed on
December 19, 2008.24

The Court of Tax Appeals’ Ruling: Division

The CTA Second Division partially granted Taganito’s claim. In its Decision25 dated 8 January 2010, the CTA
Second Division found that Taganito complied with the requirements of Section 112(A) of RA 8424, as
amended, to be entitled to a tax refund or credit of input VAT attributable to zero-rated or effectively zero-rated
sales.26

The pertinent portions of the CTA Second Division’s Decision read:

Finally, records show that [Taganito’s] administrative claim filed on November 14, 2006, which was amended
on November 29, 2006, and the Petition for Review filed with this Court on February 14, 2007 are well within
the two-year prescriptive period, reckoned from March 31, 2005, June 30, 2005, September 30, 2005, and
December 31, 2005, respectively, the close of each taxable quarter covering the period January 1, 2005 to
December 31, 2005.

In fine, [Taganito] sufficiently proved that it is entitled to a tax credit certificate in the amount of ₱8,249,883.33
representing unutilized input VAT for the four taxable quarters of 2005.

WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED.
Accordingly, [the CIR] is hereby ORDERED to REFUND to [Taganito] the amount of EIGHT MILLION TWO
HUNDRED FORTY NINE THOUSAND EIGHT HUNDRED EIGHTY THREE PESOS AND THIRTY
THREE CENTAVOS (P8,249,883.33) representing its unutilized input taxes attributable to zero-rated sales
from January 1, 2005 to December 31, 2005.

SO ORDERED.27

The Commissioner filed a Motion for Partial Reconsideration on 29 January 2010. Taganito, in turn, filed a
Comment/Opposition on the Motion for Partial Reconsideration on 15 February 2010.

In a Resolution28 dated 7 April 2010, the CTA Second Division denied the CIR’s motion. The CTA Second
Division ruled that the legislature did not intend that Section 112 (Refunds or Tax Credits of Input Tax) should
be read in isolation from Section 229 (Recovery of Tax Erroneously or Illegally Collected) or vice versa. The
CTA Second Division applied the mandatory statute of limitations in seeking judicial recourse prescribed under
Section 229 to claims for refund or tax credit under Section 112.

The Court of Tax Appeals’ Ruling: En Banc

On 29 April 2010, the Commissioner filed a Petition for Review before the CTA EB assailing the 8 January
2010 Decision and the 7 April 2010 Resolution in CTA Case No. 7574 and praying that Taganito’s entire claim
for refund be denied.
In its 8 December 2010 Decision,29 the CTA EB granted the CIR’s petition for review and reversed and set
aside the challenged decision and resolution.

The CTA EB declared that Section 112(A) and (B) of the 1997 Tax Code both set forth the reckoning of the
two-year prescriptive period for filing a claim for tax refund or credit over input VAT to be the close of the
taxable quarter when the sales were made. The CTA EB also relied on this Court’s rulings in the cases of
Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (Aichi)30 and Commisioner of
Internal Revenue v. Mirant Pagbilao Corporation (Mirant).31 Both Aichi and Mirant ruled that the two-year
prescriptive period to file a refund for input VAT arising from zero-rated sales should be reckoned from the
close of the taxable quarter when the sales were made. Aichi further emphasized that the failure to await the
decision of the Commissioner or the lapse of 120-day period prescribed in Section 112(D) amounts to a
premature filing.

The CTA EB found that Taganito filed its administrative claim on 14 November 2006, which was well within
the period prescribed under Section 112(A) and (B) of the 1997 Tax Code. However, the CTA EB found that
Taganito’s judicial claim was prematurely filed. Taganito filed its Petition for Review before the CTA Second
Division on 14 February 2007. The judicial claim was filed after the lapse of only 92 days from the filing of its
administrative claim before the CIR, in violation of the 120-day period prescribed in Section 112(D) of the 1997
Tax Code.

The dispositive portion of the Decision states:

WHEREFORE, the instant Petition for Review is hereby GRANTED. The assailed Decision dated January 8,
2010 and Resolution dated April 7, 2010 of the Special Second Division of this Court are hereby REVERSED
and SET ASIDE. Another one is hereby entered DISMISSING the Petition for Review filed in CTA Case No.
7574 for having been prematurely filed.

SO ORDERED.32

In his dissent,33 Associate Justice Lovell R. Bautista insisted that Taganito timely filed its claim before the
CTA. Justice Bautista read Section 112(C) of the 1997 Tax Code (Period within which Refund or Tax Credit of
Input Taxes shall be Made) in conjunction with Section 229 (Recovery of Tax Erroneously or Illegally
Collected). Justice Bautista also relied on this Court’s ruling in Atlas Consolidated Mining and Development
Corporation v. Commissioner of Internal Revenue (Atlas),34 which stated that refundable or creditable input
VAT and illegally or erroneously collected national internal revenue tax are the same, insofar as both are
monetary amounts which are currently in the hands of the government but must rightfully be returned to the
taxpayer. Justice Bautista concluded:

Being merely permissive, a taxpayer claimant has the option of seeking judicial redress for refund or tax credit
of excess or unutilized input tax with this Court, either within 30 days from receipt of the denial of its claim, or
after the lapse of the 120-day period in the event of inaction by the Commissioner, provided that both
administrative and judicial remedies must be undertaken within the 2-year period.35

Taganito filed its Motion for Reconsideration on 29 December 2010. The Commissioner filed an Opposition on
26 January 2011. The CTA EB denied for lack of merit Taganito’s motion in a Resolution36 dated 14 March
2011. The CTA EB did not see any justifiable reason to depart from this Court’s rulings in Aichi and Mirant.

G.R. No. 197156

Philex Mining Corporation v. CIR

The Facts

The CTA EB’s narration of the pertinent facts is as follows:

[Philex] is a corporation duly organized and existing under the laws of the Republic of the Philippines, which is
principally engaged in the mining business, which includes the exploration and operation of mine properties and
commercial production and marketing of mine products, with office address at 27 Philex Building, Fairlaine St.,
Kapitolyo, Pasig City.
[The CIR], on the other hand, is the head of the Bureau of Internal Revenue ("BIR"), the government entity
tasked with the duties/functions of assessing and collecting all national internal revenue taxes, fees, and charges,
and enforcement of all forfeitures, penalties and fines connected therewith, including the execution of
judgments in all cases decided in its favor by [the Court of Tax Appeals] and the ordinary courts, where she can
be served with court processes at the BIR Head Office, BIR Road, Quezon City.

On October 21, 2005, [Philex] filed its Original VAT Return for the third quarter of taxable year 2005 and
Amended VAT Return for the same quarter on December 1, 2005.

On March 20, 2006, [Philex] filed its claim for refund/tax credit of the amount of ₱23,956,732.44 with the One
Stop Shop Center of the Department of Finance. However, due to [the CIR’s] failure to act on such claim, on
October 17, 2007, pursuant to Sections 112 and 229 of the NIRC of 1997, as amended, [Philex] filed a Petition
for Review, docketed as C.T.A. Case No. 7687.

In [her] Answer, respondent CIR alleged the following special and affirmative defenses:

4. Claims for refund are strictly construed against the taxpayer as the same partake the nature of an exemption;

5. The taxpayer has the burden to show that the taxes were erroneously or illegally paid. Failure on the part of
[Philex] to prove the same is fatal to its cause of action;

6. [Philex] should prove its legal basis for claiming for the amount being refunded.37

The Court of Tax Appeals’ Ruling: Division

The CTA Second Division, in its Decision dated 20 July 2009, denied Philex’s claim due to prescription. The
CTA Second Division ruled that the two-year prescriptive period specified in Section 112(A) of RA 8424, as
amended, applies not only to the filing of the administrative claim with the BIR, but also to the filing of the
judicial claim with the CTA. Since Philex’s claim covered the 3rd quarter of 2005, its administrative claim filed
on 20 March 2006 was timely filed, while its judicial claim filed on 17 October 2007 was filed late and
therefore barred by prescription.

On 10 November 2009, the CTA Second Division denied Philex’s Motion for Reconsideration.

The Court of Tax Appeals’ Ruling: En Banc

Philex filed a Petition for Review before the CTA EB praying for a reversal of the 20 July 2009 Decision and
the 10 November 2009 Resolution of the CTA Second Division in CTA Case No. 7687.

The CTA EB, in its Decision38 dated 3 December 2010, denied Philex’s petition and affirmed the CTA Second
Division’s Decision and Resolution.

The pertinent portions of the Decision read:

In this case, while there is no dispute that [Philex’s] administrative claim for refund was filed within the two-
year prescriptive period; however, as to its judicial claim for refund/credit, records show that on March 20,
2006, [Philex] applied the administrative claim for refund of unutilized input VAT in the amount of
₱23,956,732.44 with the One Stop Shop Center of the Department of Finance, per Application No. 52490. From
March 20, 2006, which is also presumably the date [Philex] submitted supporting documents, together with the
aforesaid application for refund, the CIR has 120 days, or until July 18, 2006, within which to decide the claim.
Within 30 days from the lapse of the 120-day period, or from July 19, 2006 until August 17, 2006, [Philex]
should have elevated its claim for refund to the CTA. However, [Philex] filed its Petition for Review only on
October 17, 2007, which is 426 days way beyond the 30- day period prescribed by law.

Evidently, the Petition for Review in CTA Case No. 7687 was filed 426 days late. Thus, the Petition for Review
in CTA Case No. 7687 should have been dismissed on the ground that the Petition for Review was filed way
beyond the 30-day prescribed period; thus, no jurisdiction was acquired by the CTA in Division; and not due to
prescription.
WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED DUE COURSE, and
accordingly, DISMISSED. The assailed Decision dated July 20, 2009, dismissing the Petition for Review in
CTA Case No. 7687 due to prescription, and Resolution dated November 10, 2009 denying [Philex’s] Motion
for Reconsideration are hereby AFFIRMED, with modification that the dismissal is based on the ground that the
Petition for Review in CTA Case No. 7687 was filed way beyond the 30-day prescribed period to appeal.

SO ORDERED.39

G.R. No. 187485

CIR v. San Roque Power Corporation

The Commissioner raised the following grounds in the Petition for Review:

I. The Court of Tax Appeals En Banc erred in holding that [San Roque’s] claim for refund was not prematurely
filed.

II. The Court of Tax Appeals En Banc erred in affirming the amended decision of the Court of Tax Appeals
(Second Division) granting [San Roque’s] claim for refund of alleged unutilized input VAT on its purchases of
capital goods and services for the taxable year 2001 in the amount of P483,797,599.65. 40

G.R. No. 196113

Taganito Mining Corporation v. CIR

Taganito raised the following grounds in its Petition for Review:

I. The Court of Tax Appeals En Banc committed serious error and acted with grave abuse of discretion
tantamount to lack or excess of jurisdiction in erroneously applying the Aichi doctrine in violation of
[Taganito’s] right to due process.

II. The Court of Tax Appeals committed serious error and acted with grave abuse of discretion amounting to
lack or excess of jurisdiction in erroneously interpreting the provisions of Section 112 (D).41

G.R. No. 197156

Philex Mining Corporation v. CIR

Philex raised the following grounds in its Petition for Review:

I. The CTA En Banc erred in denying the petition due to alleged prescription. The fact is that the petition was
filed with the CTA within the period set by prevailing court rulings at the time it was filed.

II. The CTA En Banc erred in retroactively applying the Aichi ruling in denying the petition in this instant
case.42

The Court’s Ruling

For ready reference, the following are the provisions of the Tax Code applicable to the present cases:

Section 105:

Persons Liable. — Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or
properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT)
imposed in Sections 106 to 108 of this Code.

The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee
or lessee of the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease
of goods, properties or services at the time of the effectivity of Republic Act No. 7716.

xxxx
Section 110(B):

Sec. 110. Tax Credits. —

(B) Excess Output or Input Tax. — If at the end of any taxable quarter the output tax exceeds the input tax, the
excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be
carried over to the succeeding quarter or quarters: [Provided, That the input tax inclusive of input VAT carried
over from the previous quarter that may be credited in every quarter shall not exceed seventy percent (70%) of
the output VAT:]43 Provided, however, That any input tax attributable to zero-rated sales by a VAT-registered
person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions
of Section 112.

Section 112:44

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

(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.

(B) Capital Goods.- A VAT — registered person may apply for the issuance of a tax credit certificate or refund
of input taxes paid on capital goods imported or locally purchased, to the extent that such input taxes have not
been applied against output taxes. The application may be made only within two (2) years after the close of the
taxable quarter when the importation or purchase was made.

(C) Cancellation of VAT Registration. — A person whose registration has been cancelled due to retirement
from or cessation of business, or due to changes in or cessation of status under Section 106(C) of this Code
may, within two (2) years from the date of cancellation, apply for the issuance of a tax credit certificate for any
unused input tax which may be used in payment of his other internal revenue taxes

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. — In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input 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.

(E) Manner of Giving Refund. — Refunds shall be made upon warrants drawn by the Commissioner or by his
duly authorized representative without the necessity of being countersigned by the Chairman, Commission on
Audit, the provisions of the Administrative Code of 1987 to the contrary notwithstanding: Provided, that
refunds under this paragraph shall be subject to post audit by the Commission on Audit.

Section 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 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.

(All emphases supplied)

I. Application of the 120+30 Day Periods

a. G.R. No. 187485 - CIR v. San Roque Power Corporation

On 10 April 2003, a mere 13 days after it filed its amended administrative claim with the Commissioner on 28
March 2003, San Roque filed a Petition for Review with the CTA docketed as CTA Case No. 6647. From this
we gather two crucial facts: first, San Roque did not wait for the 120-day period to lapse before filing its
judicial claim; second, San Roque filed its judicial claim more than four (4) years before the Atlas45 doctrine,
which was promulgated by the Court on 8 June 2007.

Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given by law to the
Commissioner to decide whether to grant or deny San 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 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.46

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."47 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"48 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.49

San Roque’s failure to comply with the 120-day mandatory period renders its petition for review with the CTA
void. Article 5 of the Civil Code provides, "Acts executed against provisions of mandatory or prohibitory laws
shall be void, except when the law itself authorizes their validity." San Roque’s void petition for review cannot
be legitimized by the CTA or this Court because Article 5 of the Civil Code states that such void petition cannot
be legitimized "except when the law itself authorizes [its] validity." There is no law authorizing the petition’s
validity.

It is hornbook doctrine that a person committing a void act contrary to a mandatory provision of law cannot
claim or acquire any right from his void act. A right cannot spring in favor of a person from his own void or
illegal act. This doctrine is repeated in Article 2254 of the Civil Code, which states, "No vested or acquired
right can arise from acts or omissions which are against the law or which infringe upon the rights of others."50
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.
This Court cannot brush aside the grave issue of the mandatory and jurisdictional nature of the 120-day period
just because the Commissioner merely asserts that the case was prematurely filed with the CTA and does not
question the entitlement of San Roque to the refund. The mere fact that a taxpayer has undisputed excess input
VAT, or that the tax was admittedly illegally, erroneously or excessively collected from him, does not entitle
him as a matter of right to a tax refund or credit. Strict compliance with the mandatory and jurisdictional
conditions prescribed by law to claim such tax refund or credit is essential and necessary for such claim to
prosper. Well-settled is the rule that tax refunds or credits, just like tax exemptions, are strictly construed
against the taxpayer.51 The burden is on the taxpayer to show that he has strictly complied with the conditions
for the grant of the tax refund or credit.

This Court cannot disregard mandatory and jurisdictional conditions mandated by law simply because the
Commissioner chose not to contest the numerical correctness of the claim for tax refund or credit of the
taxpayer. Non-compliance with mandatory periods, non-observance 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.

San Roque cannot also claim being misled, misguided or confused by the Atlas doctrine because San Roque
filed its petition for review with the CTA more than four years before Atlas was promulgated. The Atlas
doctrine did not exist at the time San Roque failed to comply with the 120- day period. Thus, San Roque cannot
invoke the Atlas doctrine as an excuse for its failure to wait for the 120-day period to lapse. In any event, the
Atlas doctrine merely stated that the two-year prescriptive period should be counted from the date of payment
of the output VAT, not from the close of the taxable quarter when the sales involving the input VAT were
made. The Atlas doctrine does not interpret, expressly or impliedly, the 120+3052 day periods.

In fact, Section 106(b) and (e) of the Tax Code of 1977 as amended, which was the law cited by the Court in
Atlas as the applicable provision of the law did not yet provide for the 30-day period for the taxpayer to appeal
to the CTA from the decision or inaction of the Commissioner.53 Thus, the Atlas doctrine cannot be invoked by
anyone to disregard compliance with the 30-day mandatory and jurisdictional period. Also, the difference
between the Atlas doctrine on one hand, and the Mirant54 doctrine on the other hand, is a mere 20 days. The
Atlas doctrine counts the two-year prescriptive period from the date of payment of the output VAT, which
means within 20 days after the close of the taxable quarter. The output VAT at that time must be paid at the
time of filing of the quarterly tax returns, which were to be filed "within 20 days following the end of each
quarter."

Thus, in Atlas, the three tax refund claims listed below were deemed timely filed because the administrative
claims filed with the Commissioner, and the petitions for review filed with the CTA, were all filed within two
years from the date of payment of the output VAT, following Section 229:

Period Covered Date of Filing Return

& Payment of Tax Date of Filing
Administrative Claim Date of Filing
Petition With CTA
2nd Quarter, 1990
Close of Quarter
30 June 1990 20 July 1990 21 August 1990 20 July 1992
3rd Quarter, 1990
Close of Quarter
30 September 1990 18 October 1990 21 November 1990 9 October 1992
4th Quarter, 1990
Close of Quarter
31 December 1990 20 January 1991 19 February 1991 14 January 1993
Atlas paid the output VAT at the time it filed the quarterly tax returns on the 20th, 18th, and 20th day after the
close of the taxable quarter. Had the twoyear prescriptive period been counted from the "close of the taxable
quarter" as expressly stated in the law, the tax refund claims of Atlas would have already prescribed. In contrast,
the Mirant doctrine counts the two-year prescriptive period from the "close of the taxable quarter when the sales
were made" as expressly stated in the law, which means the last day of the taxable quarter. The 20-day
difference55 between the Atlas doctrine and the later Mirant doctrine is not material to San Roque’s claim for
tax refund.

Whether the Atlas doctrine or the Mirant doctrine is applied to San Roque is immaterial because what is at issue
in the present case is San Roque’s non-compliance with the 120-day mandatory and jurisdictional period, which
is counted from the date it filed its administrative claim with the Commissioner. The 120-day period may
extend beyond the two-year prescriptive period, as long as the administrative claim is filed within the two-year
prescriptive period. However, San Roque’s fatal mistake is that it did not wait for the Commissioner to decide
within the 120-day period, a mandatory period whether the Atlas or the Mirant doctrine is applied.

At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods were
already in the law. Section 112(C)56 expressly grants the Commissioner 120 days within which to decide the
taxpayer’s claim. The law is clear, plain, and unequivocal: "x x x 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." Following the verba legis doctrine, this law 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. In San Roque’s case, it filed its petition with the CTA a mere 13 days
after it filed its administrative claim with the Commissioner. Indisputably, San Roque knowingly violated the
mandatory 120-day period, and it cannot blame anyone but itself.

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.

b. G.R. No. 196113 - Taganito Mining Corporation v. CIR

Like San Roque, Taganito also filed its petition for review with the CTA without waiting for the 120-day period
to lapse. Also, like San Roque, Taganito filed its judicial claim before the promulgation of the Atlas doctrine.
Taganito filed a Petition for Review on 14 February 2007 with the CTA. This is almost four months before the
adoption of the Atlas doctrine on 8 June 2007. Taganito is similarly situated as San Roque - both cannot claim
being misled, misguided, or confused by the Atlas doctrine.

However, Taganito can invoke BIR Ruling No. DA-489-0357 dated 10 December 2003, which expressly ruled
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." Taganito filed its judicial claim after the issuance of BIR Ruling
No. DA-489-03 but before the adoption of the Aichi doctrine. Thus, as will be explained later, Taganito is
deemed to have filed its judicial claim with the CTA on time.

c. G.R. No. 197156 – Philex Mining Corporation v. CIR

Philex (1) filed on 21 October 2005 its original VAT Return for the third quarter of taxable year 2005; (2) filed
on 20 March 2006 its administrative claim for refund or credit; (3) filed on 17 October 2007 its Petition for
Review with the CTA. The close of the third taxable quarter in 2005 is 30 September 2005, which is the
reckoning date in computing the two-year prescriptive period under Section 112(A).
Philex timely filed its administrative claim on 20 March 2006, within the two-year prescriptive period. Even if
the two-year prescriptive period is computed from the date of payment of the output VAT under Section 229,
Philex still filed its administrative claim on time. Thus, the Atlas doctrine is immaterial in this case. The
Commissioner had until 17 July 2006, the last day of the 120-day period, to decide Philex’s claim. Since the
Commissioner did not act on Philex’s claim on or before 17 July 2006, Philex had until 17 August 2006, the last
day of the 30-day period, to file its judicial claim. The CTA EB held that 17 August 2006 was indeed the last
day for Philex to file its judicial claim. However, Philex filed its Petition for Review with the CTA only on 17
October 2007, or four hundred twenty-six (426) days after the last day of filing. In short, Philex was late by one
year and 61 days in filing its judicial claim. As the CTA EB correctly found:

Evidently, the Petition for Review in C.T.A. Case No. 7687 was filed 426 days late. Thus, the Petition for
Review in C.T.A. Case No. 7687 should have been dismissed on the ground that the Petition for Review was
filed way beyond the 30-day prescribed period; thus, no jurisdiction was acquired by the CTA Division; x x x58
(Emphasis supplied)

Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late filing. Philex did not file
any petition with the CTA within the 120-day period. Philex did not also file any petition with the CTA within
30 days after the expiration of the 120-day period. Philex filed its judicial claim long after the expiration of the
120-day period, in fact 426 days after the lapse of the 120-day period. In any event, whether governed by
jurisprudence before, during, or after the Atlas case, Philex’s judicial claim will have to be rejected because of
late filing. Whether the two-year prescriptive period is counted from the date of payment of the output VAT
following the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to the input
VAT were made following the Mirant and Aichi doctrines, Philex’s judicial claim was indisputably filed late.

The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the
Commissioner on Philex’s claim during the 120-day period is, by express provision of law, "deemed a denial"
of Philex’s claim. Philex had 30 days from the expiration of the 120-day period to file its judicial claim with the
CTA. Philex’s failure to do so rendered the "deemed a denial" decision of the Commissioner final and
inappealable. The right to appeal to the CTA from a decision or "deemed a denial" decision of the
Commissioner is merely a statutory privilege, not a constitutional right. The exercise of such statutory privilege
requires strict compliance with the conditions attached by the statute for its exercise.59 Philex failed to comply
with the statutory conditions and must thus bear the consequences.

II. Prescriptive Periods under Section 112(A) and (C)

There are three compelling reasons why the 30-day period need not necessarily fall within the two-year
prescriptive period, as long as the administrative claim is filed within the two-year prescriptive period.

First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer "may, within two (2) years
after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate
or refund of the creditable input tax due or paid to such sales." In short, the law states that the taxpayer may
apply with the Commissioner for a refund or credit "within two (2) years," which means at anytime within two
years. Thus, the application for refund or credit may be filed by the taxpayer with the Commissioner on the last
day of the two-year prescriptive period and it will still strictly comply with the law. The twoyear prescriptive
period is a grace period in favor of the taxpayer and he can avail of the full period before his right to apply for a
tax refund or credit is barred by prescription.

Second, Section 112(C) provides that the Commissioner shall decide the application for refund or credit "within
one hundred twenty (120) days from the date of submission of complete documents in support of the application
filed in accordance with Subsection (A)." The reference in Section 112(C) of the submission of documents "in
support of the application filed in accordance with Subsection A" means that the application in Section 112(A)
is the administrative claim that the Commissioner must decide within the 120-day period. In short, the two-year
prescriptive period in Section 112(A) refers to the period within which the taxpayer can file an administrative
claim for tax refund or credit. Stated otherwise, the two-year prescriptive period does not refer to the filing of
the judicial claim with the CTA but to the filing of the administrative claim with the Commissioner. As held in
Aichi, the "phrase ‘within two years x x x apply for the issuance of a tax credit or refund’ refers to applications
for refund/credit with the CIR and not to appeals made to the CTA."
Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive period
(equivalent to 730 days60), then the taxpayer must file his administrative claim for refund or credit within the
first 610 days of the two-year prescriptive period. Otherwise, the filing of the administrative claim beyond the
first 610 days will result in the appeal to the CTA being filed beyond the two-year prescriptive period. Thus, if
the taxpayer files his administrative claim on the 611th day, the Commissioner, with his 120-day period, will
have until the 731st day to decide the claim. If the Commissioner decides only on the 731st day, or does not
decide at all, the taxpayer can no longer file his judicial claim with the CTA because the two-year prescriptive
period (equivalent to 730 days) has lapsed. The 30-day period granted by law to the taxpayer to file an appeal
before the CTA becomes utterly useless, even if the taxpayer complied with the law by filing his administrative
claim within the two-year prescriptive period.

The theory that the 30-day period must fall within the two-year prescriptive period adds a condition that is not
found in the law. It results in truncating 120 days from the 730 days that the law grants the taxpayer for filing
his administrative claim with the Commissioner. This Court cannot interpret a law to defeat, wholly or even
partly, a remedy that the law expressly grants in clear, plain, and unequivocal language.

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).

III. "Excess" Input VAT and "Excessively" Collected Tax

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 seller61 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.62 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, x x x illegally, x x x 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 229.63

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

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

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

IV. Effectivity and Scope of the Atlas , Mirant and Aichi Doctrines

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

The Atlas doctrine has no relevance to the 120+30 day periods under Section 112(C) because the application of
the 120+30 day periods was not in issue in Atlas. The application of the 120+30 day periods was first raised in
Aichi, which adopted the verba legis rule in holding that the 120+30 day periods are mandatory and
jurisdictional. The language of Section 112(C) is plain, clear, and unambiguous. When Section 112(C) states
that "the Commissioner shall grant a refund or issue the tax credit within one hundred twenty (120) days from
the date of submission of complete documents," the law clearly gives the Commissioner 120 days within which
to decide the taxpayer’s claim. Resort to the courts prior to the expiration of the 120-day period is a patent
violation of the doctrine of exhaustion of administrative remedies, a ground for dismissing the judicial suit due
to prematurity. Philippine jurisprudence is awash with cases affirming and reiterating the doctrine of exhaustion
of administrative remedies.65 Such doctrine is basic and elementary.

When Section 112(C) states that "the taxpayer affected may, within thirty (30) days from receipt of the decision
denying the claim or after the expiration of the one hundred twenty-day period, appeal the decision or the
unacted claim with the Court of Tax Appeals," the law does not make the 120+30 day periods optional just
because the law uses the word "may." The word "may" simply means that the taxpayer may or may not appeal
the decision of the Commissioner within 30 days from receipt of the decision, or within 30 days from the
expiration of the 120-day period. Certainly, by no stretch of the imagination can the word "may" be construed
as making the 120+30 day periods optional, allowing the taxpayer to file a judicial claim one day after filing the
administrative claim with the Commissioner.

The old rule66 that the taxpayer may file the judicial claim, without waiting for the Commissioner’s decision if
the two-year prescriptive period is about to expire, cannot apply because that rule was adopted before the
enactment of the 30-day period. The 30-day period was adopted precisely to do away with the old rule, so that
under the VAT System the taxpayer will always have 30 days to file the judicial claim even if the
Commissioner acts only on the 120th day, or does not act at all during the 120-day period. With the 30-day
period always available to the taxpayer, the taxpayer can no longer file a judicial claim for refund or credit of
input VAT without waiting for the Commissioner to decide until the expiration of the 120-day period.

To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against the
taxpayer. One of the conditions for a judicial claim of refund or credit under the VAT System is compliance
with the 120+30 day mandatory and jurisdictional periods. Thus, strict compliance with the 120+30 day periods
is necessary for such a claim to prosper, whether before, during, or after the effectivity of the Atlas doctrine,
except for the period from the issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010
when the Aichi doctrine was adopted, which again reinstated the 120+30 day periods as mandatory and
jurisdictional.

V. Revenue Memorandum Circular No. 49-03 (RMC 49-03) dated 15 April 2003

There is nothing in RMC 49-03 that states, expressly or impliedly, that the taxpayer need not wait for the 120-
day period to expire before filing a judicial claim with the CTA. RMC 49-03 merely authorizes the BIR to
continue processing the administrative claim even after the taxpayer has filed its judicial claim, without saying
that the taxpayer can file its judicial claim before the expiration of the 120-day period. RMC 49-03 states: "In
cases where the taxpayer has filed a ‘Petition for Review’ with the Court of Tax Appeals involving a claim for
refund/TCC that is pending at the administrative agency (either the Bureau of Internal Revenue or the One-
Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance), the
administrative agency and the court may act on the case separately." Thus, if the taxpayer files its judicial claim
before the expiration of the 120-day period, the BIR will nevertheless continue to act on the administrative
claim because such premature filing cannot divest the Commissioner of his statutory power and jurisdiction to
decide the administrative claim within the 120-day period.

On the other hand, if the taxpayer files its judicial claim after the 120- day period, the Commissioner can still
continue to evaluate the administrative claim. There is nothing new in this because even after the expiration of
the 120-day period, the Commissioner should still evaluate internally the administrative claim for purposes of
opposing the taxpayer’s judicial claim, or even for purposes of determining if the BIR should actually concede
to the taxpayer’s judicial claim. The internal administrative evaluation of the taxpayer’s claim must necessarily
continue to enable the BIR to oppose intelligently the judicial claim or, if the facts and the law warrant
otherwise, for the BIR to concede to the judicial claim, resulting in the termination of the judicial proceedings.

What is important, as far as the present cases are concerned, is that the mere filing by a taxpayer of a judicial
claim with the CTA before the expiration of the 120-day period cannot operate to divest the Commissioner of
his jurisdiction to decide an administrative claim within the 120-day mandatory period, unless the
Commissioner has clearly given cause for equitable estoppel to apply as expressly recognized in Section 246 of
the Tax Code.67

VI. BIR Ruling No. DA-489-03 dated 10 December 2003

BIR Ruling No. DA-489-03 does provide a valid claim for equitable estoppel under Section 246 of the Tax
Code. BIR Ruling No. DA-489-03 expressly states 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." Prior to this
ruling, the BIR held, as shown by its position in the Court of Appeals,68 that the expiration of the 120-day
period is mandatory and jurisdictional before a judicial claim can be filed.

There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA does not acquire
jurisdiction over a judicial claim that is filed before the expiration of the 120-day period. There are, however,
two exceptions to this rule. The first exception is if the Commissioner, through a specific ruling, misleads a
particular taxpayer to prematurely file a judicial claim with the CTA. Such specific ruling is applicable only to
such particular taxpayer. The second exception is where the Commissioner, through a general interpretative rule
issued under Section 4 of the Tax Code, misleads all taxpayers into filing prematurely judicial claims with the
CTA. In these cases, the Commissioner cannot be allowed to later on question the CTA’s assumption of
jurisdiction over such claim since equitable estoppel has set in as expressly authorized under Section 246 of the
Tax Code.

Section 4 of the Tax Code, a new provision introduced by RA 8424, expressly grants to the Commissioner the
power to interpret tax laws, thus:

Sec. 4. Power of the Commissioner To Interpret Tax Laws and To Decide Tax Cases. — The power to interpret
the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the
Commissioner, subject to review by the Secretary of Finance.

The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof
administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive
appellate jurisdiction of the Court of Tax Appeals.

Since the Commissioner has exclusive and original jurisdiction to interpret tax laws, taxpayers acting in good
faith should not be made to suffer for adhering to general interpretative rules of the Commissioner interpreting
tax laws, should such interpretation later turn out to be erroneous and be reversed by the Commissioner or this
Court. Indeed, Section 246 of the Tax Code expressly provides that a reversal of a BIR regulation or ruling
cannot adversely prejudice a taxpayer who in good faith relied on the BIR regulation or ruling prior to its
reversal. Section 246 provides as follows:

Sec. 246. Non-Retroactivity of Rulings. — Any revocation, modification or reversal of any of the rules and
regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars
promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or
reversal will be prejudicial to the taxpayers, except in the following cases:

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required
of him by the Bureau of Internal Revenue;

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the
facts on which the ruling is based; or

(c) Where the taxpayer acted in bad faith. (Emphasis supplied)

Thus, a general interpretative rule issued by the Commissioner may be relied upon by taxpayers from the time
the rule is issued up to its reversal by the Commissioner or this Court. Section 246 is not limited to a reversal
only by the Commissioner because this Section expressly states, "Any revocation, modification or reversal"
without specifying who made the revocation, modification or reversal. Hence, a reversal by this Court is
covered under Section 246.
Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a
difficult question of law. The abandonment of the Atlas doctrine by Mirant and Aichi69 is proof that the
reckoning of the prescriptive periods for input VAT tax refund or credit is a difficult question of law. The
abandonment of the 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. As held by this Court in CIR v. Philippine Health Care
Providers, Inc.:70

In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this Court held that under Section 246 of the 1997
Tax Code, the Commissioner of Internal Revenue is precluded from adopting a position contrary to one
previously taken where injustice would result to the taxpayer. Hence, where an assessment for deficiency
withholding income taxes was made, three years after a new BIR Circular reversed a previous one upon which
the taxpayer had relied upon, such an assessment was prejudicial to the taxpayer. To rule otherwise, opined the
Court, would be contrary to the tenets of good faith, equity, and fair play.

This Court has consistently reaffirmed its ruling in ABS-CBN Broadcasting Corp.1âwphi1 in the later cases of
Commissioner of Internal Revenue v. Borroughs, Ltd., Commissioner of Internal Revenue v. Mega Gen. Mdsg.
Corp., Commissioner of Internal Revenue v. Telefunken Semiconductor (Phils.) Inc., and Commissioner of
Internal Revenue v. Court of Appeals. The rule is that the BIR rulings have no retroactive effect where a grossly
unfair deal would result to the prejudice of the taxpayer, as in this case.

More recently, in Commissioner of Internal Revenue v. Benguet Corporation, wherein the taxpayer was entitled
to tax refunds or credits based on the BIR’s own issuances but later was suddenly saddled with deficiency taxes
due to its subsequent ruling changing the category of the taxpayer’s transactions for the purpose of paying its
VAT, this Court ruled that applying such ruling retroactively would be prejudicial to the taxpayer. (Emphasis
supplied)

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

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

Clearly, BIR Ruling No. DA-489-03 is a general 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

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

San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its judicial claim
prematurely on 10 April 2003, before the issuance of BIR Ruling No. DA-489-03 on 10 December 2003. To
repeat, San Roque cannot claim that it was misled by the BIR into filing its judicial claim prematurely because
BIR Ruling No. DA-489-03 was issued only after San Roque filed its judicial claim. At the time San Roque
filed its judicial claim, the law as applied and administered by the BIR was that the Commissioner had 120 days
to act on administrative claims. This was in fact the position of the BIR prior to the issuance of BIR Ruling No.
DA-489-03. Indeed, San Roque never claimed the benefit of BIR Ruling No. DA-489-03 or RMC 49-03,
whether in this Court, the CTA, or before the Commissioner.
Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the issuance of BIR Ruling
No. DA-489-03 on 10 December 2003. Truly, Taganito can claim that in filing its judicial claim prematurely
without waiting for the 120-day period to expire, it was misled by BIR Ruling No. DA-489-03. Thus, Taganito
can claim the benefit of BIR Ruling No. DA-489-03, which shields the filing of its judicial claim from the vice
of prematurity.

Philex’s situation is not a case of premature filing of its judicial claim but of late filing, indeed very late filing.
BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim, which means non-exhaustion of the
120-day period for the Commissioner to act on an administrative claim. Philex cannot claim the benefit of BIR
Ruling No. DA-489-03 because Philex did not file its judicial claim prematurely but filed it long after the lapse
of the 30-day period following the expiration of the 120-day period. In fact, Philex filed its judicial claim 426
days after the lapse of the 30-day period.

VII. Existing Jurisprudence

There is no basis whatsoever to the claim that in five cases this Court had already made a ruling that the filing
dates of the administrative and judicial claims are inconsequential, as long as they are within the two-year
prescriptive period. The effect of the claim of the dissenting opinions is that San Roque’s failure to wait for the
120-day mandatory period to lapse is inconsequential, thus allowing San Roque to claim the tax refund or
credit. However, the five cases cited by the dissenting opinions do not support even remotely the claim that this
Court had already made such a ruling. None of these five cases mention, cite, discuss, rule or even hint that
compliance with the 120-day mandatory period is inconsequential as long as the administrative and judicial
claims are filed within the two-year prescriptive period.

In CIR v. Toshiba Information Equipment (Phils.), Inc.,71 the issue was whether any output VAT was actually
passed on to Toshiba that it could claim as input VAT subject to tax credit or refund. The Commissioner argued
that "although Toshiba may be a VAT-registered taxpayer, it is not engaged in a VAT-taxable business." The
Commissioner cited Section 4.106-1 of Revenue Regulations No. 75 that "refund of input taxes on capital goods
shall be allowed only to the extent that such capital goods are used in VAT-taxable business." In the words of
the Court, "Ultimately, however, the issue still to be resolved herein shall be whether respondent Toshiba is
entitled to the tax credit/refund of its input VAT on its purchases of capital goods and services, to which this
Court answers in the affirmative." Nowhere in this case did the Court discuss, state, or rule that the filing dates
of the administrative and judicial claims are inconsequential, as long as they are within the two-year
prescriptive period.

In Intel Technology Philippines, Inc. v. CIR,72 the Court stated: "The issues to be resolved in the instant case
are (1) whether the absence of the BIR authority to print or the absence of the TIN-V in petitioner’s export sales
invoices operates to forfeit its entitlement to a tax refund/credit of its unutilized input VAT attributable to its
zero-rated sales; and (2) whether petitioner’s failure to indicate "TIN-V" in its sales invoices automatically
invalidates its claim for a tax credit certification." Again, nowhere in this case did the Court discuss, state, or
rule that the filing dates of the administrative and judicial claims are inconsequential, as long as they are within
the two-year prescriptive period.

In AT&T Communications Services Philippines, Inc. v. CIR,73 the Court stated: "x x x the CTA First Division,
conceding that petitioner’s transactions fall under the classification of zero-rated sales, nevertheless denied
petitioner’s claim ‘for lack of substantiation,’ x x x." The Court quoted the ruling of the First Division that
"valid VAT official receipts, and not mere sale invoices, should have been submitted" by petitioner to
substantiate its claim. The Court further stated: "x x x the CTA En Banc, x x x affirmed x x x the CTA First
Division," and "petitioner’s motion for reconsideration having been denied x x x, the present petition for review
was filed." Clearly, the sole issue in this case is whether petitioner complied with the substantiation
requirements in claiming for tax refund or credit. Again, nowhere in this case did the Court discuss, state, or
rule that the filing dates of the administrative and judicial claims are inconsequential, as long as they are within
the two-year prescriptive period.

In CIR v. Ironcon Builders and Development Corporation,74 the Court put the issue in this manner: "Simply
put, the sole issue the petition raises is whether or not the CTA erred in granting respondent Ironcon’s
application for refund of its excess creditable VAT withheld." The Commissioner argued that "since the NIRC
does not specifically grant taxpayers the option to refund excess creditable VAT withheld, it follows that such
refund cannot be allowed." Thus, this case is solely about whether the taxpayer has the right under the NIRC to
ask for a cash refund of excess creditable VAT withheld. Again, nowhere in this case did the Court discuss,
state, or rule that the filing dates of the administrative and judicial claims are inconsequential, as long as they
are within the two-year prescriptive period.

In CIR v. Cebu Toyo Corporation,75 the issue was whether Cebu Toyo was exempt or subject to VAT.
Compliance with the 120-day period was never an issue in Cebu Toyo. As the Court explained:

Both the Commissioner of Internal Revenue and the Office of the Solicitor General argue that respondent Cebu
Toyo Corporation, as a PEZA-registered enterprise, is exempt from national and local taxes, including VAT,
under Section 24 of Rep. Act No. 7916 and Section 109 of the NIRC. Thus, they contend that respondent Cebu
Toyo Corporation is not entitled to any refund or credit on input taxes it previously paid as provided under
Section 4.103-1 of Revenue Regulations No. 7-95, notwithstanding its registration as a VAT taxpayer. For
petitioner claims that said registration was erroneous and did not confer upon the respondent any right to claim
recognition of the input tax credit.

The respondent counters that it availed of the income tax holiday under E.O. No. 226 for four years from
August 7, 1995 making it exempt from income tax but not from other taxes such as VAT. Hence, according to
respondent, its export sales are not exempt from VAT, contrary to petitioner’s claim, but its export sales is
subject to 0% VAT. Moreover, it argues that it was able to establish through a report certified by an
independent Certified Public Accountant that the input taxes it incurred from April 1, 1996 to December 31,
1997 were directly attributable to its export sales. Since it did not have any output tax against which said input
taxes may be offset, it had the option to file a claim for refund/tax credit of its unutilized input taxes.

Considering the submission of the parties and the evidence on record, we find the petition bereft of merit.

Petitioner’s contention that respondent is not entitled to refund for being exempt from VAT is untenable. This
argument turns a blind eye to the fiscal incentives granted to PEZA-registered enterprises under Section 23 of
Rep. Act No. 7916. Note that under said statute, the respondent had two options with respect to its tax burden. It
could avail of an income tax holiday pursuant to provisions of E.O. No. 226, thus exempt it from income taxes
for a number of years but not from other internal revenue taxes such as VAT; or it could avail of the tax
exemptions on all taxes, including VAT under P.D. No. 66 and pay only the preferential tax rate of 5% under
Rep. Act No. 7916. Both the Court of Appeals and the Court of Tax Appeals found that respondent availed of
the income tax holiday for four (4) years starting from August 7, 1995, as clearly reflected in its 1996 and 1997
Annual Corporate Income Tax Returns, where respondent specified that it was availing of the tax relief under
E.O. No. 226. Hence, respondent is not exempt from VAT and it correctly registered itself as a VAT taxpayer.
In fine, it is engaged in taxable rather than exempt transactions. (Emphasis supplied)

Clearly, the issue in Cebu Toyo was whether the taxpayer was exempt from VAT or subject to VAT at 0% tax
rate. If subject to 0% VAT rate, the taxpayer could claim a refund or credit of its input VAT. Again, nowhere in
this case did the Court discuss, state, or rule that the filing dates of the administrative and judicial claims are
inconsequential, as long as they are within the two-year prescriptive period.

While this Court stated in the narration of facts in Cebu Toyo that the taxpayer "did not bother to wait for the
Resolution of its (administrative) claim by the CIR" before filing its judicial claim with the CTA, this issue was
not raised before the Court. Certainly, this statement of the Court is not a binding precedent that the taxpayer
need not wait for the 120-day period to lapse.

Any issue, whether raised or not by the parties, but not passed upon by the Court, does not have any value as
precedent. As this Court has explained as early as 1926:

It is contended, however, that the question before us was answered and resolved against the contention of the
appellant in the case of Bautista vs. Fajardo (38 Phil. 624). In that case no question was raised nor was it even
suggested that said section 216 did not apply to a public officer. That question was not discussed nor referred to
by any of the parties interested in that case. It has been frequently decided that the fact that a statute has been
accepted as valid, and invoked and applied for many years in cases where its validity was not raised or passed
on, does not prevent a court from later passing on its validity, where that question is squarely and properly
raised and presented. Where a question passes the Court sub silentio, the case in which the question was so
passed is not binding on the Court (McGirr vs. Hamilton and Abreu, 30 Phil. 563), nor should it be considered
as a precedent. (U.S. vs. Noriega and Tobias, 31 Phil. 310; Chicote vs. Acasio, 31 Phil. 401; U.S. vs. More, 3
Cranch [U.S.] 159, 172; U.S. vs. Sanges, 144 U.S. 310, 319; Cross vs. Burke, 146 U.S. 82.) For the reasons
given in the case of McGirr vs. Hamilton and Abreu, supra, the decision in the case of Bautista vs. Fajardo,
supra, can have no binding force in the interpretation of the question presented here.76 (Emphasis supplied)

In Cebu Toyo, the nature of the 120-day period, whether it is mandatory or optional, was not even raised as an
issue by any of the parties. The Court never passed upon this issue. Thus, Cebu Toyo does not constitute
binding precedent on the nature of the 120-day period.

There is also the claim that there are numerous CTA decisions allegedly supporting the argument that the filing
dates of the administrative and judicial claims are inconsequential, as long as they are within the two-year
prescriptive period. Suffice it to state that CTA decisions do not constitute precedents, and do not bind this
Court or the public. That is why CTA decisions are appealable to this Court, which may affirm, reverse or
modify the CTA decisions as the facts and the law may warrant. Only decisions of this Court constitute binding
precedents, forming part of the Philippine legal system.77 As held by this Court in The Philippine Veterans
Affairs Office v. Segundo:78

x x x Let it be admonished that decisions of the Supreme Court "applying or interpreting the laws or the
Constitution . . . form part of the legal system of the Philippines," and, as it were, "laws" by their own right
because they interpret what the laws say or mean. Unlike rulings of the lower courts, which bind the parties to
specific cases alone, our judgments are universal in their scope and application, and equally mandatory in
character. Let it be warned that to defy our decisions is to court contempt. (Emphasis supplied)

The same basic doctrine was reiterated by this Court in De Mesa v. Pepsi Cola Products Phils., Inc.:79

The principle of stare decisis et non quieta movere is entrenched in Article 8 of the Civil Code, to wit:

ART. 8. Judicial decisions applying or interpreting the laws or the Constitution shall form a part of the legal
system of the Philippines.

It enjoins adherence to judicial precedents. It requires our courts to follow a rule already established in a final
decision of the Supreme Court. That decision becomes a judicial precedent to be followed in subsequent cases
by all courts in the land. The doctrine of stare decisis is based on the principle that once a question of law has
been examined and decided, it should be deemed settled and closed to further argument. (Emphasis supplied)

VIII. Revenue Regulations No. 7-95 Effective 1 January 1996

Section 4.106-2(c) of Revenue Regulations No. 7-95, by its own express terms, applies only if the taxpayer files
the judicial claim "after" the lapse of the 60-day period, a period with which San Roque failed to comply. Under
Section 4.106-2(c), the 60-day period is still mandatory and jurisdictional.

Moreover, it is a hornbook principle that a prior administrative regulation can never prevail over a later contrary
law, more so in this case where the later law was enacted precisely to amend the prior administrative regulation
and the law it implements.

The laws and regulation involved are as follows:

1977 Tax Code, as amended by Republic Act No. 7716 (1994)

Sec. 106. Refunds or tax credits of creditable input tax. —

(a) x x x x

(d) Period within which refund or tax credit of input tax shall be made - In proper cases, the Commissioner shall
grant a refund or issue the tax credit for creditable input taxes within sixty (60) days from the date of
submission of complete documents in support of the application filed in accordance with subparagraphs (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 receipt of the decision denying the claim or after the expiration of the sixty-day
period, appeal the decision or the unacted claim with the Court of Tax Appeals.

Revenue Regulations No. 7-95 (1996)

Section 4.106-2. Procedures for claiming refunds or tax credits of input tax — (a) x x x

xxxx

(c) Period within which refund or tax credit of input taxes shall be made. — In proper cases, the Commissioner
shall grant a tax credit/refund for creditable input taxes within sixty (60) days from the date of submission of
complete documents in support of the application filed in accordance with subparagraphs (a) and (b) above.

In case of full or partial denial of the claim for tax credit/refund as decided by the Commissioner of Internal
Revenue, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the receipt of said
denial, otherwise the decision will become final. However, if no action on the claim for tax credit/refund has
been taken by the Commissioner of Internal Revenue after the sixty (60) day period from the date of submission
of the application but before the lapse of the two (2) year period from the date of filing of the VAT return for
the taxable quarter, the taxpayer may appeal to the Court of Tax Appeals.

xxxx

1997 Tax Code

Section 112. Refunds or Tax Credits of Input Tax —

(A) x x x

xxxx

(D) Period within which Refund or Tax Credit of Input Taxes shall be made. — In proper cases, the
Commissioner shall grant the 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 hundred twenty
day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.

There can be no dispute that under Section 106(d) of the 1977 Tax Code, as amended by RA 7716, the
Commissioner has a 60-day period to act on the administrative claim. This 60-day period is mandatory and
jurisdictional.

Did Section 4.106-2(c) of Revenue Regulations No. 7-95 change this, so that the 60-day period is no longer
mandatory and jurisdictional? The obvious answer is no.

Section 4.106-2(c) itself expressly states that if, "after the sixty (60) day period," the Commissioner fails to act
on the administrative claim, the taxpayer may file the judicial claim even "before the lapse of the two (2) year
period." Thus, under Section 4.106-2(c) the 60-day period is still mandatory and jurisdictional.

Section 4.106-2(c) did not change Section 106(d) as amended by RA 7716, but merely implemented it, for two
reasons. First, Section 4.106-2(c) still expressly requires compliance with the 60-day period. This cannot be
disputed.1âwphi1

Second, 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.80 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.

Even assuming, for the sake of argument, that Section 4.106-2(c) of Revenue Regulations No. 7-95, an
administrative issuance, amended Section 106(d) of the Tax Code to make the period given to the
Commissioner non-mandatory, still the 1997 Tax Code, a much later law, reinstated the original intent and
provision of Section 106(d) by extending the 60-day period to 120 days and re-adopting the original wordings
of Section 106(d). Thus, Section 4.106-2(c), a mere administrative issuance, becomes inconsistent with Section
112(D), a later law. Obviously, the later law prevails over a prior inconsistent administrative issuance.

Section 112(D) of the 1997 Tax Code is clear, unequivocal, and categorical that the Commissioner has 120 days
to act on an administrative claim. The taxpayer can file the judicial claim (1) only within thirty days after the
Commissioner partially or fully denies the claim within the 120- day period, or (2) only within thirty days from
the expiration of the 120- day period if the Commissioner does not act within the 120-day period.

There can be no dispute that upon effectivity of the 1997 Tax Code on 1 January 1998, or more than five years
before San Roque filed its administrative claim on 28 March 2003, the law has been clear: the 120- day period
is mandatory and jurisdictional. San Roque’s claim, having been filed administratively on 28 March 2003, is
governed by the 1997 Tax Code, not the 1977 Tax Code. Since San Roque filed its judicial claim before the
expiration of the 120-day mandatory and jurisdictional period, San Roque’s claim cannot prosper.

San Roque cannot also invoke Section 4.106-2(c), which expressly provides that the taxpayer can only file the
judicial claim "after" the lapse of the 60-day period from the filing of the administrative claim. San Roque filed
its judicial claim just 13 days after filing its administrative claim. To recall, San Roque filed its judicial claim
on 10 April 2003, a mere 13 days after it filed its administrative claim.

Even if, contrary to all principles of statutory construction as well as plain common sense, we gratuitously apply
now Section 4.106-2(c) of Revenue Regulations No. 7-95, still San Roque cannot recover any refund or credit
because San Roque did not wait for the 60-day period to lapse, contrary to the express requirement in Section
4.106-2(c). In short, San Roque does not even comply with Section 4.106-2(c). A claim for tax refund or credit
is strictly construed against the taxpayer, who must prove that his claim clearly complies with all the conditions
for granting the tax refund or credit. San Roque did not comply with the express condition for such statutory
grant.

A final word. Taxes are the lifeblood of the nation. The Philippines has been struggling to improve its tax
efficiency collection for the longest time with minimal success. Consequently, the Philippines has suffered the
economic adversities arising from poor tax collections, forcing the government to continue borrowing to fund
the budget deficits. This Court cannot turn a blind eye to this economic malaise by being unduly liberal to
taxpayers who do not comply with statutory requirements for tax refunds or credits. The tax refund claims in the
present cases are not a pittance. Many other companies stand to gain if this Court were to rule otherwise. The
dissenting opinions will turn on its head the well-settled doctrine that tax refunds are strictly construed against
the taxpayer.

WHEREFORE, the Court hereby (1) GRANTS the petition of the Commissioner of Internal Revenue in G.R.
No. 187485 to DENY the P483,797,599.65 tax refund or credit claim of San Roque Power Corporation; (2)
GRANTS the petition of Taganito Mining Corporation in G.R. No. 196113 for a tax refund or credit of
P8,365,664.38; and (3) DENIES the petition of Philex Mining Corporation in G.R. No. 197156 for a tax refund
or credit of P23,956,732.44.

SO ORDERED.

G.R. No. 175108 February 27, 2013

 CHINA BANKING CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

PERALTA, J.:

This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court which seeks the review
and reversal of the Decision1 dated June 16, 2006 and Resolution2 dated October 1 7, 2006 of the former Fifth
Division of the Court of Appeals (CA).

The factual antecedents follow.

For the four quarters of 1996, petitioner paid Il93,119,433.50 as gross receipts tax (GRD on its income from the
interests on loan investments, commissions, service and collection charges, foreign exchange profit and other
operating earnings.

In computing its taxable gross receipts, petitioner included the 20% final withholding tax on its passive interest
income,3 hereunder summarized as follows:

1996
Exhs.
Date of Filing
Return/Payment
of Tax to the BIR
Taxable
Gross Receipts
Gross Receipts
Tax Paid
1st qtr. A 22-Apr-96 P 534,500,491.61 P 24,055,944.08
2nd qtr. A-1 22-Jul-96 582,985,457.89 26,394,956.47
3rd qtr. A-2 21-Oct-96 427,801,196.81 18,427,999.31
4th qtr. A-3 20-Jan-97 552,378,276.18 24,240,533.64
Total:
P 2,097,665,422.49
P 93,119,433.50
On January 30, 1996, the Court of Tax Appeals (CTA) rendered a Decision entitled Asian Bank Corporation v.
Commissioner of Internal Revenue,4 wherein it ruled that the 20% final withholding tax on a bank’s passive
interest income should not form part of its taxable gross receipts.

On the strength of the aforementioned decision, petitioner filed with respondent a claim for refund on April 20,
1998, of the alleged overpaid GRT for the four (4) quarters of 1996 in the aggregate amount of P6,646,829.67,
detailed as follows:

1996
Gross Receipts
Tax Paid
Corrected Gross
Receipts Tax
Excess GRT
Payment
1st qtr. P 24,055,944.08 P 22,114,548.10 P 1,941,395.99
2nd qtr. 26,394,956.45 25,050,429.40 1,344,527.06
3rd qtr. 18,427,999.33 17,087,138.98 1,340,860.34
4th qtr. 24,240,533.64 22,219,487.36 2,021,046.28
Total:
P 93,119,433.50
P 86,471,603.84
P 6,646,829.67
On even date, petitioner filed its Petition for Review with the CTA.

The CTA, on November 8, 2000, rendered a Decision5 agreeing with petitioner that the 20% final withholding
tax on interest income does not form part of its taxable gross receipts. However, the CTA dismissed petitioner’s
claim for its failure to prove that the 20% final withholding tax forms part of its 1996 taxable gross receipts.
The Decision states in part:

Moreover, the Court of Appeals in the case of Commissioner of Internal Revenue vs. Citytrust Investment
Philippines, Inc., CA G.R. Sp No. 52707, August 17, 1999, affirmed our stand that the 20% final withholding
tax on interest income should not form part of the taxable gross receipts. Hence, we find no cogent reason nor
justification to depart from the wisdom of our decision in the Asian Bank case, supra.

xxxx

Lastly, since Petitioner failed to prove the inclusion of the 20% final withholding taxes as part of its 1996
taxable gross receipts (passive income) or gross receipts (passive income) that were subjected to 5% GRT, it
follows that proof was wanting that it paid the claimed excess GRT, subject of this petition.

xxxx

IN THE LIGHT OF ALL THE FOREGOING, the instant Petition for Review is DISMISSED for insufficiency
of evidence.

SO ORDERED.6

Not in conformity with the CTA’s ruling, petitioner interposed an appeal before the CA.

In its appeal, petitioner insists that it erroneously included the 20% final withholding tax on the bank’s passive
interest income in computing the taxable gross receipts. Therefore, it argues that it is entitled, as a matter of
right, to a refund or tax credit.

In a Decision7 dated June 16, 2006, the CA denied petitioner’s appeal. It ruled in this wise:

x x x Unfortunately for China Bank, it is flogging a dead horse as this argument has already been shot down in
China Banking Corporation vs. Court of Appeals (G.R. No. 146749 & No. 147983, June 10, 2003) where it was
ruled the Tax Court, which decided Asia Bank on June 30, 1996 not only erroneously interpreted Section 4(e) of
Revenue Regulations No. 12-80, it also cited Section 4(e) when it was no longer the applicable revenue
regulation. The revenue regulations applicable at the time the tax court decided Asia Bank was Revenue
Regulations No. 17-84, not Revenue Regulation 12-80.

xxxx

WHEREFORE, the instant petition is DENIED DUE COURSE and DISMISSED.

SO ORDERED.8

Petitioner sought reconsideration of the aforementioned decision arguing that Section 4 (e) of Revenue
Regulations (RR) No. 12-80 remains applicable as the basis of GRT for banks in taxable year 1996.

On October 17, 2006, the CA issued a Resolution9 denying petitioner’s motion for reconsideration on the
ground that no new or compelling reason was presented by petitioner to warrant the reversal or modification of
its decision.

Hence, this petition wherein petitioner contends that:

THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAS FAILED TO POINT TO THE
LEGAL BASIS FOR THE EXCLUSION OF THE AMOUNT OF TAX WITHHELD ON PASSIVE INCOME
FROM ITS GROSS RECEIPTS FOR PURPOSES OF TAXATION.10
In essence, the issue to be resolved is whether the 20% final tax withheld on a bank’s passive income should be
included in the computation of the GRT.

Petitioner avers that the 20% final tax withheld on its passive income should not be included in the computation
of its taxable gross receipts. It insists that the CA erred in ruling that it failed to show the legal basis for its
claimed tax refund or credit, since Section 4 (e) of RR No. 12-80 categorically provides for the exclusion of the
amount of taxes withheld from the computation of gross receipts for GRT purposes.

We do not agree.

In a catena of cases, this Court has already resolved the issue of whether the 20% final withholding tax should
form part of the total gross receipts for purposes of computing the GRT.

In China Banking Corporation v. Court of Appeals,11 we ruled that the amount of interest income withheld, in
payment of the 20% final withholding tax, forms part of the bank’s gross receipts in computing the GRT on
banks. The discussion in this case is instructive on this score:

The gross receipts tax on banks was first imposed on 1 October 1946 by Republic Act No. 39 ("RA No. 39")
which amended Section 249 of the Tax Code of 1939. Interest income on banks, without any deduction, formed
part of their taxable gross receipts. From October 1946 to June 1977, there was no withholding tax on interest
income from bank deposits.

On 3 June 1977, Presidential Decree No. 1156 required the withholding at source of a 15% tax on interest on
bank deposits. This tax was a creditable, not a final withholding tax. Despite the withholding of the 15% tax, the
entire interest income, without any deduction, formed part of the bank’s taxable gross receipts. On 17
September 1980, Presidential Decree No. 1739 made the withholding tax on interest a final tax at the rate of
15% on savings account, and 20% on time deposits. Still, from 1980 until the Court of Tax Appeals decision in
Asia Bank on 30 January 1996, banks included the entire interest income, without any deduction, in their
taxable gross receipts.

In Asia Bank, the Court of Tax Appeals held that the final withholding tax is not part of the bank’s taxable gross
receipts. The tax court anchored its ruling on Section 4(e) of Revenue Regulations No. 12-80, which stated that
the gross receipts "shall be based on all items actually received" by the bank. The tax court ruled that the bank
does not actually receive the final withholding tax. As authority, the tax court cited Collector of Internal
Revenue v. Manila Jockey Club, which held that "gross receipts of the proprietor should not include any money
which although delivered to the amusement place had been especially earmarked by law or regulation for some
person other than the proprietor. x x x

Subsequently, the Court of Tax Appeals reversed its ruling in Asia Bank. In Far East Bank & Trust Co. v.
Commissioner and Standard Chartered Bank v. Commissioner, both promulgated on 16 November 2001, the tax
court ruled that the final withholding tax forms part of the bank’s gross receipts in computing the gross receipts
tax. The tax court held that Section 4(e) of Revenue Regulations 12-80 did not prescribe the computation of the
gross receipts but merely authorized "the determination of the amount of gross receipts on the basis of the
method of accounting being used by the taxpayer.

The tax court also held in Far East Bank and Standard Chartered Bank that the exclusion of the final
withholding tax from gross receipts operates as a tax exemption which the law must expressly grant. No law
provides for such exemption. In addition, the tax court pointed out that Section 7(c) of Revenue Regulations No.
17-84 had already superseded Section 4(e) of Revenue Regulations No. 12-80. x x x12 (Emphasis supplied)

Notably, this Court, in the same case, held that under RR Nos. 12-80 and 17-84, the Bureau of Internal Revenue
(BIR) has consistently ruled that the term gross receipts do not admit of any deduction. It emphasized that
interest earned by banks, even if subject to the final tax and excluded from taxable gross income, forms part of
its gross receipt for GRT purposes. The interest earned refers to the gross interest without deduction, since the
regulations do not provide for any deduction.13
Further, in Commissioner of Internal Revenue v. Solidbank Corporation,14 this Court held that "gross receipts"
refer to the total, as opposed to the net, income. These are, therefore, the total receipts before any deduction for
the expenses of management.15

In Commissioner of Internal Revenue v. Bank of Commerce,16 we again adhered to the ruling that the term
"gross receipts" must be understood in its plain and ordinary meaning. In this case, we ruled that gross receipts
should be interpreted as the whole amount received as interest, without deductions; otherwise, if deductions
were to be made from gross receipts, it would be considered as "net receipts." The Court ratiocinated as follows:

The word "gross" must be used in its plain and ordinary meaning. It is defined as "whole, entire, total, without
deduction." A common definition is "without deduction." x x x Gross is the antithesis of net. Indeed, in China
Banking Corporation v. Court of Appeals, the Court defined the term in this wise:

As commonly understood, the term "gross receipts" means the entire receipts without any deduction. Deducting
any amount from the gross receipts changes the result, and the meaning, to net receipts. Any deduction from
gross receipts is inconsistent with a law that mandates a tax on gross receipts, unless the law itself makes an
exception. As explained by the Supreme Court of Pennsylvania in Commonwealth of Pennsylvania v. Koppers
Company, Inc. –

Highly refined and technical tax concepts have been developed by the accountant and legal technician primarily
because of the impact of federal income tax legislation. However, this in no way should affect or control the
normal usage of words in the construction of our statutes; x x x Under the ordinary basic methods of handling
accounts, the term gross receipts, in the absence of any statutory definition of the term, must be taken to include
the whole total gross receipts without any deductions, x x x.17

Again, in Commissioner of Internal Revenue v. Bank of the Philippine Islands,18 this Court ruled that "the
legislative intent to apply the term in its ordinary meaning may also be surmised from a historical perspective of
the levy on gross receipts. From the time the gross receipts tax on banks was first imposed in 1946 under R.A.
No. 39 and throughout its successive reenactments, the legislature has not established a definition of the term
‘gross receipts.’ Absent a statutory definition of the term, the BIR had consistently applied it in its ordinary
meaning, i.e., without deduction. On the presumption that the legislature is familiar with the contemporaneous
interpretation of a statute given by the administrative agency tasked to enforce the statute, subsequent legislative
reenactments of the subject levy sans a definition of the term ‘gross receipts’ reflect that the BIR’s application
of the term carries out the legislative purpose."19

In sum, all the aforementioned cases are one in saying that "gross receipts" comprise "the entire receipts without
any deduction." Clearly, then, the 20% final withholding tax should form part of petitioner’s total gross receipts
for purposes of computing the GRT.

Also worth noting is the fact that petitioner’s reliance on Section 4 (e) of RR 12-80 is misplaced as the same
was already superseded by a more recent issuance, RR No. 17-84.

This fact was elucidated on by the Court in the case of Commissioner of Internal Revenue v. Citytrust
Investment Phils. Inc.,20 where it held that RR No. 12-80 had already been superseded by RR No. 17-84, viz.:

x x x Revenue Regulations No. 12-80, issued on November 7, 1980, had been superseded by Revenue
Regulations No. 17-84 issued on October 12, 1984. Section 4 (e) of Revenue Regulations No. 12-80 provides
that only items of income actually received shall be included in the tax base for computing the GRT.1âwphi1
On the other hand, Section 7 (c) of Revenue Regulations No. 17-84 includes all interest income in computing
the GRT, thus:

Section 7. Nature and Treatment of Interest on Deposits and Yield on Deposit Substitutes. –

(a) The interest earned on Philippine Currency bank deposits and yield from deposit substitutes subjected to the
withholding taxes in accordance with these regulations need not be included in the gross income in computing
the depositor’s investor’s income tax liability. x x x
(b) Only interest paid or accrued on bank deposits, or yield from deposit substitutes declared for purposes of
imposing the withholding taxes in accordance with these regulations shall be allowed as interest expense
deductible for purposes of computing taxable net income of the payor.

(c) If the recipient of the above-mentioned items of income are financial institutions, the same shall be included
as part of the tax base upon which the gross receipt tax is imposed.

Revenue Regulations No. 17-84 categorically states that if the recipient of the above-mentioned items of income
are financial institutions, the same shall be included as part of the tax base upon which the gross receipts tax is
imposed. x x x.21 (Emphasis supplied)

Significantly, the Court even categorically stated in the aforementioned case that there is an implied repeal of
Section 4 (e). It held that there exists a disparity between Section 4 (e) of RR No. 12-80, which imposes the
GRT only on all items of income actually received (as opposed to their mere accrual) and Section 7 (c) of RR
No. 17-84, which includes all interest income (whether actual or accrued) in computing the GRT. Plainly, RR
No. 17-84, which requires interest income, whether actually received or merely accrued, to form part of the
bank’s taxable gross receipts, should prevail.22

All told, petitioner failed to point to any specific provision of law allowing the deduction, exemption or
exclusion from its taxable gross receipts, of the amount withheld as final tax. Besides, the exclusion sought by
petitioner of the 20% final tax on its passive income from the taxpayer’s tax base constitutes a tax exemption,
which is highly disfavored. A governing principle in taxation states that tax exemptions are to be construed in
strictissimi juris against the taxpayer and liberally in favor of the taxing authority and should be granted only by
clear and unmistakable terms.23

WHEREFORE, premises considered, the Decision dated June 16, 2006 and Resolution dated October 17, 2006
of the former Fifth Division of the Court of Appeals are hereby AFFIRMED in toto.

SO ORDERED.

G.R. No. 193301 March 11, 2013

MINDANAO II GEOTHERMAL PARTNERSHIP, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

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

G.R. No. 194637

MINDANAO I GEOTHERMAL PARTNERSHIP, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

CARPIO, J.:

G.R. No. 193301 is a petition for review1 assailing the Decision2 promulgated on 10 March 2010 as well as the
Resolution3 promulgated on 28 July 2010 by the Court of Tax Appeals En Banc (CTA En Banc) in CTA EB
No. 513. The CTA En Banc affirmed the 22 September 2008 Decision4 as well as the 26 June 2009 Amended
Decision5 of the First Division of the Court of Tax Appeals (CTA First Division) in CTA Case Nos. 7227,
7287, and 7317. The CTA First Division denied Mindanao II Geothermal Partnership’s (Mindanao II) claims
for refund or tax credit for the first and second quarters of taxable year 2003 for being filed out of time (CTA
Case Nos. 7227 and 7287). The CTA First Division, however, ordered the

Commissioner of Internal Revenue (CIR) to refund or credit to Mindanao II unutilized input value-added tax
(VAT) for the third and fourth quarters of taxable year 2003 (CTA Case No. 7317).
G.R. No. 194637 is a petition for review6 assailing the Decision7 promulgated on 31 May 2010 as well as the
Amended Decision8 promulgated on 24 November 2010 by the CTA En Banc in CTA EB Nos. 476 and 483. In
its Amended Decision, the CTA En Banc reversed its 31 May 2010 Decision and granted the CIR’s petition for
review in CTA Case No. 476. The CTA En Banc denied Mindanao I Geothermal Partnership’s (Mindanao I)
claims for refund or tax credit for the first (CTA Case No. 7228), second (CTA Case No. 7286), third, and
fourth quarters (CTA Case No. 7318) of 2003.

Both Mindanao I and II are partnerships registered with the Securities and Exchange Commission, value added
taxpayers registered with the Bureau of Internal Revenue (BIR), and Block Power Production Facilities
accredited by the Department of Energy. Republic Act No. 9136, or the Electric Power Industry Reform Act of
2000 (EPIRA), effectively amended Republic Act No. 8424, or the Tax Reform Act of 1997 (1997 Tax Code),9
when it decreed that sales of power by generation companies shall be subjected to a zero rate of VAT.10
Pursuant to EPIRA, Mindanao I and II filed with the CIR claims for refund or tax credit of accumulated
unutilized and/or excess input taxes due to VAT zero-rated sales in 2003. Mindanao I and II filed their claims in
2005.

G.R. No. 193301

Mindanao II v. CIR

The Facts

G.R. No. 193301 covers three CTA First Division cases, CTA Case Nos. 7227, 7287, and 7317, which were
consolidated as CTA EB No. 513. CTA Case Nos. 7227, 7287, and 7317 claim a tax refund or credit of
Mindanao II’s alleged excess or unutilized input taxes due to VAT zero-rated sales. In CTA Case No. 7227,
Mindanao II claims a tax refund or credit of P3,160,984.69 for the first quarter of 2003. In CTA Case No. 7287,
Mindanao II claims a tax refund or credit of P1,562,085.33 for the second quarter of 2003. In CTA Case No.
7317, Mindanao II claims a tax refund or credit of P3,521,129.50 for the third and fourth quarters of 2003.

The CTA First Division’s narration of the pertinent facts is as follows:

xxxx

On March 11, 1997, [Mindanao II] allegedly entered into a Built (sic)-Operate-Transfer (BOT) contract with the
Philippine National Oil Corporation – Energy Development Company (PNOC-EDC) for finance, engineering,
supply, installation, testing, commissioning, operation, and maintenance of a 48.25 megawatt geothermal power
plant, provided that PNOC-EDC shall supply and deliver steam to Mindanao II at no cost. In turn, Mindanao II
shall convert the steam into electric capacity and energy for PNOC-EDC and shall deliver the same to the
National Power Corporation (NPC) for and in behalf of PNOC-EDC. Mindanao II alleges that its sale of
generated power and delivery of electric capacity and energy of Mindanao II to NPC for and in behalf of
PNOC-EDC is its only revenue-generating activity which is in the ambit of VAT zero-rated sales under the
EPIRA Law, x x x.

xxxx

Hence, the amendment of the NIRC of 1997 modified the VAT rate applicable to sales of generated power by
generation companies from ten (10%) percent to zero (0%) percent.

In the course of its operation, Mindanao II makes domestic purchases of goods and services and accumulates
therefrom creditable input taxes. Pursuant to the provisions of the National Internal Revenue Code (NIRC),
Mindanao II alleges that it can use its accumulated input tax credits to offset its output tax liability. Considering,
however that its only revenue-generating activity is VAT zero-rated under RA No. 9136, Mindanao II’s input
tax credits remain unutilized.

Thus, on the belief that its sales qualify for VAT zero-rating, Mindanao II adopted the VAT zero-rating of the
EPIRA in computing for its VAT payable when it filed its Quarterly VAT Returns on the following dates:

CTA Case No. Period Covered

(2003) Date of Filing
Original Return Amended Return
7227 1st Quarter April 23, 2003 July 3, 2002 (sic),
April 1, 2004 &
October 22, 2004
7287 2nd Quarter July 22, 2003 April 1, 2004
7317 3rd Quarter Oct. 27, 2003 April 1, 2004
7317 4th Quarter Jan. 26, 2004 April 1, 2204
Considering that it has accumulated unutilized creditable input taxes from its only income-generating activity,
Mindanao II filed an application for refund and/or issuance of tax credit certificate with the BIR’s Revenue
District Office at Kidapawan City on April 13, 2005 for the four quarters of 2003.

To date (September 22, 2008), the application for refund by Mindanao II remains unacted upon by the CIR.
Hence, these three petitions filed on April 22, 2005 covering the 1st quarter of 2003; July 7, 2005 for the 2nd
quarter of 2003; and September 9, 2005 for the 3rd and 4th quarters of 2003. At the instance of Mindanao II,
these petitions were consolidated on March 15, 2006 as they involve the same parties and the same subject
matter. The only difference lies with the taxable periods involved in each petition.11

The Court of Tax Appeals’ Ruling: Division

In its 22 September 2008 Decision,12 the CTA First Division found that Mindanao II satisfied the twin
requirements for VAT zero rating under EPIRA: (1) it is a generation company, and (2) it derived sales from
power generation. The CTA First Division also stated that Mindanao II complied with five requirements to be
entitled to a refund:

1. There must be zero-rated or effectively zero-rated sales;

2. That input taxes were incurred or paid;

3. That such input VAT payments are directly attributable to zero-rated sales or effectively zero-rated sales;

4. That the input VAT payments were not applied against any output VAT liability; and

5. That the claim for refund was filed within the two-year prescriptive period.13

With respect to the fifth requirement, the CTA First Division tabulated the dates of filing of Mindanao II’s
return as well as its administrative and judicial claims, and concluded that Mindanao II’s administrative and
judicial claims were timely filed in compliance with this Court’s ruling in Atlas Consolidated Mining and
Development Corporation v. Commissioner of Internal Revenue (Atlas).14 The CTA First Division declared
that the two-year prescriptive period for filing a VAT refund claim should not be counted from the close of the
quarter but from the date of the filing of the VAT return. As ruled in Atlas, VAT liability or entitlement to a
refund can only be determined upon the filing of the quarterly VAT return.

CTA
Case No. Period
Covered
(2003) Date Filing
Original
Return Amended
Return Administrative
Return Judicial Claim
7227 1st Quarter 23 April 2003 1 April 2004 13 April 2005 22 April 2005
7287 2nd Quarter 22 July 2003 1 April 2004 13 April 2005 7 July 2005
7317 3rd Quarter 25 Oct. 2003 1 April 2004 13 April 2005 9 Sept. 2005
7317 4th Quarter 26 Jan. 2004 1 April 2004 13 April 2005 9 Sept. 200515
Thus, counting from 23 April 2003, 22 July 2003, 25 October 2003, and 26 January 2004, when Mindanao II
filed its VAT returns, its administrative claim filed on 13 April 2005 and judicial claims filed on 22 April 2005,
7 July 2005, and 9 September 2005 were timely filed in accordance with Atlas.
The CTA First Division found that Mindanao II is entitled to a refund in the modified amount of P7,703,957.79,
after disallowing P522,059.91 from input VAT16 and deducting P18,181.82 from Mindanao II’s sale of a fully
depreciated P200,000.00 Nissan Patrol. The input taxes amounting to P522,059.91 were disallowed for failure
to meet invoicing requirements, while the input VAT on the sale of the Nissan Patrol was reduced by
P18,181.82 because the output VAT for the sale was not included in the VAT declarations.

The dispositive portion of the CTA First Division’s 22 September 2008 Decision reads:

WHEREFORE, the Petition for Review is hereby PARTIALLY GRANTED. Accordingly, the CIR is hereby
ORDERED to REFUND or to ISSUE A TAX CREDIT CERTIFICATE in the modified amount of SEVEN
MILLION SEVEN HUNDRED THREE THOUSAND NINE HUNDRED FIFTY SEVEN AND 79/100
PESOS (P7,703,957.79) representing its unutilized input VAT for the four (4) quarters of the taxable year 2003.

SO ORDERED.17

Mindanao II filed a motion for partial reconsideration.18 It stated that the sale of the fully depreciated Nissan
Patrol is a one-time transaction and is not incidental to its VAT zero-rated operations. Moreover, the disallowed
input taxes substantially complied with the requirements for refund or tax credit.

The CIR also filed a motion for partial reconsideration. It argued that the judicial claims for the first and second
quarters of 2003 were filed beyond the period allowed by law, as stated in Section 112(A) of the 1997 Tax
Code. The CIR further stated that Section 229 is a general provision, and governs cases not covered by Section
112(A). The CIR countered the CTA First Division’s 22 September 2008 decision by citing this Court’s ruling
in Commisioner of Internal Revenue v. Mirant Pagbilao Corporation (Mirant),19 which stated that unutilized
input VAT payments must be claimed within two years reckoned from the close of the taxable quarter when the
relevant sales were made regardless of whether said tax was paid.

The CTA First Division denied Mindanao II’s motion for partial reconsideration, found the CIR’s motion for
partial reconsideration partly meritorious, and rendered an Amended Decision20 on 26 June 2009. The CTA
First Division stated that the claim for refund or credit with the BIR and the subsequent appeal to the CTA must
be filed within the two-year period prescribed under Section 229. The two-year prescriptive period in Section
229 was denominated as a mandatory statute of limitations. Therefore, Mindanao II’s claims for refund for the
first and second quarters of 2003 had already prescribed.

The CTA First Division found that the records of Mindanao II’s case are bereft of evidence that the sale of the
Nissan Patrol is not incidental to Mindanao II’s VAT zero-rated operations. Moreover, Mindanao II’s submitted
documents failed to substantiate the requisites for the refund or credit claims.

The CTA First Division modified its 22 September 2008 Decision to read as follows:

WHEREFORE, the Petition for Review is hereby PARTIALLY GRANTED. Accordingly, the CIR is hereby
ORDERED to REFUND or to ISSUE A TAX CREDIT CERTIFICATE to Mindanao II Geothermal Partnership
in the modified amount of TWO MILLION NINE HUNDRED EIGHTY THOUSAND EIGHT HUNDRED
EIGHTY SEVEN AND 77/100 PESOS (P2,980,887.77) representing its unutilized input VAT for the third and
fourth quarters of the taxable year 2003.

SO ORDERED.21

Mindanao II filed a Petition for Review,22 docketed as CTA EB No. 513, before the CTA En Banc.

The Court of Tax Appeals’ Ruling: En Banc

On 10 March 2010, the CTA En Banc rendered its Decision23 in CTA EB No. 513 and denied Mindanao II’s
petition. The CTA En Banc ruled that (1) Section 112(A) clearly provides that the reckoning of the two-year
prescriptive period for filing the application for refund or credit of input VAT attributable to zero-rated sales or
effectively zero-rated sales shall be counted from the close of the taxable quarter when the sales were made; (2)
the Atlas and Mirant cases applied different tax codes: Atlas applied the 1977 Tax Code while Mirant applied
the 1997 Tax Code; (3) the sale of the fully-depreciated Nissan Patrol is incidental to Mindanao II’s VAT zero-
rated transactions pursuant to Section 105; (4) Mindanao II failed to comply with the substantiation
requirements provided under Section 113(A) in relation to Section 237 of the 1997 Tax Code as implemented
by Section 4.104-1, 4.104-5, and 4.108-1 of Revenue Regulation No. 7-95; and (5) the doctrine of strictissimi
juris on tax exemptions cannot be relaxed in the present case.

The dispositive portion of the CTA En Banc’s 10 March 2010 Decision reads:

WHEREFORE, on the basis of the foregoing considerations, the Petition for Review en banc is DISMISSED
for lack of merit. Accordingly, the Decision dated September 22, 2008 and the Amended Decision dated June
26, 2009 issued by the First Division are AFFIRMED.

SO ORDERED.24

The CTA En Banc issued a Resolution25 on 28 July 2010 denying for lack of merit Mindanao II’s Motion for
Reconsideration.26 The CTA En Banc highlighted the following bases of their previous ruling:

1. The Supreme Court has long decided that the claim for refund of unutilized input VAT must be filed within
two (2) years after the close of the taxable quarter when such sales were made.

2. The Supreme Court is the ultimate arbiter whose decisions all other courts should take bearings.

3. The words of the law are clear, plain, and free from ambiguity; hence, it must be given its literal meaning and
applied without any interpretation.27

G.R. No. 194637

Mindanao I v. CIR

The Facts

G.R. No. 194637 covers two cases consolidated by the CTA EB: CTA EB Case Nos. 476 and 483. Both CTA
EB cases consolidate three cases from the CTA Second Division: CTA Case Nos. 7228, 7286, and 7318. CTA
Case Nos. 7228, 7286, and 7318 claim a tax refund or credit of Mindanao I’s accumulated unutilized and/or
excess input taxes due to VAT zero-rated sales. In CTA Case No. 7228, Mindanao I claims a tax refund or
credit of P3,893,566.14 for the first quarter of 2003. In CTA Case No. 7286, Mindanao I claims a tax refund or
credit of P2,351,000.83 for the second quarter of 2003. In CTA Case No. 7318, Mindanao I claims a tax refund
or credit of P7,940,727.83 for the third and fourth quarters of 2003.

Mindanao I is similarly situated as Mindanao II. The CTA Second Division’s narration of the pertinent facts is
as follows:

xxxx

In December 1994, Mindanao I entered into a contract of Build-Operate-Transfer (BOT) with the Philippine
National Oil Corporation – Energy Development Corporation (PNOC-EDC) for the finance, design,
construction, testing, commissioning, operation, maintenance and repair of a 47-megawatt geothermal power
plant. Under the said BOT contract, PNOC-EDC shall supply and deliver steam to Mindanao I at no cost. In
turn, Mindanao I will convert the steam into electric capacity and energy for PNOC-EDC and shall
subsequently supply and deliver the same to the National Power Corporation (NPC), for and in behalf of
PNOC-EDC.

Mindanao I’s 47-megawatt geothermal power plant project has been accredited by the Department of Energy
(DOE) as a Private Sector Generation Facility, pursuant to the provision of Executive Order No. 215, wherein
Certificate of Accreditation No. 95-037 was issued.

On June 26, 2001, Republic Act (R.A.) No. 9136 took effect, and the relevant provisions of the National
Internal Revenue Code (NIRC) of 1997 were deemed modified. R.A. No. 9136, also known as the "Electric
Power Industry Reform Act of 2001 (EPIRA), was enacted by Congress to ordain reforms in the electric power
industry, highlighting, among others, the importance of ensuring the reliability, security and affordability of the
supply of electric power to end users. Under the provisions of this Republic Act and its implementing rules and
regulations, the delivery and supply of electric energy by generation companies became VAT zero-rated, which
previously were subject to ten percent (10%) VAT.

xxxx

The amendment of the NIRC of 1997 modified the VAT rate applicable to sales of generated power by
generation companies from ten (10%) percent to zero percent (0%). Thus, Mindanao I adopted the VAT zero-
rating of the EPIRA in computing for its VAT payable when it filed its VAT Returns, on the belief that its sales
qualify for VAT zero-rating.

Mindanao I reported its unutilized or excess creditable input taxes in its Quarterly VAT Returns for the first,
second, third, and fourth quarters of taxable year 2003, which were subsequently amended and filed with the
BIR.

On April 4, 2005, Mindanao I filed with the BIR separate administrative claims for the issuance of tax credit
certificate on its alleged unutilized or excess input taxes for taxable year 2003, in the accumulated amount of
P14,185, 294.80.

Alleging inaction on the part of CIR, Mindanao I elevated its claims before this Court on April 22, 2005, July 7,
2005, and September 9, 2005 docketed as CTA Case Nos. 7228, 7286, and 7318, respectively. However, on
October 10, 2005, Mindanao I received a copy of the letter dated September 30, 2003 (sic) of the BIR denying
its application for tax credit/refund.28

The Court of Tax Appeals’ Ruling: Division

On 24 October 2008, the CTA Second Division rendered its Decision29 in CTA Case Nos. 7228, 7286, and
7318. The CTA Second Division found that (1) pursuant to Section 112(A), Mindanao I can only claim 90.27%
of the amount of substantiated excess input VAT because a portion was not reported in its quarterly VAT
returns; (2) out of the P14,185,294.80 excess input VAT applied for refund, only P11,657,447.14 can be
considered substantiated excess input VAT due to disallowances by the Independent Certified Public
Accountant, adjustment on the disallowances per the CTA Second Division’s further verification, and additional
disallowances per the CTA Second Division’s further verification;

(3) Mindanao I’s accumulated excess input VAT for the second quarter of 2003 that was carried over to the
third quarter of 2003 is net of the claimed input VAT for the first quarter of 2003, and the same procedure was
done for the second, third, and fourth quarters of 2003; and (4) Mindanao I’s administrative claims were filed
within the two-year prescriptive period reckoned from the respective dates of filing of the quarterly VAT
returns.

The dispositive portion of the CTA Second Division’s 24 October 2008 Decision reads:

WHEREFORE, premises considered, the consolidated Petitions for Review are hereby PARTIALLY
GRANTED. Accordingly, the CIR is hereby ORDERED TO ISSUE A TAX CREDIT CERTIFICATE in favor
of Mindanao I in the reduced amount of TEN MILLION FIVE HUNDRED TWENTY THREE THOUSAND
ONE HUNDRED SEVENTY SEVEN PESOS AND 53/100 (P10,523,177.53) representing Mindanao I’s
unutilized input VAT for the four quarters of the taxable year 2003.

SO ORDERED.30

Mindanao I filed a motion for partial reconsideration with motion for Clarification31 on 11 November 2008. It
claimed that the CTA Second Division should not have allocated proportionately Mindanao I’s unutilized
creditable input taxes for the taxable year 2003, because the proportionate allocation of the amount of creditable
taxes in Section 112(A) applies only when the creditable input taxes due cannot be directly and entirely
attributed to any of the zero-rated or effectively zero-rated sales. Mindanao I claims that its unreported
collection is directly attributable to its VAT zero-rated sales. The CTA Second Division denied Mindanao I’s
motion and maintained the proportionate allocation because there was a portion of the gross receipts that was
undeclared in Mindanao I’s gross receipts.
The CIR also filed a motion for partial reconsideration32 on 11 November 2008. It claimed that Mindanao I
failed to exhaust administrative remedies before it filed its petition for review. The CTA Second Division
denied the CIR’s motion, and cited Atlas33 as the basis for ruling that it is more practical and reasonable to
count the two-year prescriptive period for filing a claim for refund or credit of input VAT on zero-rated sales
from the date of filing of the return and payment of the tax due.

The dispositive portion of the CTA Second Division’s 10 March 2009 Resolution reads:

WHEREFORE, premises considered, the CIR’s Motion for Partial Reconsideration and Mindanao I’s Motion
for Partial Reconsideration with Motion for Clarification are hereby DENIED for lack of merit.

SO ORDERED.34

The Ruling of the Court of Tax Appeals: En Banc

On 31 May 2010, the CTA En Banc rendered its Decision35 in CTA EB Case Nos. 476 and 483 and denied the
petitions filed by the CIR and Mindanao I. The CTA En Banc found no new matters which have not yet been
considered and passed upon by the CTA Second Division in its assailed decision and resolution.

The dispositive portion of the CTA En Banc’s 31 May 2010 Decision reads:

WHEREFORE, premises considered, the Petitions for Review are hereby DISMISSED for lack of merit.
Accordingly, the October 24, 2008 Decision and March 10, 2009 Resolution of the CTA Former Second
Division in CTA Case Nos. 7228, 7286, and 7318, entitled "Mindanao I Geothermal Partnership vs.
Commissioner of Internal Revenue" are hereby AFFIRMED in toto.

SO ORDERED.36

Both the CIR and Mindanao I filed Motions for Reconsideration of the CTA En Banc’s 31 May 2010 Decision.
In an Amended Decision promulgated on 24 November 2010, the CTA En Banc agreed with the CIR’s claim
that Section 229 of the NIRC of 1997 is inapplicable in light of this Court’s ruling in Mirant. The CTA En Banc
also ruled that the procedure prescribed under Section 112(D) now 112(C)37 of the 1997 Tax Code should be
followed first before the CTA En Banc can act on Mindanao I’s claim. The CTA En Banc reconsidered its 31
May 2010 Decision in light of this Court’s ruling in Commissioner of Internal Revenue v. Aichi Forging
Company of Asia, Inc. (Aichi).38

The pertinent portions of the CTA En Banc’s 24 November 2010 Amended Decision read:

C.T.A. Case No. 7228:

(1) For calendar year 2003, Mindanao I filed with the BIR its Quarterly VAT Returns for the First Quarter of
2003. Pursuant to Section 112(A) of the NIRC of 1997, as amended, Mindanao I has two years from March 31,
2003 or until March 31, 2005 within which to file its administrative claim for refund;

(2) On April 4, 2005, Mindanao I applied for an administrative claim for refund of unutilized input VAT for the
first quarter of taxable year 2003 with the BIR, which is beyond the two-year prescriptive period mentioned
above.

C.T.A. Case No. 7286:

(1) For calendar year 2003, Mindanao I filed with the BIR its Quarterly VAT Returns for the second quarter of
2003. Pursuant to

Section 112(A) of the NIRC of 1997, as amended, Mindanao I has two years from June 30, 2003, within which
to file its administrative claim for refund for the second quarter of 2003, or until June 30, 2005;

(2) On April 4, 2005, Mindanao I applied an administrative claim for refund of unutilized input VAT for the
second quarter of taxable year 2003 with the BIR, which is within the two-year prescriptive period, provided
under Section 112 (A) of the NIRC of 1997, as amended;
(3) The CIR has 120 days from April 4, 2005 (presumably the date Mindanao I submitted the supporting
documents together with the application for refund) or until August 2, 2005, to decide the administrative claim
for refund;

(4) Within 30 days from the lapse of the 120-day period or from August 3, 2005 to September 1, 2005,
Mindanao I should have elevated its claim for refund to the CTA in Division;

(5) However, on July 7, 2005, Mindanao I filed its Petition for Review with this Court, docketed as CTA Case
No. 7286, even before the 120-day period for the CIR to decide the claim for refund had lapsed on August 2,
2005. The Petition for Review was, therefore, prematurely filed and there was failure to exhaust administrative
remedies;

xxxx

C.T.A. Case No. 7318:

(1) For calendar year 2003, Mindanao I filed with the BIR its Quarterly VAT Returns for the third and fourth
quarters of 2003. Pursuant to Section 112(A) of the NIRC of 1997, as amended, Mindanao I therefore, has two
years from September 30, 2003 and December 31, 2003, or until September 30, 2005 and December 31, 2005,
respectively, within which to file its administrative claim for the third and fourth quarters of 2003;

(2) On April 4, 2005, Mindanao I applied an administrative claim for refund of unutilized input VAT for the
third and fourth quarters of taxable year 2003 with the BIR, which is well within the two-year prescriptive
period, provided under Section 112(A) of the NIRC of 1997, as amended;

(3) From April 4, 2005, which is also presumably the date Mindanao I submitted supporting documents,
together with the aforesaid application for refund, the CIR has 120 days or until August 2, 2005, to decide the
claim;

(4) Within thirty (30) days from the lapse of the 120-day period or from August 3, 2005 until September 1, 2005
Mindanao I should have elevated its claim for refund to the CTA;

(5) However, Mindanao I filed its Petition for Review with the CTA in Division only on September 9, 2005,
which is 8 days beyond the 30-day period to appeal to the CTA.

Evidently, the Petition for Review was filed way beyond the 30-day prescribed period. Thus, the Petition for
Review should have been dismissed for being filed late.

In recapitulation:

(1) C.T.A. Case No. 7228

Claim for the first quarter of 2003 had already prescribed for having been filed beyond the two-year prescriptive
period;

(2) C.T.A. Case No. 7286

Claim for the second quarter of 2003 should be dismissed for Mindanao I’s failure to comply with a condition
precedent when it failed to exhaust administrative remedies by filing its Petition for Review even before the
lapse of the 120-day period for the CIR to decide the administrative claim;

(3) C.T.A. Case No. 7318

Petition for Review was filed beyond the 30-day prescribed period to appeal to the CTA.

xxxx
IN VIEW OF THE FOREGOING, the Commissioner of Internal Revenue’s Motion for Reconsideration is
hereby GRANTED; Mindanao I’s Motion for Partial Reconsideration is hereby DENIED for lack of merit.

The May 31, 2010 Decision of this Court En Banc is hereby REVERSED.

Accordingly, the Petition for Review of the Commissioner of Internal Revenue in CTA EB No. 476 is hereby
GRANTED and the entire claim of Mindanao I Geothermal Partnership for the first, second, third and fourth
quarters of 2003 is hereby DENIED.

SO ORDERED.39

The Issues

G.R. No. 193301

Mindanao II v. CIR
Mindanao II raised the following grounds in its Petition for Review:

I. The Honorable Court of Tax Appeals erred in holding that the claim of Mindanao II for the 1st and 2nd
quarters of year 2003 has already prescribed pursuant to the Mirant case.

A. The Atlas case and Mirant case have conflicting interpretations of the law as to the reckoning date of the two
year prescriptive period for filing claims for VAT refund.

B. The Atlas case was not and cannot be superseded by the Mirant case in light of Section 4(3), Article VIII of
the 1987 Constitution.

C. The ruling of the Mirant case, which uses the close of the taxable quarter when the sales were made as the
reckoning date in counting the two-year prescriptive period cannot be applied retroactively in the case of
Mindanao II.

II. The Honorable Court of Tax Appeals erred in interpreting Section 105 of the 1997 Tax Code, as amended in
that the sale of the fully depreciated Nissan Patrol is a one-time transaction and is not incidental to the VAT
zero-rated operation of Mindanao II.

III. The Honorable Court of Tax Appeals erred in denying the amount disallowed by the Independent Certified
Public Accountant as Mindanao II substantially complied with the requisites of the 1997 Tax Code, as amended,
for refund/tax credit.

A. The amount of P2,090.16 was brought about by the timing difference in the recording of the foreign currency
deposit transaction.

B. The amount of P2,752.00 arose from the out-of-pocket expenses reimbursed to SGV & Company which is
substantially suppoerted [sic] by an official receipt.

C. The amount of P487,355.93 was unapplied and/or was not included in Mindanao II’s claim for refund or tax
credit for the year 2004 subject matter of CTA Case No. 7507.

IV. The doctrine of strictissimi juris on tax exemptions should be relaxed in the present case.40

G.R. No. 194637

Mindanao I v. CIR

Mindanao I raised the following grounds in its Petition for Review:

I. The administrative claim and judicial claim in CTA Case No. 7228 were timely filed pursuant to the case of
Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, which was
then the controlling ruling at the time of filing.
A. The recent ruling in the Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation, which uses the
end of the taxable quarter when the sales were made as the reckoning date in counting the two-year prescriptive
period, cannot be applied retroactively in the case of Mindanao I.

B. The Atlas case promulgated by the Third Division of this Honorable Court on June 8, 2007 was not and
cannot be superseded by the Mirant Pagbilao case promulgated by the Second Division of this Honorable Court
on September 12, 2008 in light of the explicit provision of Section 4(3), Article VIII of the 1987 Constitution.

II. Likewise, the recent ruling of this Honorable Court in Commissioner of Internal Revenue vs. Aichi Forging
Company of Asia, Inc., cannot be applied retroactively to Mindanao I in the present case.41

In a Resolution dated 14 December 2011,42 this Court resolved to consolidate G.R. Nos. 193301 and 194637 to
avoid conflicting rulings in related cases.

The Court’s Ruling

Determination of Prescriptive Period

G.R. Nos. 193301 and 194637 both raise the question of the determination of the prescriptive period, or the
interpretation of Section 112 of the 1997 Tax Code, in light of our rulings in Atlas and Mirant.

Mindanao II’s unutilized input VAT tax credit for the first and second quarters of 2003, in the amounts of
P3,160,984.69 and P1,562,085.33, respectively, are covered by G.R. No. 193301, while Mindanao I’s unutilized
input VAT tax credit for the first, second, third, and fourth quarters of 2003, in the amounts of P3,893,566.14,
P2,351,000.83, and P7,940,727.83, respectively, are covered by G.R. No. 194637.

Section 112 of the 1997 Tax Code

The pertinent sections of the 1997 Tax Code, the law applicable at the time of Mindanao II’s and Mindanao I’s
administrative and judicial claims, provide:

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.

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.

x x x x 43 (Underscoring supplied)

The relevant dates for G.R. No. 193301 (Mindanao II) are:
CTA
Case No. Period
covered by
VAT Sales in
2003 and
amountClose of
quarter
when sales
were
made Last day
for filing
application
of tax
refund/tax
credit
certificate
with the
CIR Actual date of
filing
application for
tax refund/
credit with the
CIR
(administrative
claim)44 Last day for
filing case
with CTA45 Actual Date
of filing case
with CTA
(judicial
claim)
7227 1st Quarter,
P3,160,984.69 31 March
2003 31 March
2005 13 April 2005 12 September
2005 22 April 2005
7287 2nd Quarter,
P1,562,085.33 30 June
2003 30 June
2005 13 April 2005 12 September
2005 7 July 2005
7317 3rd and 4th
Quarters,
P3,521,129.50 30
September
2003 30
September
2005 13 April 2005 12 September
2005 9 September
2005
31
December
2003 2 January
2006
(31
December
2005 being
a Saturday)
The relevant dates for G.R. No. 194637 (Minadanao I) are:
CTA
Case
No. Period
covered by
VAT Sales in
2003 and
amountClose of
quarter
when sales
were
made Last day
for filing
application
of tax
refund/tax
credit
certificate
with the
CIR Actual date of
filing
application for
tax refund/
credit with the
CIR
(administrative
claim)46 Last day for
filing case
with CTA47 Actual Date
of filing case
with CTA
(judicial
claim)
7227 1st Quarter,
P3,893,566.14 31 March
2003 31 March
2005 4 April 2005 1 September
2005 22 April 2005
7287 2nd Quarter,
P2,351,000.83 30 June
2003 30 June
2005 4 April 2005 1 September
2005 7 July 2005
7317 3rd
and 4th
Quarters,
P7,940,727.83 30
September
2003 30
September
2005 4 April 2005 1 September
2005 9 September
2005
31
December
2003 2 January
2006
(31
December
2005 being
a Saturday)
When Mindanao II and Mindanao I filed their respective administrative and judicial claims in 2005, neither
Atlas nor Mirant has been promulgated. Atlas was promulgated on 8 June 2007, while Mirant was promulgated
on 12 September 2008. It is therefore misleading to state that Atlas was the controlling doctrine at the time of
filing of the claims. The 1997 Tax Code, which took effect on 1 January 1998, was the applicable law at the
time of filing of the claims in issue. As this Court explained in the recent 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):48

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 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.

San Roque’s failure to comply with the 120-day mandatory period renders its petition for review with the CTA
void. Article 5 of the Civil Code provides, "Acts executed against provisions of mandatory or prohibitory laws
shall be void, except when the law itself authorizes their validity." San Roque’s void petition for review cannot
be legitimized by the CTA or this Court because Article 5 of the Civil Code states that such void petition cannot
be legitimized "except when the law itself authorizes its validity." There is no law authorizing the petition’s
validity.

It is hornbook doctrine that a person committing a void act contrary to a mandatory provision of law cannot
claim or acquire any right from his void act. A right cannot spring in favor of a person from his own void or
illegal act. This doctrine is repeated in Article 2254 of the Civil Code, which states, "No vested or acquired
right can arise from acts or omissions which are against the law or which infringe upon the rights of others." For
violating a mandatory provision of law in filing its petition with the CTA, San Roque cannot claim any right
arising from such void petition. Thus, San Roque’s petition with the CTA is a mere scrap of paper.

This Court cannot brush aside the grave issue of the mandatory and jurisdictional nature of the 120-day period
just because the Commissioner merely asserts that the case was prematurely filed with the CTA and does not
question the entitlement of San Roque to the refund. The mere fact that a taxpayer has undisputed excess input
VAT, or that the tax was admittedly illegally, erroneously or excessively collected from him, does not entitle
him as a matter of right to a tax refund or credit. Strict compliance with the mandatory and jurisdictional
conditions prescribed by law to claim such tax refund or credit is essential and necessary for such claim to
prosper. Well-settled is the rule that tax refunds or credits, just like tax exemptions, are strictly construed
against the taxpayer.

The burden is on the taxpayer to show that he has strictly complied with the conditions for the grant of the tax
refund or credit.
This Court cannot disregard mandatory and jurisdictional conditions mandated by law simply because the
Commissioner chose not to contest the numerical correctness of the claim for tax refund or credit of the
taxpayer. Non-compliance with mandatory periods, non-observance 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.

San Roque cannot also claim being misled, misguided or confused by the Atlas doctrine because San Roque
filed its petition for review with the CTA more than four years before Atlas was promulgated. The Atlas
doctrine did not exist at the time San Roque failed to comply with the 120-day period. Thus, San Roque cannot
invoke the Atlas doctrine as an excuse for its failure to wait for the 120-day period to lapse. In any event, the
Atlas doctrine merely stated that the two-year prescriptive period should be counted from the date of payment
of the output VAT, not from the close of the taxable quarter when the sales involving the input VAT were
made. The Atlas doctrine does not interpret, expressly or impliedly, the 120+30 day periods.49 (Emphases in
the original; citations omitted)

Prescriptive Period for

the Filing of Administrative Claims

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: "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 x x x."

We rule on Mindanao I and II’s administrative claims for the first, second, third, and fourth quarters of 2003 as
follows:

(1) The last day for filing an application for tax refund or credit with the CIR for the first quarter of 2003 was
on 31 March 2005. Mindanao II filed its administrative claim before the CIR on 13 April 2005, while Mindanao
I filed its administrative claim before the CIR on 4 April 2005. Both claims have prescribed, pursuant to Section
112(A) of the 1997 Tax Code.

(2) The last day for filing an application for tax refund or credit with the CIR for the second quarter of 2003 was
on 30 June 2005. Mindanao II filed its administrative claim before the CIR on 13 April 2005, while Mindanao I
filed its administrative claim before the CIR on 4 April 2005. Both claims were filed on time, pursuant to
Section 112(A) of the 1997 Tax Code.

(3) The last day for filing an application for tax refund or credit with the CIR for the third quarter of 2003 was
on 30 September 2005. Mindanao II filed its administrative claim before the CIR on 13 April 2005, while
Mindanao I filed its administrative claim before the CIR on 4 April 2005. Both claims were filed on time,
pursuant to Section 112(A) of the 1997 Tax Code.

(4) The last day for filing an application for tax refund or credit with the CIR for the fourth quarter of 2003 was
on 2 January 2006. Mindanao II filed its administrative claim before the CIR on 13 April 2005, while Mindanao
I filed its administrative claim before the CIR on 4 April 2005. Both claims were filed on time, pursuant to
Section 112(A) of the 1997 Tax Code.

Prescriptive Period for

the Filing of Judicial Claims

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 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."

The mandatory and jurisdictional nature of the 120+30 day periods was explained in San Roque:

At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods were
already in the law. Section 112(C) expressly grants the Commissioner 120 days within which to decide the
taxpayer’s claim. The law is clear, plain, and unequivocal: "x x x 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." Following the verba legis doctrine, this law 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. In San Roque’s case, it filed its petition with the CTA a mere 13 days
after it filed its administrative claim with the Commissioner. Indisputably, San Roque knowingly violated the
mandatory 120-day period, and it cannot blame anyone but itself.

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

There are three compelling reasons why the 30-day period need not necessarily fall within the two-year
prescriptive period, as long as the administrative claim is filed within the two-year prescriptive period.

First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer "may, within two (2) years
after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate
or refund of the creditable input tax due or paid to such sales." In short, the law states that the taxpayer may
apply with the Commissioner for a refund or credit "within two (2) years," which means at anytime within two
years. Thus, the application for refund or credit may be filed by the taxpayer with the Commissioner on the last
day of the two-year prescriptive period and it will still strictly comply with the law. The 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.

Second, Section 112(C) provides that the Commissioner shall decide the application for refund or credit "within
one hundred twenty (120) days from the date of submission of complete documents in support of the application
filed in accordance with Subsection (A)." The reference in Section 112(C) of the submission of documents "in
support of the application filed in accordance with Subsection A" means that the application in Section 112(A)
is the administrative claim that the Commissioner must decide within the 120-day period. In short, the two-year
prescriptive period in Section 112(A) refers to the period within which the taxpayer can file an administrative
claim for tax refund or credit. Stated otherwise, the two-year prescriptive period does not refer to the filing of
the judicial claim with the CTA but to the filing of the administrative claim with the Commissioner. As held in
Aichi, the "phrase ‘within two years x x x apply for the issuance of a tax credit or refund’ refers to applications
for refund/credit with the CIR and not to appeals made to the CTA."

Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive period
(equivalent to 730 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 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 theory that the 30-day period must fall within the two-year prescriptive period adds a condition that is not
found in the law. It results in truncating 120 days from the 730 days that the law grants the taxpayer for filing
his administrative claim with the Commissioner. This Court cannot interpret a law to defeat, wholly or even
partly, a remedy that the law expressly grants in clear, plain, and unequivocal language.

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).50 (Emphases in the original; citations omitted)

In San Roque, this Court ruled that "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 in Aichi on 6 October 2010, where this Court held that the
120+30 day periods are mandatory and jurisdictional."51 We shall discuss later the effect of San Roque’s
recognition of BIR Ruling No. DA-489-03 on claims filed between 10 December 2003 and 6 October 2010.
Mindanao I and II filed their claims within this period.

We rule on Mindanao I and II’s judicial claims for the second, third, and fourth quarters of 2003 as follows:

G.R. No. 193301

Mindanao II v. CIR

Mindanao II filed its administrative claims for the second, third, and fourth quarters of 2003 on 13 April 2005.
Counting 120 days after filing of the administrative claim with the CIR (11 August 2005) and 30 days after the
CIR’s denial by inaction, the last day for filing a judicial claim with the CTA for the second, third, and fourth
quarters of 2003 was on 12 September 2005. However, the judicial claim cannot be filed earlier than 11 August
2005, which is the expiration of the 120-day period for the Commissioner to act on the claim.

(1) Mindanao II filed its judicial claim for the second quarter of 2003 before the CTA on 7 July 2005, before the
expiration of the 120-day period. Pursuant to Section 112(C) of the 1997 Tax Code, Mindanao II’s judicial
claim for the second quarter of 2003 was prematurely filed.

However, pursuant to San Roque’s recognition of the effect of BIR Ruling No. DA-489-03, we rule that
Mindanao II’s judicial claim for the second quarter of 2003 qualifies under the exception to the strict
application of the 120+30 day periods.

(2) Mindanao II filed its judicial claim for the third quarter of 2003 before the CTA on 9 September 2005.
Mindanao II’s judicial claim for the third quarter of 2003 was thus filed on time, pursuant to Section 112(C) of
the 1997 Tax Code.

(3) Mindanao II filed its judicial claim for the fourth quarter of 2003 before the CTA on 9 September 2005.
Mindanao II’s judicial claim for the fourth quarter of 2003 was thus filed on time, pursuant to Section 112(C) of
the 1997 Tax Code.

G.R. No. 194637

Mindanao I v. CIR
Mindanao I filed its administrative claims for the second, third, and fourth quarters of 2003 on 4 April 2005.
Counting 120 days after filing of the administrative claim with the CIR (2 August 2005) and 30 days after the
CIR’s denial by inaction,52 the last day for filing a judicial claim with the CTA for the second, third, and fourth
quarters of 2003 was on 1 September 2005. However, the judicial claim cannot be filed earlier than 2 August
2005, which is the expiration of the 120-day period for the Commissioner to act on the claim.

(1) Mindanao I filed its judicial claim for the second quarter of 2003 before the CTA on 7 July 2005, before the
expiration of the 120-day period. Pursuant to Section 112(C) of the 1997 Tax Code, Mindanao I’s judicial claim
for the second quarter of 2003 was prematurely filed. However, pursuant to San Roque’s recognition of the
effect of BIR Ruling No. DA-489-03, we rule that Mindanao I’s judicial claim for the second quarter of 2003
qualifies under the exception to the strict application of the 120+30 day periods.

(2) Mindanao I filed its judicial claim for the third quarter of 2003 before the CTA on 9 September 2005.
Mindanao I’s judicial claim for the third quarter of 2003 was thus filed after the prescriptive period, pursuant to
Section 112(C) of the 1997 Tax Code.

(3) Mindanao I filed its judicial claim for the fourth quarter of 2003 before the CTA on 9 September 2005.
Mindanao I’s judicial claim for the fourth quarter of 2003 was thus filed after the prescriptive period, pursuant
to Section 112(C) of the 1997 Tax Code.

San Roque: Recognition of BIR Ruling No. DA-489-03

In the consolidated cases of San Roque, the Court En Banc53 examined and ruled on the different claims for tax
refund or credit of three different companies. In San Roque, we reiterated that "following 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."

Notwithstanding a strict construction of any claim for tax exemption or refund, the Court in San Roque
recognized that BIR Ruling No. DA-489-03 constitutes equitable estoppel54 in favor of taxpayers. BIR Ruling
No. DA-489-03 expressly states 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." This Court discussed BIR
Ruling No. DA-489-03 and its effect on taxpayers, thus:

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.

xxxx

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. (Emphasis in the original)

Summary of Administrative and Judicial Claims

G.R. No. 193301

Mindanao II v. CIR

Administrative
Claim Judicial Claim Action on Claim
1st Quarter, 2003 Filed late -- Deny, pursuant to
Section 112(A) of the
1997 Tax Code
2nd Quarter, 2003 Filed on time Prematurely filed Grant, pursuant to
BIR Ruling No. DA-489-03
3rd Quarter, 2003 Filed on time Filed on time Grant, pursuant to
Section 112(C) of the
1997 Tax Code
4th Quarter, 2003 Filed on time Filed on time Grant, pursuant to
Section 112(C) of the
1997 Tax Code
G.R. No. 194637
Mindanao I v. CIR

Administrative
Claim Judicial Claim Action on Claim
1st Quarter, 2003 Filed late -- Deny, pursuant to
Section 112(A) of the
1997 Tax Code
2nd Quarter, 2003 Filed on time Prematurely filed Grant, pursuant to
BIR Ruling No. DA-489-03
3rd Quarter, 2003 Filed on time Filed late Grant, pursuant to
Section 112(C) of the
1997 Tax Code
4th Quarter, 2003 Filed on time Filed late Grant, pursuant to
Section 112(C) of the
1997 Tax Code
Summary of Rules on Prescriptive Periods Involving VAT

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 2010, as an exception to the mandatory
and jurisdictional 120+30 day periods.

"Incidental" Transaction

Mindanao II asserts that the sale of a fully depreciated Nissan Patrol is not an incidental transaction in the
course of its business; hence, it is an isolated transaction that should not have been subject to 10% VAT.

Section 105 of the 1997 Tax Code does not support Mindanao II’s position:

SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells barters, exchanges, leases
goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax
(VAT) imposed in Sections 106 to 108 of this Code.

The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee
or lessee of the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease
of goods, properties or services at the time of the effectivity of Republic Act No. 7716.

The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an
economic activity, including transactions incidental thereto, by any person regardless of whether or not the
person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net
income and whether or not it sells exclusively to members or their guests), or government entity.

The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the
Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade or
business. (Emphasis supplied)

Mindanao II relies on Commissioner of Internal Revenue v. Magsaysay Lines, Inc. (Magsaysay)55 and Imperial
v. Collector of Internal Revenue (Imperial)56 to justify its position. Magsaysay, decided under the NIRC of
1986, involved the sale of vessels of the National Development Company (NDC) to Magsaysay Lines, Inc. We
ruled that the sale of vessels was not in the course of NDC’s trade or business as it was involuntary and made
pursuant to the Government’s policy for privatization. Magsaysay, in quoting from the CTA’s decision, imputed
upon Imperial the definition of "carrying on business." Imperial, however, is an unreported case that merely
stated that "‘to engage’ is to embark in a business or to employ oneself therein."57

Mindanao II’s sale of the Nissan Patrol is said to be an isolated transaction.1âwphi1 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.

Substantiation Requirements

Mindanao II claims that the CTA’s disallowance of a total amount of P492,198.09 is improper as it has
substantially complied with the substantiation requirements of Section 113(A)58 in relation to Section 23759 of
the 1997 Tax Code, as implemented by Section 4.104-1, 4.104-5 and 4.108-1 of Revenue Regulation No. 7-
95.60
We are constrained to state that Mindanao II’s compliance with the substantiation requirements is a finding of
fact. The CTA En Banc evaluated the records of the case and found that the transactions in question are
purchases for services and that Mindanao II failed to comply with the substantiation requirements. We affirm
the CTA En Banc’s finding of fact, which in turn affirmed the finding of the CTA First Division. We see no
reason to overturn their findings.

WHEREFORE, we PARTIALLY GRANT the petitions. The Decision of the Court of Tax Appeals En Bane in
CT A EB No. 513 promulgated on 10 March 2010, as well as the Resolution promulgated on 28 July 2010, and
the Decision of the Court of Tax Appeals En Bane in CTA EB Nos. 476 and 483 promulgated on 31 May 2010,
as well as the Amended Decision promulgated on 24 November 2010, are AFFIRMED with MODIFICATION.

For G.R. No. 193301, the claim of Mindanao II Geothermal Partnership for the first quarter of 2003 is DENIED
while its claims for the second, third, and fourth quarters of 2003 are GRANTED. For G.R. No. 19463 7, the
claims of Mindanao I Geothermal Partnership for the first, third, and fourth quarters of 2003 are DENIED while
its claim for the second quarter of 2003 is GRANTED.

SO ORDERED.

G.R. No. 196907 March 13, 2013

NIPPON EXPRESS (PHILIPPINES) CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

MENDOZA, J.:

Before this court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, seeking to
set aside the May 13, 2011 Resolution1 of the Court of Tax Appeals (CTA) En Bane in C.T.A. E. B. No. 505
(C.T.A. Case No. 6688) entitled Commissioner of Internal Revenue v. Nippon Express (Philippines)
Corporation.

The Facts

Petitioner Nippon Express (Philippines) Corporation (petitioner) is a corporation duly organized and registered
with the Securities and Exchange Commission. It is also a value-added tax (VAT)-registered entity with the
Large Taxpayer District of the Bureau of Internal Revenue (BIR).2 For the year 2001, it regularly filed its
amended quarterly VAT returns. On April 24, 2003, it filed an administrative claim for refund of
P20,345,824.29 representing excess input tax attributable to its effectively zero-rated sales in 2001, computed as
follows:3

Output VAT from Taxable Sales (10%) P 5,827,022.20

Less: Input VAT from Taxable Sales (1,789,111.32)
Input VAT from Zero-rated Sales (24,383,735.17)
Refundable Excess Input VAT (P 20,345,824.29)
Pending review by the BIR, on April 25, 2003, petitioner filed a petition for review with the CTA, requesting
for the issuance of a tax credit certificate in the amount of P20,345,824.29.4

On January 26, 2009, the First Division of the CTA denied the petition for insufficiency of evidence.5 Upon
motion for reconsideration, however, the CTA First Division promulgated its Amended Decision,6 dated March
24, 2009, ordering the respondent, Commissioner of Internal Revenue (CIR) to issue a tax credit certificate in
favor of petitioner in the amount of P10,928,607.31 representing excess or unutilized input tax for the second,
third and fourth quarters of 2001. The CTA First Division took judicial notice of the records of C.T.A. Case No.
6967, also involving petitioner, to show that the claim of input tax had not been applied against any output tax
in the succeeding quarters. As to the timeliness of the filing of petitioner’s administrative and judicial claims,
the CTA First Division ruled that while the administrative application for refund was made within the two-year
prescriptive period, petitioner’s immediate recourse to the court was a premature invocation of the court’s
jurisdiction due to the non-observance of the procedure in Section 112(D)7 of the National Internal Revenue
Code (NIRC) providing that an appeal may be made with the CTA within 30 days from the receipt of the
decision of the CIR denying the claim or after the expiration of the 120-day period without action on the part of
the CIR. Considering, however, that the CIR did not register his objection when he filed his Answer, he is
deemed to have waived his objection thereto.8 The CIR sought reconsideration but his motion was denied in the
June 16, 2009 Resolution9 of the CTA First Division.

The CIR elevated the case to the CTA En Banc which, on June 11, 2010, reversed and set aside the March 24,
2009 Amended Decision and the June 16, 2009 Resolution of the CTA First Division.10 Accordingly,
petitioner’s claim for refund or issuance of a tax credit certificate was denied for lack of merit. The CTA En
Banc ruled that the sales invoices issued by petitioner were insufficient to establish its zero-rated sale of
services. Without the proper VAT official receipts issued to its clients, the payments received by petitioner
could not qualify for zero-rating for VAT purposes. As a result, the claimed input VAT payments allegedly
attributable to such sales could not be granted.

The CTA En Banc later changed its position on September 22, 2010 when it issued its Amended Decision11
granting petitioner’s motion for reconsideration, setting aside its own June 11, 2010 Decision and affirming the
March 24, 2009 Amended Decision of the CTA First Division. In view of the pronouncement of the Court in
the case of AT&T Communications Services Philippines, Inc. v. Commissioner of Internal Revenue,12 that
Section 113 of the NIRC did not distinguish between a sales invoice and an official receipt, the CTA En Banc
found petitioner’s sales invoices to be acceptable proof to support its claim for refund or issuance of a tax credit
certificate representing its excess or unutilized input VAT arising from zero-rated or effectively zero-rated
sales.

The CIR filed a motion for reconsideration, arguing that the sales invoice, which supported the sale of goods,
was not the same as the official receipt, which must support the sale of services. In addition, it pointed out that
the CTA had no jurisdiction over the petition for review because it was filed before the lapse of the 120-day
period accorded to the CIR to decide on its administrative claim for input VAT refund.13

In another reversal of opinion, the CTA En Banc set aside the March 24, 2009 Amended Decision and the June
16, 2009 Resolution of the CTA First Division and dismissed the petition for review for lack of jurisdiction. In
its May 13, 2011 Resolution,14 the CTA En Banc held that the 120-day period under Section 112(D) of the
NIRC, which granted the CIR the opportunity to act on the claim for refund, was jurisdictional in nature such
that petitioner’s failure to observe the said period before resorting to judicial action warranted the dismissal of
its petition for review for having been prematurely filed, in accordance with the ruling in Commissioner of
Internal Revenue v. Aichi Forging Company of Asia, Inc.15 With respect to the use of official receipts
interchangeably with sales invoices, the tax court cited the ruling of the Court in Kepco Philippines Corporation
v. Commissioner of Internal Revenue16 which concluded that a VAT invoice and a VAT receipt should not be
confused as referring to the same thing. A VAT invoice was the seller’s best proof of the sale of the goods or
services to the buyer while the VAT receipt was the buyer’s best evidence of the payment of goods and services
received from the seller.

Hence, this petition.

The Issues

Petitioner raises the following questions:

WHETHER OR NOT THE COURT OF TAX APPEALS HAS NO JURISDICTION TO ENTERTAIN THE
INSTANT CASE. WHETHER OR NOT THE PETITIONER’S VAT INVOICES ARE INSUFFICIENT
PROOF TO SUPPORT ITS ZERO-RATED SALES.17

The Court's Ruling

The Court finds the petition to be without merit.

As regards the first issue, petitioner argues that the non-exhaustion of administrative remedies is not a
jurisdictional defect as to prevent the tax court from taking cognizance of the case.18 It merely renders the
filing of the case premature and makes it susceptible to dismissal for lack of cause of action, if invoked.
Considering, however, that the CIR failed to seasonably object to the filing of the case by petitioner with the
CTA, it is deemed to have waived any defect in the petition for review. In fact, petitioner points out that the this
issue was only raised for the first time in the respondent’s Supplemental Motion for Reconsideration, dated
December 3, 2010, which was filed after the promulgation of the September 22, 2010 Amended Decision of the
CTA En Banc. Finally, petitioner insists that it cannot be faulted for relying on prevailing CTA jurisprudence
requiring that both administrative and judicial claims for refund be filed within two (2) years from the date of
the filing of the return and the payment of the tax due. Because this case was filed more than seven years prior
to Aichi, the doctrine espoused therein cannot be applied retroactively as it would impair petitioner’s substantial
rights and will deprive it of its right to refund.19

Petitioner is mistaken.

The provision in question is Section 112(D) (now subparagraph C) of the NIRC:

Sec. 112. Refunds or Tax Credits of Input Tax

xxx

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one
hundred 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)

A simple reading of the abovequoted provision reveals that the taxpayer may appeal the denial or the inaction of
the CIR only within thirty (30) days from receipt of the decision denying the claim or the expiration of the 120-
day period given to the CIR to decide the claim. Because the law is categorical in its language, there is no need
for further interpretation by the courts and non-compliance with the provision cannot be justified.20 As
eloquently stated in Rizal Commercial Banking Corporation v. Intermediate Appellate Court and BF Homes,
Inc.:21

It bears stressing that the first and fundamental duty of the Court is to apply the law. When the law is clear and
free from any doubt or ambiguity, there is no room for construction or interpretation. As has been our consistent
ruling, where the law speaks in clear and categorical language, there is no occasion for interpretation; there is
only room for application (Cebu Portland Cement Co. vs. Municipality of Naga, 24 SCRA-708 [1968]).

Where the law is clear and unambiguous, it must be taken to mean exactly what it says and the court has no
choice but to see to it that its mandate is obeyed (Chartered Bank Employees Association vs. Ople, 138 SCRA
273 [1985]; Luzon Surety Co., Inc. vs. De Garcia, 30 SCRA 111 [1969]; Quijano vs. Development Bank of the
Philippines, 35 SCRA 270 [1970]).

Only when the law is ambiguous or of doubtful meaning may the court interpret or construe its true intent.
Ambiguity is a condition of admitting two or more meanings, of being understood in more than one way, or of
referring to two or more things at the same time. A statute is ambiguous if it is admissible of two or more
possible meanings, in which case, the Court is called upon to exercise one of its judicial functions, which is to
interpret the law according to its true intent.22

Moreover, contrary to petitioner’s position, the 120+30-day period is indeed mandatory and jurisdictional, as
recently ruled in Commissioner of Internal Revenue v. San Roque Power Corporation.23 Thus, failure to
observe the said period before filing a judicial claim with the CTA would not only make such petition
premature, but would also result in the non-acquisition by the CTA of jurisdiction to hear the said case.
Because the 120+30 day period is jurisdictional, the issue of whether petitioner complied with the said time
frame may be broached at any stage, even on appeal. Well-settled is the rule that the question of jurisdiction
over the subject matter can be raised at any time during the proceedings.

Jurisdiction cannot be waived because it is conferred by law and is not dependent on the consent or objection or
the acts or omissions of the parties or any one of them.24 Consequently, the fact that the CIR failed to
immediately express its objection to the premature filing of the petition for review before the CTA is of no
moment.1âwphi1

As to petitioner’s contention that it relied on the previous decisions of the CTA on the matter, the Court finds it
apt to quote its ruling in San Roque:

There is also the claim that there are numerous CTA decisions allegedly supporting the argument that the filing
dates of the administrative and judicial claims are inconsequential, as long as they are within the two-year
prescriptive period. Suffice it to state that CTA decisions do not constitute precedents, and do not bind this
Court or the public.1âwphi1 That is why CTA decisions are appealable to this Court, which may affirm, reverse
or modify the CTA decisions as the facts and the law may warrant. Only decisions of this Court constitute
binding precedents, forming part of the Philippine legal system.25

Pursuant to the ruling of the Court in San Roque, the 120+30-day period is mandatory and jurisdictional from
the time of the effectivity of Republic Act (R.A.) No. 8424 or the Tax Reform Act of 1997. The Court,
however, took into consideration the issuance by the BIR of Ruling No. DA-489-03, which expressly stated that
the taxpayer need not wait for the lapse of the 120-day period before seeking judicial relief. Because taxpayers
cannot be faulted for relying on this declaration by the BIR, the Court deemed it reasonable to allow taxpayers
to file its judicial claim even before the expiration of the 120-day period. This exception is to be observed from
the issuance of the said ruling on December 10, 2003 up until its reversal by Aichi on October 6, 2010. In the
landmark case of Aichi, this Court made a definitive statement that the failure of a taxpayer to wait for the
decision of the CIR or the lapse of the 120-day period will render the tiling of the judicial claim with the CTA
premature.26 As a consequence, its promulgation once again made it clear to the taxpayers that the 120+ 30-day
period must be observed.

As laid down in San Roque, judicial claims filed from January 1, 1998 until the present should strictly adhere to
the 120+ 30-day period referred to in Section 112 of the NIRC. The only exception is the period from December
10, 2003 until October 6, 2010, during which, judicial claims may be tiled even before the expiration of the
120-day period granted to the CIR to decide on the claim for refund.

Based on the foregoing discussion and the ruling in San Roque, the petition must fail because the judicial claim
of petitioner was filed on April 25, 2003, only one day after it submitted its administrative claim to the CIR.
Petitioner failed to wait for the lapse of the requisite 120-day period or the denial of its claim by the CIR before
elevating the case to the CT A by a petition for review. As its judicial claim was filed during which strict
compliance with the 120+ 30-day period was required, the Court cannot but declare that the filing of the petition
for review with the CT A was premature and that the CTA had no jurisdiction to hear the case.

Having thus concluded, the Court sees no need to discuss other issues which may have been raised in the
petition.

WHEREFORE, the petition is DENIED.

SO ORDERED.

[G.R. No. 197117, April 10, 2013]

FIRST LEPANTO TAISHO INSURANCE CORPORATION, Petitioner, v. COMMISSIONER OF

INTERNAL REVENUE, Respondent.

DECISION

MENDOZA, J.:
Before the Court is a petition for review on certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure filed
by First Lepanto Taisho Corporation, now FLT Prime Insurance Corporation (petitioner), assailing the March 1,
2011 Decision2 and the May 27, 2011 Resolution3 of the Court of Tax Appeals (CTA) En Banc, in CTA E.B.
No. 563, which affirmed the May 21, 2009 Decision of the CTA-Second Division.

The Facts:

Petitioner is a non-life insurance corporation and considered as a “Large Taxpayer under Revenue Regulations
No. 6-85, as amended by Revenue Regulations No. 12-94 effective 1994.”4 After submitting its corporate
income tax return for taxable year ending December 31, 1997, petitioner received a Letter of Authority, dated
October 30, 1998, from respondent Commissioner of Internal Revenue (CIR) to allow it to examine their books
of account and other accounting records for 1997 and other unverified prior years.

On December 29, 1999, CIR issued internal revenue tax assessments for deficiency income, withholding,
expanded withholding, final withholding, value-added, and documentary stamp taxes for taxable year 1997.

On February 24, 2000, petitioner protested the said tax assessments.

During the pendency of the case, particularly on February 15, 2008, petitioner filed its Motion for Partial
Withdrawal of Petition for Review of Assessment Notice Nos. ST-INC-97-0220-99; ST-VAT-97-0222-99 and
ST-DST-97-0217-00, in view of the tax amnesty program it had availed. The CTA Second Division granted the
said motion in a Resolution,5 dated March 31, 2008.

Consequently, on May 21, 2009, the CTA Second Division partially granted the petition.6 It directed petitioner
to pay CIR a reduced tax liability of P1,994,390.86. The dispositive portion reads:chanroblesvirtuallawlibrary

WHEREFORE, in view of the foregoing considerations, the instant Petition for Review is hereby PARTIALLY
GRANTED. Accordingly, petitioner is hereby ORDERED TO PAY deficiency withholding tax on
compensation, expanded withholding tax and final tax in the reduced amount of P1,994,390.86, computed as
follows:

Basic Tax
Surcharges
Interest
Total
Deficiency Withholding Tax on Compensation ST-WC-97-0221-99
P774,200.55
P193,550.14
P312.227.34
P1,279,978.03
Deficiency Expanded Withholding Tax ST-EWT-97-0218-99
132,724.02
33,181.01
53,526.27
219,431.30
Deficiency Final Withholding Tax ST-FT-97-0219-99
299,391.84
74,847.96
120,741.73
494,981.53
TOTALS
P1,206,316.41
P301,579.11
P486,495.34
P1,994,390.86
Petitioner’s Motion for Partial Reconsideration was likewise denied by the CTA Second Division in its October
29, 2009 Resolution.

Unsatisfied, petitioner filed a Petition for Review before the CTA En Banc.

On March 1, 2011, the CTA En Banc affirmed the decision of the CTA Second Division.

Petitioner contended that it was not liable to pay Withholding Tax on Compensation on the P500,000.00
Director’s Bonus to their directors, specifically, Rodolfo Bausa, Voltaire Gonzales, Felipe Yap, and Catalino
Macaraig, Jr., because they were not employees and the amount was already subjected to Expanded
Withholding Tax. The CTA En Banc, however, ruled that Section 5 of Revenue Regulation No. 12-86
expressly identified a director to be an employee.

As to transportation, subsistence and lodging, and representation expenses, the expenses would not be subject to
withholding tax only if the same were reimbursement for actual expenses of the company. In the present case,
the CTA En Banc declared that petitioner failed to prove that they were so.

As to deficiency expanded withholding taxes on compensation, petitioner failed to substantiate that the
commissions earned totaling P905,428.36, came from reinsurance activities and should not be subject to
withholding tax. Petitioner likewise failed to prove its direct loss expense, occupancy cost and
service/contractors and purchases.

As to deficiency final withholding taxes, “petitioner failed to present proof of remittance to establish that it had
remitted the final tax on dividends paid as well as the payments for services rendered by the Malaysian entity.”

As to the imposition of delinquency interest under Section 249 (c) (3) of the 1997 National Internal Revenue
Code (NIRC), records reveal that petitioner failed to pay the deficiency taxes within thirty (30) days from
receipt of the demand letter, thus, delinquency interest accrued from such non-payment.

Petitioner moved for partial reconsideration, but the CTA En Banc denied the same in its May 27, 2011
Resolution.12cralawvllred

Hence, this petition.

The principal issue in this case is whether the CTA En Banc erred in holding petitioner liable for:
deficiency withholding taxes on compensation on directors’ bonuses under Assessment No. ST-WC-97-0021-
99;

deficiency expanded withholding taxes on transportation, subsistence and lodging, and representation expense;
commission expense; direct loss expense; occupancy cost; and service/contractor and purchases under
Assessment No. ST-EWT-97-0218-99;

deficiency final withholding taxes on payment of dividends and computerization expenses to foreign entities
under Assessment No. ST-FT-97-0219-99; and

delinquency interest under Section 249 (c) (3) of the NIRC.

The Court finds no merit in the petition.

For taxation purposes, a director is considered an employee under Section 5 of Revenue Regulation No. 12-
86,14 to wit:

An individual, performing services for a corporation, whether as an officer and director or merely as a director
whose duties are confined to attendance at and participation in the meetings of the Board of Directors, is an
employee.

The non-inclusion of the names of some of petitioner’s directors in the company’s Alpha List does not ipso
facto create a presumption that they are not employees of the corporation, because the imposition of
withholding tax on compensation hinges upon the nature of work performed by such individuals in the
company. Moreover, contrary to petitioner’s attestations, Revenue Regulation No. 2-98,15 specifically, Section
2.57.2. A (9) thereof,16 cannot be applied to this case as the latter is a later regulation while the accounting
books examined were for taxable year 1997.

As to the deficiency withholding tax assessment on transportation, subsistence and lodging, and representation
expense, commission expense, direct loss expense, occupancy cost, service/contractor and purchases, the Court
finds no cogent reason to deviate from the findings of the CTA En Banc. As correctly observed by the CTA
Second Division and the CTA En Banc, petitioner was not able to sufficiently establish that the transportation
expenses reflected in their books were reimbursement from actual transportation expenses incurred by its
employees in connection with their duties as the only document presented was a Schedule of Transportation
Expenses without pertinent supporting documents. Without said documents, such as but not limited to, receipts,
transportation-related vouchers and/or invoices, there is no way of ascertaining whether the amounts reflected in
the schedule of expenses were disbursed for transportation.

With regard to commission expense, no additional documentary evidence, like the reinsurance agreements
contracts, was presented to support petitioner’s allegation that the expenditure originated from reinsurance
activities that gave rise to reinsurance commissions, not subject to withholding tax. As to occupancy costs,
records reveal that petitioner failed to compute the correct total occupancy cost that should be subjected to
withholding tax, hence, petitioner is liable for the deficiency.

As to service/contractors and purchases, petitioner contends that both parties already stipulated that it correctly
withheld the taxes due. Thus, petitioner is of the belief that it is no longer required to present evidence to prove
the correct payment of taxes withheld. As correctly ruled by the CTA Second Division and En Banc, however,
stipulations cannot defeat the right of the State to collect the correct taxes due on an individual or juridical
person because taxes are the lifeblood of our nation so its collection should be actively pursued without
unnecessary impediment.

As to the deficiency final withholding tax assessments for payments of dividends and computerization expenses
incurred by petitioner to foreign entities, particularly Matsui Marine & Fire Insurance Co. Ltd. (Matsui),17 the
Court agrees with CIR that petitioner failed to present evidence to show the supposed remittance to Matsui.

The Court likewise holds the imposition of delinquency interest under Section 249 (c) (3) of the 1997 NIRC to
be proper, because failure to pay the deficiency tax assessed within the time prescribed for its payment justifies
the imposition of interest at the rate of twenty percent (20%) per annum, which interest shall be assessed and
collected from the date prescribed for its payment until full payment is made.

It is worthy to note that tax revenue statutes are not generally intended to be liberally construed.18 Moreover,
the CTA being a highly specialized court particularly created for the purpose of reviewing tax and customs
cases, it is settled that its findings and conclusions are accorded great respect and are generally upheld by this
Court, unless there is a clear showing of a reversible error or an improvident exercise of authority.19 Absent
such errors, the challenged decision should be maintained.

WHEREFORE, the petition is DENIED. The March 1, 2011 Decision and the May 27, 2011 Resolution of the
Court of Tax Appeals En Banc, in CTA E.B. No. 563, are AFFIRMED.

SO ORDERED.

G.R. No. 183137 April 10, 2013

PELIZLOY REALTY CORPORATION, represented herein by its President, GREGORY K. LOY,

Petitioner,
vs.
THE PROVINCE OF BENGUET, Respondent.

DECISION

LEONEN, J.:
The principal issue in this case is the scope of authority of a province to impose an amusement tax.

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court praying that the December 10,
2007 decision of the Regional Trial Court,- Branch 62, La Trinidad, Benguet in Civil Case No. 06-CV-2232 be
reversed and set aside and a new one issued in which: ( 1) respondent Province of Benguet is declared as having
no authority to levy amusement taxes on admission fees for resorts, swimming pools, bath houses, hot springs,
tourist spots, and other places for recreation; (2) Section 59, Article X of the Benguet Provincial Revenue Code
of 2005 is declared null and void; and (3) the respondent Province of Benguet is permanently enjoined from
enforcing Section 59, Article X of the Benguet Provincial Revenue Code of 2005.

Petitioner Pelizloy Realty Corporation ("Pelizloy") owns Palm Grove Resort, which is designed for recreation
and which has facilities like swimming pools, a spa and function halls. It is located at Asin, Angalisan,
Municipality of Tuba, Province of Benguet.

On December 8, 2005, the Provincial Board of the Province of Benguet approved Provincial Tax Ordinance No.
05-107, otherwise known as the Benguet Revenue Code of 2005 ("Tax Ordinance"). Section 59, Article X of
the Tax Ordinance levied a ten percent (10%) amusement tax on gross receipts from admissions to "resorts,
swimming pools, bath houses, hot springs and tourist spots." Specifically, it provides the following:

Article Ten: Amusement Tax on Admission

Section 59. Imposition of Tax. There is hereby levied a tax to be collected from the proprietors, lessees, or
operators of theaters, cinemas, concert halls, circuses, cockpits, dancing halls, dancing schools, night or day
clubs, and other places of amusement at the rate of thirty percent (30%) of the gross receipts from admission
fees; and

A tax of ten percent (10%) of gross receipts from admission fees for boxing, resorts, swimming pools, bath
houses, hot springs, and tourist spots is likewise levied. [Emphasis and underscoring supplied]

Section 162 of the Tax Ordinance provided that the Tax Ordinance shall take effect on January 1, 2006.

It was Pelizloy's position that the Tax Ordinance's imposition of a 10% amusement tax on gross receipts from
admission fees for resorts, swimming pools, bath houses, hot springs, and tourist spots is an ultra vires act on
the part of the Province of Benguet. Thus, it filed an appeal/petition before the Secretary of Justice on January
27, 2006.

The appeal/petition was filed within the thirty (30)-day period from the effectivity of a tax ordinance allowed by
Section 187 of Republic Act No. 7160, otherwise known as the Local Government Code (LGC).1 The
appeal/petition was docketed as MSO-OSJ Case No. 03-2006.

Under Section 187 of the LGC, the Secretary of Justice has sixty (60) days from receipt of the appeal to render a
decision. After the lapse of which, the aggrieved party may file appropriate proceedings with a court of
competent jurisdiction.

Treating the Secretary of Justice's failure to decide on its appeal/petition within the sixty (60) days provided by
Section 187 of the LGC as an implied denial of such appeal/petition, Pelizloy filed a Petition for Declaratory
Relief and Injunction before the Regional Trial Court, Branch 62, La Trinidad, Benguet. The petition was
docketed as Civil Case No. 06-CV-2232.

Pelizloy argued that Section 59, Article X of the Tax Ordinance imposed a percentage tax in violation of the
limitation on the taxing powers of local government units (LGUs) under Section 133 (i) of the LGC. Thus, it
was null and void ab initio. Section 133 (i) of the LGC provides:

Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:

xxx
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on goods or
services except as otherwise provided herein

The Province of Benguet assailed the Petition for Declaratory Relief and Injunction as an improper remedy. It
alleged that once a tax liability has attached, the only remedy of a taxpayer is to pay the tax and to sue for
recovery after exhausting administrative remedies.2

On substantive grounds, the Province of Benguet argued that the phrase ‘other places of amusement’ in Section
140 (a) of the LGC3 encompasses resorts, swimming pools, bath houses, hot springs, and tourist spots since
"Article 220 (b) (sic)" of the LGC defines "amusement" as "pleasurable diversion and entertainment x x x
synonymous to relaxation, avocation, pastime, or fun."4 However, the Province of Benguet erroneously cited
Section 220 (b) of the LGC. Section 220 of the LGC refers to valuation of real property for real estate tax
purposes. Section 131 (b) of the LGC, the provision which actually defines "amusement", states:

Section 131. Definition of Terms. - When used in this Title, the term:

xxx

(b) "Amusement" is a pleasurable diversion and entertainment. It is synonymous to relaxation, avocation,

pastime, or fun On December 10, 2007, the RTC rendered the assailed Decision dismissing the Petition for
Declaratory Relief and Injunction for lack of merit.

Procedurally, the RTC ruled that Declaratory Relief was a proper remedy. On the validity of Section 59, Article
X of the Tax Ordinance, the RTC noted that, while Section 59, Article X imposes a percentage tax, Section 133
(i) of the LGC itself allowed for exceptions. It noted that what the LGC prohibits is not the imposition by LGUs
of percentage taxes in general but the "imposition and levy of percentage tax on sales, barters, etc., on goods
and services only."5 It further gave credence to the Province of Benguet's assertion that resorts, swimming
pools, bath houses, hot springs, and tourist spots are encompassed by the phrase ‘other places of amusement’ in
Section 140 of the LGC.

On May 21, 2008, the RTC denied Pelizloy’s Motion for Reconsideration.

Aggrieved, Pelizloy filed the present petition on June 10, 2008 on pure questions of law. It assailed the legality
of Section 59, Article X of the Tax Ordinance as being a (supposedly) prohibited percentage tax per Section 133
(i) of the LGC.

In its Comment, the Province of Benguet, erroneously citing Section 40 of the LGC, argued that Section 59,
Article X of the Tax Ordinance does not levy a percentage tax "because the imposition is not based on the total
gross receipts of services of the petitioner but solely and actually limited on the gross receipts of the admission
fees collected."6 In addition, it argued that provinces can validly impose amusement taxes on resorts, swimming
pools, bath houses, hot springs, and tourist spots, these being ‘amusement places’.

For resolution in this petition are the following issues:

1. Whether or not Section 59, Article X of Provincial Tax Ordinance No. 05-107, otherwise known as the
Benguet Revenue Code of 2005, levies a percentage tax.

2. Whether or not provinces are authorized to impose amusement taxes on admission fees to resorts, swimming
pools, bath houses, hot springs, and tourist spots for being "amusement places" under the Local Government
Code.

The power to tax "is an attribute of sovereignty,"7 and as such, inheres in the State. Such, however, is not true
for provinces, cities, municipalities and barangays as they are not the sovereign;8 rather, they are mere
"territorial and political subdivisions of the Republic of the Philippines".9

The rule governing the taxing power of provinces, cities, muncipalities and barangays is summarized in Icard v.
City Council of Baguio:10
It is settled that a municipal corporation unlike a sovereign state is clothed with no inherent power of taxation.
The charter or statute must plainly show an intent to confer that power or the municipality, cannot assume it.
And the power when granted is to be construed in strictissimi juris. Any doubt or ambiguity arising out of the
term used in granting that power must be resolved against the municipality. Inferences, implications, deductions
– all these – have no place in the interpretation of the taxing power of a municipal corporation.11 [Underscoring
supplied]

Therefore, the power of a province to tax is limited to the extent that such power is delegated to it either by the
Constitution or by statute. Section 5, Article X of the 1987 Constitution is clear on this point:

Section 5. 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
governments. [Underscoring supplied]

Per Section 5, Article X of the 1987 Constitution, "the power to tax is no longer vested exclusively on
Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges."12
Nevertheless, such authority is "subject to such guidelines and limitations as the Congress may provide".13

In conformity with Section 3, Article X of the 1987 Constitution,14 Congress enacted Republic Act No. 7160,
otherwise known as the Local Government Code of 1991. Book II of the LGC governs local taxation and fiscal
matters.

Relevant provisions of Book II of the LGC establish the parameters of the taxing powers of LGUS found below.

First, Section 130 provides for the following fundamental principles governing the taxing powers of LGUs:

1. Taxation shall be uniform in each LGU.

2. Taxes, fees, charges and other impositions shall:

a. be equitable and based as far as practicable on the taxpayer's ability to pay;

b. be levied and collected only for public purposes;

c. not be unjust, excessive, oppressive, or confiscatory;

d. not be contrary to law, public policy, national economic policy, or in the restraint of trade.

3. The collection of local taxes, fees, charges and other impositions shall in no case be let to any private person.

4. The revenue collected pursuant to the provisions of the LGC shall inure solely to the benefit of, and be
subject to the disposition by, the LGU levying the tax, fee, charge or other imposition unless otherwise
specifically provided by the LGC.

5. Each LGU shall, as far as practicable, evolve a progressive system of taxation.

Second, Section 133 provides for the common limitations on the taxing powers of LGUs. Specifically, Section
133 (i) prohibits the levy by LGUs of percentage or value-added tax (VAT) on sales, barters or exchanges or
similar transactions on goods or services except as otherwise provided by the LGC.

As it is Pelizloy’s contention that Section 59, Article X of the Tax Ordinance levies a prohibited percentage tax,
it is crucial to understand first the concept of a percentage tax.

In Commissioner of Internal Revenue v. Citytrust Investment Phils. Inc.,15 the Supreme Court defined
percentage tax as a "tax measured by a certain percentage of the gross selling price or gross value in money of
goods sold, bartered or imported; or of the gross receipts or earnings derived by any person engaged in the sale
of services." Also, Republic Act No. 8424, otherwise known as the National Internal Revenue Code (NIRC), in
Section 125, Title V,16 lists amusement taxes as among the (other) percentage taxes which are levied regardless
of whether or not a taxpayer is already liable to pay value-added tax (VAT).

Amusement taxes are fixed at a certain percentage of the gross receipts incurred by certain specified
establishments.

Thus, applying the definition in CIR v. Citytrust and drawing from the treatment of amusement taxes by the
NIRC, amusement taxes are percentage taxes as correctly argued by Pelizloy.

However, provinces are not barred from levying amusement taxes even if amusement taxes are a form of
percentage taxes. Section 133 (i) of the LGC prohibits the levy of percentage taxes "except as otherwise
provided" by the LGC.

Section 140 of the LGC provides:

SECTION 140. Amusement Tax - (a) The province may levy an amusement tax to be collected from the
proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of
amusement at a rate of not more than thirty percent (30%) of the gross receipts from admission fees.

(b) In the case of theaters of cinemas, the tax shall first be deducted and withheld by their proprietors, lessees,
or operators and paid to the provincial treasurer before the gross receipts are divided between said proprietors,
lessees, or operators and the distributors of the cinematographic films.

(c) The holding of operas, concerts, dramas, recitals, painting and art exhibitions, flower shows, musical
programs, literary and oratorical presentations, except pop, rock, or similar concerts shall be exempt from the
payment of the tax herein imposed.

(d) The Sangguniang Panlalawigan may prescribe the time, manner, terms and conditions for the payment of
tax. In case of fraud or failure to pay the tax, the Sangguniang Panlalawigan may impose such surcharges,
interests and penalties.

(e) The proceeds from the amusement tax shall be shared equally by the province and the municipality where
such amusement places are located. [Underscoring supplied]

Evidently, Section 140 of the LGC carves a clear exception to the general rule in Section 133 (i). Section 140
expressly allows for the imposition by provinces of amusement taxes on "the proprietors, lessees, or operators
of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement."

However, resorts, swimming pools, bath houses, hot springs, and tourist spots are not among those places
expressly mentioned by Section 140 of the LGC as being subject to amusement taxes. Thus, the determination
of whether amusement taxes may be levied on admissions to resorts, swimming pools, bath houses, hot springs,
and tourist spots hinges on whether the phrase ‘other places of amusement’ encompasses resorts, swimming
pools, bath houses, hot springs, and tourist spots.

Under the principle of ejusdem generis, "where a general word or phrase follows an enumeration of particular
and specific words of the same class or where the latter follow the former, the general word or phrase is to be
construed to include, or to be restricted to persons, things or cases akin to, resembling, or of the same kind or
class as those specifically mentioned."17

The purpose and rationale of the principle was explained by the Court in National Power Corporation v.
Angas18 as follows:

The purpose of the rule on ejusdem generis is to give effect to both the particular and general words, by treating
the particular words as indicating the class and the general words as including all that is embraced in said class,
although not specifically named by the particular words. This is justified on the ground that if the lawmaking
body intended the general terms to be used in their unrestricted sense, it would have not made an enumeration
of particular subjects but would have used only general terms. [2 Sutherland, Statutory Construction, 3rd ed.,
pp. 395-400].19
In Philippine Basketball Association v. Court of Appeals,20 the Supreme Court had an opportunity to interpret a
starkly similar provision or the counterpart provision of Section 140 of the LGC in the Local Tax Code then in
effect. Petitioner Philippine Basketball Association (PBA) contended that it was subject to the imposition by
LGUs of amusement taxes (as opposed to amusement taxes imposed by the national government).1âwphi1 In
support of its contentions, it cited Section 13 of Presidential Decree No. 231, otherwise known as the Local Tax
Code of 1973, (which is analogous to Section 140 of the LGC) providing the following:

Section 13. Amusement tax on admission. - The province shall impose a tax on admission to be collected from
the proprietors, lessees, or operators of theaters, cinematographs, concert halls, circuses and other places of
amusement xxx.

Applying the principle of ejusdem generis, the Supreme Court rejected PBA's assertions and noted that:

In determining the meaning of the phrase 'other places of amusement', one must refer to the prior enumeration
of theaters, cinematographs, concert halls and circuses with artistic expression as their common characteristic.
Professional basketball games do not fall under the same category as theaters, cinematographs, concert halls and
circuses as the latter basically belong to artistic forms of entertainment while the former caters to sports and
gaming.21 [Underscoring supplied]

However, even as the phrase ‘other places of amusement’ was already clarified in Philippine Basketball
Association, Section 140 of the LGC adds to the enumeration of 'places of amusement' which may properly be
subject to amusement tax. Section 140 specifically mentions 'boxing stadia' in addition to "theaters,
cinematographs, concert halls and circuses" which were already mentioned in PD No. 231. Also, 'artistic
expression' as a characteristic does not pertain to 'boxing stadia'.

In the present case, the Court need not embark on a laborious effort at statutory construction. Section 131 (c) of
the LGC already provides a clear definition of ‘amusement places’:

Section 131. Definition of Terms. - When used in this Title, the term:

xxx

(c) "Amusement Places" include theaters, cinemas, concert halls, circuses and other places of amusement where
one seeks admission to entertain oneself by seeing or viewing the show or performances [Underscoring
supplied]

Indeed, theaters, cinemas, concert halls, circuses, and boxing stadia are bound by a common typifying
characteristic in that they are all venues primarily for the staging of spectacles or the holding of public shows,
exhibitions, performances, and other events meant to be viewed by an audience. Accordingly, ‘other places of
amusement’ must be interpreted in light of the typifying characteristic of being venues "where one seeks
admission to entertain oneself by seeing or viewing the show or performances" or being venues primarily used
to stage spectacles or hold public shows, exhibitions, performances, and other events meant to be viewed by an
audience.

As defined in The New Oxford American Dictionary,22 ‘show’ means "a spectacle or display of something,
typically an impressive one";23 while ‘performance’ means "an act of staging or presenting a play, a concert, or
other form of entertainment."24 As such, the ordinary definitions of the words ‘show’ and ‘performance’ denote
not only visual engagement (i.e., the seeing or viewing of things) but also active doing (e.g., displaying, staging
or presenting) such that actions are manifested to, and (correspondingly) perceived by an audience.

Considering these, it is clear that resorts, swimming pools, bath houses, hot springs and tourist spots cannot be
considered venues primarily "where one seeks admission to entertain oneself by seeing or viewing the show or
performances". While it is true that they may be venues where people are visually engaged, they are not
primarily venues for their proprietors or operators to actively display, stage or present shows and/or
performances.

Thus, resorts, swimming pools, bath houses, hot springs and tourist spots do not belong to the same category or
class as theaters, cinemas, concert halls, circuses, and boxing stadia. It follows that they cannot be considered as
among the ‘other places of amusement’ contemplated by Section 140 of the LGC and which may properly be
subject to amusement taxes.

At this juncture, it is helpful to recall this Court’s pronouncements in Icard:

The power to tax when granted to a province is to be construed in strictissimi juris. Any doubt or ambiguity
arising out of the term used in granting that power must be resolved against the province. Inferences,
implications, deductions – all these – have no place in the interpretation of the taxing power of a province.25

In this case, the definition of' amusement places' in Section 131 (c) of the LGC is a clear basis for determining
what constitutes the 'other places of amusement' which may properly be subject to amusement tax impositions
by provinces. There is no reason for going beyond such basis. To do otherwise would be to countenance an
arbitrary interpretation/application of a tax law and to inflict an injustice on unassuming taxpayers.

The previous pronouncements notwithstanding, it will be noted that it is only the second paragraph of Section
59, Article X of the Tax Ordinance which imposes amusement taxes on "resorts, swimming pools, bath houses,
hot springs, and tourist spots". The first paragraph of Section 59, Article X of the Tax Ordinance refers to
"theaters, cinemas, concert halls, circuses, cockpits, dancing halls, dancing schools, night or day clubs, and
other places of amusement".1âwphi1 In any case, the issues raised by Pelizloy are pertinent only with respect to
the second paragraph of Section 59, Article X of the Tax Ordinance. Thus, there is no reason to invalidate the
first paragraph of Section 59, Article X of the Tax Ordinance. Any declaration as to the Province of Benguet's
lack of authority to levy amusement taxes must be limited to admission fees to resorts, swimming pools, bath
houses, hot springs and tourist spots.

Moreover, the second paragraph of Section 59, Article X of the Tax Ordinance is not limited to resorts,
swimming pools, bath houses, hot springs, and tourist spots but also covers admission fees for boxing. As
Section 140 of the LGC allows for the imposition of amusement taxes on gross receipts from admission fees to
boxing stadia, Section 59, Article X of the Tax Ordinance must be sustained with respect to admission fees from
boxing stadia.

WHEREFORE, the petition for review on certiorari is GRANTED. The second paragraph of Section 59, Article
X of the Benguet Provincial Revenue Code of 2005, in so far as it imposes amusement taxes on admission fees
to resorts, swimming pools, bath houses, hot springs and tourist spots, is declared null and void. Respondent
Province of Benguet is permanently enjoined from enforcing the second paragraph of Section 59, Article X of
the Benguet Provincial Revenue Code of 2005 with respect to resorts, swimming pools, bath houses, hot springs
and tourist spots.

SO ORDERED.

G.R. No. 172892, June 13, 2013

PHILIPPINE DEPOSIT INSURANCE CORPORATION, Petitioner,

v. BUREAU OF INTERNAL REVENUE, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

This is a petition for review on Certiorari1 of the Decision2 and Resolution3 dated December 29, 2005 and
May 5, 2006, respectively, of the Court of Appeals in CA-G.R. SP No. 80816.

In Resolution No. 1056 dated October 26, 1994, the Monetary Board of the Bangko Sentral ng Pilipinas (BSP)
prohibited the Rural Bank of Tuba (Benguet), Inc. (RBTI) from doing business in the Philippines, placed it
under receivership in accordance with Section 30 of Republic Act No. 7653, otherwise known as the “New
Central Bank Act,” and designated the Philippine Deposit Insurance Corporation (PDIC) as receiver.4

Subsequently, PDIC conducted an evaluation of RBTI’s financial condition and determined that RBTI remained
insolvent. Thus, the Monetary Board issued Resolution No. 675 dated June 6, 1997 directing PDIC to proceed
with the liquidation of RBTI. Accordingly and pursuant to Section 30 of the New Central Bank Act, PDIC filed
in the Regional Trial Court (RTC) of La Trinidad, Benguet a petition for assistance in the liquidation of RBTI.
The petition was docketed as Special Proceeding Case No. 97-SP-0100 and raffled to Branch 8.5

In an Order6 dated September 4, 1997, the trial court gave the petition due course and approved it.

As an incident of the proceedings, the Bureau of Internal Revenue (BIR) intervened as one of the creditors of
RBTI. The BIR prayed that the proceedings be suspended until PDIC has secured a tax clearance required
under Section 52(C) of Republic Act No. 8424, otherwise known as the “Tax Reform Act of 1997” or the “Tax
Code of 1997,” which provides:
SEC. 52. Corporation Returns. –

xxxx

(C) Return of Corporation Contemplating Dissolution or Reorganization. – Every corporation shall, within
thirty (30) days after the adoption by the corporation of a resolution or plan for its dissolution, or for the
liquidation of the whole or any part of its capital stock, including a corporation which has been notified of
possible involuntary dissolution by the Securities and Exchange Commission, or for its reorganization, render a
correct return to the Commissioner, verified under oath, setting forth the terms of such resolution or plan and
such other information as the Secretary of Finance, upon recommendation of the commissioner, shall, by rules
and regulations, prescribe.

The dissolving or reorganizing corporation shall, prior to the issuance by the Securities and Exchange
Commission of the Certificate of Dissolution or Reorganization, as may be defined by rules and regulations
prescribed by the Secretary of Finance, upon recommendation of the Commissioner, secure a certificate of tax
clearance from the Bureau of Internal Revenue which certificate shall be submitted to the Securities and
Exchange Commission.
In an Order7 dated February 14, 2003, the trial court found merit in the BIR’s motion and granted it:

WHEREFORE, petitioner PDIC is directed to secure the necessary tax clearance provided for under Section
45(C) of the 1993 National Internal Revenue Code and now Section 52(C) of the 1997 National Internal
Revenue Code and to secure the same from the BIR District Office No. 9, La Trinidad, Benguet.

Further, petitioner PDIC is directed to submit a comprehensive liquidation report addressed to creditor Bangko
Sentral and to remit the accounts already collected from the pledged assets to said Bangko Sentral.

Claimant Bangko Sentral may now initiate collection suits directly against the individual borrowers.

In the event that the collection efforts of Bangko Sentral against individual borrowers may fail, Bangko Sentral
shall proceed against the general assets of the Rural Bank of Tuba Benguet.

Finally, Annex “A” attached to the manifestation and motion dated November 29, 2002 [of PDIC] is considered
as partial satisfaction of the obligation of the Rural Bank of Tuba (Benguet) Inc., to Bangko Sentral.8
PDIC moved for partial reconsideration of the Order dated February 14, 2003 with respect to the directive for it
to secure a tax clearance. It argued that Section 52(C) of the Tax Code of 1997 does not cover closed banking
institutions as the liquidation of closed banks is governed by Section 30 of the New Central Bank Act. The
motion was, however, denied in an Order9 dated September 16, 2003.

PDIC thereafter brought the matter to the Court of Appeals by way of a petition for Certiorari under Rule 65 of
the Rules of Court. In its petition, docketed as CA-G.R. SP No. 80816, PDIC asserted that the trial court acted
with grave abuse of discretion amounting to lack or excess of jurisdiction in applying Section 52(C) of the Tax
Code of 1997 to a bank ordered closed, placed under receivership and, subsequently, under liquidation by the
Monetary Board.

In its Decision dated December 29, 2005, the appellate court agreed with the trial court that banks under
liquidation by PDIC are covered by Section 52(C) of the Tax Code of 1997. Thus, the Court of Appeals
affirmed the Orders dated February 14, 2003 and September 16, 2003 and dismissed PDIC’s petition.

PDIC sought reconsideration but it was denied.

Hence, this petition.

PDIC insists that Section 52(C) of the Tax Code of 1997 is not applicable to banks ordered placed under
liquidation by the Monetary Board of the BSP. It argues that closed banks placed under liquidation pursuant to
Section 30 of the New Central Bank Act are not “corporations contemplating liquidation” within the purview of
Section 52(C) of the Tax Code of 1997. As opposed to the liquidation of all other corporations, the Monetary
Board, not the Securities and Exchange Commission (SEC), has the power to order or approve the closure and
liquidation of banks. Section 52(C) of the Tax Code of 1997 applies only to corporations under the supervision
of the SEC.13

For its part, the BIR counters that the requirement of a tax clearance under Section 52(C) of the Tax Code of
1997 is applicable to rural banks undergoing liquidation proceedings under Section 30 of the New Central Bank
Act. For the BIR, the authority given to the BSP to supervise banks does not mean that all matters regarding
banks are exclusively under the power of the BSP. Thus, banking corporations are still subject to reasonable
regulations imposed by the SEC on corporations. The purpose of a tax clearance requirement under Section
52(C) of the Tax Code of 1997 is to ensure the collection of income taxes due to the government by imposing
upon a corporation undergoing liquidation the obligation of reporting the income it earned, if any, for the
purpose of determining the amount of imposable tax.14

The petition succeeds.

This Court has already resolved the issue of whether Section 52(C) of the Tax Code of 1997 applies to banks
ordered placed under liquidation by the Monetary Board, that is, whether a bank placed under liquidation has to
secure a tax clearance from the BIR before the project of distribution of the assets of the bank can be approved
by the liquidation court.

In Re: Petition for Assistance in the Liquidation of the Rural Bank of Bokod (Benguet), Inc., Philippine Deposit
Insurance Corporation v. Bureau of Internal Revenue 15 ruled that Section 52(C) of the Tax Code of 1997 is not
applicable to banks ordered placed under liquidation by the Monetary Board,16 and a tax clearance is not a
prerequisite to the approval of the project of distribution of the assets of a bank under liquidation by the
PDIC.17

Thus, this Court has held that the RTC, acting as liquidation court under Section 30 of the New Central Bank
Act, commits grave abuse of discretion in ordering the PDIC, as liquidator of a bank ordered closed by the
Monetary Board, to first secure a tax clearance from the appropriate BIR Regional Office, and holding in
abeyance the approval of the project of distribution of the assets of the closed bank by virtue thereof.18 Three
reasons have been given.

First, Section 52(C) of the Tax Code of 1997 pertains only to a regulation of the relationship between the SEC
and the BIR with respect to corporations contemplating dissolution or reorganization. On the other hand, banks
under liquidation by the PDIC as ordered by the Monetary Board constitute a special case governed by the
special rules and procedures provided under Section 30 of the New Central Bank Act, which does not require
that a tax clearance be secured from the BIR.19 As explained in In Re: Petition for Assistance for Assistance
in the Liquidation of the Rural Bank of Bokod (Benguet), Inc.:

Section 52(C) of the Tax Code of 1997 and the BIR-SEC Regulations No. 1 20 regulate the relations only as
between the SEC and the BIR, making a certificate of tax clearance a prior requirement before the SEC could
approve the dissolution of a corporation. x x
x.x x x x

Section 30 of the New Central Bank Act lays down the proceedings for receivership and liquidation of a bank.
The said provision is silent as regards the securing of a tax clearance from the BIR. The omission, nonetheless,
cannot compel this Court to apply by analogy the tax clearance requirement of the SEC, as stated in Section
52(C) of the Tax Code of 1997 and BIR-SEC Regulations No. 1, since, again, the dissolution of a corporation
by the SEC is a totally different proceeding from the receivership and liquidation of a bank by the BSP. This
Court cannot simply replace any reference by Section 52(C) of the Tax Code of 1997 and the provisions of the
BIR-SEC Regulations No. 1 to the “SEC” with the “BSP.” To do so would be to read into the law and the
regulations something that is simply not there, and would be tantamount to judicial legislation.21
Second, only a final tax return is required to satisfy the interest of the BIR in the liquidation of a closed bank,
which is the determination of the tax liabilities of a bank under liquidation by the PDIC. In view of the timeline
of the liquidation proceedings under Section 30 of the New Central Bank Act, it is unreasonable for the
liquidation court to require that a tax clearance be first secured as a condition for the approval of project of
distribution of a bank under liquidation.22 This point has been elucidated thus:

[T]he alleged purpose of the BIR in requiring the liquidator PDIC to secure a tax clearance is to enable it to
determine the tax liabilities of the closed bank. It raised the point that since the PDIC, as receiver and
liquidator, failed to file the final return of RBBI for the year its operations were stopped, the BIR had no way of
determining whether the bank still had outstanding tax liabilities.

To our mind, what the BIR should have requested from the RTC, and what was within the discretion of the RTC
to grant, is not an order for PDIC, as liquidator of RBBI, to secure a tax clearance; but, rather, for it to submit
the final return of RBBI. The first paragraph of Section 30(C) of the Tax Code of 1997, read in conjunction
with Section 54 of the same Code, clearly imposes upon PDIC, as the receiver and liquidator of RBBI, the duty
to file such a return. x x x.

xxxx

Section 54 of the Tax Code of 1997 imposes a general duty on all receivers, trustees in bankruptcy, and
assignees, who operate and preserve the assets of a corporation, regardless of the circumstances or the law by
which they came to hold their positions, to file the necessary returns on behalf of the corporation under their
care.

The filing by PDIC of a final tax return, on behalf of RBBI, should already address the supposed concern of the
BIR and would already enable the latter to determine if RBBI still had outstanding tax liabilities. The
unreasonableness and impossibility of requiring a tax clearance before the approval by the RTC of the Project
of Distribution of the assets of the RBBI becomes apparent when the timeline of the proceedings is considered.

The BIR can only issue a certificate of tax clearance when the taxpayer had completely paid off his tax
liabilities. The certificate of tax clearance attests that the taxpayer no longer has any outstanding tax obligations
to the Government.

Should the BIR find that RBBI still had outstanding tax liabilities, PDIC will not be able to pay the same
because the Project of Distribution of the assets of RBBI remains unapproved by the RTC; and, if RBBI still
had outstanding tax liabilities, the BIR will not issue a tax clearance; but, without the tax clearance, the Project
of Distribution of assets, which allocates the payment for the tax liabilities, will not be approved by the RTC. It
will be a chicken-and-egg dilemma.

Third, it is not for this Court to fill in any gap, whether perceived or evident, in current statutes and regulations
as to the relations among the BIR, as tax collector of the National Government; the BSP, as regulator of the
banks; and the PDIC, as the receiver and liquidator of banks ordered closed by the BSP. It is up to the
legislature to address the matter through appropriate legislation, and to the executive to provide the regulations
for its implementation.

There is another reason. The position of the BIR, insisting on prior compliance with the tax clearance
requirement as a condition for the approval of the project of distribution of the assets of a bank under
liquidation, is contrary to both the letter and intent of the law on liquidation of banks by the PDIC. In this
connection, the relevant portion of Section 30 of the New Central Bank Act provides:

Section 30. Proceedings in Receivership and Liquidation. – x x x.

xxxx

If the receiver determines that the institution cannot be rehabilitated or permitted to resume business in
accordance with the next preceding paragraph, the Monetary Board shall notify in writing the board of directors
of its findings and direct the receiver to proceed with the liquidation of the institution. The receiver shall:
(1) file ex parte with the proper regional trial court, and without requirement of prior notice or any other
action, a petition for assistance in the liquidation of the institution pursuant to a liquidation plan adopted by the
Philippine Deposit Insurance Corporation for general application to all closed banks. In case of quasi-banks, the
liquidation plan shall be adopted by the Monetary Board. Upon acquiring jurisdiction, the court shall, upon
motion by the receiver after due notice, adjudicate disputed claims against the institution, assist the enforcement
of individual liabilities of the stockholders, directors and officers, and decide on other issues as may be material
to implement the liquidation plan adopted. The receiver shall pay the cost of the proceedings from the assets of
the institution.

(2) convert the assets of the institution to money, dispose of the same to creditors and other parties, for the
purpose of paying the debts of such institution in accordance with the rules on concurrence and preference of
credit under the Civil Code of the Philippines and he may, in the name of the institution, and with the assistance
of counsel as he may retain, institute such actions as may be necessary to collect and recover accounts and
assets of, or defend any action against, the institution. The assets of an institution under receivership or
liquidation shall be deemed in custodia legis in the hands of the receiver and shall, from the moment the
institution was placed under such receivership or liquidation, be exempt from any order of garnishment, levy,
attachment, or execution25. (Emphasis supplied.)

The law expressly provides that debts and liabilities of the bank under liquidation are to be paid in
accordance with the rules on concurrence and preference of credit under the Civil Code. Duties, taxes, and fees
due the Government enjoy priority only when they are with reference to a specific movable property, under
Article 2241(1) of the Civil Code, or immovable property, under Article 2242(1) of the same Code. However,
with reference to the other real and personal property of the debtor, sometimes referred to as “free property,” the
taxes and assessments due the National Government, other than those in Articles 2241(1) and 2242(1) of the
Civil Code, such as the corporate income tax, will come only in ninth place in the order of preference.26 On
the other hand, if the BIR’s contention that a tax clearance be secured first before the project of distribution of
the assets of a bank under liquidation may be approved, then the tax liabilities will be given absolute preference
in all instances, including those that do not fall under Articles 2241(1) and 2242(1) of the Civil Code. In order
to secure a tax clearance which will serve as proof that the taxpayer had completely paid off his tax liabilities,
PDIC will be compelled to settle and pay first all tax liabilities and deficiencies of the bank, regardless of the
order of preference under the pertinent provisions of the Civil Code. Following the BIR’s stance, therefore,
only then may the project of distribution of the bank’s assets be approved and the other debts and claims
thereafter settled, even though under Article 2244 of the Civil Code such debts and claims enjoy preference
over taxes and assessments due the National Government. The BIR effectively wants this Court to ignore
Section 30 of the New Central Bank Act and disregard Article 2244 of the Civil Code. However, as a court of
law, this Court has the solemn duty to apply the law. It cannot and will not give its imprimatur to a violation of
the laws.

WHEREFORE, the petition is hereby GRANTED. The Court further rules as follows:

(a) the Decision dated December 29, 2005 and Resolution dated May 5, 2006 of the Court of Appeals in CA-
G.R. SP No. 80816 are REVERSED and SET ASIDE;

(b) the Orders dated February 14, 2003 and September 16, 2003 of the Regional Trial Court of La Trinidad,
Benguet sitting as liquidation court of the closed RBTI, in Special Proceeding Case No. 97-SP-0100 are
NULLIFIED and SET ASIDE, insofar as they direct the Philippine Deposit Insurance Corporation to secure a
tax clearance, for having been rendered with grave abuse of discretion;

(c) the PDIC, as liquidator, is ORDERED to submit to the BIR the final tax return of RBTI, in accordance with
the first paragraph of Section 52(C), in connection with Section 54, of the Tax Code of 1997; and

(d) the Regional Trial Court of La Trinidad, Benguet is ORDERED to resume the liquidation proceedings in
Special Proceeding Case No. 97-SP-0100 in order to determine all the claims of the creditors, including that of
the National Government, as determined and presented by the BIR; and, pursuant to such determination, and
guided accordingly by the provisions of the Civil Code on preference of credit, to review and approve the
project of distribution of the assets of RBTI.

SO ORDERED.
 SPECIAL SECOND DIVISION

G.R. No. 190818 November 10, 2014

METRO MANILA SHOPPING MECCA CORP., SHOEMART, INC., SM PRIME HOLDINGS, INC.,
STAR APPLIANCES CENTER, SUPER VALUE, INC., ACE HARDWARE PHILIPPINES, INC.,
HEAL TH AND BEAUTY, INC., JOLLIMART PHILS. CORP., and SURPLUS MARKETING
CORPORATION, Petitioners,
vs.
MS. LIBERTY M. TOLEDO, in her official capacity as the City Treasurer of Manila, and THE CITY
OF MANILA, Respondents.

RESOLUTION

PERLAS-BERNABE, J.:

The Court hereby resolves the Manifestation and Motion1 dated August 2, 2013 filed by petitioners Metro
Manila Shopping Mecca Corp., Shoemart, Inc., SM Prime Holdings, Inc., Star Appliances Center, Super Value,
Inc., Ace Hardware Philippines, Inc., Health and Beauty, Inc., Jollimart Phils. Corp., and Surplus Marketing
Corporation (petitioners), seeking the approval of the terms and conditions of the parties' Universal
Compromise Agreement2 dated June 1, 2012 (UCA) in lieu of the Court's Decision3 dated June 5, 2013
(subject Decision) which denied petitioners' claim for tax refund/credit of their local business taxes paid to
respondent City of Manila.

In their Manifestation and Motion, petitioners alleged that pursuant to the UCA, the parties agreed to amicably
settle all cases between them involving claims for tax refund/credit, including the instant case.4 The pertinent
portions of the UCA provide:5

2.b. It is further agreed that there shall be no refunds/tax credit certificates to be given or issued by the City of
Manilain the following cases:

2.b.1. SC GR 190818 (CTA EB No. 480)entitled "Supervalue, Inc., Ace Hardware Philippines, Inc., H and B
Inc., Metro Manila Shopping Mecca Corp., SM Land, Inc. (formerly Shoemart, Inc.), SM Prime Holdings, Inc.,
Star Appliance Center, Inc., Surplus Marketing Corp. versus The City of Manila and the City Treasurer [of]
Manila," which emanated from an Order in favour of the SM Group issued by Branch 47 of the Regional Trial
Court of Manila in Civil Case No. 03-108175 entitled "Ace Hardware Phils., Inc., SM Prime Holdings, Inc.,
Star Appliance Center, Inc., Supervalue, Inc., Watsons Personal Care Stores (Phils.) Inc. versus The City of
Manila and the City Treasurer of Manila," and is currently pending before the Supreme Court. (Emphases and
underscoring supplied)

In their Comment (with Manifestation of Earnest Apology to the Supreme Court)6 dated June 4, 2014,
respondent City of Manila and Liberty Toledo, in her capacity as Treasurer of the City of Manila (respondents),
confirmed the authenticity and due execution of the UCA. They, however, submitted that the UCA had no effect
on the subject Decision since the taxes paid subject of the instant case was not included in the agreement.7

The Court adopts the terms and conditions of the UCA pertinent to this case.

A compromise agreement is a contract whereby the parties, by making reciprocal concessions, avoid a litigation
or put an end to one already commenced.8 It contemplates mutual concessions and mutual gains to avoid the
expenses of litigation; or when litigation has already begun, to end it because of the uncertainty of the result.9
Its validity is dependent upon the fulfillment of the requisites and principles of contracts dictated by law; and its
terms and conditions must not be contrary to law, morals, good customs, public policy, and public order.10
When given judicial approval, a compromise agreement becomes more than a contract binding upon the parties.
Having been sanctioned by the court, it is entered as a determination of a controversy and has the force and
effect of a judgment. It is immediately executory and not appealable, except for vices of consent or forgery. The
nonfulfillment of its terms and conditions justifies the issuance of a writ of execution; in such an instance,
execution becomes a ministerial duty of the court.11
A review of the whereas clauses12 of the UCA reveals the various court cases filed by petitioners, including
this case, for the refund and/or issuance of tax credit covering the local business taxes payments they paid to
respondent City of Manila pursuant to Section 21 of the latter’s Revenue Code.13 Thus, contrary to the
submission of respondents, the local business taxes subject of the instant case is clearly covered by the UCA
since they were also paid in accordance with the same provision of the Revenue Code of Manila.1âwphi1

In this relation, it is observed thatthe present case would have been rendered moot and academic had the parties
informed the Court of the UCA’s supervening execution.14 Be that as it may, and considering that: (a) the UCA
appears to have been executed in accordance with the requirements of a valid compromise agreement; (b) the
UCA was executed more than a year prior to the promulgation of the subject Decision; and (c) the result of both
the UCA and the subject Decision are practically identical, i.e., that petitioners are not entitled to any tax
refund/credit, the Court herein resolves to approve and adopt the pertinent terms and conditions of the UCA
insofar as they govern the settlementof the present dispute.

WHEREFORE, the petitioners’ Manifestation and Motion dated August 2, 2013 is GRANTED. The Decision
dated June 5, 2013 of the Court is hereby SET ASIDE. In lieu thereof, the terms and conditions of the Universal
Compromise Agreement between the parties pertinent to the instant case are APPROVED and ADOPTED as
the Decision of the Court.

The parties are ordered to faithfully comply with the terms and conditions of the said agreement.

This case is considered closed and tenninated. No costs.

SO ORDERED.

G.R. No. 198759 July 1, 2013

PHILIPPINE AIRLINES, INC., PETITIONER,

vs.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

DECISION

PERLAS-BERNABE, J.:

Before the Court is a petition for review on certiorari[1] assailing the May 9, 2011 Decision2 and September 16,
2011 Resolution3 of the Court of Tax Appeals (CTA) En Banc in CTA EB Case No. 588 which denied
petitioner Philippine Airlines, Inc.’s (PAL) claim for refund of the excise taxes imposed on its purchase of
petroleum products from Caltex Philippines, Inc. (Caltex).

The Facts

For the period July 24 to 28, 2004, Caltex sold 804,370 liters of imported Jet A-1 fuel to PAL for the latter’s
domestic operations.4 Consequently, on July 26, 27, 28 and 29, 2004, Caltex electronically filed with the Bureau
of Internal Revenue (BIR) its Excise Tax Returns for Petroleum Products, declaring the amounts
of P1,232,798.80, P686,767.10, P623,422.90 and P433,904.10, respectively, or a total amount
of P2,975,892.90, as excise taxes due thereon. 5

On August 3, 2004, PAL received from Caltex an Aviation Billing Invoice for the purchased aviation fuel in the
amount of US$313,949.54, reflecting the amount of US$52,669.33 as the related excise taxes on the transaction.
This was confirmed by Caltex in a Certification dated August 20, 2004 where it indicated that: (a) the excise
taxes it paid on the imported petroleum products amounted to P2,952,037.90, i.e., the peso equivalent of the
abovementioned dollar amount; (b) the foregoing excise tax payment was passed on by it to PAL; and (c) it did
not file any claim for the refund of the said excise tax with the BIR.6

On October 29, 2004, PAL, through a letter-request dated October 15, 2004 addressed to respondent
Commissioner of Internal Revenue (CIR), sought a refund of the excise taxes passed on to it by Caltex. It
hinged its tax refund claim on its operating franchise, i.e., Presidential Decree No. 15907 issued on June 11,
1978 (PAL’s franchise), which conferred upon it certain tax exemption privileges on its purchase and/or
importation of aviation gas, fuel and oil, including those which are passed on to it by the seller and/or importer
thereof. Further, PAL asserted that it had the legal personality to file the aforesaid tax refund claim.8
Due to the CIR’s inaction, PAL filed a Petition for Review with the CTA on July 25, 2006.9 In its Answer, the
CIR averred that since the excise taxes were paid by Caltex, PAL had no cause of action.10

The CTA Division Ruling

Relying on Silkair (Singapore) Pte. Ltd. v. CIR11 (Silkair), the CTA Second Division denied PAL’s petition on
the ground that only a statutory taxpayer (referring to Caltex in this case) may seek a refund of the excise taxes
it paid.12 It added that even if the tax burden was shifted to PAL, the latter cannot be deemed a statutory
taxpayer.

It further ruled that PAL’s claim for refund should be denied altogether on account of Letter of Instruction No.
1483 (LOI 1483) which already withdrew the tax exemption privileges previously granted to PAL on its
purchase of domestic petroleum products, of which the transaction between PAL and Caltex was
characterized. 13

PAL moved for reconsideration, but the same was denied in a Resolution14 dated January 14, 2010, prompting it
to elevate the matter to the CTA En Banc.

The CTA En Banc Ruling

In a Decision dated May 9, 2011,15 the CTA En Banc affirmed the ruling of the CTA Second Division,
reiterating that it was Caltex, the statutory taxpayer, which had the personality to file the subject refund claim. It
explained that the payment of the subject excise taxes, being in the nature of indirect taxes, remained to be the
direct liability of Caltex. While the tax burden may have been shifted to PAL, the liability passed on to it should
not be treated as a tax but a part of the purchase price which PAL had to pay to obtain the goods.16 Further, it
held that PAL’s exemption privileges on the said excise taxes, which it claimed through its franchise, had
already been withdrawn by LOI 1483.17

Aggrieved, PAL filed a motion for reconsideration which was, however, denied in a Resolution dated
September 16, 2011.18

Hence, the instant petition.

The Issues Before the Court

The following issues have been presented for the Court’s resolution: (a) whether PAL has the legal personality
to file a claim for refund of the passed on excise taxes; (b) whether the sale of imported aviation fuel by Caltex
to PAL is covered by LOI 1483 which withdrew the tax exemption privileges of PAL on its purchases of
domestic petroleum products for use in its domestic operations; and (c) whether PAL has sufficiently proved its
entitlement to refund.

The Ruling of the Court

The petition is meritorious.

A. PAL’s legal personality to file a claim for refund of excise taxes.

The CIR argues that PAL has no personality to file the subject tax refund claim because it is not the statutory
taxpayer. As basis, it relies on the Silkair ruling which enunciates that the proper party to question, or to seek a
refund of an indirect tax, is the statutory taxpayer, or the person on whom the tax is imposed by law and who
paid the same, even if the burden to pay such was shifted to another.19

PAL counters that the doctrine laid down in Silkair is inapplicable, asserting that it has the legal personality to
file the subject tax refund claim on account of its tax exemption privileges under its legislative franchise which
covers both direct and indirect taxes. In support thereof, it cites the case of Maceda v. Macaraig, Jr.20 (Maceda).

The Court agrees with PAL.

Under Section 129 of the National Internal Revenue Code (NIRC),21 as amended, excise taxes are imposed on
two (2) kinds of goods, namely: (a) goods manufactured or produced in the Philippines for domestic sales or
consumption or for any other disposition; and (b) things imported.22

With respect to the first kind of goods, Section 130 of the NIRC states that, unless otherwise specifically
allowed, the taxpayer obligated to file the return and pay the excise taxes due thereon is the
manufacturer/producer.23
On the other hand, with respect to the second kind of goods, Section 131 of the NIRC states that the taxpayer
obligated to file the return and pay the excise taxes due thereon is the owner or importer, unless the imported
articles are exempt from excise taxes and the person found to be in possession of the same is other than those
legally entitled to such tax exemption.24

While the NIRC mandates the foregoing persons to pay the applicable excise taxes directly to the government,
they may, however, shift the economic burden of such payments to someone else – usually the purchaser of the
goods – since excise taxes are considered as a kind of indirect tax.

Jurisprudence states that indirect taxes are those which are demanded in the first instance from one person with
the expectation and intention that he can shift the economic burden to someone else.25 In this regard, the
statutory taxpayer can transfer to its customers the value of the excise taxes it paid or would be liable to pay to
the government by treating it as part of the cost of the goods and tacking it on to the selling price.26 Notably,
this shifting process, otherwise known as "passing on," is largely a contractual affair between the parties.
Meaning, even if the purchaser effectively pays the value of the tax, the manufacturer/producer (in case of
goods manufactured or produced in the Philippines for domestic sales or consumption or for any other
disposition) or the owner or importer (in case of imported goods) are still regarded as the statutory taxpayers
under the law. To this end, the purchaser does not really pay the tax; rather, he only pays the seller more for the
goods because of the latter’s obligation to the government as the statutory taxpayer.27

In this relation, Section 204(c)28 of the NIRC states that it is the statutory taxpayer which has the legal
personality to file a claim for refund. Accordingly, in cases involving excise tax exemptions on petroleum
products under Section 13529 of the NIRC, the Court has consistently held that it is the statutory taxpayer who is
entitled to claim a tax refund based thereon and not the party who merely bears its economic burden. 30

For instance, in the Silkair case, Silkair (Singapore) Pte. Ltd. (Silkair Singapore) filed a claim for tax refund
based on Section 135(b) of the NIRC as well as Article 4(2)31 of the Air Transport Agreement between the
Government of the Republic of the Philippines and the Government of the Republic of Singapore. The Court
denied Silkair Singapore’s refund claim since the tax exemptions under both provisions were conferred on the
statutory taxpayer, and not the party who merely bears its economic burden. As such, it was the Petron
Corporation (the statutory taxpayer in that case) which was entitled to invoke the applicable tax exemptions and
not Silkair Singapore which merely shouldered the economic burden of the tax. As explained in Silkair:

The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the person on whom
the tax is imposed by law and who paid the same even if he shifts the burden thereof to another. Section
130(A)(2) of the NIRC provides that "[u]nless otherwise specifically allowed, the return shall be filed and the
excise tax paid by the manufacturer or producer before removal of domestic products from place of production."
Thus, Petron Corporation, not Silkair, is the statutory taxpayer which is entitled to claim a refund based on
Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore.

Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed to Silkair for
jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser.32 (Emphasis supplied)

However, the abovementioned rule should not apply to instances where the law clearly grants the party to which
the economic burden of the tax is shifted an exemption from both direct and indirect taxes.1âwphi1 In which
case, the latter must be allowed to claim a tax refund even if it is not considered as the statutory taxpayer under
the law. Precisely, this is the peculiar circumstance which differentiates the Maceda case from Silkair.

To elucidate, in Maceda, the Court upheld the National Power Corporation’s (NPC) claim for a tax refund since
its own charter specifically granted it an exemption from both direct and indirect taxes, viz:

x x x [T]he Court rules and declares that the oil companies which supply bunker fuel oil to NPC have to pay the
taxes imposed upon said bunker fuel oil sold to NPC. By the very nature of indirect taxation, the economic
burden of such taxation is expected to be passed on through the channels of commerce to the user or consumer
of the goods sold. Because, however, the NPC has been exempted from both direct and indirect taxation, the
NPC must be held exempted from absorbing the economic burden of indirect taxation. This means, on the one
hand, that the oil companies which wish to sell to NPC absorb all or part of the economic burden of the taxes
previously paid to BIR, which they could shift to NPC if NPC did not enjoy exemption from indirect taxes. This
means also, on the other hand, that the NPC may refuse to pay the part of the "normal" purchase price of bunker
fuel oil which represents all or part of the taxes previously paid by the oil companies to BIR. If NPC
nonetheless purchases such oil from the oil companies — because to do so may be more convenient and
ultimately less costly for NPC than NPC itself importing and hauling and storing the oil from overseas — NPC
is entitled to be reimbursed by the BIR for that part of the buying price of NPC which verifiably represents the
tax already paid by the oil company-vendor to the BIR.33(Emphasis and underscoring supplied)

Notably, the Court even discussed the Maceda ruling in Silkair, highlighting the relevance of the exemptions in
NPC’s charter to its claim for tax refund:
Silkair nevertheless argues that it is exempt from indirect taxes because the Air Transport Agreement between
RP and Singapore grants exemption "from the same customs duties, inspection fees and other duties or taxes
imposed in the territory of the first Contracting Party." It invokes Maceda v. Macaraig, Jr. which upheld the
claim for tax credit or refund by the National Power Corporation (NPC) on the ground that the NPC is exempt
even from the payment of indirect taxes.

Silkair’s argument does not persuade. In Commissioner of Internal Revenue v. Philippine Long Distance
Telephone Company, this Court clarified the ruling in Maceda v. Macaraig, Jr., viz:

It may be so that in Maceda vs. Macaraig, Jr., the Court held that an exemption from "all taxes" granted to the
National Power Corporation (NPC) under its charter includes both direct and indirect taxes. But far from
providing PLDT comfort, Maceda in fact supports the case of herein petitioner, the correct lesson of Maceda
being that an exemption from "all taxes" excludes indirect taxes, unless the exempting statute, like NPC’s
charter, is so couched as to include indirect tax from the exemption. Wrote the Court:

x x x However, the amendment under Republic Act No. 6395 enumerated the details covered by the exemption.
Subsequently, P.D. 380, made even more specific the details of the exemption of NPC to cover, among others,
both direct and indirect taxes on all petroleum products used in its operation. Presidential Decree No. 938
[NPC’s amended charter] amended the tax exemption by simplifying the same law in general terms. It
succinctly exempts NPC from "all forms of taxes, duties[,] fees…"

The use of the phrase "all forms" of taxes demonstrates the intention of the law to give NPC all the tax
exemptions it has been enjoying before. . .

xxxx

It is evident from the provisions of P.D. No. 938 that its purpose is to maintain the tax exemption of NPC from
all forms of taxes including indirect taxes as provided under R.A. No. 6395 and P.D. 380 if it is to attain its
goals.

The exemption granted under Section 135(b) of the NIRC of 1997 and Article 4(2) of the Air Transport
Agreement between RP and Singapore cannot, without a clear showing of legislative intent, be construed as
including indirect taxes. Statutes granting tax exemptions must be construed in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority, and if an exemption is found to exist, it must not be
enlarged by construction. 34(Emphasis and underscoring supplied)

Based on these rulings, it may be observed that the propriety of a tax refund claim is hinged on the kind of
exemption which forms its basis. If the law confers an exemption from both direct or indirect taxes, a claimant
is entitled to a tax refund even if it only bears the economic burden of the applicable tax. On the other hand, if
the exemption conferred only applies to direct taxes, then the statutory taxpayer is regarded as the proper party
to file the refund claim.

In this case, PAL’s franchise grants it an exemption from both direct and indirect taxes on its purchase of
petroleum products. Section 13 thereof reads:

SEC. 13. In consideration of the franchise and rights hereby granted, the grantee [PAL] shall pay to the
Philippine Government during the life of this franchise whichever of subsections (a) and (b) hereunder will
result in a lower tax:

(a) The basic corporate income tax based on the grantee's annual net taxable income computed in
accordance with the provisions of the National Internal Revenue Code; or

(b) A franchise tax of two per cent (2%) of the gross revenues derived by the grantee from all sources,
without distinction as to transport or nontransport operations; provided, that with respect to international
air-transport service, only the gross passenger, mail, and freight revenues from its outgoing flights shall
be subject to this tax.

The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties,
royalties, registration, license, and other fees and charges of any kind, nature, or description, imposed, levied,
established, assessed, or collected by any municipal, city, provincial, or national authority or government
agency, now or in the future, including but not limited to the following:

1. All taxes, duties, charges, royalties, or fees due on local purchases by the grantee of aviation gas, fuel,
and oil, whether refined or in crude form, and whether such taxes, duties, charges, royalties, or fees are
directly due from or imposable upon the purchaser or the seller, producer, manufacturer, or importer of
said petroleum products but are billed or passed on the grantee either as part of the price or cost thereof
or by mutual agreement or other arrangement; provided, that all such purchases by, sales or deliveries of
 aviation gas, fuel, and oil to the grantee shall be for exclusive use in its transport and nontransport
operations and other activities incidental thereto;

2. All taxes, including compensating taxes, duties, charges, royalties, or fees due on all importations by
the grantee of aircraft, engines, equipment, machinery, spare parts, accessories, commissary and catering
supplies, aviation gas, fuel, and oil, whether refined or in crude form and other articles, supplies, or
materials; provided, that such articles or supplies or materials are imported for the use of the grantee in
its transport and transport operations and other activities incidental thereto and are not locally available
in reasonable quantity, quality, or price; (Emphasis and underscoring supplied)

xxxx

Based on the above-cited provision, PAL’s payment of either the basic corporate income tax or franchise tax,
whichever is lower, shall be in lieu of all other taxes, duties, royalties, registration, license, and other fees and
charges, except only real property tax.35 The phrase "in lieu of all other taxes" includes but is not limited to
taxes that are "directly due from or imposable upon the purchaser or the seller, producer, manufacturer, or
importer of said petroleum products but are billed or passed on the grantee either as part of the price or cost
thereof or by mutual agreement or other arrangement."36 In other words, in view of PAL’s payment of either the
basic corporate income tax or franchise tax, whichever is lower, PAL is exempt from paying: (a) taxes directly
due from or imposable upon it as the purchaser of the subject petroleum products; and (b) the cost of the taxes
billed or passed on to it by the seller, producer, manufacturer, or importer of the said products either as part of
the purchase price or by mutual agreement or other arrangement. Therefore, given the foregoing direct and
indirect tax exemptions under its franchise, and applying the principles as above-discussed, PAL is endowed
with the legal standing to file the subject tax refund claim, notwithstanding the fact that it is not the statutory
taxpayer as contemplated by law.

B. Coverage of LOI 1483.

LOI 1483 amended PAL’s franchise by withdrawing the tax exemption privilege granted to PAL on its purchase
of domestic petroleum products for use in its domestic operations. It pertinently provides:

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers
vested in me by the Constitution, do hereby order and direct that the tax-exemption privilege granted to PAL on
its purchase of domestic petroleum products for use in its domestic operations is hereby withdrawn. (Emphasis
and underscoring supplied)

On this score, the CIR contends that the purchase of the aviation fuel imported by Caltex is a "purchase of
domestic petroleum products" because the same was not purchased abroad by PAL.

The Court disagrees.

Based on Section 13 of PAL’s franchise, PAL’s tax exemption privileges on all taxes on aviation gas, fuel and
oil may be classified into three (3) kinds, namely: (a) all taxes due on PAL’s local purchase of aviation gas, fuel
and oil;37 (b) all taxes directly due from or imposable upon the purchaser or the seller, producer, manufacturer,
or importer of aviation gas, fuel and oil but are billed or passed on to PAL;38 and (c), all taxes due on all
importations by PAL of aviation gas, fuel, and oil.39

Viewed within the context of excise taxes, it may be observed that the first kind of tax privilege would be
irrelevant to PAL since it is not liable for excise taxes on locally manufactured/produced goods for domestic
sale or other disposition; based on Section 130 of the NIRC, it is the manufacturer or producer, i.e., the local
refinery, which is regarded as the statutory taxpayer of the excise taxes due on the same. On the contrary, when
the economic burden of the applicable excise taxes is passed on to PAL, it may assert two (2) tax exemptions
under the second kind of tax privilege namely, PAL’s exemptions on (a) passed on excise tax costs due from the
seller, manufacturer/producer in case of locally manufactured/ produced goods for domestic sale (first tax
exemption under the second kind of tax privilege); and (b) passed on excise tax costs due from the importer in
case of imported aviation gas, fuel and oil (second tax exemption under the second kind of tax privilege). The
second kind of tax privilege should, in turn, be distinguished from the third kind of tax privilege which applies
when PAL itself acts as the importer of the foregoing petroleum products. In the latter instance, PAL is not
merely regarded as the party to whom the economic burden of the excise taxes is shifted to but rather, it stands
as the statutory taxpayer directly liable to the government for the same.40

In view of the foregoing, the Court observes that the phrase "purchase of domestic petroleum products for use in
its domestic operations" – which characterizes the tax privilege LOI 1483 withdrew – refers only to PAL’s tax
exemptions on passed on excise tax costs due from the seller, manufacturer/producer of locally manufactured/
produced goods for domestic sale41 and does not, in any way, pertain to any of PAL’s tax privileges concerning
imported goods,42 may it be (a) PAL’s tax exemption on excise tax costs which are merely passed on to it by the
importer when it buys imported goods from the latter (the second tax exemption under the second kind of tax
privilege); or (b) PAL’s tax exemption on its direct excise tax liability when it imports the goods itself (the third
kind of tax privilege). Both textual and contextual analyses lead to this conclusion:

First, examining its phraseology, the word "domestic," which means "of or relating to one’s own country"43 or
"an article of domestic manufacture,"44 clearly pertains to goods manufactured or produced in the Philippines
for domestic sales or consumption or for any other disposition45 as opposed to things imported.46 In other
words, by sheer divergence of meaning, the term "domestic petroleum products" could not refer to goods which
are imported.

Second, examining its context, certain "whereas clauses"47 in LOI 1483 disclose that the said law was intended
to lift the tax privilege discussed in Department of Finance (DOF) Ruling dated November 17, 1969 (Subject
DOF Ruling) which, based on a reading of the same, clarified that PAL’s franchise included tax exemptions on
aviation gas, fuel and oil which are manufactured or produced in the Philippines for domestic sales (and not
only to those imported).48 In other words, LOI 1483 was meant to divest PAL from the tax privilege which was
tackled in the Subject DOF Ruling, namely, its tax exemption on aviation gas, fuel and oil which are
manufactured or produced in the Philippines for domestic sales. Consequently, if LOI 1483 was intended to
withdraw the foregoing tax exemption, then the term "purchase of domestic petroleum products for use in its
domestic operations" as used in LOI 1483 could only refer to "goods manufactured or produced in the
Philippines for domestic sales or consumption or for any other disposition," and not to "things imported." In this
respect, it cannot be gainsaid that PAL’s tax exemption privileges concerning imported goods remain beyond
the scope of LOI 1483 and thus, continue to subsist.

In this case, records disclose that Caltex imported aviation fuel from abroad and merely re-sold the same to
PAL, tacking the amount of excise taxes it paid or would be liable to pay to the government on to the purchase
price. Evidently, the said petroleum products are in the nature of "things imported" and thus, beyond the
coverage of LOI 1483 as previously discussed. As such, considering the subsistence of PAL’s tax exemption
privileges over the imported goods subject of this case, PAL is allowed to claim a tax refund on the excise taxes
imposed and due thereon.

C. PAL’s entitlement to refund.

It is hornbook principle that the Court is not a trier of facts and often, remands cases to the lower courts for the
determination of questions of such character. However, when the trial court had already received all the
evidence of the parties, the Court may resolve the case on the merits instead of remanding them in the interest
of expediency and to better serve the ends of justice.49

Applying these principles, the Court finds that the evidence on record shows that PAL was able to sufficiently
prove its entitlement to the subject tax refund. The following incidents attest to the same:

First, PAL timely filed its claim for refund.

Section 22950 of the NIRC provides that the claim for refund should be filed within two (2) years from the date
of payment of the tax.

Shortly after imported aviation fuel was delivered to PAL, Caltex electronically filed the requisite excise tax
returns and paid the corresponding amount of excise taxes, as follows:

DATE OF FILING FILING REFERENCE NO.

AND PAYMENT
July 26, 2004 074400000178825
July 27, 2004 070400000179115
July 28, 2004 070400000179294
July 29, 2004 070400000179586

PAL filed its administrative claim for refund on October 29, 200451 and its judicial claim with the CTA on July
25, 2006.52 In this regard, PAL’s claims for refund were filed on time in accordance with the 2-year prescriptive
period.

Second, PAL paid the lower of the basic corporate income tax or the franchise tax as provided for in the afore-
quoted Section 13 of its franchise.

In its income tax return for FY 2004-2005,53 PAL reported no net taxable income for the period resulting in zero
basic corporate income tax, which would necessarily be lower than any franchise tax due from PAL for the
same period.

Third, the subject excise taxes were duly declared and remitted to the BIR.
Contrary to the findings of the CTA that the excise taxes sought to be refunded were not the very same taxes
that were declared in the Excise Tax Returns filed by Caltex54 (underscoring the discrepancy of P23,855.00
between the amount of P2,975,892.90 declared in the said returns and the amount of P2,952.037.9055 sought to
be refunded), an examination of the records shows a sufficient explanation for the difference.

In the Certification56 of Caltex on the volume of aviation fuel sold to PAL and its Summary of Local
Sales57 (see table below), Caltex sold 810,870 liters during the subject period out of which 804,370 liters were
sold to PAL, while the difference of 6,500 liters58 were sold to its other client, LBOrendain.
1âw phi1

DATE OF SALE
July 24, July 25, July 26, July 27, July 28,
DOCUMENT TOTAL
2004 2004 2004 2004 2004
Certification 174,070 158,570 187,130 166,370 118,230 804,370
Summary of 177,070 158,570 187,130 166,370 121,730 810,870
Local Sales
DIFFERENCE 3,000 0 0 0 3,500 6,500

Per Summary of Removals and Excise Tax Due on Mineral Products Chargeable Against Payments attached to
the Excise Tax Returns,59 the excise tax rate is P3.67 per liter, which, if multiplied with 6,500 liters sold by
Caltex to LBOrendain, would equal the discrepancy amount of P23,855.00.

Further examination of the records also reveals that the amount reflected in Caltex’s Certification is consistent
with the amount indicated in Caltex’s Aviation Receipts and Invoices60 and Aviation Billing Invoice.61

Thus, finding that PAL has sufficiently proved its entitlement to a tax refund of the excise taxes subject of this
case, the Court hereby grants its petition and consequently, annuls the assailed CTA resolutions.

WHEREFORE, the petition is hereby GRANTED.1âwphi1 The May 9, 2011 Decision and September 16, 2011
Resolution of the Court of Tax Appeals En Banc in CTA EB Case No. 588 are ANNULLED and SET ASIDE.
Respondent Commissioner of Internal Revenue is hereby ORDERED to refund or issue a tax credit certificate
in favor of the petitioner Philippine Airlines, Inc. in the amount of P2,952,037.90.

SO ORDERED.

G.R. No. 181277 July 3, 2013

SWEDISH MATCH PHILIPPINES, INC., Petitioner,

vs.
THE TREASURER OF THE CITYOF MANILA, Respondent.

DECISION

SERENO, CJ.:

This is a Petition for Review on Certiorari1 filed by Swedish Match Philippines, Inc. (petitioner) under Rule 45
of the 1997 Rules of Civil Procedure assailing the Court of Tax Appeals En Bane (CTA En Bane) Decision2
dated 1 October 2007 and Resolution3 dated 14 January 2008 in C.T.A. EB No. 241.

THE FACTS

On 20 October 2001, petitioner paid business taxes in the total amount of P470,932.21.4 The assessed amount
was based on Sections 145 and 216 of Ordinance No. 7794, otherwise known as the Manila Revenue Code, as
amended by Ordinance Nos. 7988 and 8011. Out of that amount, P164,552.04 corresponded to the payment
under Section 21.7

Assenting that it was not liable to pay taxes under Section 21, petitioner wrote a letter8 dated 17 September
2003 to herein respondent claiming a refund of business taxes the former had paid pursuant to the said
provision. Petitioner argued that payment under Section 21 constituted double taxation in view of its payment
under Section 14.
On 17 October 2003, for the alleged failure of respondent to act on its claim for a refund, petitioner filed a
Petition for Refund of Taxes9 with the RTC of Manila in accordance with Section 196 of the Local Government
Code of 1991. The Petition was docketed as Civil Case No. 03-108163.

On 14 June 2004, the Regional Trial Court (RTC), Branch 21 of Manila rendered a Decision10 in Civil Case
No. 03-108163 dismissing the Petition for the failure of petitioner to plead the latter’s capacity to sue and to
state the authority of Tiarra T. Batilaran-Beleno (Ms. Beleno), who had executed the Verification and
Certification of Non-Forum Shopping.

In denying petitioner’s Motion for Reconsideration, the RTC went on to say that Sections 14 and 21 pertained
to taxes of a different nature and, thus, the elements of double taxation were wanting in this case.

On appeal, the CTA Second Division affirmed the RTC’s dismissal of the Petition for Refund of Taxes on the
ground that petitioner had failed to state the authority of Ms. Beleno to institute the suit.

The CTA En Banc likewise denied the Petition for Review, ruling as follows:

In this case, the plaintiff is the Swedish Match Philippines, Inc. However, as found by the RTC as well as the
Court in Division, the signatory of the verification and/or certification of non-forum shopping is Ms. Beleno,
the company’s Finance Manager, and that there was no board resolution or secretary's certificate showing proof
of Ms. Beleno’s authority in acting in behalf of the corporation at the time the initiatory pleading was filed in
the RTC. It is therefore, correct that the case be dismissed.

WHEREFORE, premises considered, the petition for review is hereby DENIED. Accordingly, the assailed
Decision and the Resolution dated August 8, 2006 and November 27, 2006, respectively, are hereby
AFFIRMED in toto.

SO ORDERED.11

ISSUES

In order to determine the entitlement of petitioner to a refund of taxes, the instant Petition requires the
resolution of two main issues, to wit:

1) Whether Ms. Beleno was authorized to file the Petition for Refund of Taxes with the RTC; and

2) Whether the imposition of tax under Section 21 of the Manila Revenue Code constitutes double taxation in
view of the tax collected and paid under Section 14 of the same code.12

THE COURT’S RULING

Authority from the board to sign the

Verification and Certification of
Non-Forum Shopping

Anent the procedural issue, petitioner argues that there can be no dispute that Ms. Beleno was acting within her
authority when she instituted the Petition for Refund before the RTC, notwithstanding that the Petition was not
accompanied by a Secretary’s Certificate. Her authority was ratified by the Board in its Resolution adopted on
19 May 2004. Thus, even if she was not authorized to execute the Verification and Certification at the time of
the filing of the Petition, the ratification by the board of directors retroactively applied to the date of her signing.

On the other hand, respondent contends that petitioner failed to establish the authority of Ms. Beleno to institute
the present action on behalf of the corporation. Citing Philippine Airlines v. Flight Attendants and Stewards
Association of the Philippines (PAL v. FASAP),13 respondent avers that the required certification of non-forum
shopping should have been valid at the time of the filing of the Petition. The Petition, therefore, was defective
due to the flawed Verification and Certification of Non-Forum Shopping, which were insufficient in form and
therefore a clear violation of Section 5, Rule 7 of the 1997 Rules of Civil Procedure.

We rule for petitioner.

Time and again, this Court has been faced with the issue of the validity of the verification and certification of
non-forum shopping, absent any authority from the board of directors.

The power of a corporation to sue and be sued is lodged in the board of directors, which exercises its corporate
powers.14 It necessarily follows that "an individual corporate officer cannot solely exercise any corporate
power pertaining to the corporation without authority from the board of directors."15 Thus, physical acts of the
corporation, like the signing of documents, can be performed only by natural persons duly authorized for the
purpose by corporate by-laws or by a specific act of the board of directors.16

Consequently, a verification signed without an authority from the board of directors is defective. However, the
requirement of verification is simply a condition affecting the form of the pleading and non-compliance does
not necessarily render the pleading fatally defective.17 The court may in fact order the correction of the
pleading if verification is lacking or, it may act on the pleading although it may not have been verified, where it
is made evident that strict compliance with the rules may be dispensed with so that the ends of justice may be
served.18

Respondent cites this Court’s ruling in PAL v. FASAP,19 where we held that only individuals vested with
authority by a valid board resolution may sign a certificate of non-forum shopping on behalf of a corporation.
The petition is subject to dismissal if a certification was submitted unaccompanied by proof of the signatory’s
authority.20 In a number of cases, however, we have recognized exceptions to this rule. Cagayan Valley Drug
Corporation v. Commissioner of Internal Revenue21 provides:

In a slew of cases, however, we have recognized the authority of some corporate officers to sign the verification
and certification against forum shopping. In Mactan-Cebu International Airport Authority v. CA, we recognized
the authority of a general manager or acting general manager to sign the verification and certificate against
forum shopping; in Pfizer v. Galan, we upheld the validity of a verification signed by an "employment
specialist" who had not even presented any proof of her authority to represent the company; in Novelty
Philippines, Inc., v. CA, we ruled that a personnel officer who signed the petition but did not attach the
authority from the company is authorized to sign the verification and non-forum shopping certificate; and in
Lepanto Consolidated Mining Company v. WMC Resources International Pty. Ltd. (Lepanto), we ruled that the
Chairperson of the Board and President of the Company can sign the verification and certificate against non-
forum shopping even without the submission of the board’s authorization.

In sum, we have held that the following officials or employees of the company can sign the verification and
certification without need of a board resolution: (1) the Chairperson of the Board of Directors, (2) the President
of a corporation, (3) the General Manager or Acting General Manager, (4) Personnel Officer, and (5) an
Employment Specialist in a labor case.

While the above cases do not provide a complete listing of authorized signatories to the verification and
certification required by the rules, the determination of the sufficiency of the authority was done on a case to
case basis. The rationale applied in the foregoing cases is to justify the authority of corporate officers or
representatives of the corporation to sign the verification or certificate against forum shopping, being "in a
position to verify the truthfulness and correctness of the allegations in the petition." (Emphases supplied)

Given the present factual circumstances, we find that the liberal jurisprudential exception may be applied to this
case.

A distinction between noncompliance and substantial compliance with the requirements of a certificate of non-
forum shopping and verification as provided in the Rules of Court must be made.22 In this case, it is undisputed
that the Petition filed with the RTC was accompanied by a Verification and Certification of Non-Forum
Shopping signed by Ms. Beleno, although without proof of authority from the board. However, this Court finds
that the belated submission of the Secretary’s Certificate constitutes substantial compliance with Sections 4 and
5, Rule 7 of the 1997 Revised Rules on Civil Procedure.

A perusal of the Secretary’s Certificate signed by petitioner’s Corporate Secretary Rafael Khan and submitted
to the RTC shows that not only did the corporation authorize Ms. Beleno to execute the required Verifications
and/or Certifications of Non-Forum Shopping, but it likewise ratified her act of filing the Petition with the RTC.
The Minutes of the Special Meeting of the Board of Directors of petitioner-corporation on 19 May 2004 reads:
RESOLVED, that Tiarra T. Batilaran-Beleno, Finance Director of the Corporation, be authorized, as she is
hereby authorized and empowered to represent, act, negotiate, sign, conclude and deliver, for and in the name of
the Corporation, any and all documents for the application, prosecution, defense, arbitration, conciliation,
execution, collection, compromise or settlement of all local tax refund cases pertaining to payments made to the
City of Manila pursuant to Section 21 of the Manila Revenue Code, as amended;

RESOLVED, FURTHER, that Tiarra T. Batilaran-Beleno be authorized to execute Verifications and/or

Certifications as to Non-Forum Shopping of Complaints/Petitions that may be filed by the Corporation in the
above-mentioned tax-refund cases;

RESOLVED, FURTHER, that the previous institution by Tiarra T. Batilaran-Beleno of tax refund cases on
behalf of the Corporation, specifically Civil Cases Nos. 01-102074, 03-108163, and, 04-109044, all titled
"Swedish Match Philippines, Inc. v. The Treasurer of the City of Manila" and pending in the Regional Trial
Court of Manila, as well as her execution of the Verifications and/or Certifications as to Non-Forum Shopping
in these tax refund cases, are hereby, approved and ratified in all respects. (Emphasis supplied)

Clearly, this is not an ordinary case of belated submission of proof of authority from the board of directors.
Petitioner-corporation ratified the authority of Ms. Beleno to represent it in the Petition filed before the RTC,
particularly in Civil Case No. 03-108163, and consequently to sign the verification and certification of non-
forum shopping on behalf of the corporation. This fact confirms and affirms her authority and gives this Court
all the more reason to uphold that authority.23

Additionally, it may be remembered that the Petition filed with the RTC was a claim for a refund of business
taxes. It should be noted that the nature of the position of Ms. Beleno as the corporation’s finance
director/manager is relevant to the determination of her capability and sufficiency to verify the truthfulness and
correctness of the allegations in the Petition. A finance director/manager looks after the overall management of
the financial operations of the organization and is normally in charge of financial reports, which necessarily
include taxes assessed and paid by the corporation. Thus, for this particular case, Ms. Beleno, as finance
director, may be said to have been in a position to verify the truthfulness and correctness of the allegations in
the claim for a refund of the corporation’s business taxes.

In Mediserv v. Court of Appeals,24 we said that a liberal construction of the rules may be invoked in situations
in which there may be some excusable formal deficiency or error in a pleading, provided that the invocation
thereof does not subvert the essence of the proceeding, but at least connotes a reasonable attempt at compliance
with the rules. After all, rules of procedure are not to be applied in a very rigid, technical manner, but are used
only to help secure substantial justice.25

More importantly, taking into consideration the substantial issue of this case, we find a special circumstance or
compelling reason to justify the relaxation of the rule. Therefore, we deem it more in accord with substantive
justice that the case be decided on the merits.

Double taxation

As to the substantive issues, petitioner maintains that the enforcement of Section 21 of the Manila Revenue
Code constitutes double taxation in view of the taxes collected under Section 14 of the same code. Petitioner
points out that Section 21 is not in itself invalid, but the enforcement of this provision would constitute double
taxation if business taxes have already been paid under Section 14 of the same revenue code. Petitioner further
argues that since Ordinance Nos. 7988 and 8011 have already been declared null and void in Coca-Cola Bottlers
Philippines, Inc. v. City of Manila,26 all taxes collected and paid on the basis of these ordinances should be
refunded.

In turn, respondent argues that Sections 14 and 21 pertain to two different objects of tax; thus, they are not of
the same kind and character so as to constitute double taxation. Section 14 is a tax on manufacturers,
assemblers, and other processors, while Section 21 applies to businesses subject to excise, value-added, or
percentage tax. Respondent posits that under Section 21, petitioner is merely a withholding tax agent of the City
of Manila.
At the outset, it must be pointed out that the issue of double taxation is not novel, as it has already been settled
by this Court in The City of Manila v. Coca-Cola Bottlers Philippines, Inc.,27 in this wise:

Petitioners obstinately ignore the exempting proviso in Section 21 of Tax Ordinance No. 7794, to their own
detriment. Said exempting proviso was precisely included in said section so as to avoid double taxation.

Double taxation means taxing the same property twice when it should be taxed only once; that is, "taxing the
same person twice by the same jurisdiction for the same thing." It is obnoxious when the taxpayer is taxed
twice, when it should be but once. Otherwise described as "direct duplicate taxation," the two taxes must be
imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same
jurisdiction, during the same taxing period; and the taxes must be of the same kind or character.

Using the aforementioned test, the Court finds that there is indeed double taxation if respondent is subjected to
the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are being imposed: (1) on the
same subject matter – the privilege of doing business in the City of Manila; (2) for the same purpose – to make
persons conducting business within the City of Manila contribute to city revenues; (3) by the same taxing
authority – petitioner City of Manila; (4) within the same taxing jurisdiction – within the territorial jurisdiction
of the City of Manila; (5) for the same taxing periods – per calendar year; and (6) of the same kind or character
– a local business tax imposed on gross sales or receipts of the business.

The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of Tax Ordinance No.
7794 is specious. The Court revisits Section 143 of the LGC, the very source of the power of municipalities and
cities to impose a local business tax, and to which any local business tax imposed by petitioner City of Manila
must conform. It is apparent from a perusal thereof that when a municipality or city has already imposed a
business tax on manufacturers, etc. of liquors, distilled spirits, wines, and any other article of commerce,
pursuant to Section 143(a) of the LGC, said municipality or city may no longer subject the same manufacturers,
etc. to a business tax under Section 143(h) of the same Code. Section 143(h) may be imposed only on
businesses that are subject to excise tax, VAT, or percentage tax under the NIRC, and that are "not otherwise
specified in preceding paragraphs." In the same way, businesses such as respondent’s, already subject to a local
business tax under Section 14 of Tax Ordinance No. 7794 [which is based on Section 143(a) of the LGC], can
no longer be made liable for local business tax under Section 21 of the same Tax Ordinance [which is based on
Section 143(h) of the LGC].28 (Emphases supplied)

Based on the foregoing reasons, petitioner should not have been subjected to taxes under Section 21 of the
Manila Revenue Code for the fourth quarter of 2001, considering that it had already been paying local business
tax under Section 14 of the same ordinance.

Further, we agree with petitioner that Ordinance Nos. 7988 and 8011 cannot be the basis for the collection of
business taxes. In Coca-Cola,29 this Court had the occasion to rule that Ordinance Nos. 7988 and 8011 were
null and void for failure to comply with the required publication for three (3) consecutive days. Pertinent
portions of the ruling read:

It is undisputed from the facts of the case that Tax Ordinance No. 7988 has already been declared by the DOJ
Secretary, in its Order, dated 17 August 2000, as null and void and without legal effect due to respondents’
failure to satisfy the requirement that said ordinance be published for three consecutive days as required by law.
Neither is there quibbling on the fact that the said Order of the DOJ was never appealed by the City of Manila,
thus, it had attained finality after the lapse of the period to appeal.1âwphi1

Furthermore, the RTC of Manila, Branch 21, in its Decision dated 28 November 2001, reiterated the findings of
the DOJ Secretary that respondents failed to follow the procedure in the enactment of tax measures as mandated
by Section 188 of the Local Government Code of 1991, in that they failed to publish Tax Ordinance No. 7988
for three consecutive days in a newspaper of local circulation. From the foregoing, it is evident that Tax
Ordinance No. 7988 is null and void as said ordinance was published only for one day in the 22 May 2000 issue
of the Philippine Post in contravention of the unmistakable directive of the Local Government Code of 1991.

Despite the nullity of Tax Ordinance No. 7988, the court a quo, in the assailed Order, dated 8 May 2002, went
on to dismiss petitioner’s case on the force of the enactment of Tax Ordinance No. 8011, amending Tax
Ordinance No. 7988. Significantly, said amending ordinance was likewise declared null and void by the DOJ
Secretary in a Resolution, dated 5 July 2001, elucidating that "Instead of amending Ordinance No. 7988, herein
respondent should have enacted another tax measure which strictly complies with the requirements of law, both
procedural and substantive. The passage of the assailed ordinance did not have the effect of curing the defects
of Ordinance No. 7988 which, any way, does not legally exist." Said Resolution of the DOJ Secretary had, as
well, attained finality by virtue of the dismissal with finality by this Court of respondents’ Petition for Review
on Certiorari in G.R. No. 157490 assailing the dismissal by the RTC of Manila, Branch 17, of its appeal due to
lack of jurisdiction in its Order, dated 11 August 2003.30 (Emphasis in the original)

Accordingly, respondent’s assessment under both Sections 14 and 21 had no basis. Petitioner is indeed liable to
pay business taxes to the City of Manila; nevertheless, considering that the former has already paid these taxes
under Section 14 of the Manila Revenue Code, it is exempt from the same payments under Section 21 of the
same code. Hence, payments made under Section 21 must be refunded in favor of petitioner.

It is undisputed that petitioner paid business taxes based on Sections 14 and 21 for the fourth quarter of 2001 in
the total amount of P470,932.21.31 Therefore, it is entitled to a refund of P164,552.0432 corresponding to the
payment under Section 21 of the Manila Revenue Code.

WHEREFORE, premises considered, the instant Petition is GRANTED. Accordingly, the Court of Tax Appeals
En Banc Decision dated 1 October 2007 and Resolution dated 14 January 2008 are REVERSED and SET
ASIDE.

SO ORDERED.

G.R. No. 175142, July 22, 2013

BONIFACIO WATER CORPORATION (FORMERLY BONIFACIO VIVENDI WATER
CORPORATION), Petitioner, v. THE COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION
PERALTA, J.:

This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court which seeks the review
of the Court of Tax Appeals En Banc Decision1 dated June 26, 2006, and Resolution2 dated October 19, 2006.

The facts follow.

Petitioner is a domestic corporation engaged in the collection, purification and distribution of water. It is
registered with the Bureau of Internal Revenue (BIR) as a value-added tax (VAT) taxpayer, with VAT
Registration/Taxpayer Identification No. 201-403-657-000.

Petitioner duly filed with the BIR its quarterly VAT returns for the 4th quarter of 1999, 1st quarter of 2000,
2nd quarter of 2000, 3rdquarter of 2000, and 4th quarter of 2000, declaring the following
information:cralavvonlinelawlibrary
QUARTER EXH TAXABLE OUTPUT INPUT TAX DOMESTIC INPUT VAT TOTAL EXCESS
. SALES VAT CARRIED PURCHASES AVAILABLE INPUT
INVOLVE OVER VAT
D FROM INPUT VAT
PREVIOUS
QUARTER
(A) (B) (C) (D) (E) (F)=(C)+(E) (G)=(B)+(F)
2000
4th Qtr. A - 25,291,053.6 196,306,597.3 19,630,659.7 44,921,713.35 44,921,713.3
2 0 3 5
1999
1st Qtr. B - 44,921,713.3 186,000,881.7 18,600,088.1 63,521,801.52 63,521,801.5
5 0 7 2
2nd Qtr. C 2,182,615.7 218,261.5 63,521,801.5 151,074,719.1 15,107,471.9 78,629,273.43 78,411,011.8
5 7 2 0 1 6
3rd Qtr. D 1,505,786.7 150,578.6 78,411,011.8 121,599,043.0 12,159,904.3 90,570,916.16 90,420,337.4
 0 7 6 0 0 9
4th Qtr. E 2,924,127.1 292,412.7 90,420,337.4 96,717,388.90 9,671,738.89 100,092,076.3 99,799,663.6
0 1 9 8 7

For said period, petitioner alleges that its input VAT included, among others, input VAT paid on purchases of
capital goods amounting to P65,642,814.65. These purchases supposedly pertain to payment to contractors in
connection with the construction of petitioner’s Sewage Treatment Plant, Water and Waste System, and Water
Treatment Plant, broken down as follows:cralavvonlinelawlibrary
Quarter Input VAT Paid on Total Amount
Purchase of Capital Goods
1999
4th Quarter P11,607,748.20 P11,607,748.20
2000
1st Quarter P18,281,682.96
2nd Quarter 14,884,531.96
3rd Quarter 21,705,122.19
4th Quarter (836,270.66) 54,035,066.45
Grand Total P65,642,814.65

On January 22, 2002, petitioner filed with Revenue District Office No. 44–Pateros and Taguig, Revenue Region
No. 8 of the BIR, an administrative claim for refund or issuance of a tax credit certificate in the amount of
P65,642,814.65 representing unutilized input VAT on capital goods purchased for the period beginning the 4th
quarter of 1999 up to the 4th quarter of 2000.

The next day, petitioner filed its Petition for Review with the Court of Tax Appeals (CTA), to toll the running
of the two-year prescriptive period.

On March 29, 2005, the CTA Second Division rendered a Decision3 partially granting petitioner’s claim for
refund in the reduced amount of P40,875,208.64.

In said case, the CTA Second Division held that an examination of the various official receipts presented by
petitioner, to support its purchases for capital goods, shows that some of its purchases, such as rental,
management fees and direct overhead, cannot be considered as capital goods. Further, it ruled that the official
receipts under the name “Bonifacio GDE Water Corporation” were disallowed on the ground that the use of
said business name by petitioner was never approved by the Securities and Exchange Commission (SEC). Thus,
the court ruled as follows:cralavvonlinelawlibrary
WHEREFORE, in the light of the foregoing, the Petition for Review is PARTIALLY GRANTED. The
respondent is hereby ORDERED TO REFUND or TO ISSUE A TAX CREDIT CERTIFICATE in favor of
the petitioner in the reduced amount of P40,875,208.64, representing unutilized input VAT on capital goods for
the period from the 4th quarter of 1999 to the 4th quarter of 2000, computed as follows:cralavvonlinelawlibrary
Amount Claimed P 65,642,814.65
Less: Disallowance per
Court’s Evaluation 24,767,606.01
Refundable Amount P 40,875,208.64
4
SO ORDERED.

The parties filed their respective motions for reconsideration against said Decision. However, in a
Resolution5 dated August 23, 2005, the CTA Second Division held as follows:cralavvonlinelawlibrary
In sum, the refundable amount to be granted to petitioner should be increased to P45,446,280.55, computed as
follows:cralavvonlinelawlibrary
Refundable Amount per Decision P 40,875,208.64
Add: Additional Input VAT
a.) Construction in Progress P 1,439,629.72
b.) Input VAT found not to have been recorded 3,131,442.19 4,571,071.91
twice
Total Refundable Amount P 45,446,280.55
IN VIEW OF ALL THE FOREGOING, respondent’s Motion for Reconsideration is DENIED for lack of
merit, while petitioner’s Motion for Partial Reconsideration is PARTIALLY GRANTED.

Accordingly, respondent is ORDERED to REFUND or TO ISSUE A TAX CREDIT CERTIFICATE in

favor of petitioner in the increased amount of P45,446,280.55 as computed above.

SO ORDERED.6nadcralavvonlinelawlibrary

Petitioner thereafter filed its petition for review with the CTA En Banc arguing that it has presented substantial
evidence that proves its input VAT on purchases of capital goods from the 4th quarter of 1999 to the 4th quarter
of 2000, as well as the fact that petitioner and “Bonifacio GDE Corporation” are one and the same entity.

In a Decision7 dated June 26, 2006, the CTA En Banc affirmed in toto the assailed Decision and Resolution of
the CTA Second Division. The fallo of the Decision states:cralavvonlinelawlibrary
WHEREFORE, premises considered, the assailed Decision and Resolution of the Second Division [are]
hereby AFFIRMED in toto, and the Petition for Review is hereby DISMISSED for lack of merit.

SO ORDERED.8nadcralavvonlinelawlibrary

Unfazed, petitioner filed a motion for reconsideration against said Decision, which was denied in a
Resolution9 dated October 19, 2006.

Thus, the present petition wherein petitioner lists the following grounds in support of its
petition:cralavvonlinelawlibrary
GROUNDS FOR THE PETITION

PETITIONER RESPECTFULLY MOVES THAT THE ASSAILED DECISION DATED 26 JUNE 2006, AND
THE RESOLUTION DATED 19 OCTOBER 2006, ISSUED BY THE CTA EN BANC, BE SET ASIDE,
BASED ON ANY OR ALL OF THE FOLLOWING GROUNDS:cralavvonlinelawlibrary
I

THE CTA EN BANC ERRED WHEN IT SANCTIONED THE PARTIAL DENIAL OF PETITIONER’S
CLAIM FOR REFUND ON THE GROUND THAT PETITIONER’S INVOICES ARE NOT COMPLIANT
WITH ADMINISTRATIVE REGULATIONS.
II

THE CTA EN BANC ERRED WHEN IT SANCTIONED THE PARTIAL DENIAL OF PETITIONER’S
CLAIM FOR REFUND BY ITS FAILURE TO APPLY THE DEFINITION OF CAPITAL GOODS
CONTAINED IN EXISTING JURISPRUDENCE TO CERTAIN PURCHASES OF PETITIONER.
III

THE CTA EN BANC FAILED TO APPLY THE RULES REGARDING JUDICIAL ADMISSIONS IN THE
PROCEEDINGS BELOW.
IV

IN CIVIL CASES, SUCH AS CLAIMS FOR REFUND, STRICT COMPLIANCE WITH TECHNICAL
RULES OF EVIDENCE IS NOT REQUIRED. MOREOVER, A MERE PREPONDERANCE OF EVIDENCE
WILL SUFFICE TO JUSTIFY THE GRANT OF A CLAIM. THE CTA EN BANC SANCTIONED THE USE
OF A HIGHER STANDARD OF EVIDENCE IN A NON-CRIMINAL PROCEEDING.10

Simply, the issue is whether or not the CTA En Banc erred in not granting petitioner’s claim for refund or
issuance of a tax credit certificate in the amount of P65,642,814.65.

Petitioner contends that non-compliance with the invoicing requirements under the 1997 Tax Code does not
automatically result in the denial of a claim for refund or tax credit when the same is supported by substantial
evidence. It contends that the CTA En Banc erred in sustaining the ruling that petitioner is not entitled to a
refund of the input VAT evidenced by official receipts in the name of “Bonifacio GDE Water Corporation.”
Petitioner further submits that the CTA erred in failing to properly apply the definition of capital goods and
insists that services incurred in the construction and installation of capital assets and goods should be included
in the cost of capital goods for purposes of determining the proper amount of refundable input VAT.

It also posits that respondent made an “informal judicial admission” and partially recognized its claims for
excess input VAT on purchases of capital goods when Revenue District No. 44 issued a memorandum
acknowledging, inter alia, that the input taxes claimed as refund were duly supported by valid VAT invoices
and/or receipts.

Lastly, petitioner asserts that the CTA imposed an overly strict standard of evidence in disallowing petitioner’s
invoices bearing the name “Bonifacio GDE Water Corporation.” It claims that the denial of the claim in its
entirety based purely on technical grounds unduly deprives petitioner of a right granted by law and constitutes
an undue deprivation of its property.

For its part, respondent argues that the instant petition raises purely questions of fact which is not allowed under
Rule 45 of the Rules of Court. He highlights the fact that the issue of whether or not petitioner was able to
present substantial evidence to prove and support its claim for tax refund or tax credit calls for this Court to
review and evaluate all the evidence to enable it to determine and resolve the issues raised by petitioner.

Moreover, respondent avers that the CTA En Banc committed no error in not applying the rules regarding
judicial admissions, since no judicial admission was made by or was attributable to respondent, either in the
pleadings or in the course of the trial proceedings. He argues that the admission made by a subordinate BIR
official in support of the course of action which he had proposed or submitted for approval by his superior
cannot by any stretch of imagination be considered an admission, much less a judicial admission, of the latter.

Finally, respondent stresses that the CTA En Banc did not err in using stricter rules of evidence in cases
involving claims for tax refund or tax credit as the same are in the nature of tax exemptions and are regarded as
in derogation of sovereign authority and to be construed strictissimi juris against the entity claiming the
exemption.

We agree with respondent.

At the outset, it must be emphasized that an appeal by petition for review on certiorari cannot determine factual
issues. In the exercise of its power of review, 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 trial.11 However, although the
rules provide for certain recognized exceptions,12 the circumstances surrounding the present case do not fall
under any of them.

Assuming, however, that this Court can take cognizance of the instant case, it bears stressing that the arguments
raised by petitioner have already been extensively discussed by both the CTA Second Division and the CTA En
Banc, to wit:cralavvonlinelawlibrary
Petitioner, in support of its first ground, argues that it has presented substantial evidence that unequivocally
proved petitioner’s input VAT on purchases of capital goods from the 4th quarter of 1999 to the 4th quarter of
2000 as well as the fact that petitioner and Bonifacio GDE Corporation are one and the same entity.

We do not agree.

The change of name to Bonifacio GDE Corporation being unauthorized and without approval from the
Securities and Exchange Commission, petitioner cannot now seek for a refund of input taxes which are
supported by receipts under that name. This is pursuant to Sections 4.104-5 and 4.108-1 of Revenue
Regulations No. 7-95 in relation to Sections 113 and 237 of the Tax Code, reproduced below for easy reference.

xxxx

The requisite that the receipt be issued showing the name, business style, if any, and address of the
purchaser, customer or client is precise so that when the books of accounts are subjected to a tax audit
examination, all entries therein could be shown as adequately supported and proven as legitimate
business transactions. The absence of official receipts issued in the taxpayer’s name is tantamount to non-
compliance with the substantiation requirements provided by law.
Petitioner cannot raise the argument that, “non-compliance with the invoicing requirements under the 1997
NIRC, as amended, does not automatically result in the denial of a claim for refund or tax credit when the same
is supported by substantial evidence” and that, “In civil cases, such as claims for refund, strict compliance with
technical rules of evidence is not required. Moreover, a mere preponderance of evidence will suffice to justify
the grant of a claim,” in addition to its first ground in the instant petition. Taxpayers claiming for a refund or tax
credit certificate must comply with the strict and mandatory invoicing and accounting requirements provided
under the 1997 NIRC, as amended, and its implementing rules and regulations. Rules and regulations with
regard to procedures are implemented not to be ignored or to be taken for granted, but are strictly adhered to for
they are developed from the law itself. 13

From the foregoing, it is clear that petitioner must show satisfaction of all the documentary and evidentiary
requirements before an administrative claim for refund or tax credit will be granted. Perforce, the taxpayer
claiming the refund must comply with the invoicing and accounting requirements mandated by the Tax Code, as
well as the revenue regulations implementing them.14

Thus, the change of petitioner’s name to “Bonifacio GDE Water Corporation,” being unauthorized and without
approval of the SEC, and the issuance of official receipts under that name which were presented to support
petitioner’s claim for tax refund, cannot be used to allow the grant of tax refund or issuance of a tax credit
certificate in petitioner’s favor. The absence of official receipts issued in its name is tantamount to non-
compliance with the substantiation requirements provided by law and, hence, the CTA En Banc’s partial grant
of its refund on that ground should be upheld.

Also, petitioner’s allegation that some of the disallowed input taxes paid on services related to the construction
of petitioner’s Waste Water Treatment and Water Sewerage Distribution Networks, should be included as part
of its capital goods, must fail. As comprehensively discussed by the CTA Second Division in its
Resolution15 dated August 23, 2005 –
Petitioner alleges that the disallowed input taxes are paid on services related to the construction of petitioner’s
Waste Water Treatment Plant and Water Sewerage Distribution Networks, summarized as
follows:cralavvonlinelawlibrary
Expense Exhibit Payee
Professional services, project management and O-27 Symonds Travers
design, advisory works for operations and Morgan
management, and contract preparation/
supervision.
Lease for Water Treatment Plant, Waste Water O-29 Fort Bonifacio
Treatment Plant and Elevated Reservoir from Development
April 1999 to August 2000 Corporation
Professional services for project management and O-33 Symonds Travers
design for August 2000 Morgan
Rental on BDCA lot from 1 September 2000 to 31 O-35 Fort Bonifacio
November 2001 for the Water Treatment Plant, Development
Waste Water Treatment Plant and Elevated Corporation
Reservoir
Insurance for turned-over waste water treatment O-36 -do-
facilities
Professional services O-37 Symonds Travers
Morgan
O-39 Fort Bonifacio
Development
Corporation
Contracted services and secondment O-41 Sade Compagnie
Generale de
Travaux
Contracted services for additional service O-42 -do-
connection
xxxx

Thus, it can be seen that the aforesaid expenses were correspondingly charged to “Pre-Operating Expense,”
“Accrued Expense,” “Direct Overhead,” “Prepaid Insurance,” and “Construction in Progress.”

Records reveal that petitioner’s Property, Plant & Equipment account is composed of the following specific
account titles, to wit:cralavvonlinelawlibrary
__________________________________________________________________________________________
_____
2000 1999
__________________________________________________________________________________________
_____
Plant, machinery and equipment P 625,868,017.00 P -
Sewerage and water pipelines 563,252,132.00 -
Reservoir, tanks and pumping station 186,127,317.00 -
Leasehold improvements 162,561,913.00 -
Electronic and instrumentation 153,544,879.00 -
Building 64,865,059.00 -
Wells 20,248,580.00 -
Office furnitures, fixtures & equipment 6,658,699.00 335,209.00
Transportation equipment 3,004,053.00 -
__________________________________________________________________________________________
_____
P 1,786,130,649.00 P 335,209.00
Less: Accumulated Depreciation 868,012.00 -
__________________________________________________________________________________________
_____
P 1,785,262,637.00 P 335,209.00
Construction in Progress 73,185,765.00 832,065,352.00
__________________________________________________________________________________________
_____
P 1,858,448,402.00 P 832,400,561.00
__________________________________________________________________________________________
_____

Only the above real accounts are to be considered as capital goods since “capital goods” is defined
as:cralavvonlinelawlibrary
“Capital goods or properties” refer to goods or properties with estimated useful life greater than one year and
which are treated as depreciable assets under Section 29(f), used directly or indirectly in the production or sale
of taxable goods or services.
Had petitioner intended the aforementioned itemized expenses to be part of Property, Plant & Equipment, then
it should have recorded the same to the foregoing specific accounts. Except for the account “Construction in
Progress,” the other expense items do not fall within the definition of capital goods pursuant to Section 4.106-
1(b) of Revenue Regulations No. 7-95.16

As a final point, it is doctrinal that the Court will not lightly set aside the conclusions reached by the CTA
which, by the very nature of its function of being dedicated exclusively to the resolution of tax problems, has
accordingly developed an expertise on the subject, unless there has been an abuse or improvident exercise of
authority.17

In fact, in Barcelon, Roxas Securities, Inc. v. Commissioner of Internal Revenue,18 this Court held that it
accords the findings of fact by the CTA with the highest respect. It ruled that factual findings made by the CTA
can only be disturbed on appeal if they are 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.19
In the present case, no cogent reason exists for this Court to deviate from this well-entrenched principle, since
the CTA En Banc neither abused its authority nor committed gross error in partially denying petitioner’s refund
claim.

WHEREFORE, premises considered, the instant petition is DENIED. The Court of Tax Appeals En
Banc Decision dated June 26, 2006, and Resolution dated October 19, 2006, are hereby AFFIRMED.

SO ORDERED.

G.R. Nos. 167274-75 September 11, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
FORTUNE TOBACCO CORPORATION, Respondent.
x-----------------------x
G.R. No. 192576
FORTUNE TOBACCO CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
VELASCO, JR., J.:

Fortune Tobacco Corporation (FTC), as petitioner in G.R. No. 192576,1 assails and seeks the reversal of the
Decision of the Court of Tax Appeals (CTA) En Banc dated March 12, 2010, as effectively reiterated in a
Resolution of June 11, 2010, both rendered in C.T.A. EB No. 530 entitled Fortune Tobacco Corporation v.
Commissioner of Internal Revenue. The assailed issuances affirmed the Resolution of the CTA First Division
dated June 4, 2009, denying the Motion for Issuance of Additional Writ of Execution filed by herein petitioner
in CTA Case Nos. 6365, 6383 & 6612, and the Resolution dated August 10, 2009 which denied its Motion for
Reconsideration.
The present appellate proceedings traces its origin from and finds context in the July 21, 2008 Decision2 of the
Court in G.R. Nos. 167274-75, an appeal thereto interposed by the Commissioner of Internal Revenue (BIR
Commissioner) from the consolidated Decision and Resolution issued by the Court of Appeals on September
28, 2004 and March 1, 2005, respectively, in CA-G.R. SP Nos. 80675 and 83165. The decretal part of the July
21, 2008 Decision reads:
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA G.R. SP No. 80675, dated
28 September 2004,and its Resolution, dated 1 March 2005, are AFFIRMED. No pronouncement as to costs.
SO ORDERED.3 (Emphasis supplied.)
The antecedent facts, as summarized by the CTA in its adverted March 12, 2010 Decision, are as follows:
FTC (herein petitioner Fortune Tobacco Corporation) is engaged in manufacturing or producing cigarette
brands with tax rate classification based on net retail price prescribed as follows:
Brand Tax Rate
Champion M 100 P1.00
Salem M 100 P1.00
Salem M King P1.00
Camel F King P1.00
Camel Lights Box 20’s P1.00
Camel Filters Box 20’s P1.00
Winston F King P5.00
Winston Lights P5.00
Prior to January 1, 1997, the aforesaid cigarette brands were subject to ad-valorem tax under Section 142 of the
1977 Tax Code, as amended. However, upon the effectivity of Republic Act (R.A.) No. 8240on January 1,
1997, a shift from ad valorem tax system to the specific tax system was adopted imposing excise taxes on
cigarette brands under Section 142 thereof, now renumbered as Section 145 of the 1997 Tax Code, stating the
following pertinent provision:
The excise tax from any brand of cigarettes within the next three (3) years from the effectivity of R.A. No. 8240
shall not be lower than the tax, which is due from each brand on October 1, 1996. x x x The rates of excise tax
on cigars and cigarettes under paragraphs (1), (2), (3) and (4) hereof, shall be increased by twelve percent (12%)
on January 1, 2000.
Upon the Commissioner’s recommendation, the Secretary of Finance, issued Revenue Regulations (RR) No.
17-99 dated December 16,1999 for the purpose of implementing the provision for a 12% increase of excise tax
on, among others, cigars and cigarettes packed by machines by January 1, 2000. RR No. 17-99 provides that the
new specific tax rate for any existing brand of cigars, cigarettes packed by machine x x x shall not be lower than
the excise tax that is actually being paid prior to January 1, 2000.
FTC paid excise taxes on all its cigarettes manufactured and removed from its place of production for the
following period:
PERIOD PAYMENT
January 1, 2000 to P585,705,250.00
January 31, 2000
February 1, 2000 to P19,366,783,535.00
December 31, 2001
January 1, 2002 to P11,359,578,560.00
December 31, 2002
FTC subsequently sought administrative redress for refund before the Commissioner on the following dates:
PERIOD ADMINISTRATIVE AMOUNT
FILING OF CLAIM CLAIMED
January 1, 2000 to February 7, 2000 P35,651,410.00
January 31, 2000
February 1, 2000 Various claims filed from P644,735,615.00
to December 31, March 21, 2000 –
2001 January 28, 2002
January 1, 2002 to February 3, 2003 P355,385,920.00
December 31, 2002
(CTA En Banc Decision,
Annex "A," Petition, pp. 2-4)
2. Since the claim for refund was not acted upon, petitioner filed on December 11, 2001 and January 30, 2002,
respectively, Petitions for Review before the Court of Tax Appeals (CTA) docketed as CTA Case Nos. 6365
and 6383 questioning the validity of Revenue Regulations No.17-99 with claims for refund in the
amounts P35,651,410.00 and P644,735,615.00, respectively.
These amounts represented overpaid excise taxes for the periods from January 1, 2000 to January 31, 2000 and
February 1, 2000 to December 31, 2001, respectively (Ibid., pp. 4-5).
3. In separate Decision dated October 21, 2002, the CTA in Division ordered the Commissioner of Internal
Revenue (respondent herein) to refund to petitioner the erroneously paid excise taxes in the amounts
of P35,651,410.00 for the period covering January 1, 2000 to January 31, 2000 (CTA Case No. 6365)
and P644,735,615.00 for the period February 1, 2000 to December 31, 2001 (CTA Case No.6383) (Ibid.).
4. Respondent filed a motion for reconsideration of the Decision dated October 21, 2002 covering CTA Case
Nos. 6365 and 6383which was granted in the Resolution dated July 15, 2003.
5. Subsequently, petitioner filed another petition docketed as CTA Case No. 6612 questioning the validity of
Revenue Regulations No.17-99 with a prayer for the refund of overpaid excise tax amounting
toP355,385,920.00, covering the period from January 1, 2002 to December 31, 2002 (Ibid., p. 5).
6. Petitioner thereafter filed a consolidated Motion for Reconsideration of the Resolution dated July 15, 2003
(Ibid., pp. 5-6).
7. The CTA in Division issued Resolution dated November 4,2003 which reversed the Resolution dated July 15,
2003 and ordered respondent to refund to petitioner the amounts of 35,651,410.00 for the period covering
January 1 to January 31, 2000 and P644,735,615.00 for the period covering February 1, 2000 to December 31,
2001, or in the aggregate amount of P680,387,025.00, representing erroneously paid excise taxes (Ibid., p. 6).
8. In its Decision dated December 4, 2003, the CTA in Division in Case No. 6612 declared RR No. 17-99
invalid and contrary to Section 145 of the 1997 National Internal Revenue Code (NIRC). The Court ordered
respondent to refund to petitioner the amount of P355,385,920.00 representing overpaid excise taxes for the
period covering January 1, 2002 to December 21, 2002 (Ibid.)
9. Respondent filed a motion for reconsideration of the Decision dated December 4, 2003 but this was denied in
the Resolution dated March 17, 2004 (Ibid.)
10. On December 10, 2003, respondent Commissioner filed a Petition for Review with the Court of Appeals
(CA) questioning the CTA Resolution dated November 4, 2003 which was issued in CTA Case Nos. 6365 and
6383. The case was docketed as CA-G.R. SP No.80675 (Ibid.).
11. On April 28, 2004, respondent Commissioner filed another appeal before the CA questioning the CTA
Decision dated December 4, 2003 issued in CTA Case No. 6612. The case was docketed as CA-G.R. SP No.
83165 (Ibid., p. 7).
12. Thereafter, petitioner filed a Consolidated Motion for Execution Pending Appeal before the CTA for CTA
Case Nos. 6365 and 6383 and an Amended Motion for Execution Pending Appeal for CTA Case No. 6612
(Ibid.).
13. The motions were denied in the CTA Resolutions dated August 2, 2004 and August 3, 2004, respectively.
The CTA in Division pointed out that Section 12, Rule 43 of the1997 Rules of Civil Procedure should be
interpreted with Section 18 of R.A. 1125 which provides that CTA rulings become final and conclusive only
where there is no perfected appeal. Considering that respondent filed an appeal with the CA, the CTA in
Division’s rulings granting the amounts of P355,385,920.00 and P680,387,025.00 were not yet final and
executory (Ibid.).
14. In the consolidated CA Decision dated September 28,2004 issued in CA-G.R. SP Nos. 80675 (CTA Case
Nos. 6365 and6383) and 83165 (CTA Case No. 6612), the appellate court denied respondent’s petitions and
affirmed petitioner’s refund claims in the amounts of P680,387,025.00 (CTA Case Nos. 6365 and 6383)
andP355,385,920.00 (CTA Case No. 6612), respectively (Ibid., p. 8).
15. Respondent filed a motion for reconsideration of the CA Decision dated September 28, 2004 but this was
denied in the CA’s Resolution dated March 1, 2005 (Ibid.).
16. Respondent, filed a Petition for Review on Certiorari docketed as G.R. Nos. 167274-75 on May 4, 2005
before the Honorable Court. On June 22, 2005, a Supplemental Petition for Review was filed and the petitions
were consolidated (Ibid.).
17. In its Decision dated July 21, 2008 in G.R. Nos. 167274-75, the Honorable Court affirmed the findings of
the CA granting petitioner’s claim for refund. The dispositive portion of said Decision reads:
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No.80675, dated
28 September 2004, and its Resolution, dated 1 March 2005, are AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Commissioner of Internal
Revenue vs. Fortune Tobacco
Corporation, 559 SCRA 160
(2008)
18. On January 23, 2009, petitioner filed a motion for execution praying for the issuance of a writ of execution
of the Decision of the Honorable Court in G.R. Nos. 167274-75 dated July 21, 2008 which was recorded in the
Book of Entries of Judgments on November 6, 2008(Ibid., p. 10).
Petitioner’s prayer was for the CTA to order the BIR to pay/refund the amounts adjudged by the CTA, as
follows:
a) CTA Case No. 6612 under the Decision 04 December 2003 – the amount of Three Hundred Fifty Five
Million Three Hundred Eighty Five Thousand Nine Hundred Twenty Pesos (P355,385,920.00).
b) CTA Case Nos. 6365 and 6383 under the Decisions dated 21 October 2002 and Resolution dated 04
November 2003 – the amount of Six Hundred Eighty Million Three Hundred Eighty Seven Thousand Twenty
Five Pesos (P680,387,025.00).
(Petition, p. 11)
19. On April 14, 2009, the CTA issued a Writ of Execution, which reads:
You are hereby ORDERED TO REFUND in favor of the petitioner FORTUNE TOBACCO CORPORATION,
pursuant to the Supreme Court Decision in the above-entitled case (SC G.R. 167274-75),dated July 21, 2008,
which has become final and executory on November 6, 2008, by virtue of the Entry of Judgment by the
Supreme Court on said dated, which reads as follows:
xxxx
the amounts of P35,651,410.00 (C.T.A Case No. 6365) and P644,735,615.00 (C.T.A Case No. 6383) or a total
of P680,387,025.00 representing petitioners’ erroneously paid excise taxes for the periods January 1-31, 2000
and February 1, 2000 to December 31, 2001,respectively under CA G.R. SP No. 80675 (C.T.A. Case No. 6365
and C.T.A. Case No. 6383).
(CTA – 1st Division
Resolution dated June 04,
2009, pp. 2-3)
20. On April 21, 2009, petitioner filed a motion for the issuance of an additional writ of execution praying that
the CTA order the Commissioner of Internal Revenue to pay petitioner the amount of Three Hundred Fifty-Five
Million Three Hundred Eighty Five Thousand Nine Hundred Twenty Pesos (P355,385,920.00) representing the
amount of tax to be refunded in C.T.A. Case No. 6612 under its Decision dated December 4, 2003 and affirmed
by the Honorable Court in its Decision dated July 21, 2008 (Petition, p. 12, CTA Decision dated March 12,
2010, supra, p. 10).
21. In the CTA Resolution dated June 4, 2009, the CTA denied petitioner’s Motion for the Issuance of
Additional Writ of Execution (Ibid., p. 11).
22. Petitioner filed a motion for reconsideration of the Resolution dated June 4, 2009, but this was denied in the
CTA Resolution dated August 10, 2009 (Ibid.).
The dispositive portion of the Resolution reads:
WHEREFORE, premises considered, the instant" Motion for Reconsideration" is hereby DENIED for lack of
merit.
23. Aggrieved by the Decision, petitioner filed a petition for review before the CTA En Banc docketed as CTA
EB Case No. 530,raising the following arguments, to wit:
The Honorable Court of Tax Appeals seriously erred contrary to law and jurisprudence when it held in the
assailed decision and resolution that petitioner Fortune Tobacco Corporation is not entitled to the writ of
execution covering the decision in CTA Case No. 6612.
The Decision of the Court of Tax Appeals in CTA Case Nos. 6365, 6383 and 6612 has become final and
executory.
The Decision of the Honorable Supreme Court in GR Nos. 167274-75 covers both CA GR SP No. 80675 and
83165.
24. The CTA En Banc, in the Decision dated March 12, 2010,dismissed said petition for review. The dispositive
portion of said Decision reads:
WHEREFORE, premises considered, the Petition for Review is DISMISSED. The Resolutions dated June
4,2009 and August 10, 2009 are AFFIRMED.
SO ORDERED.
(Annex "A," Petition, p. 16)
25. Petitioner filed a Motion for Leave to file Motion for Reconsideration with attached Motion for
Reconsideration but this was denied in the CTA En Banc’s Resolution dated June 11, 2010. The dispositive
portion of said Resolution reads:
WHEREFORE, premises considered, petitioner’s Motion for Leave to file attached Motion for Reconsideration
and its Motion for Reconsideration are hereby DENIED for lack of merit.
SO ORDERED.4 (Emphasis supplied.)
Undeterred by the rebuff from the CTA, petitioner FTC has come to this Court via a petition for review, the
recourse docketed as G.R. 192576,thereat praying in essence that an order issue (a) directing the CTA to issue
an additional writ of execution directing the Bureau of Internal Revenue(BIR) to pay FTC the amount of tax
refund (P355,385,920.00) as adjudged in CTA Case No. 6612 and (b) clarifying that the Court’s Decision in
G.R. Nos. 167274-75 applies to the affirmatory ruling of the CA in CA G.R. SP80675 and CA G.R. SP No.
83165. FTC predicates its instant petition on two (2) stated grounds, viz.:
I
The Decision of the Honorable Supreme Court in S.C. GR Nos.167274-75, which has become final and
executory, affirmed the Decision of the Court of Tax Appeals in CTA Case Nos. 6365, 6383 and 6612 and to
the Decision of the Court of Appeals in CA G.R. SP No. 80675 and CAG.R. SP No. 83165.
II
The writ of execution prayed for and pertaining to CTA Case No.6612 and CA G.R. SP No. 83165 is consistent
with the decision of the Supreme Court in GR Nos. 167274-75.
The petition is meritorious. But before delving on the merits of this recourse, certain undisputed predicates have
to be laid and basic premises restated to explain the consolidation of G.R. Nos. 167274-75 and G.R. No.192576,
thus:
1. As may be recalled, FTC filed before the CTA three (3) separate petitions for refund covering three different
periods involving varying amounts as hereunder indicated:
a) CTA Case No. 6365 (Jan. 1 to Jan. 31, 2000) for P35,651,410.00;
b) CTA Case No. 6383 (Feb. 1, 2000 to Dec. 31, 2001) for P644,735,615.00; and
c) CTA Case No. 6612 (Jan. 1 to Dec. 31, 2002) for 355,385,92
In three (3) separate decisions/resolutions, the CTA found the claims for refund for the amounts aforestated
valid and thus ordered the payment thereof.
2. From the adverse ruling of the CTA in the three (3) cases, the BIR Commissioner went to the CA on a
petition for review assailing in CA-G.R.SP No. 80675 the CTA decision/resolution pertaining to consolidated
CTA Case Nos. 6365 & 6383. A similar petition, docketed as CA G.R. SP No.83165, was subsequently filed
assailing the CTA decision/resolution on CTA Case No. 6612.
3. Eventually, the CA, by Decision dated September 4, 2004, denied the Commissioner’s consolidated petition
for review. The appellate Court also denied the Commissioner’s motion for reconsideration on March 1,2005.
4. It is upon the foregoing state of things that the Commissioner came to this Court in G.R. Nos. 167274-75 to
defeat FTC’s claim for refund thus granted initially by the CTA and then by the CA in CA-G.R. SP No.
80675and CA-G.R. SP No. 83165.
By Decision dated July 21, 2008, the Court found against the Commissioner, disposing as follows:
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA G.R. SP No. 80675, dated
28 September 2004,and its Resolution, dated 1 March 2005, are AFFIRMED. No pronouncement as to costs.
SO ORDERED.5 (Emphasis supplied.)
From the foregoing narration, two critical facts are at once apparent. First , the BIR Commissioner came to this
Court on a petition for review in G.R. Nos. 167274-75 to set aside the consolidated decision of the CA in CA-
G.R. SP No. 80675 and CA-G.R. SP No. 83165. Second, while the Court’s Decision dated July 21, 2008 in
G.R. Nos. 167274-75 denied the Commissioner’s petition for review, necessarily implying that the CA’s
appealed consolidated decision is affirmed in toto, the fallo of that decidendi makes no mention or even alludes
to the appealed CA decision in CA-G.R. No. 83165, albeit the main decision’s recital of facts made particular
reference to that appealed CA decision. In fine, there exists an apparent in consistency between the dispositive
portion and the body of the main decision, which ideally should have been addressed before the finality of the
said decision.
Owing to the foregoing aberration, but cognizant of the fact that the process of clarifying the dispositive portion
in G.R. Nos. 167274-75 should be acted upon in the main case, the Court, by Resolution6 dated February
25,2013 ordered the consolidation of this petition (G.R. No. 192576) with G.R. Nos. 167274-75, to be assigned
to any of the members of the Division who participated in the rendition of the decision.
Now to the crux of the controversy.
Petitioner FTC posits that the CTA should have issued the desired additional writ of execution in CTA Case No.
6612 since the body of the Decision of this Court in G.R. Nos. 167274-75 encompasses both CA G.R. Case No.
80675 which covers CTA Case Nos. 6365 and 6383 and CA G.R. Case No. 83165 which embraces CTA Case
No. 6612. While the fallo of the Decision dated July 21, 2008 in G.R. Case Nos. 167274-75 did not indeed
specifically mention CA G.R. SP No. 83165, petitioner FTC would nonetheless maintain that such a slip is but
an inadvertent omission in the fallo. For the text of the July 21, 2008 Decision, FTC adds, clearly reveals that
said CA case was intended to be included in the disposition of the case.
Respondent Commissioner, on the other hand, argues that per the CTA, no reversible error may be attributed to
the tax court in rejecting, without more, the prayer for the additional writ of execution pertaining to CTA Case
No. 6612, subject of CA G.R. SP No. 83165. For the purpose, the Commissioner cited a catena of cases on the
limits of a writ of execution. It is pointed out that such writ must conform to the judgment to be executed; its
enforcement may not vary the terms of the judgment it seeks to enforce, nor go beyond its terms. As further
asseverated, "whatever may be found in the body of the decision can only be considered as part of the reasons
or conclusions of the court and while they may serve as guide or enlightenment to determine the ratio decidendi,
what is controlling is what appears in the dispositive part of the decision."7
Respondent Commissioner’s posture on the tenability of the CTA’s assailed denial action is correct. As it were,
CTA did no more than simply apply established jurisprudence that a writ of execution issued by the court of
origin tasked to implement the final decision in the case handled by it cannot go beyond the contents of the
dispositive portion of the decision sought to be implemented. The execution of a judgment is purely a
ministerial phase of adjudication. The executing court is without power its own, to tinker let alone vary the
explicit wordings of the dispositive portion, as couched.
But the state of things under the premises ought not to remain uncorrected. And the BIR cannot plausibly raise a
valid objection for such approach. That bureau knew where it was coming from when it appealed, first before
the CA then to this Court, the award of refund to FTC and the rationale underpinning the award. It cannot
plausibly, in all good faith, seek refuge on the basis of slip on the formulation of the fallo of a decision to evade
a duty. On the other hand, FTC has discharged its burden of establishing its entitlement to the tax refund in the
total amount indicated in its underlying petitions for refund filed with the CTA. The successive favorable
rulings of the tax court, the appellate court and finally this Court in G.R. Nos. 167274-75 say as much.
Accordingly, the Court, in the higher interest of justice and orderly proceedings should make the corresponding
clarification on the fallo of its July 21, 2008 Decision in G.R. Case Nos.162274-75. It is an established rule that
when the dispositive portion of a judgment, which has meanwhile become final and executory, contains a
clerical error or an ambiguity arising from a inadvertent omission, such error or ambiguity may be clarified by
reference to the body of the decision itself.
After a scrutiny of the body of the aforesaid July 21, 2008 Decision, the Court finds it necessary to render a
judgment nunc pro tunc and address an error in the fallo of said decision. The office of a judgment nunc pro
tunc is to record some act of the court done at a former time which was not then carried into the record, and the
power of a court to make such entries is restricted to placing upon the record evidence of judicial action which
has actually been taken.9 The object of a judgment nunc pro tunc is not the rendering of a new judgment and the
ascertainment and determination of new rights, but is one placing in proper form on the record, that has been
previously rendered, to make it speak the truth, so as to make it show what the judicial action really was, not to
correct judicial errors, such as to render a judgment which the court ought to have rendered, in place of the one
it did erroneously render, not to supply non-action by the court, however erroneous the judgment may have
been.10 The Court would thus have the record reflect the deliberations and discussions had on the issue. In this
particular case it is a correction of a clerical, not a judicial error. The body of the decision in question is clear
proof that the fallo must be corrected, to properly convey the ruling of this Court.
We thus declare that the dispositive portion of said decision should be clarified to include CA G.R. SP No.
83165 which affirmed the December 4,2003 Decision of the Court of Tax Appeals in CTA Case No. 6612, for
the following reasons, heretofore summarized:
1. The petition for review on certiorari in G.R. Nos. 167274-75filed by respondent CIR sought the reversal of
the September 28, 2004Decision of the Court of Appeals rendered in the consolidated cases of CA-G.R. SP No.
80675 and CA-G.R. SP No. 83165, thus:Hence, this petition for review on certiorari under Rule 45 of the Rules
of Court which seeks the nullification of the Court of Appeals’ (1)Decision promulgated on September 28, 2004
in CA-G.R. SP No. 80675and CA-G.R. SP No. 83165, both entitled "Commissioner of Internal Revenue vs.
Fortune Tobacco Corporation," denying the CIR’s petition and affirming the assailed decisions and resolutions
of the Court of Tax Appeals (CTA) in CTA Cases Nos. 6365, 6383 and 6612; and (2)Resolution dated March 1,
2005 denying petitioner’s motion for reconsideration of the said decision."11
Earlier on, it was made clear that respondent CIR questioned the Decision of the CTA dated October 21, 2002
in CTA Case Nos. 6365 and 6383 in CA G.R. SP No. 80675 before the Court of Appeals. In CA G.R. SP No.
83165, the Commissioner also assailed the Decision of the CTA dated December 4, 2003 in CTA Case No. 66l2
also before the same appellate court. The two CA cases were later consolidated. Since the appellate court
rendered its September 28, 2004 Decision in the consolidated cases of CAG.R. SP Nos. 80675 and 83165, what
reached and was challenged before this Court in G.R. Nos. 167274-75 is the ruling of the Court of Appeals in
both cases. When this Court rendered its July 21, 2008 Decision, the ruling necessarily embraced both CA G.R.
SP Case Nos. 80675 and 83165 and adjudicated the respective rights of the parties. Clearly then, there was
indeed an inadvertence in not specifying in the fallo of our July 21, 2008Decision that the September 28, 2004
CA Decision included not only CAG.R. SP No. 80675 but also CA G.R. SP No. 83165 since the two cases were
merged prior to the issuance of the September 28, 2004 Decision.
Given the above perspective, the inclusion of CA G.R. SP Case No.83165 in the fallo of the Decision dated July
21, 2008 is very much in order and is in keeping with the imperatives of fairness.
2. The very contents of the body of the Decision dated July 21,2008 rendered by this Court in G.R. Nos.
167274-75 undoubtedly reveal that both CA G.R. SP No. 80675 and CA G.R. SP No. 83165 were the subject
matter of the petition therein. And as FTC would point out at every turn, the Court’s Decision passed upon and
decided the merits of the September 28,2004 Decision of the Court of Appeals in the consolidated cases of CA
G.R.SP Case Nos. 80675 and 83165 and necessarily CA G.R. SP No. 83165 was included in our disposition of
G.R. Nos. 167274-75. We quote the pertinent portions of the said decision:
The following undisputed facts, summarized by the Court of Appeals, are quoted in the assailed Decision dated
28 September 2004:
CAG.R. SP No. 80675
xxxx
Petitioner FTC is the manufacturer/producer of, among others, the following cigarette brands, with tax rate
classification based on net retail price prescribed by Annex "D" to R.A. No. 4280, to wit:
Brand Tax Rate
Champion M 100 P1.00
Salem M 100 P1.00
Salem M King P1.00
Camel F King P1.00
 Camel Lights Box 20’s P1.00
Camel Filters Box 20’s P1.00
Winston F Kings P5.00
Winston Lights P5.00
Immediately prior to January 1, 1997, the above-mentioned cigarette brands were subject to ad valorem tax
pursuant to then Section142 of the Tax Code of 1977, as amended. However, on January 1, 1997,R.A. No. 8240
took effect whereby a shift from the ad valorem tax (AVT)system to the specific tax system was made and
subjecting the aforesaid cigarette brands to specific tax under Section 142 thereof, now renumbered as Sec. 145
of the Tax Code of 1997, pertinent provisions of which are quoted thus:
xxxx
The rates of excise tax on cigars and cigarettes under paragraphs (1), (2) (3) and (4) hereof, shall be increased
by twelve percent (12%) on January 1, 2000. (Emphasis supplied.)
xxxx
To implement the provisions for a twelve percent (12%) increase of excise tax on, among others, cigars and
cigarettes packed by machines by January 1, 2000, the Secretary of Finance, xxx issued Revenue Regulations
[RR] No. 17-99, dated December 16, 1999, which provides the increase on the applicable tax rates on cigar and
cigarettes x x x.
[tax rates deleted]
Revenue Regulations No. 17-99 likewise provides in the last paragraph of Section 1 thereof, "(t)hat the new
specific tax rate for any existing brand of cigars, cigarettes packed by machine, distilled spirits, wines and
fermented liquor shall not be lower than the excise tax that is actually being paid prior to January 1, 2000."
For the period covering January 1-31, 2000, petitioner allegedly paid specific taxes on all brands manufactured
and removed in the total amounts of P585,705,250.00.
On February 7, 2000, petitioner filed with respondent’s Appellate Division a claim for refund or tax credit of its
purportedly overpaid excise tax for the month of January 2000 in the amount of P35,651,410.00.
On June 21, 2001, petitioner filed with respondent’s Legal Service a letter dated June 20, 2001 reiterating all the
claims for refund/tax credit of its overpaid excise taxes filed on various dates, including the present claim for
the month of January 2000 in the amount of P35,651,410.00.
As there was no action on the part of the respondent, petitioner filed the instant petition for review with this
Court on December 11, 2001,in order to comply with the two-year period for filing a claim for refund.
xxxx
CA G.R. SP No. 83165
The petition contains essentially similar facts, except that the said case questions the CTA’s December 4, 2003
decision in CTA Case No.6612 granting respondent’s claim for refund of the amount of P355,385,920.00
representing erroneously or illegally collected specific taxes covering the period January 1, 2002 to December
31, 2002, as well as its March 17, 2004 Resolution denying a reconsideration thereof.
xxxx
However, on consolidated motions for reconsideration filed by the respondent in CTA Case Nos. 6363 and
6383, the July 15, 2002 resolution was set aside, and the Tax Court ruled, this time with a semblance of finality,
that the respondent is entitled to the refund claimed. Hence, in are solution dated November 4, 2003, the tax
court reinstated its December 21, 2002 Decision and disposed as follows:
WHEREFORE, our Decisions in CTA Case Nos.6365 and 6383 are hereby REINSTATED. Accordingly,
respondent is hereby ORDERED to REFUND petitioner the total amount of P680,387,025.00 representing
erroneously paid excise taxes for the period January 1, 2000 to January 31, 2000 and February 1,2000 to
December 31, 2001.
SO ORDERED.
Meanwhile, on December 4, 2003, the CTA rendered a decision in CTA Case No. 6612 granting the prayer for
the refund of the amount of P355,385,920.00 representing overpaid excise tax for the period covering January 1,
2002 to December 31, 2002. The tax court disposed of the case as follows:
IN VIEW OF THE FOREGOING, the Petition for Review is GRANTED. Accordingly, respondent is hereby
ORDERED to REFUND to petitioner the amount of P355,385,920.00 representing overpaid excise tax for the
period covering January 1, 2002 to December 31, 2002.
SO ORDERED.
Petitioner sought reconsideration of the decision, but the same was denied in a Resolution dated March 17,
2004.1âwphi1 (Emphasis supplied; citations omitted.)
The Commissioner appealed the aforesaid decisions of the CTA. The petition questioning the grant of refund in
the amount of P680,387,025.00 was docketed as CA-G.R. SP No. 80675, whereas that assailing the grant of
refund in the amount of P355,385,920.00 was docketed as CA-G.R. SP No. 83165. The petitions were
consolidated and eventually denied by the CA. The appellate court also denied reconsideration in its Resolution
dated 1 March 2005.
In its Memorandum 22 dated November 2006, filed on behalf of the Commissioner, the Office of the Solicitor
General (OSG) seeks to convince the Court that the literal interpretation given by the CTA and the CA of
Section 145 of the Tax Code of 1997 (Tax Code) would lead to a lower tax imposable on 1 January 2000 than
that imposable during the transition period. Instead of an increase of 12% in the tax rate effective on 1 January
2000 as allegedly mandated by the Tax Code, the appellate court’s ruling would result in a significant decrease
in the tax rate by as much as 66%.
xxxx
Finally, the OSG asserts that a tax refund is in the nature of a tax exemption and must, therefore, be construed
strictly against the taxpayer, such as Fortune Tobacco. In its Memorandum dated 10 November 2006, Fortune
Tobacco argues that the CTA and the CA merely followed the letter of the law when they ruled that the basis
for the 12% increase in the tax rate should be the net retail price of the cigarettes in the market as outlined in
paragraph C, sub par. (1)-(4), Section 145 of the Tax Code. The Commissioner allegedly has gone beyond his
delegated rule-making power when he promulgated, enforced and implemented RR No. 17-99,which effectively
created a separate classification for cigarettes based on the excise tax "actually being paid prior to January 1,
2000."
xxxx
This entire controversy revolves around the interplay between Section 145 of the Tax Code and RR 17-99. The
main issue is an inquiry into whether the revenue regulation has exceeded the allowable limits of legislative
delegation.
xxxx
Revenue Regulation 17-99, which was issued pursuant to the unquestioned authority of the Secretary of Finance
to promulgate rules and regulations for the effective implementation of the Tax Code, interprets the above-
quoted provision and reflects the 12% increase in excise taxes in the following manner:
[table on tax rates deleted]
This table reflects Section 145 of the Tax Code insofar as it mandates a 12% increase effective on 1 January
2000 based on the taxes indicated under paragraph C, sub-paragraph (1)-(4). However, RR No.17-99 went
further and added that "The new specific tax rate for any existing brand of cigars, cigarettes packed by machine,
distilled spirits, wines and fermented liquor shall not be lower than the excise tax that is actually being paid
prior to January 1, 2000."
Parenthetically, Section 145 states that during the transition period ,i.e., within the next three (3) years from the
effectivity of the Tax Code, the excise tax from any brand of cigarettes shall not be lower than the tax due from
each brand on 1 October 1996. This qualification, however, is conspicuously absent as regards the 12% increase
which is to be applied on cigars and cigarettes packed by machine, among others, effective on 1 January 2000.
Clearly and unmistakably, Section 145mandates a new rate of excise tax for cigarettes packed by machine due
to the 12% increase effective on 1 January 2000 without regard to whether the revenue collection starting from
this period may turn out to be lower than that collected prior to this date.
By adding the qualification that the tax due after the 12% increase becomes effective shall not be lower than the
tax actually paid prior to 1January 2000, RR No. 17-99 effectively imposes a tax which is the higher amount
between the ad valorem tax being paid at the end of the three (3)-year transition period and the specific tax
under paragraph C, sub-paragraph (1)-(4), as increased by 12%—a situation not supported by the plain wording
of Section 145 of the Tax Code.
This is not the first time that national revenue officials had ventured in the area of unauthorized administrative
legislation.
In Commissioner of Internal Revenue v. Reyes, respondent was not informed in writing of the law and the facts
on which the assessment of estate taxes was made pursuant to Section 228 of the 1997 Tax Code, as amended
by Republic Act (R.A.) No. 8424. She was merely notified of the findings by the Commissioner, who had
simply relied upon the old provisions of the law and RR No. 12-85 which was based on the old provision of the
law. The Court held that in case of discrepancy between the law as amended and the implementing regulation
based on the old law, the former necessarily prevails. The law must still be followed, even though the existing
tax regulation at that time provided for a different procedure.
xxxx
In the case at bar, the OSG’s argument that by 1 January 2000, the excise tax on cigarettes should be the higher
tax imposed under the specific tax system and the tax imposed under the
ad valorem tax system plus the 12% increase imposed by paragraph 5, Section 145 of the Tax Code, is an
unsuccessful attempt to justify what is clearly an impermissible incursion into the limits of administrative
legislation. Such an interpretation is not supported by the clear language of the law and is obviously only meant
to validate the OSG’s thesis that Section 145 of the Tax Code is ambiguous and admits of several
interpretations.
The contention that the increase of 12% starting on 1 January 2000 does not apply to the brands of cigarettes
listed under Annex "D" is likewise unmeritorious, absurd even. Paragraph 8, Section 145of the Tax Code
simply states that, "The classification of each brand of cigarettes based on its average net retail price as of
October 1, 1996, as set forth in Annex ‘D’, shall remain in force until revised by Congress." This declaration
certainly does not lend itself to the interpretation given to it by the OSG. As plainly worded, the average net
retail prices of the listed brands under Annex "D," which classify cigarettes according to their net retail price
into low, medium or high, obviously remain the bases for the application of the increase in excise tax rates
effective on 1 January 2000.
The foregoing leads us to conclude that RR No. 17-99 is indeed indefensibly flawed. The Commissioner cannot
seek refuge in his claim that the purpose behind the passage of the Tax Code is to generate additional revenues
for the government. Revenue generation has undoubtedly been a major consideration in the passage of the Tax
Code. However, as borne by the legislative record, the shift from the ad valorem system to the specific tax
system is likewise meant to promote fair competition among the players in the industries concerned, to ensure
an equitable distribution of the tax burden and to simplify tax administration by classifying cigarettes x x x into
high, medium and low- priced based on their net retail price and accordingly graduating tax rates.
xxxx
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA G.R. SP No. 80675, dated
28 September 2004, and its Resolution, dated 1 March 2005, are AFFIRMED. No pronouncement as to costs.
SO ORDERED.12
The July 21, 2008 Decision in G.R. Nos. 167274-75 brings into sharp focus the following facts and
proceedings:
1. It specifically mentioned CA G.R. SP No. 80675 and CA G.R.SP No. 83165 as the subject matter of the
decision on p. 2 and p. 7,respectively.
2. It traced the history of CTA Case Nos. 6365 and 6383 from the time the CTA peremptorily resolved the twin
refund suits to the appeal of the decisions thereat to the Court of Appeals via a petition docketed as CA-G.R. SP
No. 80675 and eventually to this Court in G.R. Nos. 167274-75. It likewise narrated the events connected with
CTA Case No. 6612 to the time the decision in said case was appealed to the Court of Appeals in CA-G.R.SP
No. 83165, consolidated with CA G.R. SP No. 80675 and later decided by the appellate court. It cited the
appeal from the CA decision by the BIR Commissioner to this Court in G.R. Nos. 167274-75.
3. It resolved in the negative the main issue presented in both CA-G.R. SP No. 80675 and CA-G.R. SP No.
83165 as to whether or not the last paragraph of Section 1 of Revenue Regulation No. 17-99 is in accordance
with the pertinent provisions of Republic Act No. 8240, now incorporated in Section 145 of the Tax Code of
1997.
4. The very disposition in the fallo in G.R. Case Nos. 167274-75 that "the petition is denied" and that the
"Decision of the Court of Appeals x x x dated 28 September 2004 and its Resolution dated 1 March 2005 are
affirmed" reflects an intention that CA G.R. SP No. 83165 should have been stated therein, being one of the
cases subject of the September 28, 2004 CA Decision.
The legality of Revenue Regulation No. 17-99 is the only determinative issue resolved by the July 21, 2008
Decision which was the very same issue resolved by the CA in the consolidated CA-G.R. SP Nos.80675 and
83165 and exactly the same issue in CTA Nos. 6365, 6383 and 6612.
From the foregoing cogent reasons, We conclude that CA-G.R. SP No. 83165 should be included in the fallo of
the July 21, 2008 decision.1âwphi1
It is established jurisprudence that "the only portion of the decision which becomes the subject of execution and
determines what is ordained is the dispositive part, the body of the decision being considered as the reasons or
conclusions of the Court, rather than its adjudication."13
In the case of Ong Ching Kian Chung v. China National Cereals Oil and Foodstuffs Import and Export
Corporation, the Court noted two (2)exceptions to the rule that the fallo prevails over the body of the opinion,
viz:
(a) where there is ambiguity or uncertainty, the body of the opinion may be referred to for purposes of
construing the judgment because the dispositive part of a decision must find support from the decision’s ratio
decidendi;
(b) where extensive and explicit discussion and settlement of the issue is found in the body of the decision.14
Both exceptions obtain in the present case. We find that there is an ambiguity in the fallo of Our July 21, 2008
Decision in G.R. Nos. 167274-75 considering that the propriety of the CA holding in CA-G.R. SP No.83165
formed part of the core issues raised in G.R. Case Nos. 167274-75, but unfortunately was left out in the all-
important decretal portion of the judgment. The fallo of Our July 21, 2008 Decision should, therefore, be
correspondingly corrected.
For sure, the CTA cannot, as the Commissioner argues, be faulted for denying petitioner FTC’s Motion for
Additional Writ of Execution filed in CTA Case Nos. 6365, 6383 and 6612 and for denying petitioner’s Motion
for Reconsideration for it has no power nor authority to deviate from the wording of the dispositive portion of
Our July 21, 2008 Decision in G.R. Nos. 167274-75. To reiterate, the CTA simply followed the all too familiar
doctrine that "when there is a conflict between the dispositive portion of the decision and the body thereof, the
dispositive portion controls irrespective what appears in the body of the decision."15 Veering away from the
fallo might even be viewed as irregular and may give rise to a charge of breach of the Code of Judicial Conduct.
Nevertheless, it behooves this Court for reasons articulated earlier to grant relief to petitioner FTC by way of
clarifying Our July 21, 2008 Decision. This corrective step constitutes, in the final analysis, a continuation of
the proceedings in G.R. Case Nos. 167274-75. And it is the right thing to do under the premises. If the BIR, or
other government taxing agencies for that matter, expects taxpayers to observe fairness, honesty, transparency
and accountability in paying their taxes, it must, to borrow from BPI Family Savings Bank, Inc. v Court of
Appeals16 hold itself against the same standard in refunding excess payments or illegal exactions. As a
necessary corollary, when the taxpayer’s entitlement to are fund stands undisputed, the State should not misuse
technicalities and legalisms, however exalted, to keep money not belonging to it.17 As we stressed in G.R. Nos.
167274-75, the government is not exempt from the application of solutio indebiti, a basic postulate proscribing
one, including the State, from enriching himself or herself at the expense of another.18So it must be here.
WHEREFORE, the petition is GRANTED. The dispositive portion of the Court’s July 21, 2008 Decision in
G.R. Nos. 167274-75 is corrected to reflect the inclusion of CA G.R. SP No. 83165 therein. As amended, the
fallo of the aforesaid decision shall read:
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in the consolidated cases of CA-
G.R. SP No. 80675 and 83165 dated 28 September 2004, and its Resolution, dated 1 March 2005, are
AFFIRMED. No pronouncement as to costs.
The Decision of the Court of Tax Appeals (CTA) En Banc dated March 12, 2010 and the Resolution dated June
11, 2010 in CTA EB No. 530 entitled "Fortune Tobacco Corporation vs. Commissioner of Internal Revenue" as
well as the Resolutions dated June 4, 2009 and August 10, 2009which denied the Motion for Issuance of
Additional Writ of Execution of the CTA First Division in CTA Cases Nos. 6365, 6383 and 6612 are
SETASIDE. The CTA is ORDERED to issue a writ of execution directing the respondent CIR to pay petitioner
Fortune Tobacco Corporation the amount of tax refund of P355,385,920.00 as adjudged in CTA Case No. 6612.
SO ORDERED.

G.R. No. 179259 September 25, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
PHILIPPINE AIRLINES, INC. (PAL), Respondent.
DECISION
PEREZ, J.:

Before the Court is a Petition for Review on Certiorari seeking to reverse and set aside the 19 July 2007
Decision1and 23 August 2007 Resolution2 of the Court of Tax Appeals (CTA) En Bane in CTA EB No. 271
which affirmed the cancellation and withdrawal of Assessment Notice No. INC-FY -99-2000-000085 and
Formal Letter of Demand for the payment by the respondent Philippine Airlines, Inc. (respondent), of
deficiency Minimum Corporate Income Tax (MCIT) in the amount of P326,778,723.35, covering the fiscal year
ending 31 March 2000.
The Facts
The factual antecedents of the case are undisputed:
Petitioner, the Commissioner of Internal Revenue, has the power to assess and collect national internal revenue
taxes, fees, and charges, including the 2% per centum MCIT imposed under Section 27(E) of the National
Internal Revenue Code (NIRC) of 1997, as amended. Respondent, on the other hand, is a domestic corporation
duly organized and existing under and by virtue of the laws of the Philippines.
For the fiscal year that ended 31 March 2000, respondent filed on 17July 2000 its Tentative Corporate Income
Tax Return, reflecting a creditable tax withheld for the fourth quarter amounting to P524,957.00, and a zero
taxable income for said year. Hence, respondent filed on 16 July 2001 a written claim for refund before the
petitioner.
As a consequence thereof, respondent received on 10 September 2001the Letter of Authority No.
200000002247 from the Bureau of Internal Revenue (BIR) Large Taxpayers Service, dated 3 September
2001,authorizing the revenue officers named therein to examine respondent’s books of accounts and other
accounting records for the purpose of evaluating respondent’s "Claim for Refund on Creditable Withholding
Tax – Income Tax" covering the fiscal year ending 31 March 2000.
Numerous correspondences between respondent and the Group Supervisor of the BIR Large Taxpayers Service,
the revenue officers examining its accounting records, and the Chief of LT Audit & Investigation Division I of
the BIR ensued, particularly as to the submission of various supporting documents and presentation of records.
On 16 July 2003, respondent received a "Summary of Creditable Withholding Tax at Source Certified by RAD
Fiscal Year Ending March 31,2000," together with a computation labeled "Compromise Penalties for Late
Filing of Return." Likewise, on same date, respondent received a letter dated 8 July 2003 issued by the Chief of
LT Audit & Investigation Division I, informing the former that the results of the investigation of its claim for
refund on creditable withholding tax for fiscal year ending 31 March 2000had already been submitted, and that
an informal conference was set on 17July 2003 to be held on the latter’s office.
On 11 August 2003, respondent received from the same revenue officers a computation of their initial
deficiency MCIT assessment in the amount of P537,477,867.64. Consequently, respondent received on
20October 2003 a Preliminary Assessment Notice and Details of Assessment issued by the Large Taxpayers
Service dated 22 September 2003, assessing respondent deficiency MCIT including interest, in the aggregate
amount of P315,566,368.68. A written protest to said preliminary assessment was filed by respondent on 3
November 2003.
Thereafter, on 16 December 2003, respondent received a Formal Letter of Demand and Details of Assessment
dated 1 December 2003 from the Large Taxpayers Service demanding the payment of the total amount
of P326,778,723.35, inclusive of interest, as contained in Assessment Notice No. INC-FY-99-2000-000085. In
response thereto, respondent filed its formal written protest on 13 January 2004 reiterating the following
defenses:(1) that it is exempt from, or is not subject to, the 2% MCIT by virtue of its charter, Presidential
Decree No. (PD) 1590;3 and (2) that the three-year period allowed by law for the BIR to assess deficiency
internal revenue taxes for the taxable year ending 31 March 2000 had already lapsed on 15July 2003.
Since no final action has been taken by petitioner on respondent’s formal written protest, respondent filed a
Petition for Review before the Second Division of the CTA on 4 August 2004 docketed as CTA Case No.7029.
The Ruling of the CTA Second Division
In a Decision dated 22 August 2006,4 the CTA Second Division granted respondent’s petition and accordingly
ordered for the cancellation and withdrawal of Assessment Notice No. INC-FY-99-2000-000085 and Formal
Letter of Demand for the payment of deficiency MCIT in the amount of P326,778,723.35, covering the fiscal
year ending 31 March 2000, issued against respondent.
The CTA Second Division made the following factual and legal findings, to wit:
(a) Section 13 of PD 1590 acquiring and limiting the extent of the tax liability of respondent under its franchise
is coached in a clear, plain and unambiguous manner, and needs no further interpretation or construction;
(b) Section 13 clearly provides that respondent is liable only for either the basic corporate income tax based on
its annual net taxable income, or the 2% franchise tax based on gross revenue, whichever is lower;
(c) Respondent-grantee must only choose between the two alternatives mentioned in Section 13 in the payment
of its tax liability to the government, and its choice must be that which will result in a lower tax liability;
(d) Since the income tax return of respondent reflected a zero taxable income for the fiscal year ending 31
March 2000,obviously being lower than the 2% franchise tax, its choice of the former is definitely a better
alternative as basis for its tax liability to the government;5
(e) The basic corporate income tax mentioned in Section 13 of PD1590 does not refer to the MCIT under
Section 27(E) of the NIRC of 1997, as amended, but particularly to the applicable rate of 32% income tax under
Section 27(A) of the same Code, on the taxable income of domestic corporations;
(f) The MCIT is regarded to belong to "other taxes" as it was not included in the choices provided by the
franchise. To hold otherwise would be to give another option to respondent which is evidently not within the
ambit of PD 1590;6
(g) The "in lieu of all other taxes" clause under Section 13 of respondent’s legislative franchise exempts it from
all taxes necessary in the conduct of its business covered by the franchise, except the tax on its real property for
which respondent is expressly made payable;7 and
(h) The rationale or purpose for the exemption from all other taxes except the income tax and real property tax
granted to respondent upon the payment of the basic corporate income tax or the 2% franchise tax is that such
tax exemption is part of inducement for the acceptance of the franchise and the rendition of public service by
the grantee.8
Simply put, it pronounced that the only qualification provided for in the law is the option given to respondent to
choose between the taxes which will yield the lesser liability. Thus, if as a result of the exercise of the option,
the respondent ends up without any tax liability, it should not be held liable for any other tax, such as the MCIT,
except for real property tax.9
On 30 January 2007, the CTA Second Division denied petitioner’s Motion for Reconsideration for lack of
merit.10
Aggrieved, petitioner appealed to the CTA En Banc by filing a Petition for Review pursuant to Section 18 of
Republic Act (RA) No. 9282(should be RA No. 1125, as amended by RA No. 9282)11 on 1 March
2007,docketed as CTA EB No. 271.12
The Ruling of the CTA En Banc
The CTA En Banc affirmed both the aforesaid Decision and Resolution rendered by the CTA Second Division
in CTA Case No. 7029,ruling that under Section 13 of PD 1590, respondent, as consideration for the franchise,
is indeed granted the privilege to choose between two options in the payment of its tax liability to the
government. Naturally, its choice will be that which will result in a lower tax liability since such choice is "in
lieu of all other taxes" imposed by all government entities in the country.13 The only exception is the real
property tax.
The appellate court pointed out that even if respondent opted to be covered by the Income Tax provisions of the
NIRC, it does not follow that it is covered by the MCIT provisions of the same Code. There is nothing in PD
1590 which obliges the respondent to pay other taxes, much less the MCIT, in case it suffers a net operating
loss. Otherwise, it would negate the tax relief granted under Section 13 of its franchise and would render it
useless. The tax relief allows respondent to carry over as a deduction from taxable income any net loss incurred
in any year up to five years following the year of such loss.14
Likewise, it elucidated that the MCIT is not the basic corporate income tax referred to in Section 13 of PD
1590. There is a distinction between the MCIT and the basic corporate income tax. The MCIT under Section
27(E)(1) of the NIRC of 1997, as amended, is imposed upon gross income; while the basic corporate income tax
refers to the 32% income tax on the taxable income of domestic corporations under Section 27(A) of the same
Code. In other words, the court a quo ruled that since the MCIT is imposed upon gross income, it cannot be
made to apply to respondent by virtue of the express provision in its franchise that its basic corporate income
tax shall be based on its annual net taxable income. Hence, it is in this sense that the MCIT qualifies as "other
taxes" from which the respondent had been granted tax exemption by its franchise.15
Moreover, the provision on MCIT, Section 27(E) of the NIRC of 1997, as amended, did not repeal respondent’s
franchise considering that it is a general law which cannot impliedly repeal, alter, or amend PD 1590, being a
special law. Neither can Revenue Memorandum Circular (RMC) No. 66-2003 amend respondent’s franchise as
it is merely an administrative issuance.
Lastly, there is no provision in RA No. 842416 which provides and specifies that the MCIT shall be in addition
to the taxes for which respondent is liable. To rule otherwise would be violative of Section 24 of PD 1590
which states that respondent’s franchise may only be modified, amended, or repealed expressly by a special law
or decree that shall specifically modify, amend or repeal the franchise or any section or provision thereof.
Therefore, in the absence of a law expressly repealing PD1590 at the time the subject assessment was issued
and for the period covered by the assessment, respondent’s tax exemption privilege under the "in lieu of all
other taxes" clause of Section 13 thereof must be applied.
Upon denial of petitioner’s Motion for Reconsideration of the 19 July2007 Decision of the CTA En Banc, it
filed this Petition for Review on Certiorari before this Court seeking the reversal of the aforementioned
Decision and the 23 August 2007 Resolution17 rendered in CTA EB No. 271.
The Issues
The issues submitted before this Court for consideration are as follows:
(1) Whether or not the CTA En Banc erred in holding that the MCIT is properly categorized as "other taxes"
pursuant to respondent’s charter; and
(2) Whether or not the CTA En Banc erred in ruling that respondent is not liable for the 2% MCIT deficiency
for the fiscal year ending 31March 2000.18
The above mentioned issues may be consolidated and restated as follows: whether or not the CTA En Banc
erred when it affirmed the cancellation of Assessment Notice No. INC-FY-99-2000-000085 and Formal Letter
of Demand issued by petitioner against respondent for the payment of deficiency MCIT in the amount
of P326,778,723.35, covering the fiscal year ending 31 March 2000.
In support thereof, petitioner submits the following arguments: (a) respondent clearly opted to be covered by the
income tax provision of the NIRC of 1997, as amended; hence, it is covered by the MCIT provision of the same
Code and liable to pay the same; (b) the MCIT does not belong to the category of "other taxes" which may
enable respondent to avail of the "in lieu of all other taxes" clause under Section 13 of PD 1590 because it is a
category of an income tax pursuant to Section 27 (E) (1) of the NIRC of 1997,as amended; (c) the MCIT
provision of the NIRC of 1997, as amended, is not an amendment of respondent’s charter, but an amendment of
the same Code. Hence, respondent’s obligation to pay the MCIT is not the result of an implied amendment of
PD 1590, but rather, the consequence of respondent’s option of paying income tax rather than franchise tax; (d)
respondent is not only given the privilege to choose between what will give it the benefit of a lower tax, but also
the responsibility of paying its share of the tax burden. Otherwise stated, it is the legislative intent to give
respondent a privilege in the form of an option in paying its taxes which would result in paying a lower tax
liability, but not in dispensing the sharing of a tax burden to which every taxpayer is obligated to bear; and (e) a
claim for exemption from taxation is never presumed; thus, respondent is liable for the deficiency MCIT.
Respondent, in its Comment thereto, counters among others, that there is nothing in PD 1590 which obliges
respondent to pay other taxes, much less the MCIT, in case it suffers a net operating loss. Since the MCIT is not
the basic corporate income tax, nor the 2% franchise tax, nor the real property tax mentioned by Section 13
thereof, then it is but logical to conclude that the MCIT belongs to the category of "other taxes" for which
respondent is not liable.
Our Ruling
Respondent’s exemption from the MCIT is already a settled matter.
Section 27 of the NIRC of 1997, as amended, provides as follows:
SEC. 27. Rates of Income Tax on Domestic Corporations. —
(A) In General. — Except as otherwise provided in this Code, an income tax of thirty-five percent (35%) is
hereby imposed upon the taxable income derived during each taxable year from all sources within and without
the Philippines by every corporation, as defined in Section 22(B) of this Code and taxable under this Title as a
corporation, organized in, or existing under the law of the Philippines: Provided, That effective January 1, 1998,
the rate of income tax shall be thirty-four percent (34%); effective January 1, 1999, the rate shall be thirty-three
percent (33%); and effective January 1, 2000 and thereafter, the rate shall be thirty-two percent (32%).
xxxx
(E) Minimum Corporate Income Tax on Domestic Corporations.—
(1) Imposition of Tax — A minimum corporate income tax of two percent (2%) of the gross income as of the
end of the taxable year, as defined herein, is hereby imposed on a corporation taxable under this Title,
beginning on the fourth taxable year immediately following the year in which such corporation commenced its
business operations, when the minimum income tax is greater than the tax computed under Subsection(A) of
this Section for the taxable year. (Emphasis supplied)
Based on the foregoing, a domestic corporation must pay whichever is the higher of: (1) the income tax under
Section 27(A) of the NIRC of 1997,as amended, computed by applying the tax rate therein to the taxable
income of the corporation; or (2) the MCIT under Section 27(E), also of the same Code, equivalent to 2% of the
gross income of the corporation. The Court would like to underscore that although this may be the general rule
in determining the income tax due from a domestic corporation under the provisions of the NIRC of 1997, as
amended, such rule can only be applied to respondent only as to the extent allowed by the provisions of its
franchise.
Relevant thereto, PD 1590, the franchise of respondent, contains the following pertinent provisions governing
its taxation:
Section 13. In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine
Government during the life of this franchise whichever of subsections (a) and (b) hereunder will result in a
lower tax:
(a) The basic corporate income tax based on the grantee’s annual net taxable income computed in accordance
with the provisions of the National Internal Revenue Code; or
(b) A franchise tax of two per cent (2%) of the gross revenues derived by the grantee from all sources, without
distinction as to transport or non transport operations; provided, that with respect to international air-transport
service, only the gross passenger, mail, and freight revenues from its outgoing flights shall be subject to this tax.
The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties,
royalties, registration, license, and other fees and charges of any kind, nature, or description, imposed, levied,
established, assessed, or collected by any municipal, city, provincial, or national authority or government
agency, now or in the future, including but not limited to the following:
xxxx
The grantee, shall, however, pay the tax on its real property in conformity with existing law.
For purposes of computing the basic corporate income tax as provided herein, the grantee is authorized:
(a) To depreciate its assets to the extent of not more than twice as fast the normal rate of depreciation; and
(b) To carry over as a deduction from taxable income any net loss incurred in any year up to five years
following the year of such loss.
Section 14. The grantee shall pay either the franchise tax or the basic corporate income tax on quarterly basis to
the Commissioner of Internal Revenue. Within sixty (60) days after the end of each of the first three quarters of
the taxable calendar or fiscal year, the quarterly franchise or income-tax return shall be filed and payment of
either the franchise or income tax shall be made by the grantee.
A final or an adjustment return covering the operation of the grantee for the preceding calendar or fiscal year
shall be filed on or before the fifteenth day of the fourth month following the close of the calendar or fiscal year.
The amount of the fiscal franchise or income tax to be paid by the grantee shall be the balance of the total
franchise or income tax shown in the final or adjustment return after deducting therefrom the total quarterly
franchise or income taxes already paid during the preceding first three quarters of the same taxable year.
Any excess of the total quarterly payments over the actual annual franchise of income tax due as shown in the
final or adjustment franchise or income-tax return shall either be refunded to the grantee or credited against the
grantee’s quarterly franchise or income-tax liability for the succeeding taxable year or years at the option of the
grantee.
The term "gross revenue" is herein defined as the total gross income earned by the grantee; (a) transport,
nontransport, and other services; (b) earnings realized from investments in money-market placements, bank
deposits, investments in shares of stock and other securities, and other investments; (c) total gains net of total
losses realized from the disposition of assets and foreign-exchange transactions; and (d) gross income from
other sources. (Emphasis supplied)
From the foregoing provisions, during the lifetime of the franchise of respondent, its taxation shall be strictly
governed by two fundamental rules, to wit: (1) respondent shall pay the Government either the basic corporate
income tax or franchise tax, whichever is lower; and (2) the tax paid by respondent, under either of these
alternatives, shall be in lieu of all other taxes, duties, royalties, registration, license, and other fees and charges,
except only real property tax.
Parenthetically, the basic corporate income tax of respondent shall be based on its annual net taxable income,
computed in accordance with the NIRC of 1997, as amended. PD 1590 also explicitly authorizes respondent, in
the computation of its basic corporate income tax, to: (1) depreciate its assets twice as fast the normal rate of
depreciation;19 and (2) carry over deduction from taxable income any net loss incurred in any year up to five
years following the year of such loss.20
The franchise tax, on the other hand, shall be 2% of the gross revenues derived by respondent from all sources,
whether transport or nontransport operations. However, with respect to international air-transport service, the
franchise tax shall only be imposed on the gross passenger, mail, and freight revenues of respondent from its
outgoing flights.21
Accordingly, considering the foregoing precepts, this Court had the opportunity to finally settle this matter and
categorically enunciated in Commissioner of Internal Revenue v. Philippine Airlines, Inc.,22 that respondent
cannot be subjected to MCIT for the following reasons:
First, Section 13(a) of [PD] 1590 refers to "basic corporate income tax." In Commissioner of Internal Revenue
v. Philippine Airlines, Inc.,23 the Court already settled that the "basic corporate income tax, "under Section 13(a)
of [PD] 1590, relates to the general rate of 35%(reduced to 32% by the year 2000) as stipulated in Section
27(A) of the NIRC of 1997.
Section 13(a) of [PD] 1590 requires that the basic corporate income tax be computed in accordance with the
NIRC. This means that PAL shall compute its basic corporate income tax using the rate and basis prescribed by
the NIRC of 1997 for the said tax. There is nothing in Section 13(a) of [PD] 1590 to support the contention of
the CIR that PAL is subject to the entire Title II of the NIRC of 1997, entitled "Tax on Income."
Second, Section 13(a) of Presidential Decree No. 1590 further provides that the basic corporate income tax of
PAL shall be based on its annual net taxable income. This is consistent with Section 27(A) of the NIRC of
1997, which provides that the rate of basic corporate income tax, which is 32% beginning 1 January 2000, shall
be imposed on the taxable income of the domestic corporation.
Taxable income is defined under Section 31 of the NIRC of 1997as the pertinent items of gross income
specified in the said Code, less the deductions and/or personal and additional exemptions, if any, authorized for
such types of income by the same Code or other special laws.
The gross income, referred to in Section 31, is described in Section32 of the NIRC of 1997 as income from
whatever source, including compensation for services; the conduct of trade or business or the exercise of
profession; dealings in property; interests; rents; royalties; dividends; annuities; prizes and winnings; pensions;
and a partner’s distributive share in the net income of a general professional partnership.
Pursuant to the NIRC of 1997, the taxable income of a domestic corporation may be arrived at by subtracting
from gross income deductions authorized, not just by the NIRC of 1997, but also by special laws. [PD] 1590
may be considered as one of such special laws authorizing PAL, in computing its annual net taxable income, on
which its basic corporate income tax shall be based, to deduct from its gross income the following: (1)
depreciation of assets at twice the normal rate; and (2) net loss carry-over up to five years following the year of
such loss.
In comparison, the 2% MCIT under Section 27 (E) of the NIRC of 1997 shall be based on the gross income of
the domestic corporation. The Court notes that gross income, as the basis for MCIT, is given a special definition
under Section 27(E) (4) of the NIRC of 1997, different from the general one under Section 34 of the same Code.
According to the last paragraph of Section 27 (E) (4) of the NIRC of 1997, gross income of a domestic
corporation engaged in the sale of service means gross receipts, less sales returns, allowances, discounts and
cost of services. "Cost of services" refers to all direct costs and expenses necessarily incurred to provide the
services required by the customers and clients including (a) salaries and employee benefits of personnel,
consultants, and specialists directly rendering the service; and (b) cost of facilities directly utilized in providing
the service, such as depreciation or rental of equipment used and cost of supplies. Noticeably, inclusions in and
exclusions/deductions from gross income for MCIT purposes are limited to those directly arising from the
conduct of the taxpayer’s business. It is, thus, more limited than the gross income used in the computation of
basic corporate income tax.
In light of the foregoing, there is an apparent distinction under the NIRC of 1997 between taxable income,
which is the basis for basic corporate income tax under Section 27(A); and gross income, which is the basis for
the MCIT under Section 27(E). The two terms have their respective technical meanings, and cannot be used
interchangeably. The same reasons prevent this Court from declaring that the basic corporate income tax, for
which PAL is liable under Section 13(a) of [PD] 1590, also covers MCIT under Section 27(E) of the NIRC of
1997, since the basis for the first is the annual net taxable income, while the basis for the second is gross
income.
Third, even if the basic corporate income tax and the MCIT are both income taxes under Section 27 of the
NIRC of 1997, and one is paid in place of the other, the two are distinct and separate taxes.
The Court again cites Commissioner of Internal Revenue v. Philippine Airlines, Inc.,24 wherein it held that
income tax on the passive income of a domestic corporation, under Section 27(D) of the NIRC of 1997, is
different from the basic corporate income tax on the taxable income of a domestic corporation, imposed by
Section 27(A), also of the NIRC of 1997. Section 13 of [PD] 1590 gives PAL the option to pay basic corporate
income tax or franchise tax, whichever is lower; and the tax so paid shall be in lieu of all other taxes, except real
property tax. The income tax on the passive income of PAL falls within the category of "allot her taxes" from
which PAL is exempted, and which, if already collected, should be refunded to PAL.
The Court herein treats MCIT in much the same way. Although both are income taxes, the MCIT is different
from the basic corporate income tax, not just in the rates, but also in the bases for their computation. Not being
covered by Section 13(a) of [PD] 1590,which makes PAL liable only for basic corporate income tax, then
MCIT is included in "all other taxes" from which PAL is exempted.
That, under general circumstances, the MCIT is paid in place of the basic corporate income tax, when the
former is higher than the latter, does not mean that these two income taxes are one and the same. The said taxes
are merely paid in the alternative, giving the Government the opportunity to collect the higher amount between
the two. The situation is not much different from Section 13 of [PD] 1590, which reversely allows PAL to pay,
whichever is lower of the basic corporate income tax or the franchise tax. It does not make the basic corporate
income tax in distinguishable from the franchise tax.
Given the fundamental differences between the basic corporate income tax and the MCIT, presented in the
preceding discussion, it is not baseless for this Court to rule that, pursuant to the franchise of PAL, said
corporation is subject to the first tax, yet exempted from the second.
Fourth, the evident intent of Section 13 of [PD] 1520 (sic) is to extend to PAL tax concessions not ordinarily
available to other domestic corporations. Section 13 of [PD] 1520 (sic) permits PAL to pay whichever is lower
of the basic corporate income tax or the franchise tax; and the tax so paid shall be in lieu of all other taxes,
except only real property tax. Hence, under its franchise, PAL is to pay the least amount of tax possible.
Section 13 of [PD] 1520 (sic) is not unusual. A public utility is granted special tax treatment (including tax
exceptions/exemptions) under its franchise, as an inducement for the acceptance of the franchise and the
rendition of public service by the said public utility. In this case, in addition to being a public utility providing
air-transport service, PAL is also the official flag carrier of the country.
The imposition of MCIT on PAL, as the CIR insists, would result in a situation that contravenes the objective of
Section 13 of [PD] 1590. In effect, PAL would not just have two, but three tax alternatives, namely, the basic
corporate income tax, MCIT, or franchise tax. More troublesome is the fact that, as between the basic corporate
income tax and the MCIT, PAL shall be made to pay whichever is higher, irrefragably, in violation of the
avowed intention of Section 13 of [PD] 1590 to make PAL pay for the lower amount of tax.
Fifth, the CIR posits that PAL may not invoke in the instant case the "in lieu of all other taxes" clause in Section
13 of [PD] No. 1520 (sic),if it did not pay anything at all as basic corporate income tax or franchise tax. As a
result, PAL should be made liable for "other taxes" such as MCIT. This line of reasoning has been dubbed as
the Substitution Theory, and this is not the first time the CIR raised the same. The Court already rejected the
Substitution Theory in
Commissioner of Internal Revenue v. Philippine Airlines, Inc.,25 to wit:
"Substitution Theory"
of the CIR Untenable
A careful reading of Section 13 rebuts the argument of the CIR that the "in lieu of all other taxes "proviso is a
mere incentive that applies only when PAL actually pays something.
It is clear that PD 1590 intended to give respondent the option to avail itself of Subsection (a) or (b) as
consideration for its franchise. Either option excludes the payment of other taxes and dues imposed or collected
by the national or the local government. PAL has the option to choose the alternative that results in lower taxes.
It is not the fact of tax payment that exempts it, but the exercise of its option.
Under Subsection (a), the basis for the tax rate is respondent’s annual net taxable income, which (as earlier
discussed) is computed by subtracting allowable deductions and exemptions from gross income. By basing the
tax rate on the annual net taxable income, PD 1590 necessarily recognized the situation in which taxable income
may result in a negative amount and thus translate into a zero tax liability.
Notably, PAL was owned and operated by the government at the time the franchise was last amended. It can
reasonably be contemplated that PD 1590 sought to assist the finances of the government corporation in the
form of lower taxes. When respondent operates at a loss(as in the instant case), no taxes are due; in this
instances, it has a lower tax liability than that provided by Subsection (b).
The fallacy of the CIR’s argument is evident from the fact that the payment of a measly sum of one peso would
suffice to exempt PAL from other taxes, whereas a zero liability arising from its losses would not. There is no
substantial distinction between a zero tax and a one-peso tax liability. (Emphasis theirs)
Based on the same ratiocination, the Court finds the Substitution Theory unacceptable in the present Petition.
The CIR alludes as well to Republic Act No. 9337, for reasons similar to those behind the Substitution Theory.
Section 22 of Republic Act No. 9337, more popularly known as the Expanded Value Added Tax(E-VAT) Law,
abolished the franchise tax imposed by the charters of particularly identified public utilities, including [PD]
1590 of PAL. PAL may no longer exercise its options or alternatives under Section 13 of [PD] 1590, and is now
liable for both corporate income tax and the 12% VAT on its sale of services. The CIR alleges that Republic
Act No. 9337reveals the intention of the Legislature to make PAL share the tax burden of other domestic
corporations.
The CIR seems to lose sight of the fact that the Petition at bar involves the liability of PAL for MCIT for the
fiscal year ending 31March 2001. Republic Act No. 9337, which took effect on 1 July 2005,cannot be applied
retroactively and any amendment introduced by said statute affecting the taxation of PAL is immaterial in the
present case.
And sixth, [PD] 1590 explicitly allows PAL, in computing its basic corporate income tax, to carry over as
deduction any net loss incurred in any year, up to five years following the year of such loss. Therefore, [PD]
1590 does not only consider the possibility that, at the end of a taxable period, PAL shall end up with zero
annual net taxable income (when its deductions exactly equal its gross income), as what happened in the case at
bar, but also the likelihood that PAL shall incur net loss (when its deductions exceed its gross income). If PAL
is subjected to MCIT, the provision in [PD] 1590 on net loss carry-over will be rendered nugatory. Net loss
carry-over is material only in computing the annual net taxable income to be used as basis for the basic
corporate income tax of PAL; but PAL will never be able to avail itself of the basic corporate income tax option
when it is in a net loss position, because it will always then be compelled to pay the necessarily higher MCIT.
Consequently, the insistence of the CIR to subject PAL to MCIT cannot be done without contravening [PD]
1520 (sic).
Between [PD] 1520 (sic), on one hand, which is a special law specifically governing the franchise of PAL,
issued on 11 June 1978;and the NIRC of 1997, on the other, which is a general law on national internal revenue
taxes, that took effect on 1 January 1998, the former prevails. The rule is that on a specific matter, the special
law shall prevail over the general law, which shall be resorted to only to supply deficiencies in the former. In
addition, where there are two statutes, the earlier special and the later general – the terms of the general broad
enough to include the matter provided for in the special – the fact that one is special and the other is general
creates a presumption that the special is to be considered as remaining an exception to the general, one as a
general law of the land, the other as the law of a particular case. It is a canon of statutory construction that a
later statute, general in its terms and not expressly repealing a prior special statute, will ordinarily not affect the
special provisions of such earlier statute.
xxxx
The MCIT was a new tax introduced by Republic Act No.8424. Under the doctrine of strict interpretation, the
burden is upon the CIR to primarily prove that the new MCIT provisions of the NIRC of 1997, clearly,
expressly, and unambiguously extend and apply to PAL, despite the latter’s existing tax exemption. To do this,
the CIR must convince the Court that the MCIT is a basic corporate income tax, and is not covered by the "in
lieu of all other taxes" clause of [PD] 1590. Since the CIR failed in this regard, the Court is left with no choice
but to consider the MCIT as one of "all other taxes," from which PAL is exempt under the explicit provisions of
its charter. (Emphasis supplied)
Based on the foregoing pronouncements, it is clear that respondent is exempt from the MCIT imposed under
Section 27(E) of the NIRC of 1997,as amended. Thus, respondent cannot be held liable for the assessed
deficiency MCIT of P326,778,723.35 for fiscal year ending 31 March 2000.1âwphi1
More importantly, as to petitioner’s contention that respondent needs to actually pay a certain amount as basic
corporate income tax or franchise tax before it can enjoy the tax exemption granted to it since it should retain
the responsibility of paying its share of the tax burden, this Court has categorically ruled in the above-cited
cases that it is not the fact of tax payment that exempts it, but the exercise of its option..
Notably, in another case involving the same parties,26 the Court further expressed that a strict interpretation of
the word "pay" in Section 13of PD 1590 would effectively render nugatory the other rights categorically
conferred upon the respondent by its franchise. Hence, there being no qualification to the exercise of its options
under Section 13, then respondent is free to choose basic corporate income tax, even if it would have zero
liability for the same in light of its net loss position for the taxable year.
By way of, reiteration, although it appears that respondent is not completely exempt from all forms of taxes
under PD 1590 considering that Section 13 thereof requires it to pay, either the lower amount of the basic
corporate income tax or franchise tax (which are both direct taxes), at its option, mere exercise of such option
already relieves respondent of liability for all other taxes and/or duties, whether direct or indirect taxes. This is
an expression of the same thought in Our ruling that, to repeat, it is not the fact of tax payment that exempts it,
but the exercise of its option. All told, the CTA En Bane was correct in dismissing the petition in CTA EB No.
271, and affirming the CTA Second Division's Decision and Resolution dated 22 August 2006 and 30 January
2007, respectively, in CTA Case No. 7029.
WHEREFORE, the petition is DENIED for lack of merit. No costs.

SO ORDERED.

G.R. No. 185728 October 16, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
TeaM (PHILIPPINES) OPERATIONS CORPORATION [Formerly MIRANT (PHILIPPINES)
OPERATIONS CORPORATION], Respondent.
DECISION
VILLARAMA, JR., J.:

On appeal under Rule 45 is the August 27, 2008 Decision1 of the Court of Tax Appeals (CTA) En Bane in
C.T.A. E.B. No. 369 which affirmed the August 29, 2007 Decision2 of the CTA First Division in CTA Case No.
6970 ordering petitioner Commissioner of Internal Revenue (CIR) to refund, or in the alternative, issue a tax
credit certificate, in favor of respondent TeaM (Philippines) Operations Corporation3 the amount
of P23,053,919.22 representing excess/unutilized creditable withholding taxes for the taxable year 2002.
Petitioner likewise assails the November 28, 2008 Resolution4 of the CTA En Bane denying its motion for
reconsideration from the assailed decision.
The facts as summarized in the assailed CTA En Banc decision are as follows:
Petitioner is the duly appointed Commissioner of Internal Revenue vested with the authority to act as such,
including inter alia, the power to decide, approve, and grant refunds or tax credits of overpaid internal revenue
taxes as provided by law with office address at the BIR National Office Building, Agham Road, Diliman,
Quezon City.
Respondent, on the other hand, is duly licensed to do business in the Philippines and is primarily engaged in the
business of designing, construction, erecting, assembling, commissioning, operating, maintaining, rehabilitating
and managing gas turbine and other power generating plants and related facilities for the conversion into
electricity of coal, distillate and other fuel provided by and under contract with the Government of the Republic
of the Philippines, or any subdivision, instrumentality or agency thereof, or any government owned or
controlled corporations or other entity engaged in the development, supply or distribution of energy.
Respondent entered into Operating and Management Agreements with Mirant Pagbilao Corporation [formerly
Southern Energy Quezon, Inc.] or (MPagC) and Mirant Sual Corporation [formerly Southern Energy
Pangasinan, Inc.] or (MSC) to provide these corporations with maintenance and management services in
connection with the operation, construction and commissioning of the coal-fired power stations situated in
Pagbilao, Province of Quezon and Sual, Province of Pangasinan, respectively. Payments received by respondent
for the operating and management services rendered to MPagC and MSC were allegedly subjected to creditable
withholding tax.
On April 15, 2003, respondent filed with the Bureau of Internal Revenue (BIR) its original Annual Income Tax
Return (ITR) for the calendar year ended December 31, 2002 declaring zero taxable income and unutilized tax
credits of P23,108,689.00, detailed as follows:
1âwphi1
 Gross Income P 82,732,818.00
Add: Non-operating & Other Income 172,834.00
Total Gross Income P 82,905,652.00
Less: Deductions 82,905,652.00
Taxable Income P NIL
Tax Rate 32%
Minimum Corporate Income Tax (MCIT) P 1,658,113.00
Income Tax Due P 1,658,113.00
Less: Prior Years’ Excess Credits NIL
Tax Payments for 1st 3 Quarters NIL
Creditable Tax Withheld for 1st 3
Quarters P 24,766,802.00
Total Tax Credits/Payments P 24,766,802.00
Tax Overpayment (P 23,108,689.00)
In its ITR for the year 2002, respondent indicated its option to refund its alleged excess creditable withholding
tax when it marked "X" the box corresponding to the option "To be refunded" under line 30 of said ITR.
On March 17, 2004, respondent filed an administrative claim for refund or issuance of tax credit certificate with
the BIR in the total amount of P23,108,689.00, allegedly representing overpaid income tax or excess creditable
withholding tax for calendar year ended December 31, 2002.
As the two-year prescriptive period for the filing of a judicial claim under Section 229 of the National Internal
Revenue Code (NIRC) of 1997 was about to lapse without action on the part of petitioner, respondent elevated
its case before the Court in Division by way of Petition for Review on April 27, 2004, docketed as C.T.A. Case
No. 6970.5
On August 29, 2007, the CTA First Division rendered a Decision6 partially granting respondent’s petition and
ordered petitioner to refund or issue a tax credit certificate in the reduced amount of P23,053,919.22
representing excess/unutilized creditable withholding taxes for the taxable year 2002. The CTA First Division
found that respondent complied with the substantiation requirements for it to be entitled to a claim of
excess/unutilized tax credits for the said taxable year. It observed that respondent presented Certificates of
Creditable Tax Withheld at Source issued to it by Mirant Pagbilao Corporation (MPagC) and Mirant Sual
Corporation (MSC) for the year 2002 and which were found by the court-commissioned auditing firm, SGV &
Co., to be faithful reproductions of the original copies of the certificates, duly signed and prepared under the
penalties of perjury and are presumed to be true and correct.
The CTA in Division, however, disallowed the amount of P54,769.78 from the amount claimed since
respondent’s Annual Income Tax Return only reflected an income of P247,120,318.00 although the income
upon which taxes were withheld amounted to P247,668,015.80. Thus, the tax that corresponds to the difference
of P547,697.80 was deducted from the tax claim because the income upon which it was withheld did not form
part of the income as declared in respondent’s 2002 ITR.
Petitioner filed a motion for partial reconsideration from the aforementioned decision but the motion was denied
by the CTA First Division in a Resolution7 dated February 4, 2008. Petitioner appealed the decision of the CTA
First Division to the CTA En Banc raising the sole issue of whether respondent is entitled to the refund of
excess or unutilized creditable withholding taxes for the taxable year 2002 in the amount of P23,053,919.22.
On August 27, 2008, the CTA En Banc denied the petition for lack of merit and affirmed the ruling of the CTA
First Division granting respondent’s claim for refund or issuance of tax credit certificate in the amount
of P23,053,919.22.
Petitioner’s motion for reconsideration from the foregoing ruling was denied in a Resolution8 dated November
28, 2008. Hence, petitioner filed the present petition insisting that--
RESPONDENT FAILED TO COMPLY WITH THE REQUIREMENTS FOR REFUND OF CREDITABLE
WITHHOLDING TAX.9
Petitioner CIR argues that the withholding of the subject taxes had not been duly proven by respondent.
Petitioner posits that in order that the claim for refund of creditable withholding tax will be granted, the
claimant must present an authentic certificate of creditable withholding tax. Petitioner points out that the
original copies of the subject withholding tax certificates were not presented by respondent before the CTA. It
only presented the testimony of the court-commissioned independent accountant (ICPA), Mr. Henry Tan, who
merely identified the certificates and opined that said certificates were faithful reproductions of the original.
Thus, petitioner claims that she was deprived of the opportunity to scrutinize the certificates to determine their
authenticity.
Petitioner also assails the CTA En Banc’s ruling brushing aside the fact that mere photocopies were presented
and holding that the documents were executed under the penalties of perjury pursuant to Section 267 of the
National Internal Revenue Code of 1997. According to petitioner, even if the documents presented were
executed under the penalties of perjury, it does not guarantee that the same were not perjured and does not
dispense with the best evidence rule. She claims that the competent witness who can prove the truth of the
contents of the certificates is the person who prepared the same.
In its Comment/Opposition,10 respondent maintains that it had presented the original copies of the withholding
tax certificates to the court-commissioned ICPA for examination under the procedures laid down in CTA
Circular No. 1-95, as amended by CTA Circular No. 10-97. Respondent avers that the original copies of those
certificates were among the voluminous documents submitted by respondent for examination by the court-
commissioned ICPA. Respondent asserts that under the aforementioned circulars, the duly commissioned ICPA
was authorized to examine the original copies of the certificates, make photocopies thereof, and certify that the
photocopies are faithful reproductions of the original. It contends that the original copies of the certificates need
not be presented in court after the court-commissioned ICPA has submitted his report together with all the
supporting documents and testified on his findings and conclusions. Respondent submits that it is enough that
those certificates were properly pre-marked, introduced as evidence and made available to petitioner in case she
wants to verify their authenticity.
In reply,11 petitioner stresses that the presentation of Mr. Henry Tan, the court-commissioned ICPA, who
identified the withholding tax certificates and testified that said certificates were faithful reproductions of the
original, does not satisfy the requirements and conditions for tax refund. Petitioner adds that tax refunds, like
tax exemptions are construed strictly against the taxpayer and a refund claimant is required to prove the
inclusion of the income payments which were the basis of the withholding taxes and the fact of withholding.
The main issue to be resolved in this petition is whether respondent has complied with the requirements for
refund or issuance of tax credit certificate of creditable withholding taxes for calendar year ended December 31,
2002.
We affirm the ruling of the CTA En Banc that respondent has complied with the requirements for refund of
creditable withholding taxes and is therefore entitled to the P23,053,919.22 claim for refund or issuance of tax
credit certificate.
A taxpayer claiming for a tax credit or refund of creditable withholding tax must comply with the following
requisites:
1) The claim must be filed with the CIR within the two-year period from the date of payment of the tax;
2) It must be shown on the return of the recipient that the income received was declared as part of the gross
income; and
3) The fact of withholding is established by a copy of a statement duly issued by the payor to the payee showing
the amount paid and the amount of tax withheld.12
The first requirement is based on Section 229 of the National Internal Revenue Code of 1997 which provides
that:
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 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. (Underscoring supplied.)
The second and third conditions are specifically imposed under Section 10 of Revenue Regulation No. 6-85 (as
amended), which provides:
Section 10. Claims for tax credit or refund. – (a) Claims for Tax Credit or Refund of income tax deducted and
withheld on income payments shall be given due course only
when it is shown on the return that the income payment received has been declared as part of the gross income
and the fact of withholding is established by a copy of the Withholding Tax Statement duly issued by the payor
to the payee showing the amount paid and the amount of tax withheld therefrom xxx.13 (Emphasis supplied.)
There is no dispute that respondent has complied with the first requirement when it filed its administrative claim
for tax refund on March 17, 2004 and thereafter filed a petition for review with the CTA on April 27, 2004 or
within two years from April 15, 2003, the date of filing of its Annual Income Tax Return.14 Respondent was
also able to prove the second requirement by showing in its ITR that the income upon which the creditable
withholding taxes were paid was declared as part of its gross income for the taxable year 2002.
As to the third condition, both the CTA First Division and the CTA En Banc ruled that respondent has
sufficiently established the fact of withholding by presenting the Certificates of Creditable Tax Withheld at
Source issued by MPagC and MSC for the year 2002. We find no cogent reason to deviate from these findings.
Oft-repeated is the rule that the Court will not lightly set aside the conclusions reached by the CTA which, by
the very nature of its function of being dedicated exclusively to the resolution of tax problems, has accordingly
developed an expertise on the subject, unless there has been an abuse or improvident exercise of
authority.15 After a thorough review of the case, we find no abuse or improvident exercise of authority on the
part of the CTA in granting respondent’s claim for tax refund.
In the present case, petitioner insists that the fact of withholding had not been established since the original
copies of the Certificates of Creditable Tax Withheld at Source were not submitted to the CTA and that the
payors or withholding agents or the persons who prepared and executed the Certificates of Creditable Tax
Withheld at Source were not presented to prove the authenticity of the certificates.
Petitioner’s contention fails to persuade us. It should be stressed that respondent presented the original copies of
the Certificates of Creditable Tax Withheld at Source to the court-commissioned ICPA who examined the
original copies and certified that the copies submitted to the CTA as evidence were faithful reproductions of the
original certificates. Said procedure was in accordance with Rule 13 of the Revised Rules of the Court of Tax
Appeals which provides, to wit:
SEC. 2. Duties of independent CPA. – The independent CPA shall perform audit functions in accordance with
the generally accepted accounting principles, rules and regulations, which shall include:
(a) Examination and verification of receipts, invoices, vouchers and other long accounts;
(b) Reproduction of, and comparison of such reproduction with, and certification that the same are faithful
copies of original documents, and pre-marking of documentary exhibits consisting of voluminous documents;
(c) Preparation of schedules or summaries containing a chronological listing of the numbers, dates and amounts
covered by receipts or invoices or other relevant documents and the amount(s) of taxes paid;
(d) Making findings as to compliance with substantiation requirements under pertinent tax laws, regulations and
jurisprudence;
(e) Submission of a formal report with certification of authenticity and veracity of findings and conclusions in
the performance of the audit;
(f) Testifying on such formal report; and
(g) Performing such other functions as the Court may direct. (Underscoring supplied.)
Pursuant to the foregoing provision, respondent presented the pre-marked copies of the Certificates of
Creditable Tax Withheld at Source (Exhibits "G", "H", "I" and "J") issued by MPagC and MSC for the year
2002 together with other pertinent documents and which was identified and verified by the court-commissioned
ICPA to be faithful reproductions of the original documents which it had examined and scrutinized. In the
succeeding section, Section 3 of the same rule, it was provided that the submission by the independent CPA of
pre-marked documentary evidence shall be subject to verification and comparison with the original documents,
the availability of which shall be the primary responsibility of the party possessing such documents and,
secondarily, by the independent CPA.
After the pre-marked certificates and other documentary evidence are submitted by respondent to the CTA,
respondent’s counsel manifested that the original copies of the documents are available at the respondent’s
office in case petitioner wants to verify the existence of the original documents.16 However, petitioner never
signified any intention to verify the authenticity of the withholding tax certificates. It did not interpose any
objection when the certificates were formally offered in court as part of respondent’s evidence. Petitioner made
no effort to examine the original certificates to determine its authenticity and to ascertain that the photocopies
are faithful reproductions by comparing it with the original copies. Hence, it cannot now claim that it was
deprived of the opportunity to examine and scrutinize the certificates and other documents submitted by
respondent. There was nothing in the records which would cast doubt on the authenticity of the certificates.
Thus, we are in accord with the findings of the CTA First Division and the CTA En Banc that respondent
complied with the substantiation requirements for refund of creditable withholding tax. Here, respondent was
able to establish the fact of withholding by submitting a copy of the withholding tax certificates duly issued by
MPagC and MSC, as the withholding agent, indicating the name of the payor and showing the income payment
basis of the tax withheld and the amount of the tax withheld. Contrary to petitioner’s assertion, it is not
necessary for the person who executed and prepared the Certificates of Creditable Tax Withheld at Source to be
presented and to testify personally as to the authenticity of the certificates. The copies of the Certificates of
Creditable Tax Withheld at Source when found by the duly commissioned ICPA to be faithful reproductions of
the original copies would suffice to establish the fact of withholding. This was our ruling in the case of
Commissioner of Internal Revenue v. Mirant (Philippines) Operations, Corporation,17 where this Court had
agreed with the conclusion of the CTA En Banc stating that Contrary to petitioner CIR’s contention, the fact of
withholding was likewise established through respondent’s presentation of the Certificates of Creditable Tax
Withheld At Source, duly issued to it by Southern Energy Pangasinan, Inc. and Southern Energy Quezon, Inc.,
for the year 2000
x x x. These certificates were found by the duly commissioned independent CPA to be faithful reproductions of
the original copies, as per his Supplementary Report dated March 24, 2003 x x x. (Emphasis supplied.)
As shown in the certificates, respondent’s creditable withholding tax amounted P24,766,801.58, broken down
as follows:
1âwphi1
Exh. Period Withholding Income Tax Tax Withheld
Covered Agent Amount Rate
H Jan. 2002 to Mirant Sual 81,694,812.20 10% 8,169,481.22
Mar. Corporation
2002
J April 2002 to Mirant Sual 32,835,093.20 10% 3,283,509.32
June Corporation
2002
G Jan. 2002 to Mirant 132,590,415.80 10% 13,259,041.58
March Pagbilao
2002 Corporation
I April 2002 to Mirant 547,694.60 10% 54,769.46
June Pagbilao
2002 Corporation
247,668,015.80 24,766,801.58
However, its 2002 ITR reflected only the amount ofP247,120,318 out of the total income of P247,668,015.80 or
a difference of P547,697.80. Thus, the tax that corresponds to the said amount (P54, 769) was properly
disallowed by the CT A First Division and CT A En Bane in the determination of respondent's tax claim since
the income upon which it was withheld did not form part of the income declared in the 2002 ITR.
In fine, we find no reason to reverse or modify the findings of the CTA En Bane which granted respondent's
claim for tax refund in the amount of P23,053,919.22.
WHEREFORE the present petition for review on certiorari is DENIED. The Decision dated August 27, 2008
and Resolution dated November 28 2008 of the Court of Tax Appeals En-Bane in C.T.A. E.B. No. 369 are
hereby AFFIRMED and UPHELD. No pronouncement as to costs.
SO ORDERED.

G.R. No. 187485 October 8, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
SAN ROQUE POWER CORPORATION, Respondent.
x-----------------------x
G.R. No. 196113
TAGANITO MINING CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
x-----------------------x
G.R. No. 197156
PHILEX MINING CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
RESOLUTION
CARPIO, J.:
This Resolution resolves the Motion for Reconsideration and the Supplemental Motion for Reconsideration
filed by San Roque Power Corporation (San Roque) in G.R. No. 187485, the Comment to the Motion for
Reconsideration filed by the Commissioner of Internal Revenue (CIR) in G.R. No. 187485, the Motion for
Reconsideration filed by the CIR in G.R.No. 196113, and the Comment to the Motion for Reconsideration filed
by Taganito Mining Corporation (Taganito) in G.R. No. 196113.
San Roque prays that the rule established in our 12 February 2013 Decision be given only a prospective effect,
arguing that "the manner by which the Bureau of Internal Revenue (BIR) and the Court of Tax Appeals(CTA)
actually treated the 120 + 30 day periods constitutes an operative fact the effects and consequences of which
cannot be erased or undone."1
The CIR, on the other hand, asserts that Taganito Mining Corporation's (Taganito) judicial claim for tax credit
or refund was prematurely filed before the CTA and should be disallowed because BIR Ruling No. DA-489-03
was issued by a Deputy Commissioner, not by the Commissioner of Internal Revenue.
We deny both motions.
The Doctrine of Operative Fact
The general rule is that a void law or administrative act cannot be the source of legal rights or duties. Article 7
of the Civil Code enunciates this general rule, as well as its exception: "Laws are repealed only by subsequent
ones, and their violation or non-observance shall not be excused by disuse, or custom or practice to the contrary.
When the courts declared a law to be inconsistent with the Constitution, the former shall be void and the latter
shall govern. Administrative or executive acts, orders and regulations shall be valid only when they are not
contrary to the laws or the Constitution."
The doctrine of operative fact is an exception to the general rule, such that a judicial declaration of invalidity
may not necessarily obliterate all the effects and consequences of a void act prior to such declaration.2 In
Serrano de Agbayani v. Philippine National Bank,3 the application of the doctrine of operative fact was
discussed as follows:
The decision now on appeal reflects the orthodox view that an unconstitutional act, for that matter an executive
order or a municipal ordinance likewise suffering from that infirmity, cannot be the source of any legal rights or
duties. Nor can it justify any official act taken under it. Its repugnancy to the fundamental law once judicially
declared results in its being to all intents and purposes a mere scrap of paper. As the new Civil Code puts it:
"When the courts declare a law to be inconsistent with the Constitution, the former shall be void and the latter
shall govern. Administrative or executive acts, orders and regulations shall be valid only when they are not
contrary to the laws of the Constitution." It is understandable why it should be so, the Constitution being
supreme and paramount. Any legislative or executive act contrary to its terms cannot survive.
Such a view has support in logic and possesses the merit of simplicity. It may not however be sufficiently
realistic. It does not admit of doubt that prior to the declaration of nullity such challenged legislative or
executive act must have been in force and had to be complied with. This is so as until after the judiciary, in an
appropriate case, declares its invalidity, it is entitled to obedience and respect. Parties may have acted under it
and may have changed their positions. What could be more fitting than that in a subsequent litigation regard be
had to what has been done while such legislative or executive act was in operation and presumed to be valid in
all respects. It is now accepted as a doctrine that prior to its being nullified, its existence as a fact must be
reckoned with. This is merely to reflect awareness that precisely because the judiciary is the governmental
organ which has the final say on whether or not a legislative or executive measure is valid, a period of time may
have elapsed before it can exercise the power of judicial review that may lead to a declaration of nullity. It
would be to deprive the law of its quality of fairness and justice then, if there be no recognition of what had
transpired prior to such adjudication.
In the language of an American Supreme Court decision: "The actual existence of a statute, prior to such a
determination of unconstitutionality, is an operative fact and may have consequences which cannot justly be
ignored. The past cannot always be erased by a new judicial declaration. The effect of the subsequent ruling as
to invalidity may have to be considered in various aspects, with respect to particular relations, individual and
corporate, and particular conduct, private and official." This language has been quoted with approval in a
resolution in Araneta v. Hill and the decision in Manila Motor Co., Inc. v. Flores. An even more recent instance
is the opinion of Justice Zaldivar speaking for the Court in Fernandez v. Cuerva and Co. (Boldfacing and
italicization supplied)
Clearly, for the operative fact doctrine to apply, there must be a "legislative or executive measure," meaning a
law or executive issuance, that is invalidated by the court. From the passage of such law or promulgation of
such executive issuance until its invalidation by the court, the effects of the law or executive issuance, when
relied upon by the public in good faith, may have to be recognized as valid. In the present case, however, there
is no such law or executive issuance that has been invalidated by the Court except BIR Ruling No. DA-489-03.
To justify the application of the doctrine of operative fact as an exemption, San Roque asserts that "the BIR and
the CTA in actual practice did not observe and did not require refund seekers to comply with the120+30 day
periods."4This is glaring error because an administrative practice is neither a law nor an executive issuance.
Moreover, in the present case, there is even no such administrative practice by the BIR as claimed by San
Roque.
In BIR Ruling No. DA-489-03 dated 10 December 2003, the Department of Finance’s One-Stop Shop Inter-
Agency Tax Credit and Duty Drawback Center (DOF-OSS) asked the BIR to rule on the propriety of the actions
taken by Lazi Bay Resources Development, Inc. (LBRDI). LBRDI filed an administrative claim for refund for
alleged input VAT for the four quarters of 1998. Before the lapse of 120 days from the filing of its
administrative claim, LBRDI also filed a judicial claim with the CTA on 28March 2000 as well as a
supplemental judicial claim on 29 September 2000.In its Memorandum dated 13 August 2002 before the BIR,
the DOF-OSS pointed out that LBRDI is "not yet on the right forum in violation of the provision of Section
112(D) of the NIRC" when it sought judicial relief before the CTA. Section 112(D) provides for the 120+30 day
periods for claiming tax refunds.
The DOF-OSS itself alerted the BIR that LBRDI did not follow the120+30 day periods. In BIR Ruling No. DA-
489-03, Deputy Commissioner Jose Mario C. Buñag ruled that "a 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." Deputy
Commissioner Buñag, citing the 7February 2002 decision of the Court of Appeals (CA) in Commissioner of
Internal Revenue v. Hitachi Computer Products (Asia) Corporation5 (Hitachi), stated that the claim for refund
with the Commissioner could be pending simultaneously with a suit for refund filed before the CTA.
Before the issuance of BIR Ruling No. DA-489-03 on 10 December 2003, there was no administrative practice
by the BIR that supported simultaneous filing of claims. Prior to BIR Ruling No. DA-489-03, the BIR
considered the 120+30 day periods mandatory and jurisdictional.
Thus, prior to BIR Ruling No. DA-489-03, the BIR’s actual administrative practice was to contest simultaneous
filing of claims at the administrative and judicial levels, until the CA declared in Hitachi that the BIR’s position
was wrong. The CA’s Hitachi decision is the basis of BIR Ruling No. DA-489-03 dated 10 December 2003
allowing simultaneous filing. From then on taxpayers could rely in good faith on BIR Ruling No. DA-489-03
even though it was erroneous as this Court subsequently decided in Aichi that the 120+30 day periods were
mandatory and jurisdictional.
We reiterate our pronouncements in our Decision as follows:
At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods were
already in the law. Section112(C) expressly grants the Commissioner 120 days within which to decide the
taxpayer’s claim. The law is clear, plain, and unequivocal: "x x x 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." Following the verbalegis doctrine, this law 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-daymandatory 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. In San Roque’s case, it filed its petition with the CTA a mere 13 days
after it filed its administrative claim with the Commissioner. Indisputably, San Roque knowingly violated the
mandatory 120-day period, and it cannot blame anyone but itself.
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction
of the Commissioner x x x.
xxxx
To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against the
taxpayer.1âwphi1 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.6
San Roque’s argument must, therefore, fail. The doctrine of operative fact is an argument for the application of
equity and fair play. In the present case, we applied the doctrine of operative fact when we recognized
simultaneous filing during the period between 10 December 2003, when BIR Ruling No. DA-489-03 was
issued, and 6 October 2010, when this Court promulgated Aichi declaring the 120+30 day periods mandatory
and jurisdictional, thus reversing BIR Ruling No. DA-489-03.
The doctrine of operative fact is in fact incorporated in Section 246 of the Tax Code, which provides:
SEC. 246. Non-Retroactivity of Rulings. - Any revocation, modification or reversal of any of the rules and
regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars
promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or
reversal will be prejudicial to the taxpayers, except in the following cases:
(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required
of him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the
facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith. (Emphasis supplied)
Under Section 246, taxpayers may rely upon a rule or ruling issued by the Commissioner from the time the rule
or ruling is issued up to its reversal by the Commissioner or this Court. The reversal is not given retroactive
effect. This, in essence, is the doctrine of operative fact. There must, however, be a rule or ruling issued by the
Commissioner that is relied upon by the taxpayer in good faith. A mere administrative practice, not formalized
into a rule or ruling, will not suffice because such a mere administrative practice may not be uniformly and
consistently applied. An administrative practice, if not formalized as a rule or ruling, will not be known to the
general public and can be availed of only by those within formal contacts with the government agency.
Since the law has already prescribed in Section 246 of the Tax Code how the doctrine of operative fact should
be applied, there can be no invocation of the doctrine of operative fact other than what the law has specifically
provided in Section 246. In the present case, the rule or ruling subject of the operative fact doctrine is BIR
Ruling No. DA-489-03 dated 10 December 2003. Prior to this date, there is no such rule or ruling calling for the
application of the operative fact doctrine in Section 246. Section246, being an exemption to statutory taxation,
must be applied strictly against the taxpayer claiming such exemption.
San Roque insists that this Court should not decide the present case in violation of the rulings of the CTA;
otherwise, there will be adverse effects on the national economy. In effect, San Roque’s doomsday scenario is a
protest against this Court’s power of appellate review. San Roque cites cases decided by the CTA to underscore
that the CTA did not treat the 120+30 day periods as mandatory and jurisdictional. However, CTA or CA
rulings are not the executive issuances covered by Section 246 of the Tax Code, which adopts the operative fact
doctrine. CTA or CA decisions are specific rulings applicable only to the parties to the case and not to the
general public. CTA or CA decisions, unlike those of this Court, do not form part of the law of the land.
Decisions of lower courts do not have any value as precedents. Obviously, decisions of lower courts are not
binding on this Court. To hold that CTA or CA decisions, even if reversed by this Court, should still prevail is
to turn upside down our legal system and hierarchy of courts, with adverse effects far worse than the dubious
doomsday scenario San Roque has conjured.
San Roque cited cases7 in its Supplemental Motion for Reconsideration to support its position that retroactive
application of the doctrine in the present case will violate San Roque’s right to equal protection of the law.
However, San Roque itself admits that the cited cases never mentioned the issue of premature or simultaneous
filing, nor of compliance with the 120+30 day period requirement. We reiterate that "any issue, whether raised
or not by the parties, but not passed upon by the Court, does not have any value as precedent."8 Therefore, the
cases cited by San Roque to bolster its claim against the application of the 120+30 day period requirement do
not have any value as precedents in the present case.
Authority of the Commissioner
to Delegate Power
In asking this Court to disallow Taganito’s claim for tax refund or credit, the CIR repudiates the validity of the
issuance of its own BIR Ruling No. DA-489-03. "Taganito cannot rely on the pronouncements in BIR Ruling
No. DA-489-03, being a mere issuance of a Deputy Commissioner."9
Although Section 4 of the 1997 Tax Code provides that the "power to interpret the provisions of this Code and
other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by
the Secretary of Finance," Section 7 of the same Code does not prohibit the delegation of such power. Thus,
"the Commissioner may delegate the powers vested in him under the pertinent provisions of this Code to any or
such subordinate officials with the rank equivalent to a division chief or higher, subject to such limitations and
restrictions as may be imposed under rules and regulations to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner."
WHEREFORE, we DENY with FINALITY the Motions for Reconsideration filed by San Roque Power
Corporation in G.R. No. 187485,and the Commissioner of Internal Revenue in G.R. No. 196113.
SO ORDERED.

G.R. No. 190872 October 17, 2013

REPUBLIC OF THE PHILIPPINES represented by the Commissioner of Internal Revenue, Petitioner,
vs.
GST PHILIPPINES, INC., Respondent.
DECISION
PERLAS-BERNABE, J.:
It is true that every citizen has a civic responsibility nay an obligation to honestly pay the right taxes as a
contribution to the government in order to keep and maintain a civilized society. Corollarily, the government is
expected to implement tax laws in good faith; to discharge its duty to collect what is due to it; and consistent
with the principles of fair play and equity to justly return what has been erroneously and excessively given to it
after careful verification but without infringing upon the fundamental rights of the taxpayer.
In this Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure, petitioner
Republic of the Philippines, represented by the Commissioner of Internal Revenue (CIR), assails the October
30, 2009 Decision2 and January 5, 2010 Resolution3 of the Court of Tax Appeals (CTA) En Banc in C.T.A. EB
No. 484, granting respondent GST Philippines, Inc. (GST) a refund of its unutilized excess input value added
tax (VAT) attributable to zero-rated sales for the four quarters of taxable year 2004 and the first three quarters
of taxable year 2005.
The facts
GST is a corporation duly organized and existing under the laws of the Philippines, and primarily engaged in
the business of manufacturing, processing, selling, and dealing in all kinds of iron, steel or other metals.4 It is a
duly registered VAT enterprise with taxpayer identification number 000-155-645-000,5 which deals with
companies registered with (1) the Board of Investments (BOI) pursuant to Executive Order No. (EO)
226,6 whose manufactured products are 100% exported to foreign countries; and (2) the Philippine Economic
Zone Authority (PEZA).7 Sales made by a VAT-registered person to a PEZA-registered entity are considered
exports to a foreign country subject to a zero rate.8
During the taxable years 2004 and 2005, GST filed Quarterly VAT Returns showing its zero-rated sales, as
follows:9
Period Date of Filing Zero-Rated Sales
1st Quarter of year 2004 April 16, 2004 P 77,687,420.54
2nd Quarter of year 2004 July 15, 2004 53,737,063.05
3rd Quarter of year 2004 October 15, 2004 74,280,682.00
4th Quarter of year 2004 January 11, 2005 104,633,604.23
1st Quarter of year 2005 April 25, 2005 37,742,969.02
2nd Quarter of year 2005 July 19, 2005 56,133,761.00
3rd Quarter of year 2005 October 26, 2005 51,147,677.80
Claiming unutilized excess input VAT in the total amount of P32,722,109.68 attributable to the foregoing zero-
rated sales,10 GST filed before the Bureau of Internal Revenue (BIR) separate claims for refund on the
following dates:11
Period Date of Filing of
Administrative Claim
For Refund
1st Quarter of year 2004 June 9, 2004
2nd Quarter of year 2004 August 12, 2004
3rd Quarter of year 2004 February 18, 2005
4th Quarter of year 2004 February 18, 2005
1st Quarter of year 2005 May 11, 2005
2nd Quarter of year 2005 November 18, 2005
3rd Quarter of year 2005 November 18, 2005
For failure of the CIR to act on its administrative claims, GST filed a petition for review before the CTA on
March 17, 2006. After due proceedings, the CTA First Division rendered a Decision12 on January 27, 2009
granting GST’s claims for refund but at the reduced amount of P27,369,114.36. The CIR was also ordered to
issue the corresponding tax credit certificate.13
The CIR moved for reconsideration, which was denied14 by the CTA First Division for lack of merit, thus,
prompting the elevation of the case to the CTA En Banc via a petition for review.15
The CIR raised therein the failure of GST to substantiate its entitlement to a refund,16 and argued that the
judicial appeal to the CTA was filed beyond the reglementary periods prescribed in Section 112 of RA
842417 (Tax Code).18
On October 30, 2009, the CTA En Banc affirmed19 the Decision of the CTA First Division finding GST’s
administrative and judicial claims for refund to have been filed well within the prescribed periods provided in
the Tax Code.20 The CIR’s motion for reconsideration was denied by the CTA En Banc in its Resolution21 dated
January 5, 2010.
Hence, the instant petition.
The Issue
The CIR no longer raises the alleged failure of GST to comply with the substantiation requirements for the
questioned claims for refund nor questions the reduced award granted by the CTA En Banc in the amount
of P27,369,114.36. Thus, the lone issue for resolution is whether GST’s action for refund has complied with the
prescriptive periods under the Tax Code.
The Ruling of the Court
Laws Providing Refunds or Tax
Credit of Unutilized Excess Input VAT
Refund or tax credit of unutilized excess input VAT has been allowed as early as in the Original VAT Law –
EO 273.22 This was later amended by RA 771623 and RA 8424, and further amended by RA 933724 which took
effect on November 1, 2005.25 Since GST’s claims for refund covered the periods before the effectivity of RA
9337, the old provision on VAT refund, specifically Section 112, as amended by RA 8424, shall apply.26 It
reads:
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. (Emphasis supplied)
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)
The CIR, adopting the dissenting opinion27 of CTA Presiding Justice Ernesto D. Acosta to the CTA En Banc
Decision dated October 30, 2009, maintains that the two-year prescriptive period under Section 112 (A) of the
Tax Code reckoned from the close of the taxable quarter involved is limited only to the filing of an
administrative – not judicial – claim.28 In turn, under paragraph (D) of the same Section, the CIR has 120 days
to decide on the claim counted from the date of the submission of complete documents and not from the mere
filing of the administrative claim. The taxpayer then has 30 days from receipt of the adverse decision, or from
the expiration of the 120-day period without the CIR acting upon the claim, to institute his judicial claim before
the CTA.29
Thus, in the present case, the claims filed for the four quarters of taxable year 2004, as well as the first quarter
of taxable year 2005, had already prescribed. While those of the second and third quarters of taxable year 2005
were prematurely filed, as summarized in the table presented by Justice Acosta, to wit:
Applying the above discourse in the case at bar, a table is prepared for easy reference:
Filing of 120th day 30th day Filing of the Remarks
Administrative Section 112 Section 112 Petition
Claim (D), NIRC (D), 2nd par., before the
of NIRC of First
1997 1997 Division of
this Court
October 7, November 6, March 17,
June 9, 2004 Prescribed
2004 2004 2006
August 12, December January 9, March 17, Prescribed
2004 10, 2004 2005 2006
February 18, June 18, July 18, 2005 March 17, Prescribed
2005 2005 2006
May 11, 2005 September 8, October 8, March 17, Prescribed
2005 2005 2006
 November 18, March 18, April 17, March 17, Prescribed
2005 2006 2006 2006
Based on the above, the filing of the Petition for Review before the First Division has already prescribed with
respect to the administrative claim filed on June 9, 2004; August 12, 2004; February 18, 2005; and May 11,
2005 for being filed beyond the 30th day provided under the second paragraph of Section 112 (D) of the NIRC
of 1997. The petition is therefore dismissible for being out of time.
Anent the administrative claim filed on November 18, 2005, the filing of the petition before the First Division is
premature for failure of respondent to wait for the 120-day period to expire. It failed to exhaust the available
administrative remedies. Hence, the instant petition is likewise dismissible for lack of cause of action.30
For its part, GST asserts that under Section 112 (A) of the Tax Code, the prescriptive period is complied with if
both the administrative and judicial claims are filed within the two-year prescriptive period;31 and that
compliance with the 120-day and 30-day periods under Section 112 (D) of the Tax Code is not mandatory.32 It
explained that the 30-day period only refers to a case where a decision is rendered by the CIR and not when the
claim for refund is not acted upon, in which case, the taxpayer may appeal to the CTA anytime even prior to or
after the expiration of the 120-day period as long as it is within the two-year prescriptive period. On the other
hand, the CIR may still choose to resolve the administrative claim even beyond the 120-day period. In any case,
compliance with the 120-day and 30-day periods is merely directory and permissive, not mandatory nor
jurisdictional.33
The 120+30 day periods are
mandatory and jurisdictional.
The Court had already clarified in the case of CIR v. Aichi Forging Company of Asia, Inc.
(Aichi),34 promulgated on October 6, 2010, that the two-year prescriptive period applies only to administrative
claims and not to judicial claims. Morever, it was ruled that the 120-day and 30-day periods are not merely
directory but mandatory. Accordingly, the judicial claim of Aichi, which was simultaneously filed with its
administrative claim, was found to be premature. The Court held:
In fact, applying the two-year period to judicial claims would render nugatory Section 112(D) [now Section 112
(C)] 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) [now Section 112 (C)] 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.35 (Emphasis supplied)
The taxpayer will always have 30 days to file the judicial claim even if the Commissioner acts only on the 120th
day, or does not act at all during the 120-day period. With the 30-day period always available to the taxpayer,
the taxpayer can no longer file a judicial claim for refund or tax credit of unutilized excess input VAT without
waiting for the Commissioner to decide until the expiration of the 120-day period.36 Failure to comply with the
120-day waiting period 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.37
San Roque case provides exception to the strict compliance with the 120-day period
While the Court En Banc reiterated in the recent consolidated cases of CIR v. San Roque Power Corporation (
San Roque ),38 promulgated on February 12, 2013, that the 120-day period is mandatory and jurisdictional,
however, it categorically held that BIR Ruling No. DA-489-03 dated December 10, 2003 provided a valid claim
for equitable estoppel under Section 24639 of the Tax Code. BIR Ruling No. DA-489-03 expressly states 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."40 Speaking through Associate Justice Antonio T. Carpio, the Court
ratiocinated as follows:
There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA does not acquire
jurisdiction over a judicial claim that is filed before the expiration of the 120-day period. There are, however,
two exceptions to this rule. The first exception is if the Commissioner, through a specific ruling, misleads a
particular taxpayer to prematurely file a judicial claim with the CTA. Such specific ruling is applicable only to
such particular taxpayer. The second exception is where the Commissioner, through a general interpretative rule
issued under Section 4 of the Tax Code, misleads all taxpayers into filing prematurely judicial claims with the
CTA. In these cases, the Commissioner cannot be allowed to later on question the CTA's assumption of
jurisdiction over such claim since equitable estoppel has set in as expressly authorized under Section 246 of the
Tax Code.
Section 4 of the Tax Code, a new provision introduced by RA 8424, expressly grants to the Commissioner the
power to interpret tax laws, thus:
Sec. 4. Power of the Commissioner To Interpret Tax Laws and To Decide Tax Cases. – The power to interpret
the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the
Commissioner, subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof
administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive
appellate jurisdiction of the Court of Tax Appeals.
Since the Commissioner has exclusive and original jurisdiction to interpret tax laws, taxpayers acting in good
faith should not be made to suffer for adhering to general interpretative rules of the Commissioner interpreting
tax laws, should such interpretation later turn out to be erroneous and be reversed by the Commissioner or this
Court. Indeed, Section 246 of the Tax Code expressly provides that a reversal of a BIR regulation or ruling
cannot adversely prejudice a taxpayer who in good faith relied on the BIR regulation or ruling prior to its
reversal. x x x.41
BIR Ruling No. DA-489-03 was classified in San Roque as a general interpretative rule having been made in
response to a query by a government agency tasked with processing tax refunds and credits – the One Stop
Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. As such, all taxpayers can
rely on said ruling from the time of its issuance on December 10, 2003 up to its reversal by this Court in Aichi
on October 6, 2010, where it was held that the 120+30 day periods are mandatory and jurisdictional. 42
Therefore, GST can benefit from BIR Ruling No. DA-489-03 with respect to its claims for refund of unutilized
excess input VAT for the second and third quarters of taxable year 2005 which were filed before the CIR on
November 18, 2005 but elevated to the CTA on March 17, 2006 before the expiration of the 120-day period
(March 18, 2006 being the 120th day). BIR Ruling No. DA-489-03 effectively shielded the filing of GST's
judicial claim from the vice of prematurity.43
GST's claims, however, for the four quarters of taxable year 2004 and the first quarter of taxable year 2005
should be denied for late filing of the petition for review before the CTA. GST filed its VAT Return for the first
quarter of 2004 on April 16, 2004. Reckoned from the close of the first taxable quarter of 2004 on March 31,
2004, the administrative claim filed on June 9, 2004 was well within the required two-year prescriptive period
from the close of the taxable quarter, the last day of filing being March 31, 2006. The CIR then had 120 days
from June 9, 2004, or until October 7, 2004, to decide the claim. Since the Commissioner did not act on the
claim within the said period, GST had 30 days from October 7, 2004, or until November 6, 2004, to file its
judicial claim. However, GST filed its petition for review before the CTA only on March 17, 2006, or 496 days
after the last day of filing. In short, GST was late by one year and 131 days in filing its judicial claim.
For the second quarter of taxable year 2004, GST filed its administrative claim on August 12, 2004. The 120-
day period from the filing of such claim ended on December 10, 2004, and the 30th day within which to file a
judicial claim fell on January 9, 2005. However, GST filed its petition for review before the CTA only on
March 17, 2006, or 432 days after the last day of filing.
GST was late by one year and 67 days in filing its judicial claim.
For the third and fourth quarters of taxable year 2004, GST filed its administrative claims on February 18, 2005.
The 120th day, or June 18, 2005, lapsed without any action from the CIR. Thus, GST had 30 days therefrom, or
until July 18, 2005, to file its judicial claim, but it did so only on March 17, 2006, or 242 days after the last day
of filing. GST was late by 242 days in filing its judicial claim.
Finally, for the first quarter of taxable year 2005, GST filed its administrative claim on May 11,
2005.1âwphi1 The 120-day period ended on September 8, 2005, again with no action from the CIR.
Nonetheless, GST failed to elevate its claim to the CTA within 30 days, or until October 8, 2005. The petition
for review filed by GST on March 17, 2006, or 160 days after the last day of filing was, therefore, late.
Following is a tabular summation of the relevant dates of GST's administrative and judicial claims, and the
corresponding action on said claims:
1âwphi1
120th day 30th day
Filing
Filing of [Section [Section Action
Taxable of
Administrative 112(D), 112(D), Remarks on
Period Judicia
claim NIRC of NIRC of Claim
lClaim
1997] 1997]
October 7, November March Field late DENY
1st 2004 6, 2004 17, pursuant
Quarter June 9, 2004 2006 to
2004 Section
112 (C),
 NIRC of
1997
December January 9, March Field late DENY
2nd 10, 2004 2005 17, pursuant
Quarter August 12, 2006 to
2004 2004 Section
112 (C),
NIRC of
1997
June 18, July 18, March Field late DENY
3rd 2005 2005 17, pursuant
Quarter February 18, 2006 to
2004 2005 Section
112 (C),
NIRC of
1997
June 18, July 18, March Field late DENY
4th 2005 2005 17, pursuant
Quarter February 18, 2006 to
2004 2005 Section
112 (C),
NIRC of
1997
DENY
1st May 11, 2005 September October 8, March Field late pursuant
Quarter 8, 2005 17, to
2005 2005 2006 Section
112 (C),
NIRC of
1997
GRANT
2nd November 18, March 18, April 17, March Prematurely pursuant
Quarter 2005 2006 2006 17, filed to BIR
2005 2006 Ruling
No. DA-
489-03
GRANT
3rd November 18, March 18, April 17, March Prematurely pursuant
Quarter 2005 2006 2006 17, filed to BIR
2005 2006 Ruling
No. DA-
489-03
As may be observed from the Court's application of the 120+30 day periods to GST's claims, the 120-day period
is uniformly reckoned from the date of the filing of the administrative claims. The CIR insists,44 however, that
the filing of the administrative claim was not necessarily the same time when the complete supporting
documents were submitted to the Commissioner.
The Court agrees. However, this issue is not determinative of the resolution of this case for failure of the CIR to
show that GST further submitted supporting documents subsequent to the filing of its administrative claims.
Thus, the reckoning date of the 120-day period commenced simultaneously45 with the filing of the
administrative claims when GST was presumed to have attached the relevant documents to support its
applications for refund or tax credit.
As a final note, it is incumbent on the Court to emphasize that tax refunds partake of the nature of tax
exemptions which are a derogation of the power of taxation of the State. Consequently, they are construed
strictly against a taxpayer and liberally in favor of the State.46 Thus, as emphasized in Aichi, a taxpayer must
prove not only its entitlement to a refund but also its compliance with prescribed procedures.47
WHEREFORE, the petition is PARTLY GRANTED. The Decision dated October 30, 2009 of the Court of Tax
Appeals En Banc in C.T.A. EB No. 484, affirming the Decision dated January 27, 2009 of the CTA First
Division in C.T.A. Case No. 7419, is AFFIRMED with MODIFICATION. The claims of respondent GST
Philippines, Inc. for refund or tax credit for unutilized excess input VAT for the four quarters of taxable year
2004, as well as the first quarter of taxable year 2005 are hereby DENIED for being filed beyond the
prescriptive period, while the claims for refund for the second and third quarters of taxable year 2005 are
GRANTED. Accordingly, the Commissioner of Internal Revenue is ordered to refund or, in the alternative, to
issue a tax credit certificate to respondent GST Philippines, Inc. corresponding only to the amount representing
unutilized excess input VAT for the second and third quarters of taxable year 2005 out of the total amount
of P27,369,114.36 awarded by the CTA.
SO ORDERED.

G.R. No. 169234 October 2, 2013

CAMP JOHN HAY DEVELOPMENT CORPORATION, Petitioner,

vs.
CENTRAL BOARD OF ASSESSMENT APPEALS, REPRESENTED BY ITS CHAIRMAN HON. CESAR S.
GUTIERREZ, ADELINA A. TABANGIN, IN HER CAPACITY AS CHAIRMAN OF THE BOARD OF TAX
(ASSESSMENT) APPEALS OF BAGUIO CITY, AND HON. ESTRELLA B. TANO, IN HER CAPACITY
AS THE CITY ASSESSOR OF THE CITY OF BAGUIO, Respondents.

DECISION

PEREZ, J.:

A claim for tax exemption, whether full or partial, does not deal with the authority of local assessor to assess
real property tax. Such claim questions the correctness of the assessment and compliance with the Q applicable
provisions of Republic Act (RA) No. 7160 or the Local Government Code (LGC) of 1991, particularly as to
requirement of payment under protest, is mandatory.

Before the Court is a Petition for Review on Certiorari seeking tore verse and set aside the 27 July 2005
Decision1 of the Court of Tax Appeals(CTA) En Banc in C.T.A. E.B. No. 48 which affirmed the Resolutions
dated 23 May 2003 and 8 September 2004 issued by the Central Board of Assessment Appeals (CBAA) in
CBAA Case No. L-37 remanding the case to the Local Board of Assessment Appeals (LBAA) of Baguio City
for further proceedings.

The facts

The factual antecedents of the case as found by the CTA En Banc areas follows:

In a letter dated 21 March 2002, respondent City Assessor of Baguio City notified petitioner Camp John Hay
Development Corporation about the issuance against it of thirty-six (36) Owner’s Copy of Assessment of Real
Property (ARP), with ARP Nos. 01-07040-008887 to 01-07040-008922covering various buildings of petitioner
and two (2) parcels of land owned by the Bases Conversion Development Authority (BCDA) in the John Hay
Special Economic Zone (JHSEZ), Baguio City, which were leased out to petitioner.

In response, petitioner questioned the assessments in a letter dated 3April 2002 for lack of legal basis due to the
City Assessor’s failure to identify the specific properties and its corresponding assessed values. The City
Assessor replied in a letter dated 11 April 2002 that the subject ARPs (with an additional ARP on another
building bringing the total number of ARPs to thirty-seven [37]) against the buildings of petitioner located
within the JHSEZ were issued on the basis of the approved building permits obtained from the City Engineer’s
Office of Baguio City and pursuant to Sections 201 to 206 of RA No. 7160 or the LGC of 1991.

Consequently, on 23 May 2002, petitioner filed with the Board of Tax Assessment Appeals (BTAA) of Baguio
City an appeal under Section 2262 of the LGC of 1991 challenging the validity and propriety of the issuances of
the City Assessor. The appeal was docketed as Tax Appeal Case No. 2002-003. Petitioner claimed that there
was no legal basis for the issuance of the assessments because it was allegedly exempted from paying taxes,
national and local, including real property taxes, pursuant to RA No. 7227, otherwise known as the Bases
Conversion and Development Act of 1992.3

The Ruling of the BTAA

In a Resolution dated 12 July 2002,4 the BTAA cited Section 7,5 Rule V of the Rules of Procedure Before the
LBAA, and enjoined petitioner to first comply therewith, particularly as to the payment under protest of the
subject real property taxes before the hearing of its appeal. Subsequently, the BTAA dismissed petitioner’s
Motion for Reconsideration in the 20 September 2002 Resolution6 for lack of merit.

Aggrieved, petitioner elevated the case before the CBAA through a Memorandum on Appeal docketed as
CBAA Case No. L-37.

The Ruling of the CBAA

The CBAA denied petitioner’s appeal in a Resolution dated 23 May 2003,7 set aside the BTAA’s order of
deferment of hearing, and remanded the case to the LBAA of Baguio City for further proceedings subject to a
full and up-to-date payment of the realty taxes on subject properties as assessed by the respondent City Assessor
of Baguio City, either in cash or in bond.

Citing various cases it previously decided,8 the CBAA explained that the deferment of hearings by the LBAA
was merely in compliance with the mandate of the law. The governing provision in this case is Section 231, not
Section 226, of RA No. 7160 which provides that "appeal on assessments of real property made under the
provisions of this Code shall, in no case, suspend the collection of the corresponding realty taxes on the
property involved as assessed by the provincial or city assessor, without prejudice to subsequent adjustment
depending upon the final outcome of the appeal." In addition, as to the issue raised pertaining to the propriety of
the subject assessments issued against petitioner, allegedly claimed to be a tax-exemptentity, the CBAA
expressed that it has yet to acquire jurisdiction over it since the same has not been resolved by the LBAA.

On 8 September 2004, the CBAA denied petitioner’s Motion for Reconsideration for lack of merit.9

Undaunted by the pronouncements in the abovementioned Resolutions, petitioner appealed to the CTA En Banc
by filing a Petition for Review under Section 11 of RA No. 1125, as amended by Section 9 of RA No. 9282, on
24 November 2004, docketed as C.T.A. EB No. 48, and raised the following issues for its consideration: (1)
whether or not respondent City Assessor of the City of Baguio has legal basis to issue against petitioner the
subject assessments with serial nos. 01-07040-008887 to 01-07040-008922for real property taxation of the
buildings of the petitioner, a tax-exemptentity, or land owned by the BCDA under lease to the petitioner; and
(2)whether or not the CBAA, in its Resolutions dated 23 May 2003 and 8September 2004, has legal basis to
order the remand of the case to the LBAA of Baguio City for further proceedings subject to a full and up-to-
date payment, in cash or bond, of the realty taxes on the subject properties as assessed by the City Assessor of
the City of Baguio.10

The Ruling of the CTA En Banc

In the assailed Decision dated 27 July 2005,11 the CTA En Banc found that petitioner has indeed failed to
comply with Section 252 of RA No. 7160or the LGC of 1991. Hence, it dismissed the petition and affirmed the
subject Resolutions of the CBAA which remanded the case to the LBAA for further proceedings subject to
compliance with said Section, in relation to Section 7, Rule V of the Rules of Procedure before the LBAA.

Moreover, adopting the CBAA’s position, the court a quo ruled that it could not resolve the issue on whether
petitioner is liable to pay real property tax or whether it is indeed a tax-exempt entity considering that the
LBAA has not decided the case on the merits. To do otherwise would not only be procedurally wrong but
legally wrong. It therefore concluded that before a protest may be entertained, the tax should have been paid
first without prejudice to subsequent adjustment depending upon the final outcome of the appeal and that the tax
or portion thereof paid under protest, shall be held in trust by the treasurer concerned.

Consequently, this Petition for Review wherein petitioner on the ground of lack of legal basis seeks to set aside
the 27 July 2005 Decision, and to nullify the assessments of real property tax issued against it by respondent
City Assessor of Baguio City.12
The Issue

The Issue before the Court is whether or not respondent CTA En Banc erred in dismissing for lack of merit the
petition in C.T.A. EB No. 48, and accordingly affirmed the order of the CBAA to remand the case to the LBAA
of Baguio City for further proceedings subject to a full and up-to-date payment of realty taxes, either in cash or
in bond, on the subject properties assessed by the City Assessor of Baguio City.

In support of the present petition, petitioner posits the following grounds: (a) Section 225 (should be Section
252) of RA No. 7160 or the LGC of 1991 does not apply when the person assessed is a tax-exemptentity; and
(b) Under the doctrine of operative fact, petitioner is not liable for the payment of the real property taxes subject
of this petition.13

Our Ruling

The Court finds the petition unmeritorious and therefore rules against petitioner.

Section 252 of RA No. 7160, also known as the LGC of 199114, categorically provides:

SEC. 252. Payment Under Protest. – (a) No protest shall be entertained unless the taxpayer first pays the tax.
There shall be annotated on the tax receipts the words "paid under protest." The protest in writing must be filed
within thirty (30) days from payment of the tax to the provincial, city treasurer or municipal treasurer, in the
case of a municipality within Metropolitan Manila Area, who shall decide the protest within sixty (60) days
from receipt.

(b) The tax or a portion thereof paid under protest, shall beheld in trust by the treasurer concerned.

(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or portion of the tax
protested shall be refunded to the protestant, or applied as tax credit against his existing or future tax liability.

(d) In the event that the protest is denied or upon the lapse of the sixty-day period prescribed in subparagraph
(a), the tax payer may avail of the remedies as provided for in Chapter 3, Title Two, Book II of this Code.
(Emphasis and underlining supplied)

Relevant thereto, the remedies referred to under Chapter 3, Title Two, Book II of RA No. 7160 or the LGC of
1991 are those provided for under Sections 226 to 231. Significant provisions pertaining to the procedural and
substantive aspects of appeal before the LBAA and CBAA, including its effect on the payment of real property
taxes, follow:

SEC. 226. Local Board of Assessment Appeals. – Any owner or person having legal interest in the property
who is not satisfied with the action of the provincial, city or municipal assessor in the assessment of his property
may, within sixty (60) days from the date of receipt of the written notice of assessment, appeal to the Board of
Assessment Appeals of the province or city by filing a petition under oath in the form prescribed for the
purpose, together with copies of the tax declarations and such affidavits or documents submitted in support of
the appeal.

SEC. 229. Action by the Local Board of Assessment Appeals. – (a)The Board shall decide the appeal within
one hundred twenty (120) days from the date of receipt of such appeal. The Board, after hearing, shall render its
decision based on substantial evidence or such relevant evidence on record as a reasonable mind might accept
as adequate to support the conclusion.

(b) In the exercise of its appellate jurisdiction, the Board shall have the powers to summon witnesses,
administer oaths, conduct ocular inspection, take depositions, and issue subpoena and subpoena duces tecum.
The proceedings of the Board shall be conducted solely for the purpose of ascertaining the facts without
necessarily adhering to technical rules applicable in judicial proceedings.

(c) The secretary of the Board shall furnish the owner of the property or the person having legal interest therein
and the provincial or city assessor with a copy of the decision of the Board. In case the provincial or city
assessor concurs in the revision or the assessment, it shall be his duty to notify the owner of the property or the
person having legal interest therein of such fact using the form prescribed for the purpose. The owner of the
property or the person having legal interest therein or the assessor who is not satisfied with the decision of the
Board may, within thirty (30) days after receipt of the decision of said Board, appeal to the Central Board of
Assessment Appeals, as here in provided. The decision of the Central Board shall be final and executory.

SEC. 231. Effect of Appeal on the Payment of Real Property Tax. – Appeal on assessments of real property
made under the provisions of this Code shall, in no case, suspend the collection of the corresponding realty
taxes on the property involved as assessed by the provincial or city assessor, without prejudice to subsequent
adjustment depending upon the final outcome of the appeal. (Emphasis supplied)

The above-quoted provisions of RA No. 7160 or the LGC of 1991,clearly sets forth the administrative remedies
available to a taxpayer or real property owner who does not agree with the assessment of the real property tax
sought to be collected.

The language of the law is clear. No interpretation is needed. The elementary rule in statutory construction is
that if a statute is clear, plain and free from ambiguity, it must be given its literal meaning and applied without
attempted interpretation. Verba legis non est recedendum. From the words of a statute there should be no
departure.15

To begin with, Section 252 emphatically directs that the taxpayer/real property owner questioning the
assessment should first pay the tax due before his protest can be entertained. As a matter of fact, the words
"paid under protest" shall be annotated on the tax receipts. Consequently, only after such payment has been
made by the taxpayer may he file a protest in writing (within thirty (30) days from said payment of tax) to the
provincial, city, or municipal treasurer, who shall decide the protest within sixty (60)days from its receipt. In no
case is the local treasurer obliged to entertain the protest unless the tax due has been paid.

Secondly, within the period prescribed by law, any owner or person having legal interest in the property not
satisfied with the action of the provincial, city, or municipal assessor in the assessment of his property may file
an appeal with the LBAA of the province or city concerned, as provided in Section 226 of RA No. 7160 or the
LGC of 1991. Thereafter, within thirty (30) days from receipt, he may elevate, by filing a notice of appeal, the
adverse decision of the LBAA with the CBAA, which exercises exclusive jurisdiction to hear and decide all
appeals from the decisions, orders, and resolutions of the Local Boards involving contested assessments of real
properties, claims for tax refund and/or tax credits, or overpayments of taxes.16

Significantly, in Dr. Olivares v. Mayor Marquez,17 this Court had the occasion to extensively discuss the
subject provisions of RA No. 7160 or the LGC of 1991, in relation to the impropriety of the direct recourse
before the courts on issue of the correctness of assessment of real estate taxes. The pertinent articulations
follow:

x x x A perusal of the petition before the RTC plainly shows that what is actually being assailed is the
correctness of the assessments made by the local assessor of Parañaque on petitioners’ properties. The
allegations in the said petition purportedly questioning the assessor’s authority to assess and collect the taxes
were obviously made in order to justify the filing of the petition with the RTC. In fact, there is nothing in the
said petition that supports their claim regarding the assessor’s alleged lack of authority. What petitioners raise
are the following:

(1) some of the taxes being collected have already prescribed and may no longer be collected as provided in
Section 194 of the Local Government Code of 1991; (2) some properties have been doubly taxed/assessed; (3)
some properties being taxed are no longer existent;

(4)some properties are exempt from taxation as they are being used exclusively for educational purposes; and
(5) some errors are made in the assessment and collection of taxes due on petitioners’ properties, and that
respondents committed grave abuse of discretion in making the "improper, excessive and unlawful the
collection of taxes against the petitioners."

Moreover, these arguments essentially involve questions of fact. Hence, the petition should have been brought,
at the very first instance, to the LBAA.
Under the doctrine of primacy of administrative remedies, an error in the assessment must be administratively
pursued to the exclusion of ordinary courts whose decisions would be void for lack of jurisdiction. But an
appeal shall not suspend the collection of the tax assessed without prejudice to a later adjustment pending the
outcome of the appeal.

Even assuming that the assessor’s authority is indeed an issue, it must be pointed out that in order for the court a
quo to resolve the petition, the issues of the correctness of the tax assessment and collection must also
necessarily be dealt with.

xxxx

In the present case, the authority of the assessor is not being questioned. Despite petitioners’ protestations, the
petition filed before the court a quo primarily involves the correctness of the assessments, which are questions
of fact, that are not allowed in a petition for certiorari, prohibition and mandamus. The court a quo is therefore
precluded from entertaining the petition, and it appropriately dismissed the petition.18 (Emphasis and
underlining supplied)

By analogy, the rationale of the mandatory compliance with the requirement of "payment under protest"
similarly provided under Section 64of the Real Property Tax Code (RPTC)19 was earlier emphasized in
Meralcov. Barlis,20 wherein the Court held:

We find the petitioner’s arguments to be without merit. The trial court has no jurisdiction to entertain a Petition
for Prohibition absent petitioner’s payment under protest, of the tax assessed as required by Sec.64 of the
RPTC. Payment of the tax assessed under protest, is a condition sine qua non before the trial court could assume
jurisdiction over the petition and failure to do so, the RTC has no jurisdiction to entertain it.

The restriction upon the power of courts to impeach tax assessment without a prior payment, under protest, of
the taxes assessed is consistent with the doctrine that taxes are the lifeblood of the nation and as such their
collection cannot be curtailed by injunction or any like action; otherwise, the state or, in this case, the local
government unit, shall be crippled in dispensing the needed services to the people, and its machinery gravely
disabled.

xxxx

There is no merit in petitioner’s argument that the trial court could take cognizance of the petition as it only
questions the validity of the issuance of the warrants of garnishment on its bank deposits and not the tax
assessment. Petitioner MERALCO in filing the Petition for Prohibition before the RTC was in truth assailing
the validity of the tax assessment and collection. To resolve the petition, it would not only be the question of
validity of the warrants of garnishments that would have to be tackled, but in addition the issues of tax
assessment and collection would necessarily have to be dealt with too. As the warrants of garnishment were
issued to collect back taxes from petitioner, the petition for prohibition would be for no other reason than to
forestall the collection of back taxes on the basis of tax assessment arguments. This, petitioner cannot do
without first resorting to the proper administrative remedies, or as previously discussed, by paying under protest
the tax assessed, to allow the court to assume jurisdiction over the petition.

xxxx

It cannot be gainsaid that petitioner should have addressed its arguments to respondent at the first opportunity -
upon receipt of the3 September 1986 notices of assessment signed by Municipal Treasurer Norberto A. San
Mateo. Thereafter, it should have availed of the proper administrative remedies in protesting an erroneous tax
assessment, i.e., to question the correctness of the assessments before the Local Board of Assessment Appeals
(LBAA), and later, invoke the appellate jurisdiction of the Central Board of Assessment Appeals(CBAA).

Under the doctrine of primacy of administrative remedies, an error in the assessment must be administratively
pursued to the exclusion of ordinary courts whose decisions would be void for lack of jurisdiction. But an
appeal shall not suspend the collection of the tax assessed without prejudice to a later adjustment pending the
outcome of the appeal. The failure to appeal within the statutory period shall render the assessment final and
unappealable.
Petitioner having failed to exhaust the administrative remedies available to it, the assessment attained finality
and collection would be in order. (Emphasis and underscoring supplied)

From the foregoing jurisprudential pronouncements, it is clear that the requirement of "payment under protest"
is a condition sine qua non before a protest or an appeal questioning the correctness of an assessment of real
property tax may be entertained.

Moreover, a claim for exemption from payment of real property taxes does not actually question the assessor’s
authority to assess and collect such taxes, but pertains to the reasonableness or correctness of the assessment by
the local assessor, a question of fact which should be resolved, at the very first instance, by the LBAA. This
may be inferred from Section 206 of RA No. 7160 or the LGC of 1991which states that:

SEC. 206. Proof of Exemption of Real Property from Taxation. – Every person by or for whom real property is
declared, who shall claim tax exemption for such property under this Title shall file with the provincial, city or
municipal assessor within thirty (30) days from the date of the declaration of real property sufficient
documentary evidence in support of such claim including corporate charters, title of ownership, articles of
incorporation, bylaws, contracts, affidavits, certifications and mortgage deeds, and similar documents.

If the required evidence is not submitted within the period herein prescribed, the property shall be listed as
taxable in the assessment roll. However, if the property shall be proven to be tax exempt, the same shall be
dropped from the assessment roll. (Emphasis supplied)

In other words, by providing that real property not declared and proved as tax-exempt shall be included in the
assessment roll, the above-quoted provision implies that the local assessor has the authority to assess the
property for realty taxes, and any subsequent claim for exemption shall be allowed only when sufficient proof
has been adduced supporting the claim.21

Therefore, if the property being taxed has not been dropped from the assessment roll, taxes must be paid under
protest if the exemption from taxation is insisted upon.

In the case at bench, records reveal that when petitioner received the letter dated 21 March 2002 issued by
respondent City Assessor, including copies of ARPs (with ARP Nos. 01-07040-008887 to 01-07040-008922)
attached thereto, it filed its protest through a letter dated 3 April 2002seeking clarification as to the legal basis
of said assessments, without payment of the assessed real property taxes. Afterwards, respondent City Assessor
replied thereto in a letter dated 11 April 2002 which explained the legal basis of the subject assessments and
even included an additional ARP against another real property of petitioner. Subsequently, petitioner then filed
before the BTAA its appeal questioning the validity and propriety of the subject ARPs.

Clearly from the foregoing factual backdrop, petitioner considered the11 April 2002 letter as the "action"
referred to in Section 226 which speaks of the local assessor’s act of denying the protest filed pursuant to
Section252. However, applying the above-cited jurisprudence in the present case, it is evident that petitioner’s
failure to comply with the mandatory requirement of payment under protest in accordance with Section 252 of
the LGC of 1991 was fatal to its appeal. Notwithstanding such failure to comply therewith, the BTAA elected
not to immediately dismiss the case but instead took cognizance of petitioner’s appeal subject to the condition
that payment of the real property tax should first be made before proceeding with the hearing of its appeal, as
provided for under Section 7, Rule V of the Rules of Procedure Before the LBAA. Hence, the BTAA simply
recognized the importance of the requirement of "payment under protest" before an appeal may be entertained,
pursuant to Section 252, and in relation with Section231 of the same Code as to non-suspension of collection of
the realty tax pending appeal.

Notably, in its feeble attempt to justify non-compliance with the provision of Section 252, petitioner contends
that the requirement of paying the tax under protest is not applicable when the person being assessed is a tax-
exempt entity, and thus could not be deemed a "taxpayer" within the meaning of the law. In support thereto,
petitioner alleges that it is exempted from paying taxes, including real property taxes, since it is entitled to the
tax incentives and exemptions under the provisions of RA No. 7227 and Presidential Proclamation No. 420,
Series of 1994,22 as stated in and confirmed by the lease agreement it entered into with the BCDA.23

This Court is not persuaded.

First, Section 206 of RA No. 7160 or the LGC of 1991, as quoted earlier, categorically provides that every
person by or for whom real property is declared, who shall claim exemption from payment of real property
taxes imposed against said property, shall file with the provincial, city or municipal assessor sufficient
documentary evidence in support of such claim. Clearly, the burden of proving exemption from local taxation is
upon whom the subject real property is declared; thus, said person shall be considered by law as the taxpayer
thereof. Failure to do so, said property shall be listed as taxable in the assessment roll.

In the present case, records show that respondent City Assessor of Baguio City notified petitioner, in the letters
dated 21 March 200224 and 11April 2002,25 about the subject ARPs covering various buildings owned by
petitioner and parcels of land (leased out to petitioner) all located within the JHSEZ, Baguio City. The subject
letters expressed that the assessments were based on the approved building permits obtained from the City
Engineer’s Office of Baguio City and pursuant to Sections 201 to 206 of RA No. 7160 or the LGC of 1991
which pertains to whom the subject real properties were declared.

Noticeably, these factual allegations were neither contested nor denied by petitioner. As a matter of fact, it
expressly admitted ownership of the various buildings subject of the assessment and thereafter focused on the
argument of its exemption under RA No. 7227. But petitioner did not present any documentary evidence to
establish that the subject properties being tax exempt have already been dropped from the assessment roll, in
accordance with Section 206. Consequently, the City Assessor acted in accordance with her mandate and in the
regular performance of her official function when the subject ARPs were issued against petitioner herein, being
the owner of the buildings, and therefore considered as the person with the obligation to shoulder tax liability
thereof, if any, as contemplated by law.

It is an accepted principle in taxation that taxes are paid by the person obliged to declare the same for taxation
purposes. As discussed above, the duty to declare the true value of real property for taxation purposes is
imposed upon the owner, or administrator, or their duly authorized representatives. They are thus considered the
taxpayers. Hence, when these persons fail or refuse to make a declaration of the true value of their real property
within the prescribed period, the provincial or city assessor shall declare the property in the name of the
defaulting owner and assess the property for taxation. In this wise, the taxpayer assumes the character of a
defaulting owner, or defaulting administrator, or defaulting authorized representative, liable to pay back taxes.
For that reason, since petitioner herein is the declared owner of the subject buildings being assessed for real
property tax, it is therefore presumed to be the person with the obligation to shoulder the burden of paying the
subject tax in the present case; and accordingly, in questioning the reasonableness or correctness of the
assessment of real property tax, petitioner is mandated by law to comply with the requirement of payment under
protest of the tax assessed, particularly Section 252 of RA No. 7160 or the LGC of 1991.

Time and again, the Supreme Court has stated that taxation is the rule and exemption is the exception. The law
does not look with favor on tax exemptions and the entity that would seek to be thus privileged must justify it
by words too plain to be mistaken and too categorical to be misinterpreted.26 Thus applying the rule of strict
construction of laws granting tax exemptions, and the rule that doubts should be resolved in favor of provincial
corporations, this Court holds that petitioner is considered a taxable entity in this case.

Second, considering that petitioner is deemed a taxpayer within the meaning of law, the issue on whether or not
it is entitled to exemption from paying taxes, national and local, including real property taxes, is a matter which
would be better resolved, at the very instance, before the LBAA, for the following grounds: (a) petitioner’s
reliance on its entitlement for exemption under the provisions of RA No. 7227 and Presidential Proclamation
No. 420, was allegedly confirmed by Section 18,27 Article XVI of the Lease Agreement dated 19 October 1996
it entered with the BCDA. However, it appears from the records that said Lease Agreement has yet to be
presented nor formally offered before any administrative or judicial body for scrutiny; (b) the subject provision
of the Lease Agreement declared a condition that in order to be allegedly exempted from the payment of taxes,
petitioner should have first paid and remitted 5% of the gross income earned by it within ninety (90) days from
the close of the calendar year through the JPDC. Unfortunately, petitioner has neither established nor presented
any evidence to show that it has indeed paid and remitted 5% of said gross income tax; (c) the right to appeal is
a privilege of statutory origin, meaning a right granted only by the law, and not a constitutional right, natural or
inherent. Therefore, it follows that petitioner may avail of such opportunity only upon strict compliance with the
procedures and rules prescribed by the law itself, i.e. RA No. 7160 or the LGC of 1991; and (d) at any rate,
petitioner’s position of exemption is weakened by its own admission and recognition of this Court’s previous
ruling that the tax incentives granted in RA No. 7227 are exclusive only to the Subic Special Economic and
Free Port Zone; and thus, the extension of the same to the JHSEZ (as provided in the second sentence of Section
3 of Presidential Proclamation No. 420)28 finds no support therein and therefore declared null and void and of
no legal force and effect.29 Hence, petitioner needs more than mere arguments and/or allegations contained in
its pleadings to establish and prove its exemption, making prior proceedings before the LBAA a necessity.

With the above-enumerated reasons, it is obvious that in order for a complete determination of petitioner’s
alleged exemption from payment of real property tax under RA No. 7160 or the LGC of 1991, there are factual
issues needed to be confirmed. Hence, being a question of fact, petitioner cannot do without first resorting to the
proper administrative remedies, or as previously discussed, by paying under protest the tax assessed in
compliance with Section 252 thereof.

Accordingly, the CBAA and the CTA En Banc correctly ruled that real property taxes should first be paid
before any protest thereon may be considered. It is without a doubt that such requirement of "payment under
protest" is a condition sine qua non before an appeal may be entertained. Thus, remanding the case to the LBAA
for further proceedings subject to a full and up-to-date payment, either in cash or surety, of realty tax on the
subject properties was proper.

To reiterate, the restriction upon the power of courts to impeach tax assessment without a prior payment, under
protest, of the taxes assessed is consistent with the doctrine that taxes are the lifeblood of the nation and as such
their collection cannot be curtailed by injunction or any like action; otherwise, the state or, in this case, the local
government unit, shall be crippled in dispensing the needed services to the people, and its machinery gravely
disabled.30 The right of local government units to collect taxes due must always be upheld to avoid severe
erosion. This consideration is consistent with the State policy to guarantee the autonomy of local governments
and the objective of RA No. 7160 or the LGC of 1991 that they enjoy genuine and meaningful local autonomy
to empower them to achieve their fullest development as self-reliant communities and make them effective
partners in the attainment of national goals.31

All told, We go back to what was at the outset stated, that is, that a claim for tax exemption, whether full or
partial, does not question the authority of local assessor to assess real property tax, but merely raises a question
of the reasonableness or correctness of such assessment, which requires compliance with Section 252 of the
LGC of 1991. Such argument which may involve a question of fact should be resolved at the first instance by
the LBAA.

The CTA En Bane was correct in dismissing the petition in C.T.A. EB No. 48, and affirming the CBAA's
position that it cannot delve on the issue of petitioner's alleged non-taxability on the ground of exemption since
the LBAA has not decided the case on the merits. This is in compliance with the procedural steps prescribed in
the law.

WHEREFORE, the petition is DENIED for lack of merit. The Decision of the Court of Tax Appeals En Bane in
C.T.A. EB No. 48 is AFFIRMED. The case is remanded to the Local Board of Assessment Appeals of Baguio
City for further proceedings. No costs.

SO ORDERED.

G.R. No. 181276 November 11, 2013

THE COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
VISAYAS GEOTHERMAL POWER COMPANY, INC., Respondent.

DECISION

MENDOZA, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 or the 1907 Revised Rules of Civil
Procedure assailing the November 20, 2007 Decision1 and the January 9, 2008 Resolution2 of the Court of Tax
Appeals (CTA) En Banc in C.T.A. EB No. 282 (C.T.A. Case Nos. 6790 and 6838) entitled "Commissioner of
Infernal Revenue vs. Visayas Geothermal Power Company, Inc."
THE FACTS

Respondent Visayas Geothermal Power Company, Inc. (VGPCI), a corporation authorized by the Department
of Energy to own and operate a power plant facility in Malibog, Leyte, is engaged in the business of generation
and sale of electricity. In the course of its business operations, VGPCI incurred input value added tax of
P20,213,044.50 on its domestic purchase of goods and services and importation of goods used in its business for
the third and fourth quarter of 2001 and for the entire year of 2002.3 Due to the enactment of Republic Act
(R.A.) No. 9136,4 which became effective on June 26, 2001, VGPCI’s sales of generated power became zero-
rated and were no longer subject to VAT at 10%.5

On June 26, 2003, VGPCI filed before the Bureau of Internal Revenue (BIR) Revenue District No. 89 of Ormoc
City a claim for refund of unutilized input VAT payment in the amount of P1,142,666.32 for the third quarter of
2001. On December 18, 2003, another claim was filed in the amount of P19,070,378.18 for the last quarter of
2001 and the four quarters of 2002. For failure of the BIR to act upon said claims, VGPCI filed separate
petitions for review before the CTA on September 30, 2003 and December 19, 2003, praying for a refund on the
issuance of a tax credit certificate in the amount of P1,142,666.32 covering the period from July to September
2001 and P19,070,378.18 for the period from October 2001 to December 2002, CTA Case Nos. 6790 and 6838,
respectively.6

In its Decision7 dated January 18, 2007, the First Division of the CTA partially granted the consolidated
petitions for review and ordered petitioner Commissioner of Internal Revenue (CIR) to refund or to issue a tax
credit certificate to VGPCI in the amount of P16,355,749.74 representing unutilized input VAT incurred from
September 1, 2001 to December 31, 2002.8

Aggrieved, the CIR elevated the case to the CTA En Banc alleging that the First Division erred in ruling in
favor of VGPCI because: (1) VGPCI did not submit evidence of its compliance with the VAT registration
requirements; (2) its purchases of goods and services were not undertaken in the course of its trade or business
and were not duly substantiated by VAT invoices or receipts; (3) it failed to file an application for a VAT tax
credit or refund before the Revenue District Office of the city or municipality where the principal place of
business was located; (4) it did not file its administrative claim for refund prior to the filing of its petition before
the CTA; and (5) it was unable to prove that its claimed input VAT payments were directly attributable to its
zero-rated sales.9

On November 20, 2007, the CTA En Banc promulgated its Decision dismissing the petition and affirming the
decision of the CTA First Division, the dispositive portion of which reads:

WHEREFORE, premises considered, the Petition is hereby DISMISSED for lack of merit. The assailed
Decision dated January 18, 2007 and the Resolution dated May 17, 2007 are AFFIRMED.

SO ORDERED.10

The tax court ruled that: (1) the law does not require the submission by a taxpayer of its VAT registration
documents in order to be able to claim for a refund of unutilized input VAT; (2) VGCPI was able to show, by
submitting its VAT invoices and official receipts, that its purchases of goods and services were incurred in the
course of its trade and business; (3) VGCPI sufficiently proved that its claimed input VAT was directly
attributable to its zero-rated sales or sales of power generation services to PNOC-EDC; and (4) the petition was
timely filed before the CTA because the taxpayer was not bound by the 120-day audit period but by the two-
year prescriptive period. As explained by the tax court, when the two-year period is about to lapse, the taxpayer
may, without awaiting the verdict of the CIR, file its claim for refund before the CTA.

The CIR subsequently filed its Motion for Reconsideration but the same was denied by the CTA En Banc in its
Resolution dated January 9, 2008.11

Hence, this petition.

THE ISSUES

The CIR raises only one ground for the allowance of the petition:
The Court of Tax Appeals erred in assuming jurisdiction and giving due course to VGPCI’s petition despite the
latter’s failure to file an application for refund in due course before the BIR and observe the proper prescriptive
period provided by law before filing an appeal before the CTA.12

The pivotal question in this case then is whether VGPCI failed to observe the proper prescriptive period
required by law for the filing of an appeal before the CTA because it filed its petition before the end of the 120-
day period granted to the CIR to decide its claim for refund under Section 112(D) of the National Internal
Revenue Code (NIRC).

THE COURT’S RULING

The CIR insists that VGPCI should have waited for the decision of the CIR or the lapse of the 120-day period
from the date of submission of complete documents in support of the application for refund as provided in
Section 112(D) of the NIRC.13 The filing by VGPCI of its petition for review before the CTA almost
immediately after filing its administrative claim for refund is premature.

On the other hand, VGPCI, in its Memorandum14 defends the decision of the CTA En Banc and puts forth the
following arguments: (1) Section 112(D) of the NIRC is not a limitation imposed on the taxpayer; rather, it is a
mandate addressed to the CIR, requiring it to decide claims for refund within 120 days from submission by the
taxpayer of complete documents in support thereof;15 (2) Section 229 of the NIRC is the more specific
provision with respect to the prescriptive period for the filing of an appeal because it expressly requires that no
suit in court can be maintained for the recovery of taxes after two years from the date of payment of the taxes,
while Section 112(D) deals only with VAT and the periods within which the CIR shall grant a refund or a tax
credit and does not discuss the period within which a taxpayer can go to court;16 (3) pursuant to the cases of
Gibbs v. Collector of Internal Revenue17 and College of Oral & Dental Surgery v. Court of Tax Appeals,18
when the two-year prescriptive period is about to expire, the taxpayer need not wait for the decision of the BIR
before filing a petition for review with the CTA because the filing of a judicial claim beyond the two-year
period bars the recovery of the tax paid, and (4) the CIR has not been denied due process in evaluating VGPCI’s
claim for refund because the filing of the judicial claim does not preclude the CIR from continuing the
processing of VGPCI administrative claim. The latter insists that it is imperative and jurisdictional that both the
administrative and the judicial claims for refund be filed within the two-year prescriptive period, regardless of
the length of time during which the administrative claim has been pending with the CIR. It concludes that had it
waited for the end of the 120-day period, it would have lost its right to file a petition for review with the
CTA.19

The petition is partly meritorious.

Section 229 is not applicable

VGPCI’s reliance on Gibbs and College of Oral & Dental Surgery is misplaced. Of note is the fact that at the
time of the promulgation by this Court of the said cases, there was no provision yet in the NIRC in force
(Commonwealth Act No. 466,20 as amended) similar to Section 112. Therefore, the said cases hold no sway
over the case at bench.

VGPCI is also mistaken to argue that Section 229 is the more relevant provision of law. A simple reading of
Section 229 reveals that it only pertains to taxes erroneously or illegally collected:

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 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. [Emphases supplied]
The applicable provision of the NIRC is undoubtedly Section 112, which deals specifically with creditable input
tax:

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.

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. [Emphases
supplied]

The Court, in earlier cases, had the opportunity to decide which provision of the NIRC was applicable to claims
for refund or tax credit for creditable input VAT. In the case of

Commissioner of Internal Revenue v. Mirant Pagbilao Corporation (formerly Southern Energy Quezon, Inc.),21
it was held that Section 229 of the NIRC, which provides for a two-year period, reckoned from the date of
payment of the tax or penalty, for the filing of a claim of refund or tax credit, is only pertinent to the recovery of
taxes erroneously or illegally assessed or collected; and that the relevant provision of the NIRC for claiming a
refund or a tax credit for the unutilized creditable input VAT is Section 112(A):

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:

xxxx

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

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.22

This ruling was later reiterated in Commissioner of Internal Revenue v. Aichi Forging Company of Asia,
Inc.,23 where this Court upheld the ruling in Mirant that the appropriate provision for determining the
prescriptive period for claiming a refund or a tax credit for unutilized input VAT is Section 112(A), and not
Section 229, of the NIRC.24

Finally, the recent pronouncement of the Court En Banc should put an end to any question as to whether Section
229 may apply to claims for refund of unutilized input VAT. In the case of

Commissioner of Internal Revenue v. San Roque Power Corporation,25 this Court categorically stated that 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."26

As such, it is now clear and indisputable that it is Section 112, and not 229, of the Tax Code which is applicable
to all cases involving an application for the issuance of a tax credit certificate or refund of unutilized input
VAT.

Judicial claim was prematurely filed;

120+30 day period is mandatory and jurisdictional

The Court in Aichi further made a significant pronouncement on the importance of the 120-day period granted
to the CIR to act on applications for tax refunds or tax credits under Section 112(D):

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 period 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.27 [Emphases supplied]

Moreover, it is imperative that the Court take a look at the jurisdiction of the CTA as a guide in the resolution of
this case. Section 7 of R.A. No. 1125,28 as amended by R.A. No. 9282,29 states that:

Sec. 7. Jurisdiction. - The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue or other laws administered by the Bureau of Internal Revenue;

2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the
National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed
a denial; (emphases supplied)

xxxx

It cannot be stressed enough that the jurisdiction of the CTA over the decisions or inaction of the CIR is only
appellate in nature. Thus, it necessarily requires the prior filing of an administrative case before the CIR. The
CTA can only validly acquire jurisdiction over a case after the CIR has rendered its decision or, should the CIR
fail to act, after the lapse of the period of action provided in the Tax Code, in which case the inaction of the CIR
is considered a denial.

The application of the 30-day period from receipt of the decision of the CIR or from the lapse of the 120-day
period (the "120+30 day period") given to the taxpayer within which to file a petition for review with the CTA,
as provided for in Section 112(D) of the Tax Code, was further explained in San Roque,30 which affirmed the
Aichi doctrine and explicitly ruled that "the 120-day waiting period is mandatory and jurisdictional."

However, the court also took into account the issuance by the BIR of Ruling No. DA-489-03 dated December
10, 2003 which allowed for the filing of a judicial claim without waiting for the end of the 120-day period
granted to the CIR to decide on the application for refund:

BIR Ruling No. DA-489-03 does provide a valid claim for equitable estoppel under Section 246 of the Tax
Code. BIR Ruling No. DA-489-03 expressly states 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." Prior to this
ruling, the BIR held, as shown by its position in the Court of Appeals, that the expiration of the 120-day period
is mandatory and jurisdictional before a judicial claim can be filed.

xxxx

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.31

Therefore, although the 120+30 day period in Section 112(D) is mandatory and jurisdictional and must be
applied from the effectivity of the 1997 Tax Code on January 1, 1998, an exception shall be made for judicial
claims filed from the issuance of BIR Ruling No. DA 489-03 on December 10, 2003 until the promulgation of
Aichi on October 6, 2010. During the said period, a judicial claim for refund may be filed with the CTA even
before the lapse of the 120-day period given to the BIR to decide on the administrative case.

In sum, based on the foregoing discussion, the rules for the filing of a claim for refund or tax credit of unutilized
input credit VAT are as follows:

1. The taxpayer has two (2) years after the close of the taxable quarter when the relevant sales were made within
which to file an administrative claim before the CIR for a refund of the creditable input tax or the issuance of a
tax credit certificate, regardless of when the input VAT was paid, according to Section 112(A) of the NIRC and
Mirant.

2. The CIR is given 120 days, from the date of the submission of the complete documents in support of the
application for tax refund or tax credit, to act on the said application.

3. If the CIR fully or partially denies the application or fails to act on the same within the required 120-day
period, the taxpayer is allowed to appeal the decision or inaction of the CIR to the CTA. For this reason, the
taxpayer has 30 days from his receipt of the decision of the CIR or from the lapse of the 120-day period, within
which to file a petition for review with the CTA. In no case shall a petition for review be filed with the CTA
before the expiration of the 120-day period. The judicial claim need not be filed within the two-year prescriptive
period referred to in Section 112(A), which only pertains to administrative claims.

4. The two-year period referred to in Section 229 of the NLRC does not apply to appeals filed before the CTA,
in relation to claims for refund or issuance of tax credits made pursuant to Section 112. Consequently, an appeal
may be maintained with the CTA for so long as it observes the abovementioned period for filing the appeal.

5. Following San Roque, the 120+30 day period is mandatory and jurisdictional from January 1, 1998 (the
effectivity of the 1997 Tax Code). However, from December 10, 2003 (the date BIR Ruling No. DA 489-03
was issued) until October 6, 2010 (the promulgation of Aichi), judicial claims need not follow the 120+30 day
period. Thereafter, Aichi shall be the controlling rule for all claims filed with the CTA and the 120+30 day
period must be observed.

Applying the abovementioned rules to the case at bench, the judicial claim filed on September 30, 2003 (CTA
Case No. 6790) was prematurely filed and cannot be taken cognizance of because respondent failed to wait for
the requisite 120 days after the filing of its claim for refund with the BIR before elevating the case to the CTA.
However, the judicial claim filed on December 19, 2003 (CTA Case No. 6838), which was made after the
issuance of BIR Ruling DA-480-03, can be considered by the CTA despite its hasty filing only one day after the
application for refund was first lodged with the BIR.

WHEREFORE, the petition is partly GRANTED. The November 20, 2007 Decision and the January 9, 2008
Resolution of the Court of Tax Appeals En Banc are hereby REVERSED and SET ASIDE and the claim for
refund with respect to CTA Case No. 6790 is DENIED. However, the claim pertaining to CTA Case No. 6838
is remanded to the CTA for the proper determination of the refundable amount due respondent.

SO ORDERED.

G.R. No. 184266 November 11, 2013

APPLIED FOOD INGREDIENTS COMPANY, INC., Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

SERENO, CJ:

This is a Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure filed by
Applied Food Ingredients, Company, Inc. (petitioner). The Petition assails the Decision2 dated 4 June 2008 and
Resolution3 dated 26 August 2008 of the Court of Tax Appeals En Bane (CTA En Bane in C.TA. EB No. 359.
The assailed Decision and Resolution affirmed the Decision4 dated 13 June 2007 and Resolution5 dated 16
January 2008 rendered by the CTA First Division in C.TA. Case No. 6513 which denied petitioner's claim for
the issuance of a tax credit Decision 2 G.R. No. 184266 certificate representing its alleged excess input taxes
attributable to zero-rated sales for the period 1 April 2000 to 31 December 2000.

THE FACTS

Considering that there are no factual issues in this case, we adopt the findings of fact of the CTA En Banc, as
follows:

Petitioner is registered with the Regional District Office (RDO) No. 43 of the BIR in Pasig City (BIR-Pasig) as,
among others, a Value-Added Tax (VAT) taxpayer engaged in the importation and exportation business, as a
pure buy-sell trader.

Petitioner alleged that from September 1998 to December 31, 2000, it paid an aggregate sum of input taxes of
P9,528,565.85 for its importation of food ingredients, as reported in its Quarterly Vat Return.
Subsequently, these imported food ingredients were exported between the periods of April 1, 2000 to December
31, 2000, from which the petitioner was able to generate export sales amounting to P114,577,937.24. The
proceeds thereof were inwardly remitted to petitioner's dollar accounts with Equitable Bank Corporation and
with Australia New Zealand Bank-Philippine Branch.

Petitioner further claimed that the aforestated export sales which transpired from April 1, 2000 to December 31,
2000 were "zero-rated" sales, pursuant to Section 106(A (2)(a)(1) of the N1RC of 1997.

Petitioner alleged that the accumulated input taxes of P9,528,565.85 for the period of September 1, 1998 to
December 31, 2000 have not been applied against any output tax.

On March 26, 2002 and June 28, 2002, petitioner filed two separate applications for the issuance of tax credit
certificates in the amounts of P5,385, 208.32 and P4,143,357.53, respectively.

On July 24, 2002, in view of respondent's inaction, petitioner elevated the case before this Court by way of a
Petition for Review, docketed as C.T.A. Case No. 6513.

In his Answer filed on August 28, 2002, respondent alleged by way of special and affirmative defenses that the
request for tax credit certificate is still under examination by respondent's examiners; that taxes paid and
collected are presumed to have been made in accordance with law and regulations, hence not refundable;
petitioner's allegation that it erroneously and excessively paid the tax during the year under review does not ipso
facto warrant the refund/credit or the issuance of a certificate thereto; petitioner must prove that it has complied
with the governing rules with reference to tax recovery or refund, which are found in Sections 204(C) and 229
of the Tax Code, as amended.6

Trial ensued and the CTA First Division rendered a Decision on 13 June 2007. It denied petitioner’s claim for
failure to comply with the invoicing requirements prescribed under Section 113 in relation to Section 237 of the
National Internal Revenue Code (NIRC) of 1997 and Section 4.108-1 of Revenue Regulations No. 7-95.

On appeal, the CTA En Banc likewise denied the claim of petitioner on the same ground and ruled that the
latter’s sales for the subject period could not qualify for VAT zero-rating, as the export sales invoices did not
bear the following: 1) the imprinted word "zero-rated;" 2) "TIN-VAT;" and 3) BIR’s permit number, all in
violation of the invoicing requirements.

THE ISSUES

Petitioner raises this sole issue for the consideration of this Court:

WHETHER OR NOT THE PETITIONER IS ENTITLED TO THE ISSUANCE OF A TAX CREDIT

CERTIFICATE OR REFUND OF THE AMOUNT OF P9,528,565.85 REPRESENTING CREDITABLE
INPUT TAXES INCURRED FOR THE PERIOD OF SEPTEMBER 1, 1998 TO DECEMBER 31, 2000
WHICH ARE ATTRIBUTABLE TO ZERO-RATED SALES FOR THE PERIOD OF APRIL 1, 2000 TO
DECEMBER 31, 2000.7

THE COURT’S RULING

The Petition has no merit.

Our VAT Law provides for a mechanism that would allow VAT-registered persons to recover the excess input
taxes over the output taxes they had paid in relation to their sales.

In Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of Internal Revenue,8

this Court explained that "the VAT is a tax on consumption, an indirect tax that the provider of goods or
services may pass on to his customers. Under the VAT method of taxation, which is invoice-based, an entity
can subtract from the VAT charged on its sales or outputs the VAT it paid on its purchases, inputs and imports."

For zero-rated or effectively zero-rated sales, although the sellers in these transactions charge no output tax,
they can claim a refund of the VAT that their suppliers charged them.9
At the outset, bearing in mind that tax refunds or credits − just like tax exemptions − are strictly construed
against taxpayers,10 the latter have the burden to prove strict compliance with the conditions for the grant of the
tax refund or credit.

Section 112 of the NIRC of 1997 laid down the manner in which the refund or credit of input tax may be made,
to wit:

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 of 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.

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.

This Court finds it appropriate to first determine the timeliness of petitioner’s claim in accordance with the
above provision.

Well-settled is the rule that the issue of jurisdiction over the subject matter may, at any time, be raised by the
parties or considered by the Court motu proprio.11 Therefore, the jurisdiction of the CTA over petitioner’s
appeal may still be considered and determined by this Court.

Although the ponente in this case expressed a different view on the mandatory application of the 120+30 day
period as prescribed in the above provision, with the advent, however, of this Court’s pronouncement on the
consolidated tax 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
Revenue12 (hereby collectively referred as San Roque), we are constrained to apply the dispositions therein to
similar facts as those in the present case.

To begin with, Section 112(A) provides for a two-year prescriptive period after the close of the taxable quarter
when the sales were made, within which a VAT-registered person whose sales are zero-rated or effectively
zero-rated may apply for the issuance of a tax credit certificate or refund of creditable input tax.

In this case, petitioner claims that from April 2000 to December 2000 it had zero-rated sales to which it
attributed the accumulated input taxes it had incurred from September 1998 to December 2000.

Applying Section 112(A), petitioner had until 30 June 2002, 30 September 2002 and 31 December 2002 − or
the close of the taxable quarter when the zero-rated sales were made − within which to file its administrative
claim for refund. Thus, we find sufficient compliance with the two-year prescriptive period when petitioner
filed its claim on 26 March 200213 and 28 June 200214 covering its zero-rated sales for the period April to
September 2000 and October to December 2000, respectively.
The Commissioner of Internal Revenue (CIR) had one hundred twenty (120) days from the date of submission
of complete documents in support of the application within which to decide on the administrative claim.

In relation thereto, absent any evidence to the contrary and bearing in mind that the burden to prove entitlement
to a tax refund is on the taxpayer, it is presumed that in order to discharge its burden, petitioner had attached
complete supporting documents necessary to prove its entitlement to a refund in its application filed on 26
March 2002 and 28 June 2002. Therefore, the CIR’s 120-day period to decide on petitioner’s administrative
claim commenced to run on 26 March 2002 and 28 June 2002, respectively.

Counting 120 days from 26 March 2002, the CIR had until 24 July 2002 within which to decide on the claim of
petitioner for an input VAT refund attributable to the its zero-rated sales for the period April to September
2000.

On the other hand, the CIR had until 26 October 2002 within which to decide on petitioner’s claim for refund
filed on 28 June 2002, or for the period covering October to December 2000.

Records, however, show that the judicial claim of petitioner was filed on 24 July 2002.15 Petitioner clearly
failed to observe the mandatory 120-day waiting period. Consequently, the premature filing of its claim for
refund/credit of input VAT before the CTA warranted a dismissal, inasmuch as no jurisdiction was acquired by
the CTA.16

In San Roque, this Court, held thus: "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."17

Furthermore, the CTA, being a court of special jurisdiction, can take cognizance only of matters that are clearly
within its jurisdiction.18 Section 7 of R.A. 1125,19 as amended by R.A. 9282,20 specifically provides:

SEC. 7. Jurisdiction. — The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue;

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the
National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed
a denial; x x x.(Emphases supplied)

"Inaction by the CIR" in cases involving the refund of creditable input tax, arises only after the lapse of 120
days. Thus, prior thereto and without a decision of the CIR, the CTA, as a court of special jurisdiction, has no
jurisdiction to entertain claims for the refund or credit of creditable input tax. "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."21

Considering further that the 30-day period to appeal to the CTA is dependent on the 120-day period, both
periods are hereby rendered jurisdictional. Failure to observe 120 days prior to the filing of a judicial claim is
not a mere non-exhaustion of administrative remedies, but is likewise considered jurisdictional. The period of
120 days is a prerequisite for the commencement of the 30-day period to appeal to the CTA. In both instances,
whether the CIR renders a decision (which must be made within 120 days) or there was inaction, the period of
120 days is material.

This Court further ruled:

The old rule that the taxpayer may file the judicial claim, without waiting for the Commissioner’s decision if the
two-year prescriptive period is about to expire, cannot apply because that rule was adopted before the enactment
of the 30-day period. The 30-day period was adopted precisely to do away with the old rule, so that under the
VAT System the taxpayer will always have 30 days to file the judicial claim even if the Commissioner acts only
on the 120th day, or does not act at all during the 120-day period. With the 30-day period always available to
the taxpayer, the taxpayer can no longer file a judicial claim for refund or credit of input VAT without waiting
for the Commissioner to decide until the expiration of the 120-day period.

To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against the
taxpayer.1âwphi1 One of the conditions for a judicial claim of refund or credit under the VAT System is 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.22 (Emphasis supplied)

In accordance with San Roque and considering that petitioner s judicial claim was filed on 24 July 2002, when
the 120+30 day mandatory periods were already in the law and BIR Ruling No. DA-489-03 had not yet been
issued, petitioner does not have an excuse for not observing the 120+ 30 day period. Failure of petitioner to
observe the mandatory 120-day period is fatal to its claim and rendered the CT A devoid of jurisdiction over the
judicial claim.

The Court finds, in view of the absence of jurisdiction of the Court of the Tax Appeals over the judicial claim of
petitioner, that there is no need to discuss the other issues raised.

WHEREFORE, premises considered, the instant Petition is DENIED.

SO ORDERED.

G.R. No. 188260 November 13, 2013

LUZON HYDRO CORPORATION, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
BERSAMIN, J.:

This case involves a claim for refund or tax credit to cover petitioner Luzon Hydro Corporation's unutilized
Input Value-Added Tax (VAT) worth 1 2,920,665 .16 corresponding to the four quarters of taxable year 2001.
The Case
The petitioner brought this action in the Court of Tax Appeals (CTA) after the Commissioner of Internal
Revenue (respondent) did not act on the claim (CTA Case No. 6669). The CTA 2nd Division denied the claim
on May 2, 2008 on the ground that the petitioner did not prove that it had zero-rated sales for the four quarters
of 2001.1 The CT A En Banc denied the petitioner's motion for reconsideration, and affirmed the decision of the
CTA 2nd Division through its decision dated May 5, 2009.2 Hence, the petitioner appeals the decision of the
CTA En Banc.
Antecedents
The petitioner, a corporation duly organized under the laws of the Philippines, has been registered with the
Bureau of Internal Revenue (BIR) as a VAT taxpayer under Taxpayer Identification No. 004-266-526. It was
formed as a consortium of several corporations, namely: Northern Mini Hydro Corporation, Aboitiz Equity
Ventures, Inc., Ever Electrical Manufacturing, Inc. and Pacific Hydro Limited.
Pursuant to the Power Purchase Agreement entered into with the National Power Corporation (NPC), the
electricity produced by the petitioner from its operation of the Bakun Hydroelectric Power Plant was to be sold
exclusively to NPC.3 Relative to its sale to NPC, the petitioner was granted by the BIR a certificate for Zero
Rate for VAT purposes in the periods from January 1, 2000 to December 31, 2000; February 1, 2000 to
December 31, 2000 (Certificate No. Z-162-2000); and from January 2, 2001 to December 31, 2001 (Certificate
No. 2001-269).4
The petitioner alleged herein that it had incurred input VAT in the amount of P9,795,427.89 on its domestic
purchases of goods and services used in its generation and sales of electricity to NPC in the four quarters of
2001;5and that it had declared the input VAT of P9,795,427.89 in its amended VAT returns for the four quarters
on 2001, as follows:6
Exhibit Date Filed Period Covered Input VAT (P)
F May 25, 2001 1st quarter – 2001 1,903,443.96
I July 23, 2001 2nd quarter – 2001 2,166,051.96
L July 23, 2002 3rd quarter –2001 1,598,482.39
O July 24, 2002 4th quarter – 2001 4,127,449.58
Total 9,795,427.89
On November 26, 2001, the petitioner filed a written claim for refund or tax credit relative to its unutilized input
VAT for the period from October 1999 to October 2001 aggregating P14,557,004.38.7 Subsequently, on July
24, 2002, it amended the claim for refund or tax credit to cover the period from October 1999 to May 2002
for P20,609,047.56.8
The BIR, through Revenue Examiner Felicidad Mangabat of Revenue District Office No. 2 in Vigan City,
concluded an investigation, and made a recommendation in its report dated August 19, 2002 favorable to the
petitioner’s claim for the period from January 1, 2001 to December 31, 2001.9
Respondent Commissioner of Internal Revenue (Commissioner) did not ultimately act on the petitioner’s claim
despite the favorable recommendation. Hence, on April 14, 2003, the petitioner filed its petition for review in
the CTA, praying for the refund or tax credit certificate (TCC) corresponding to the unutilized input VAT paid
for the four quarters of 2001 totalling P9,795,427.88.10
Answering on May 29, 2003,11 the Commissioner denied the claim, and raised the following special and
affirmative defenses, to wit:
xxxx
7. The petitioner has failed to demonstrate that the taxes sought to be refunded were erroneously or illegally
collected;
8. In an action for tax refund, the burden is upon the taxpayer to prove that he is entitled thereto, and failure to
sustain the same is fatal to the action for tax refund;
9. It is incumbent upon petitioner to show compliance with the provisions of Section 112 and Section 229, both
of the National Internal Revenue Code, as amended;
10. Claims for refund are construed strictly against the claimant for the same partakes the nature of exemption
from taxation (Commissioner of Internal Revenue vs. Ledesma, G.R. No. L-13509, January 30, 1970, 31 SCRA
95) and as such they are looked upon [with] disfavor (Western Minolco Corp. vs. Commissioner of Internal
Revenue, 124 SCRA 121);
11. Taxes paid and collected are presumed to have been made in accordance with the law and regulations,
hence, not refundable.12
xxxx
On October 30, 2003, the parties submitted a Joint Stipulation of Facts and Issues,13 which the CTA in Division
approved on November 10, 2003. The issues to be resolved were consequently the following:
1. Whether or not the input value added tax being claimed by petitioner is supported by sufficient documentary
evidence;
2. Whether petitioner has excess and unutilized input VAT from its purchases of domestic goods and services,
including capital goods in the amount of P9,795,427.88;
3. Whether or not the input VAT being claimed by petitioner is attributable to its zero-rated sale of electricity to
the NPC;
4.Whether or not the operation of the Bakun Hydroelectric Power Plant is directly connected and attributable to
the generation and sale of electricity to NPC, the sole business of petitioner; and 5. Whether or not the claim
filed by the petitioner was filed within the reglementary period provided by law.14
While the case was pending hearing, the Commissioner, through the Assistant Commissioner for Assessment
Services, informed the petitioner by the letter dated March 3, 2005 that its claim had been granted in the amount
of P6,874,762.72, net of disallowances of P2,920,665.16. Accompanying the letter was the TCC
for P6,874,762.72 (TCC No. 00002618).15
On May 3, 2005, the petitioner filed a Motion for Leave of Court to Amend Petition for Review in
consideration of the partial grant of the claim through TCC No. 00002618. The CTA in Division granted the
motion on May 11, 2005, and admitted the Amended Petition for Review, whereby the petitioner sought the
refund or tax credit in the reduced amount of P2,920,665.16. The CTA in Division also directed the respondent
to file a supplemental answer within ten days from notice.16
When no supplemental answer was filed within the period thus allowed, the CTA in Division treated the answer
filed on May 16, 2003 as the Commissioner’s answer to the Amended Petition for Review.17
Thereafter, the petitioner presented testimonial and documentary evidence to support its claim. On the other
hand, the Commissioner submitted the case for decision based on the pleadings.18 On May 2, 2007, the case was
submitted for decision without the memorandum of the Commissioner.19
Ruling of the CTA in Division
The CTA in Division promulgated its decision in favor of the respondent denying the petition for review, viz:
In petitioner’s VAT returns for the four quarters of 2001, no amount of zero-rated sales was declared. Likewise,
petitioner did not submit any VAT official receipt of payments for services rendered to NPC. The only proof
submitted by petitioner is a letter from Regional Director Rene Q. Aguas, Revenue Region No. 1, stating that
the financial statements and annual income tax return constitute sufficient secondary proof of effectively zero-
rated and that based on their examination and evaluation of the financial statements and annual income tax
return of petitioner for taxable year 2000, it had annual gross receipts of PhP187,992,524.00. This Court cannot
give credence to the said letter as it refers to taxable year 2000, while the instant case refers to taxable year
2001.
Without zero-rated sales for the four quarters of 2001, the input VAT payments of PhP9,795,427.88 (including
the present claim of PhP2,920,665.16) allegedly attributable thereto cannot be refunded. It is clear under
Section 112 (A) of the NIRC of 1997 that the refund/tax credit of unutilized input VAT is premised on the
existence of zero-rated or effectively zero-rated sales.
xxxx
For petitioner’s non-compliance with the first requisite of proving that it had effectively zero-rated sales for the
four quarters of 2001, the claimed unutilized input VAT payments of PhP2,920,665.16 cannot be granted.
WHEREFORE, the instant Petition for Review is hereby DENIED for lack of merit.
SO ORDERED.20
On May 21, 2008, the petitioner moved to reconsider the decision of the CTA in Division.21 However, the CTA
in Division denied the petitioner’s motion for reconsideration on September 5, 2008.22
Decision of the CTA En Banc
On October 17, 2008, the petitioner filed a petition for review in the CTA En Banc (CTA E.B No. 420), posing
the main issue whether or not the CTA in Division erred in denying its claim for refund or tax credit upon a
finding that it had not established its having effectively zero-rated sales for the four quarters of 2001.
On May 5, 2009, the CTA En Banc promulgated the assailed decision affirming the Division, and denying the
claim for refund or tax credit, stating:
The other argument of petitioner that even if the tax credit certificate will not be used as evidence, it was able to
prove that it has zero-rated sale as shown in its financial statements and income tax returns quoting the letter
opinion of Regional Director Rene Q. Aguas that the statements and the return are considered sufficient to
establish that it generated zero-rated sale of electricity is bereft of merit. As found by the Court a quo, the letter
opinion refers to taxable year 2000, while the instant case covers taxable year 2001; hence, cannot be given
credence. Even assuming for the sake of argument that the financial statements, the return and the letter opinion
relates to 2001, the same could not be taken plainly as it is because there is still a need to produce the
supporting documents proving the existence of such zero-rated sales, which is wanting in this case. Considering
that there are no zero-rated sales to speak of for taxable year 2001, petitioner is, therefore, not entitled to a
refund of PhP2,920,665.16 input tax allegedly attributable thereto since it is basic requirement under Section
112 (A) of the NIRC that there should exists a zero-rated sales in order to be entitled to a refund of unutilized
input tax.
It is settled that tax refunds, like tax exemptions, are construed strictly against the taxpayer and that the claimant
has the burden of proof to establish the factual basis of its claim for tax credit or refund. Failure in this regard,
petitioner’s claim must therefore, fail.
WHEREFORE, the instant Petition for Review is hereby DENIED for lack of merit.
SO ORDERED.23
On June 10, 2009, the CTA En Banc also denied the petitioner’s motion for reconsideration.24
Issue
Aggrieved, the petitioner has appealed, urging as the lone issue: –
WHETHER THE CTA EN BANC COMMITTED A REVERSIBLE ERROR IN AFFIRMING THE
DECISION OF THE CTA.
In its August 3, 2009 petition for review,25 the petitioner has argued as follows:
(1) Its sale of electricity to NPC was automatically zero-rated pursuant to Republic Act No. 9136 (EPIRA Law);
hence, it need not prove that it had zero-rated sales in the period from January 1, 2001 to December 31, 2001 by
the presentation of VAT official receipts that would contain all the necessary information required under
Section 113 of the National Internal Revenue Code of 1997, as implemented by Section 4.108-1 of Revenue
Regulations No. 7-95. Evidence of sale of electricity to NPC other than official receipts could prove zero-rated
sales.
(2) The TCC, once issued, constituted an administrative opinion that deserved consideration and respect by the
CTA En Banc.
(3) The CTA En Banc was devoid of any authority to determine the existence of the petitioner’s zero-rated
sales, inasmuch as that would constitute an encroachment on the powers granted to an administrative agency
having expertise on the matter.
(4) The CTA En Banc manifestly overlooked evidence not disputed by the parties and which, if properly
considered, would justify a different conclusion.26
The petitioner has prayed for the reversal of the decision of the CTA En Banc, and for the remand of the case to
the CTA for the reception of its VAT official receipts as newly discovered evidence. It has supported the latter
relief prayed for by representing that the VAT official receipts had been misplaced by Edwin Tapay, its former
Finance and Accounting Manager, but had been found only after the CTA En Banc has already affirmed the
decision of the CTA in Division. In the alternative, it has asked that the Commissioner allow the claim for
refund or tax credit of P2,920,665.16.
In the comment submitted on December 3, 2009,27 the Commissioner has insisted that the petitioner’s claim
cannot be granted because it did not incur any zero-rated sale; that its failure to comply with the invoicing
requirements on the documents supporting the sale of services to NPC resulted in the disallowance of its claim
for the input tax; and the claim should also be denied for not being substantiated by appropriate and sufficient
evidence.
In its reply filed on February 4, 2010,28 the petitioner reiterated its contention that it had established its claim for
refund or tax credit; and that it should be allowed to present the official receipts in a new trial.
Ruling of the Court
The petition is without merit.
Section 112 of the National Internal Revenue Code 1997 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.
xxxx
A claim for refund or tax credit for unutilized input VAT may be allowed only if the following requisites
concur, namely: (a) the taxpayer is VAT-registered; (b) the taxpayer is engaged in zero-rated or effectively
zero-rated sales; (c) the input taxes are due or paid; (d) the input taxes are not transitional input taxes; (e) the
input taxes have not been applied against output taxes during and in the succeeding quarters; (f) the input taxes
claimed are attributable to zero-rated or effectively zero-rated sales; (g) for zero-rated sales under Section
106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the acceptable foreign currency exchange proceeds have
been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas; (h)
where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes
cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately
allocated on the basis of sales volume; and (i) the claim is filed within two years after the close of the taxable
quarter when such sales were made.29
The petitioner did not competently establish its claim for refund or tax credit.1avvphi1 We agree with the CTA
En Banc that the petitioner did not produce evidence showing that it had zero-rated sales for the four quarters of
taxable year 2001. As the CTA En Banc precisely found, the petitioner did not reflect any zero-rated sales from
its power generation in its four quarterly VAT returns, which indicated that it had not made any sale of
electricity. Had there been zero-rated sales, it would have reported them in the returns. Indeed, it carried the
burden not only that it was entitled under the substantive law to the allowance of its claim for refund or tax
credit but also that it met all the requirements for evidentiary substantiation of its claim before the
administrative official concerned, or in the de novo litigation before the CTA in Division.30
Although the petitioner has correctly contended here that the sale of electricity by a power generation company
like it should be subject to zero-rated VAT under Republic Act No. 9136,31 its assertion that it need not prove
its having actually made zero-rated sales of electricity by presenting the VAT official receipts and VAT returns
cannot be upheld. It ought to be reminded that it could not be permitted to substitute such vital and material
documents with secondary evidence like financial statements.
We further find to be lacking in substance and bereft of merit the petitioner’s insistence that the CTA En Banc
should not have disregarded the letter opinion by BIR Regional Director Rene Q. Aguas to the effect that its
financial statements and its return were sufficient to establish that it had generated zero-rated sale of electricity.
To recall, the CTA En Banc rejected the insistence because, firstly, the letter opinion referred to taxable year
2000 but this case related to taxable year 2001, and, secondly, even assuming for the sake of argument that the
financial statements, the return and the letter opinion had related to taxable year 2001, they still could not be
taken at face value for the purpose of approving the claim for refund or tax credit due to the need to produce the
supporting documents proving the existence of the zero-rated sales, which did not happen here. In that respect,
the CTA En Banc properly disregarded the letter opinion as irrelevant to the present claim of the petitioner.
We further see no reason to grant the prayer of the petitioner for the remand of this case to enable it to present
before the CTA newly discovered evidence consisting in VAT official receipts.
Ordinarily, the concept of newly discovered evidence is applicable to litigations in which a litigant seeks a new
trial or the re-opening of the case in the trial court. Seldom is the concept appropriate when the litigation is
already on appeal, particularly in this Court. The absence of a specific rule on newly discovered evidence at this
late stage of the proceedings is not without reason. The propriety of remanding the case for the purpose of
enabling the CTA to receive newly discovered evidence would undo the decision already on appeal and require
the examination of the pieces of newly discovered evidence, an act that the Court could not do by virtue of its
not being a trier of facts. Verily, the Court has emphasized in Atlas Consolidated Mining and Development
Corporation v. Commissioner of Internal Revenue32 that a judicial claim for tax refund or tax credit brought to
the CTA is by no means an original action but an appeal by way of a petition for review of the taxpayer’s
unsuccessful administrative claim; hence, the taxpayer has to convince the CTA that the quasi-judicial agency a
quo should not have denied the claim, and to do so the taxpayer should prove every minute aspect of its case by
presenting, formally offering and submitting its evidence to the CTA, including whatever was required for the
successful prosecution of the administrative claim as the means of demonstrating to the CTA that its
administrative claim should have been granted in the first place.
Nonetheless, on the proposition that we may relax the stringent rules of procedure for the sake of rendering
justice, we still hold that the concept of newly discovered evidence may not apply herein. In order that newly
discovered evidence may be a ground for allowing a new trial, it must be fairly shown that: (a) the evidence is
discovered after the trial; (b) such evidence could not have been discovered and produced at the trial even with
the exercise of reasonable diligence; (c) such evidence is material, not merely cumulative, corroborative, or
impeaching; and (d) such evidence is of such weight that it would probably change the judgment if admitted.33
The first two requisites are not attendant. To start with, the proposed evidence was plainly not newly discovered
considering the petitioner s admission that its former Finance and Accounting Manager had misplaced the VAT
official receipts. If that was true, the misplaced receipts were forgotten evidence. And, secondly, the receipts,
had they truly existed, could have been sooner discovered and easily produced at the trial with the exercise of
reasonable diligence. But the petitioner made no convincing demonstration that it had exercised reasonable
diligence. The Court cannot accept its tender of such receipts and return now, for, indeed, the non-production of
documents as vital and material as such receipts and return were to the success of its claim for refund or tax
credit was improbable, as it goes against the sound business practice of safekeeping relevant documents
precisely to ensure their future use to support an eventual substantial claim for refund or tax credit.
WHEREFORE, the Court DENIES the petition for review on certiorari for its lack of merit; AFFIRMS the
decision dated May 5, 2009 of the Court of Tax Appeals En Bane; and ORDERS the petitioner to pay the costs
of suit.
SO ORDERED.

G.R. No. 180529 November 13, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
 BANK OF COMMERCE, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

This is a Petition (or Review on Certiorari1 filed by the Commissioner of Internal Revenue (CIR) wherein the
September 17 2007 Amended Decision2 and November 15 2007 Resolution3 of the Court of Tax Appeals En
Bane (CTA) in C.T.A. EB No. 259, are sought to be nullified and set aside.4

The facts of the case, as stipulated by the parties are as follows:

1. [Bank of Commerce (BOC)] is a banking corporation duly organized and existing under and by virtue of the
laws of the Republic of the Philippines, with principal office address at 12th Floor, Bankers Centre Building,
6764 Ayala Avenue, Makati City.

2. Respondent is the Commissioner of the Bureau of Internal Revenue [(CIR)], duly appointed to perform the
duties of his office, including, among others, the power to decide, cancel and abate tax liabilities pursuant to
Section 244(B) of the Tax Code, as amended by Republic Act ("RA" No.) 8424, otherwise known as the ‘Tax
Reform Act’ ("TRA") of 1997.

3. On November 9, 2001, [BOC] and Traders Royal Bank (TRB) executed a Purchase and Sale Agreement5
whereby it stipulated the TRB’s desire to sell and the BOC’s desire to purchase identified recorded assets of
TRB in consideration of BOC assuming identified recorded liabilities. 4. Under the Purchase and Sale
Agreement, BOC and TRB shall continue to exist as separate corporations with distinct corporate personalities.

5. On September 27, 2002, [BOC] received copies of the Formal Letter of Demand and Assessment Notice No.
DST-99-00-000049 dated September 11, 2002, addressed to "TRADERS ROYAL BANK (now Bank of
Commerce)", issued by the CIR demanding payment of the amount of P41,467,887.51, as deficiency
documentary stamp taxes (DST) on Special Savings Deposit (SSD) account of TRB for taxable year 1999.

6. On October 11, 2002, [TRB] filed its protest letter contesting the Formal Letter of Demand and Assessment
Notice No. DST-99-00-000049 dated September 11, 2002, pursuant to Sec. 228 of the Tax Code.

7. On March 31, 2004, [BOC] received the Decision dated March 22, 2004 denying the protest filed by [TRB]
on October 11, 2002. The last two paragraphs of the Decision stated that:

"WHEREFORE, in view of all the foregoing, Assessment Notice No. DST-99-00-000049 demanding payment
of the amount of P41,467,887.51, as deficiency stamp tax for the taxable year 1999 is hereby MODIFIED
AND/OR REDUCED to P41,442,887.51. Consequently, Traders Royal Bank (now Bank of Commerce) is
hereby ordered to pay the above-stated amount, plus interest that have accrued thereon until the actual date of
payment, to the Large Taxpayers Service, B.I.R. National Office Building, Diliman, Quezon City, within thirty
(30) days from receipt hereof; otherwise, collection thereof shall be effected through the summary remedies
provided by law.

This constitutes the Final Decision of this Office on the matter."6

On April 30, 2004, the Bank of Commerce (BOC) filed a Petition for Review,7 assigned to the CTA 2nd
Division, praying that it be held not liable for the subject Documentary Stamp Taxes (DST).

As also stipulated by the parties, the issues before the CTA 2nd Division were:

1. Whether [BOC] can be held liable for [TRB]’s alleged deficiency [DST] liability on [its SSD] Accounts for
taxable year 1999 in the amount of P41,442,887.51, inclusive of penalties.

2. Whether TRB’s [SSD] Accounts for taxable year 1999 is subject to [DST].8

In support of the first issue, BOC called the attention of the CTA 2nd Division to the fact that as stated in
Article III of the Purchase and Sale Agreement, it and Traders Royal Bank (TRB) continued to exist as separate
corporations with distinct corporate personalities. BOC emphasized that there was no merger between it and
TRB as it only acquired certain assets of TRB in return for its assumption of some of TRB’s liabilities.9

Ruling of the CTA 2nd Division

In a Decision10 dated August 31, 2006, the CTA 2nd Division dismissed the petition for lack of merit. It held
that the Special Savings Deposit (SSD) account in issue is subject to DST because its nature and substance are
akin to that of a certificate of deposit bearing interest, which under the then Section 180 of the National Internal
Revenue Code (NIRC), is subject to DST.

As for BOC’s liability, the CTA 2nd Division said that since the issue of non-merger between BOC and TRB
was not raised in the administrative level, it could not be raised for the first time on appeal. The CTA 2nd
Division also noted how BOC "actively participated in the proceedings before the administrative body without
questioning the legitimacy of the proper party in interest."11

When its Motion for Reconsideration12 was denied13 on January 8, 2007, BOC filed a Petition for Review14
before the CTA En Banc, adducing the following grounds:

THE HOLDING OF THE HONORABLE SECOND DIVISION THAT [BOC] IS DEEMED TO HAVE
ADMITTED THAT IT IS THE PROPER PARTY ASSESSED BY THE [CIR] BECAUSE IT DID NOT
RAISE THE ISSUE OF MERGER IN THE LETTER OF PROTEST FILED WITH THE [CIR] IS WITHOUT
BASIS AND VIOLATES ELEMENTARY RULES OF DUE PROCESS.

THE HONORABLE SECOND DIVISION ERRED IN HOLDING THAT TRB’S SSD ACCOUNTS FOR
TAXABLE YEAR 1999 ARE SUBJECT TO [DST] UNDER THEN SECTION 180 OF THE TAX CODE.15

Ruling of the CTA En Banc

on BOC’s Petition for Review

On June 27, 2007, the CTA En Banc affirmed the CTA 2nd Division’s Decision and Resolution, ruling that
BOC was liable for the DST on TRB’s SSD accounts.16

Citing this Court’s decision in International Exchange Bank v. Commissioner of Internal Revenue,17 the CTA
En Banc said that the CTA 2nd Division was correct when it deemed TRB’s SSD accounts to be certificates of
deposit bearing interest, subject to DST under Section 180 of the NIRC, as they involved deposits, which
though may be withdrawn anytime, earned a higher rate of interest when kept in the bank for a specified number
of days.18

Proceeding then to what it considered to be the pivotal issue, the CTA En Banc, agreeing with the decision of
the CTA 2nd Division, held that BOC was liable for the DST on the subject SSD accounts. The CTA En Banc
also noted that BOC was inconsistent in its position, for claiming that it was the one that filed the protest letter
with the BIR, in its Petition for Review before the CTA 2nd Division and Pre-Trial Brief, while stating that it
was TRB that filed the protest letter, in its Joint Stipulation of Facts and Issues. The CTA En Banc added that it
would not be unfair to hold BOC liable for the subject DST as TRB constituted an Escrow Fund in the amount
of Fifty Million Pesos (P50,000,000.00) to answer for all claims against TRB, which are excluded from the
Agreement.19

Undaunted, BOC filed before the CTA En Banc a Motion for Reconsideration20 of its June 27, 2007 Decision,
positing the following grounds for reconsideration:

There was no merger between [BOC] and [TRB] as already decided by this Honorable Court in a decision dated
18 June 2007; hence [BOC] cannot be held liable for the tax liability of [TRB.]

II
[BOC] could not have raised the issue of non-merger of [BOC] and [TRB] in the proceedings before the [CIR]
because it was never a party to the proceedings before the [CIR]. Contrary to the Court’s findings, the issue of
non-merger is no longer an issue but a fact stipulated by both parties.

III

The [CIR]’s decision holding [BOC] liable for TRB’s tax liability is void since [BOC] was not a party to the
proceedings before the [CIR].21

Ruling of the CTA En Banc

on BOC’s Motion for Reconsideration

On September 17, 2007, the CTA En Banc, in its Amended Decision, reversed itself and ruled that BOC could
not be held liable for the deficiency DST of TRB on its SSD accounts. The dispositive portion of the CTA En
Banc ’s Amended Decision reads:

WHEREFORE, [BOC]’s Motion for Reconsideration is hereby GRANTED. The Decision in the case at bar
promulgated on June 27, 2007 is REVERSED. The appealed Decision in C.T.A. Case No. 6975 is SET ASIDE
and a new one is hereby ENTERED finding petitioner Bank of Commerce NOT LIABLE for the amount of
P41,442,887.51 representing the assessment of deficiency Documentary Stamp Tax on the Special Savings
Deposit accounts of Traders Royal Bank for taxable year 1999.22

In its Amended Decision, the CTA En Banc said that while it did not make a categorical ruling in its June 27,
2007 Decision on the issue of merger between BOC and TRB, the CTA 1st Division did in its June 18, 2007
Resolution23 in C.T.A. Case No. 6392, entitled Traders Royal Bank v. Commissioner of Internal Revenue.

The Traders Royal Bank case, just like the case at bar, involved a deficiency DST assessment against TRB on
its SSD accounts, albeit for taxable years 1996 and 1997. When the CIR attempted to implement a writ of
execution against BOC, which was not a party to the case, by simply inserting its name beside TRB’s in the
motion for execution, BOC filed a Motion to Quash (By Way of Special Appearance) with the CTA 1st
Division,24 which the CTA 1st Division granted in a Resolution on June 18, 2007, primarily on the ground that
there was no merger between BOC and TRB.

With the foregoing ruling, the CTA En Banc declared that BOC could not be held liable for the deficiency DST
assessed on TRB’s SSD accounts for taxable year 1999 in the interest of substantial justice and to be consistent
with the CTA 1st Division’s Resolution in the Traders Royal Bank case.25

The CTA En Banc also gave weight to BIR Ruling No. 10-200626 dated October 6, 2006 wherein the CIR
expressly recognized the fact that the Purchase and Sale Agreement between BOC and TRB did not result in
their merger.27 Elaborating on this point the CTA En Banc said:

By practice, a BIR ruling contains the official written interpretative opinion of the Commissioner of Internal
Revenue addressed to a particular taxpayer regarding his taxability over certain matters. Moreover, well-settled
is the rule that the interpretation of an administrative government agency like the BIR, is accorded great respect
and ordinarily controls the construction of the courts. The reason behind this rule was explained in Nestle
Philippines, Inc. vs. Court of Appeals, in this wise: "The rationale for this rule relates not only to the emergence
of the multifarious needs of a modern or modernizing society and the establishment of diverse administrative
agencies for addressing and satisfying those needs; it also relates to the accumulation of experience and growth
of specialized capabilities by the administrative agency charged with implementing a particular statute.

Here, We have no reason to disregard the interpretation made by the Commissioner as it is in accord with the
aforementioned Resolution of the First Division.28 (Citation omitted.)

With the reversal of the CTA En Banc ’s June 27, 2007 Decision, the CIR filed a Motion for Reconsideration29
praying that BOC be held liable for the deficiency DST of TRB on its SSD accounts for taxable year 1999. In
support of its motion, the CIR presented the following arguments:
[BOC] is estopped from raising the issue that it is not the party held liable for Trader[s] Royal Bank (TRB)’s
deficiency DST assessment because it was not a party to the proceeding before [the] Bureau of Internal
Revenue (BIR).30

Issues not raised in the administrative level cannot be raised for the first time on appeal.31

The deficiency Assessment of TRB can be enforced and collected against [BOC].32

The Honorable Court En Banc erred in considering BIR Ruling No. 10-2006 as basis to justify its conclusion.33

The Honorable Court En Banc has no sufficient justification for not considering the Escrow fund in its
Amended Decision.34

On November 15, 2007, the CTA En Banc denied the motion for lack of merit.

The CTA En Banc said that the rule that no issue may be raised for the first time on appeal is not a hard and fast
rule as "jurisprudence declares that the appellate court is clothed with ample authority to review matters, even if
they are not assigned as errors in their appeal, if it finds that their consideration is necessary in arriving at a just
decision of the case." Thus, in the interest of justice, the CTA En Banc found it necessary to consider and
resolve issues, even though not previously raised in the administrative level, if it is necessary for the complete
adjudication of the rights and obligations of the parties and it falls within the issues they already identified.35

The CTA En Banc also reiterated its ruling in its Amended Decision, that BOC could not be held liable for the
deficiency DST on the SSD accounts of TRB, in consonance with the Resolution of the CTA 1st Division in the
Traders Royal Bank case; and BIR Ruling No. 10-2006, which has not been shown to have been revoked or
nullified by the CIR.36

With the foregoing disquisition rendering the issue on the Escrow Fund moot, the CTA En Banc found no more
reason to discuss it.37

Unsuccessful in its Motion for Reconsideration, the CIR is now before this Court, praying for the reinstatement
of the CTA 2nd Division’s August 31, 2006 Decision, which found BOC liable for the subject DST. The CIR
posits the following grounds in its Petition for Review:

I.

THE DEFICIENCY ASSESSMENT OF TRADERS ROYAL BANK (TRB) CAN BE ENFORCED AND
COLLECTED AGAINST RESPONDENT BANK OF COMMERCE (BOC) BECAUSE THE LATTER
ASSUMED THE OBLIGATIONS AND LIABILITIES OF TRB PURSUANT TO THE PURCHASE AND
SALE AGREEMENT EXECUTED BETWEEN THEM AND THE APPLICABLE LAW ON MERGER OF
CORPORATIONS (SECTION 80 OF THE CORPORATION CODE).

II.

THE COURT OF TAX APPEALS EN BANC GRAVELY ERRED IN REVERSING ITS PREVIOUS
DECISION WHICH AFFIRMED THE ASSESSMENT AND ENFORCEMENT OF DEFICIENCY TAXES
BY PETITIONER AGAINST RESPONDENT, CONTRARY TO LAW AND JURISPRUDENCE.38

In response, BOC presented in its Comment,39 the following grounds in support of its prayer that the CIR’s
petition be denied:

I. THE PETITION FOR REVIEW DID NOT RAISE QUESTIONS OF LAW.

II. THE COURT OF TAX APPEALS EN BANC WAS CORRECT AND DID NOT COMMIT GRAVE
ABUSE OF DISCRETION WHEN IT FOUND RESPONDENT NOT LIABLE FOR THE SUBJECT TAX
BECAUSE:

A. THERE WAS NO MERGER CREATED BETWEEN THE RESPONDENT BANK OF COMMERCE AND
TRADERS ROYAL BANK (TRB).
B. THE PETITIONER ITSELF RULED AND RENDERED AN OPINION UNDER BIR REVENUE RULING
NO. 10-2006 THAT THERE WAS NO MERGER BETWEEN THE RESPONDENT AND TRB.

III. RESPONDENT IS NOT ESTOPPED FROM RAISING THE ISSUE OF NON-MERGER BETWEEN
RESPONDENT AND TRB BECAUSE IT WAS NOT A PARTY TO THE PROCEEDINGS BEFORE THE
PETITIONER.

IV. THE PETITIONER’S DECISION HOLDING RESPONDENT LIABLE FOR TRB’S TAX LIABILITY IS
VOID SINCE RESPONDENT WAS NOT A PARTY TO [THE] PROCEEDINGS BEFORE THE
PETITIONER.40

This Court’s Ruling

The petition is denied for lack of merit.

As the CTA En Banc stated in its Amended Decision, the issue boils down to whether or not BOC is liable for
the deficiency DST of TRB for taxable year 1999.

In resolving this issue, the CTA En Banc relied on 1) the Resolution in the Traders Royal Bank case, wherein
the CTA 1st Division made a categorical pronouncement on the issue of merger based on the evidence at its
disposal, which included the Purchase and Sale Agreement; and 2) the CIR’s own administrative ruling on the
issue of merger in BIR Ruling No. 10-2006 dated October 6, 2006.

Unlike the Decision of the CTA 2nd Division in this case, which focused on the taxability of the SSD accounts,
the CTA 1st Division’s Resolution in Traders Royal Bank, explicitly addressed the issue of merge between
BOC and TRB. The CTA 1st Division, relying on the provisions in both the Purchase and Sale Agreement and
the Tax Code, determined that the agreement did not result in a merger, to wit:

In the Motion, [BOC] moves to have the Writ of Execution dated March 09, 2007 issued against it quashed on
the ground that it is a separate entity from [TRB]; that there was no merger or consolidation between the two
entities. Further, [BOC] claims that the deficiency [DST] amounting to P27,698,562.92 for the taxable years
1996 and 1997 of [TRB] was not one of the liabilities assumed by [BOC] in the Purchase and Sale Agreement.

After carefully evaluating the records, the [CTA 1st Division] agrees with [BOC] for the following reasons:

First, a close reading of the Purchase and Sale Agreement shows the following self-explanatory provisions:

a) Items in litigation, both actual and prospective, against [TRB] are excluded from the liabilities to be assumed
by the Bank of Commerce (Article II, paragraph 2); and

b) The Bank of Commerce and Traders Royal Bank shall continue to exist as separate corporations with distinct
corporate personalities (Article III, paragraph 1).

Second, aside from the foregoing, the Purchase and Sale Agreement does not contain any provision that the
[BOC] acquired the identified assets of [TRB] solely in exchange for the latter’s stocks. Merger is defined under
Section 40 (C)(6)(b) of the Tax Code as follows:

"b) The term "merger" or "consolidation", when used in this Section, shall be understood to mean: (i) the
ordinary merger or consolidation, or (ii) the acquisition by one corporation of all or substantially all the
properties of another corporation solely for stock: Provided, [t]hat for a transaction to be regarded as a merger
or consolidation within the purview of this Section, it must be undertaken for a bona fide business purpose and
not solely for the purpose of escaping the burden of taxation: x x x."

Since the purchase and sale of identified assets between the two companies does not constitute a merger under
the foregoing definition, the Bank of Commerce is considered an entity separate from petitioner. Thus, it cannot
be held liable for the payment of the deficiency DST assessed against petitioner.41 (Citation omitted.)
Thus, when the CTA En Banc took into consideration the above ruling in its Amended Decision, it necessarily
affirmed the findings of the CTA 1st Division and found them to be correct. This Court likewise finds the
foregoing ruling to be correct. The CTA 1st Division was spot on when it interpreted the Purchase and Sale
Agreement to be just that and not a merger.

The Purchase and Sale Agreement, the document that is supposed to have tied BOC and TRB together, was
replete with provisions that clearly stated the intent of the parties and the purpose of its execution, viz:

1. Article I of the Purchase and Sale Agreement set the terms of the assets sold to BOC, while Article II was
about the consideration for those assets. Moreover, it was explicitly stated that liabilities not included in the
Consolidated Statement of Condition were excluded from the liabilities BOC was to assume, to wit:

ARTICLE II
CONSIDERATION: ASSUMPTION OF LIABILITIES

In consideration of the sale of identified recorded assets and properties covered by this Agreement, [BOC] shall
assume identified recorded TRB’s liabilities including booked contingent liabilities as listed and referred to in
its Consolidated Statement of Condition as of August 31, 2001, in the total amount of PESOS: TEN BILLION
FOUR HUNDRED ONE MILLION FOUR HUNDRED THIRTY-SIX THOUSAND (P10,401,436,000.00),
provided that the liabilities so assumed shall not include:

xxxx

2. Items in litigation, both actual and prospective, against TRB which include but are not limited to the
following:

xxxx

2.3 Other liabilities not included in said Consolidated Statement of Condition.42 (Emphases supplied.)

2. Article III of the Purchase and Sale Agreement enumerated in no uncertain terms the effects and
consequences of such agreement as follows:

ARTICLE III
EFFECTS AND CONSEQUENCES

The effectivity of this Agreement shall have the following effects and consequences:

1. [BOC] and TRB shall continue to exist as separate corporations with distinct corporate personalities;

2. With the transfer of its branching licenses to [BOC] and upon surrender of its commercial banking license to
BSP, TRB shall exist as an ordinary corporation placed outside the supervisory jurisdiction of BSP. To this end,
TRB shall cause the amendment of its articles and by-laws to delete the terms "bank" and "banking" from its
corporate name and purpose.

3. There shall be no employer-employee relationship between [BOC] and the personnel and officers of TRB.43
(Emphases supplied.)

Moreover, the second whereas clause, which served as the premise for the subsequent terms in the agreement,
stated that the sale of TRB’s assets to BOC were in consideration of BOC’s assumption of some of TRB’s
liabilities, viz:

WHEREAS, TRB desires to sell and [BOC] desires to purchase identified recorded assets of TRB in
consideration of [BOC] assuming identified recorded liabilities of TRB x x x.44

The clear terms of the above agreement did not escape the CIR itself when it issued BIR Ruling No. 10-2006,
wherein it was concluded that the Purchase and Sale Agreement did not result in a merger between BOC and
TRB.
In this petition however, the CIR insists that BIR Ruling No. 10-2006 cannot be used as a basis for the CTA En
Banc’s Amended Decision, due to BOC’s failure, at the time it requested for such ruling, to inform the CIR of
TRB’s deficiency DST assessments for taxable years 1996, 1997, and 1999.45

The CIR’s contention is untenable.

A perusal of BIR Ruling No. 10-2006 will show that the CIR ruled on the issue of merger without any reference
to TRB’s subject tax liabilities. The relevant portions of such ruling are quoted below:

One distinctive characteristic for a merger to exist under the second part of [Section 40(C)(b) of the 1997
NIRC] is that, it is not enough for a corporation to acquire all or substantially all the properties of another
corporation but it is also necessary that such acquisition is solely for stock of the absorbing corporation. Stated
differently, the acquiring corporation will issue a block of shares equal to the net asset value transferred, which
stocks are in turn distributed to the stockholders of the absorbed corporation in proportion to the respective
share.

After a careful perusal of the facts presented as well as the details of the instant case, it is observed by this
Office that the transaction was purely concerning acquisition and assumption by [BOC] of the recorded
liabilities of TRB. The [Purchase and Sale] Agreement did not mention with respect to the issuance of shares of
stock of [BOC] in favor of the stockholders of TRB. Such transaction is absent of the requisite of a stock
transfer and same belies the existence of a merger. As such, this Office considers the Agreement between
[BOC] and TRB as one of "a sale of assets with an assumption of liabilities rather than ‘merger’."
xxxx

In the case at bar, [BOC] purchased identified recorded assets and properties of TRB.1âwphi1 In consideration
thereof, [BOC] assumed certain liabilities of TRB which were identified in the Consolidated Statement of
Condition as of August 31, 2001. In this wise, the liabilities of TRB assumed by [BOC] were limited only to
those already identified as of August 31, 2001 amounting in all to Ten Billion Four Hundred One Million Four
Hundred Thirty-Six Thousand Pesos (P10,401, 436,000.00) x x x. More so, liabilities that were not assumed by
[BOC] should not be enforced against it. x x x. (Emphasis supplied.)
xxxx

2. Much have been said that the transaction between TRB and [BOC] is not a merger within the contemplation
of Section 40(C)(b) of the Tax Code of 1997. To reiterate, this Office has ruled in the foregoing discussion that
the transaction is one of sale of assets with assumption of identified recorded liabilities of TRB. As such, the
liabilities assumed by [BOC] amounted only to P10,401,436,000.00 with some enumerated exclusion in the
Agreeement. x x x.46

Clearly, the CIR, in BIR Ruling No. 10-2006, ruled on the issue of merger without taking into consideration
TRB’s pending tax deficiencies. The ruling was based on the Purchase and Sale Agreement, factual evidence on
the status of both companies, and the Tax Code provision on merger. The CIR’s knowledge then of TRB’s tax
deficiencies would not be material as to affect the CIR’s ruling. The resolution of the issue on merger depended
on the agreement between TRB and BOC, as detailed in the Purchase and Sale Agreement, and not contingent
on TRB’s tax liabilities.

It is worthy to note that in the Joint Stipulation of Facts and Issues submitted by the parties, it was explicitly
stated that both BOC and TRB continued to exist as separate corporations with distinct corporate personalities,
despite the effectivity of the Purchase and Sale Agreement.47

Considering the foregoing, this Court finds no reason to reverse the CTA En Banc’s Amended Decision. In
reconsidering its June 27, 2007 Decision, the CTA En Banc not only took into account the CTA 1st Division’s
ruling in Traders Royal Bank, which, save for the facts that BOC was not made a party to the case, and the
deficiency DST assessed were for taxable years 1996 and 1997, is almost identical to the case herein; but more
importantly, the CIR’s very own ruling on the issue of merger between BOC

WHEREFORE, the petition is hereby DENIED.

SO ORDERED.
 G.R. No. 184145 December 11, 2013

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
DASH ENGINEERING PHILIPPINES, INC., Respondent.

DECISION

MENDOZA, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil
Procedure, assailing the July 17, 2008 Decision1 and the August 12, 2008 Resolution2 of the Court of Tax
Appeals (CTA) En Banc in C.T.A. EB No. 357 (C.T.A. Case No. 7243) entitled "Commissioner of Internal
Revenue v. Dash Engineering Philippines, inc."

The Facts

Respondent Dash Engineering Philippines, Inc. (DEPJ) is a corporation duly registered with the Securities and
Exchange Commission, authorized to do business in the Philippines and listed with the Philippine Economic
Zone Authority as an ecozone IT export enterprise.3 It is also a VAT-registered entity engaged in the export
sales of computer-aided engineering and design.4

Respondent filed its monthly and quarterly value-added tax (VAT) returns for the period from January 1, 2003
to June 30, 2003.5 On August 9, 2004, it filed a claim for tax credit or refund in the amount of P 2,149,684.88
representing unutilized input VAT attributable to its zero-rated sales.6 Because petitioner Commissioner of
Internal Revenue (CIR) failed to act upon the said claim, respondent was compelled to file a petition for review
with the CTA on May 5, 2005.7

On October 4, 2007, the Second Division of the CTA rendered its Decision8 partially granting respondent’s
claim for refund or issuance of a tax credit certificate in the reduced amount of P 1,147,683.78. On the matter of
the timeliness of the filing of the judicial claim, the Tax Court found that respondent’s claims for refund for the
first and second quarters of 2003 were filed within the two-year prescriptive period which is counted from the
date of filing of the return and payment of the tax due. Because DEPI filed its amended quarterly VAT returns
for the first and second quarters of 2003 on July 24, 2004, it had until July 24, 2006 to file its judicial claim. As
such, its filing of a petition for review with the CTA on April 26, 20059 was within the prescriptive period.10
Petitioner moved for reconsideration but the same was denied in a Resolution dated January 3, 2008.11

Aggrieved, petitioner elevated the case to the CTA En Banc, where it argued that respondent failed to show that
(1) its purchases of goods and services were made in the course of its trade and business, (2) the said purchases
were properly supported by VAT invoices and/or official receipts and other documents, and (3) that the claimed
input VAT payments were directly attributable to its zero-rated sales. Petitioner also averred that the petition for
review was filed out of time.12

The CTA En Banc in its Decision,13 dated July 17, 2008, upheld the decision of the CTA Second Division,
ruling that the judicial claim was filed on time because the use of the word "may" in Section 112(D) (now
subparagraph C) of the National Internal Revenue Code (NIRC) indicates that judicial recourse within thirty
(30) days after the lapse of the 120-day period is only directory and permissive and not mandatory and
jurisdictional, as long as the petition was filed within the two-year prescriptive period. The Tax Court further
reiterated that the two-year prescriptive period applies to both the administrative and judicial claims.
Petitioner’s motion for reconsideration was denied in the August 12, 2008 Resolution of the CTA.14

Hence, this petition.

The Issues

Petitioner raises the following grounds for the allowance of the petition:

I
The Court of Tax Appeals En Banc erred in holding that respondent’s judicial claim for refund was filed within
the prescriptive period provided under the Tax Code.

II

The Court of Tax Appeals En Banc erred in partially granting respondent’s claim for refund despite the failure
of the latter to substantiate its claim by sufficient documentary proof.15

The Court’s Ruling

As to the first issue, petitioner argues that the judicial claim was filed out of time because respondent failed to
comply with the 30-day period referred to in Section 112(D) (now subparagraph C) of the NIRC, citing the case
of Commissioner of Internal Revenue v. Aichi16 where the Court categorically held that compliance with the
prescribed periods in Section 112 is mandatory and jurisdictional. Respondent filed its administrative claim for
refund on August 9, 2004. The 120-day period within which the CIR should act on the claim expired on
December 7, 2004 without any action on the part of petitioner. Thus, respondent only had 30 days from the
lapse of the said period, or until January 6, 2005, to file a petition for review with the CTA. The petition,
however, was filed only on May 5, 2005.17 Petitioner further posits that the 30-day period within which to file
an appeal with the CTA is jurisdictional and failure to comply therewith would bar the appeal and deprive the
CTA of its jurisdiction to entertain the same.18

Conversely, respondent DEPI asserts that its petition was seasonably filed before the CTA in keeping with the
two-year prescriptive period provided for in Sections 204(c) and 229 of the NIRC.19 DEPI interprets Section
112, in relation to Section 229, to mean that the 120-day period is the time given to the CIR to decide the case.
The taxpayer, on the other hand, has the option of either appealing to the CTA the denial by the CIR of the
claim for refund within thirty (30) days from receipt of such denial and within the two-year prescriptive period,
or appealing an unacted claim to the CTA anytime after the expiration of the 120-day period given to the CIR to
resolve the administrative claim for as long as the judicial claim is made within the two-year prescriptive
period.20 Following respondent’s reasoning, its filing of the judicial claim on April 26, 2005 was filed on time
because it was made after the lapse of the 120-day period and within the two-year period referred to in Section
229.

The petition is meritorious.

Sec. 229 is inapplicable; two-year period in

Sec. 112 refers only to administrative claims

Sections 204 and 229 of the NIRC pertain to the refund of erroneously or illegally collected taxes:

Sec. 204. Authority of the Commissioner to Compromise, Abate, and Refund or Credit Taxes. – The
Commissioner may –
xxx

(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.

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 xxx. (Emphases
supplied)

This Court has previously made a pronouncement as to the inapplicability of Section 229 of the NIRC to claims
for excess input VAT. In the recently decided case of Commissioner of Internal Revenue v. San Roque Power
Corporation,21 the Court made a lengthy disquisition on the nature of excess input VAT, clarifying that "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."22 Hence, respondent cannot advance its position by referring
to Section 229 because Section 112 is the more specific and appropriate provision of law for claims for excess
input VAT.

Section 112(A) also provides for a two-year period for filing a claim for refund, to wit:

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

(A) Zero-rated or Effectively Zero-rated Sales. – Any VATregistered person, whose sales are zero-rated or
effectively zerorated 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
xxx

As explained in San Roque, however, the two-year prescriptive period referred to in Section 112(A) applies
only to the filing of administrative claims with the CIR and not to the filing of judicial claims with the CTA. In
other words, for as long as the administrative claim is filed with the CIR within the two-year prescriptive
period, the 30-day period given to the taxpayer to file a judicial claim with the CTA need not fall in the same
two-year period.

At any rate, respondent’s compliance with the two-year prescriptive period under Section 112(A) is not an
issue. What is being questioned in this case is DEPI’s failure to observe the requisite 120+30-day period as
mandated by Section 112(C) of the NIRC.

120+30 day period under Sec. 112 is mandatory and jurisdictional

Section 112(D) (now subparagraph C) of the NIRC provides that:

Sec. 112. Refunds or Tax Credits of Input Tax

xxx

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. – In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one
hundred 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)

Petitioner is entirely correct in its assertion that compliance with the periods provided for in the abovequoted
provision is indeed mandatory and jurisdictional, as affirmed in this Court’s ruling in San Roque, where the
Court En Banc settled the controversy surrounding the application of the 120+30-day period provided for in
Section 112 of the NIRC and reiterated the Aichi doctrine that the 120+30-day period is mandatory and
jurisdictional. Nonetheless, the Court took into account the issuance by the Bureau of Internal Revenue (BIR) of
BIR Ruling No. DA-489-03 which misled taxpayers by explicity stating that taxpayers may file a petition for
review with the CTA even before the expiration of the 120-day period given to the CIR to decide the
administrative claim for refund. Even though observance of the periods in Section 112 is compulsory and
failure to do so will deprive the CTA of jurisdiction to hear the case, such a strict application will be made from
the effectivity of the Tax Reform Act of 1997 on January 1, 1998 until the present, except for the period from
December 10, 2003 (the issuance of the erroneous BIR ruling) to October 6, 2010 (the promulgation of Aichi),
during which taxpayers need not wait for the lapse of the 120+30- day period before filing their judicial claim
for refund.

The case at bench, however, does not involve the issue of premature filing of the petition for review with the
CTA. Rather, this petition seeks the denial of DEPI’s claim for refund for having been filed late or after the
expiration of the 30-day period from the denial by the CIR or failure of the CIR to make a decision within 120
days from the submission of the documents in support of respondent’s administrative claim.

In San Roque, one of the respondents similarly filed its petition for review with the CTA well after the 120+30-
day period. In denying the taxpayer’s claim for refund, this Court explained that:

Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late filing.1âwphi1 Philex
did not file any petition with the CTA within the 120-day period. Philex did not also file any petition with the
CTA within 30 days after the expiration of the 120-day period. Philex filed its judicial claim long after the
expiration of the 120-day period, in fact 426 days after the lapse of the 120-day period. In any event, whether
governed by jurisprudence before, during or after the Atlas case, Philex’s judicial claim will have to be rejected
because of late filing. Whether the two-year prescriptive period is counted from the date of payment of the
output VAT following the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to
the input VAT were made following the Mirant and Aichi doctrines, Philex’s judicial claim was indisputably
filed late.

The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the
Commissioner on Philex’s claim during the 120-day period is, by express provision of law, "deemed a denial"
of Philex’s claim. Philex had 30 days from the expiration of the 120-day period to file its judicial claim with the
CTA. Philex’s failure to do so rendered the "deemed a denial" decision of the Commissioner final and
inappealable. The right to appeal to the CTA from a decision or "deemed a denial" decision of the
Commissioner is merely a statutory privilege, not a constitutional right. The exercise of such statutory privilege
requires strict compliance with the conditions attached by the statute for its exercise. Philex failed to comply
with the statutory conditions and must thus bear the consequences.23 (Emphases supplied)

Therefore, in accordance with San Roque, respondent's judicial claim for refund must be denied for having been
filed late. Although respondent filed its administrative claim with the BIR on August 9, 2004 before the
expiration of the two-year period in Section l 12(A), it undoubtedly failed to comply with the 120+ 30-day
period in Section l l 2(D) (now subparagraph C) which requires that upon the inaction of the CIR for 120 days
after the submission of the documents in support of the claim, the taxpayer has to file its judicial claim within
30 days after the lapse of the said period. The 120 days granted to the CIR to decide the case ended on
December 7, 2004. Thus, DEPI had 30 days therefrom, or until January 6, 2005, to file a petition for review
with the CTA. Unfortunately, DEPI only sought judicial relief on May 5, 2005 when it belatedly filed its
petition to the CT A, despite having had ample time to file the same, almost four months after the period
allowed by law. As a consequence of DEPI's late filing, the CTA did not properly acquire jurisdiction over the
claim.

The Court has held time and again that taxes are the lifeblood of the government and, consequently, tax laws
must be faithfully and strictly implemented as they are not intended to be liberally construed.24 Hence, We are
left with no other recourse but to deny respondent's judicial claim for refund for non-compliance with the
provisions of Section 112 of the NIRC.

WHEREFORE, the petition is GRANTED. The July 17, 2008 Decision and the August 12, 2008 Resolution of
the CTA En Banc in C.T.A. EB No. 357 (C.T.A. Case No. 7243) are hereby REVERSED and SET ASIDE.
Respondent DEPI's judicial claim for refund or tax credit through its petition for review before the CTA is
DENIED.

SO ORDERED.

BY: ENRIE PAOLO MENDOZA