CIR vs PLDT

THIRD DIVISION

COMMISSIONER OF INTERNAL G.R. No. 140230

REVENUE,

Petitioner, Present :

' PANGANIBAN, J.,  Chairman,

- versus' - ' SANDOVAL-GUTIERREZ,

' CORONA,

' CARPIO MORALES and

GARCIA, JJ.

PHILIPPINE LONG DISTANCE

TELEPHONE COMPANY,

Respondent. ' Promulgated:

December 15, 2005

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

DECISION

GARCIA, J.:

 
 

In this petition for review on certiorari, the Commissioner of Internal Revenue (Commissioner)
seeks the review and reversal of the September 17, 1999 Decision  [1] of the Court of Appeals
(CA) in CA-G.R. No. SP 47895, affirming, in effect, the February 18, 1998 decision [2] of the
Court of Tax Appeals (CTA) in C.T.A. Case No. 5178, a claim for tax refund/credit instituted by
respondent Philippine Long Distance Company (PLDT) against petitioner for taxes it paid to the
Bureau of Internal Revenue (BIR) in connection with its importation in 1992 to 1994 of
equipment, machineries and spare parts.

The facts:

PLDT is a grantee of a franchise under Republic Act (R.A.) No. 7082 to install, operate and
maintain a telecommunications system throughout the Philippines.

For equipment, machineries and spare parts it imported for its business' on different dates from
October 1, 1992 to May 31, 1994, PLDT paid the BIR the amount of P164,510,953.00, broken
down as follows: (a) compensating tax of P126,713,037.00; advance sales tax
of P12,460,219.00 and other internal revenue taxes of P25,337,697.00. For similar importations
made between March 1994 to May 31, 1994, PLDT paid P116,041,333.00 value-added tax
(VAT).

On March 15, 1994, PLDT addressed a letter to the BIR seeking a confirmatory ruling on its tax
exemption privilege under Section 12 of R.A. 7082, which reads:

Sec. 12. The grantee ' shall be liable to pay the same
taxes on their real estate, buildings, and personal
property, exclusive of this franchise, as other persons or
corporations are now or hereafter may be required by law
to pay. In addition thereto, the grantee, ' shall pay a
franchise tax equivalent to three percent (3%) of all
 gross receipts of the telephone or other
telecommunications businesses transacted under this
franchise by the grantee, its successors or assigns, and
the said percentage shall be in lieu of all taxes on
this franchise or earnings thereof: Provided, That the
grantee ' shall continue to be liable for income taxes
payable under Title II of the National Internal Revenue
Code pursuant to Sec. 2 of Executive Order No. 72 unless
the latter enactment is amended or repealed, in which
case the amendment or repeal shall be applicable
thereto. (Emphasis supplied).

Responding, the BIR issued on April 19, 1994 Ruling No. UN-140-94, [3] pertinently reading, as
follows:

PLDT shall be subject only to the following taxes, to wit:

xxx xxx xxx

7. The 3% franchise tax on gross receipts which shall be in lieu of

all taxes on its franchise or earnings thereof.
 

xxx xxx xxx

 

The 'in lieu of all taxes' provision under Section 12 of RA 7082

clearly exempts PLDT from all taxes including the 10% value-added
tax (VAT) prescribed by Section 101 (a) of the same Code on its
importations of equipment, machineries and spare parts necessary
in the conduct of its business covered by the franchise, except the
aforementioned enumerated taxes for which PLDT is expressly made
liable.
 
xxx xxx xxx
 
In view thereof, this Office ' hereby holds that PLDT, is
exempt from VAT on its importation of equipment,
machineries and spare parts ' needed in its franchise
operations.

Armed with the foregoing BIR ruling, PLDT filed on December 2, 1994 a claim [4] for tax
credit/refund of the VAT, compensating taxes, advance sales taxes and other taxes it had been
paying 'in connection with its importation of various equipment, machineries and spare parts
needed for its operations'  . With its claim not having been acted upon by the BIR, and
obviously to forestall the running of the prescriptive period therefor, PLDT filed with the CTA a
petition for review, [5] therein seeking a refund of, or the issuance of a tax credit certificate in,
the amount of P280,552,286.00, representing compensating taxes, advance sales taxes, VAT
and other internal revenue taxes alleged to have been erroneously paid on its importations from
October 1992 to May 1994. The petition was docketed in said court as CTA Case No. 5178.

On February 18, 1998, the CTA rendered a decision [6] granting PLDT's petition, pertinently
saying:

 
This Court has noted that petitioner has included in its
claim receipts covering the period prior to December 16,
1992, thus, prescribed and barred from recovery. In
conclusion, We find that the petitioner is' entitled to the
reduced amount of P223,265,276.00 after excluding from
the final computation those taxes' that were paid prior to
December 16, 1992 as they fall outside the two-year
prescriptive period for claiming for a refund as provided
by law. The computation of the refundable amount is
summarized as follows:
  
 
COMPENSATING TAX
 

Total amount claimed ' P126,713.037.00

 
Less:
 
a)                                    Amount already prescribed: xxx
 
Total P 38,015,132.00

b)                                    Waived by petitioner

(Exh. B-216) P 1,440,874.00 P 39,456,006.00
 

Amount refundable P 87,257,031.00

 
ADVANCE SALES TAX
 
Total amount claimed P12,460.219.00
Less amount already prescribed: P 5,043,828.00
 
Amount refundable P 7,416,391.00
 
OTHER BIR TAXES
 
Total amount claimed P 25,337,697.00

Less amount already prescribed: 11,187,740.00

 
 
Amount refundable P 14,149,957.00
 
VALUE ADDED TAX
 
 Total amount claimed P 116.041,333.00
Less amount waived by petitioner
(unaccounted receipts) 1,599,436.00
 
Amount refundable ' P 114,441,897.00
 
TOTAL AMOUNT REFUNDABLE P223,265,276.00,
'============
(Breakdown omitted)
 

and accordingly disposed, as follows:

WHEREFORE, in view of all the foregoing, this Court finds the instant
petition meritorious and in accordance with law. Accordingly,
respondent is hereby ordered to REFUND or to ISSUE in favor of
petitioner a Tax Credit Certificate in the reduced amount
of P223,265,276.00 representing erroneously paid value-added taxes,
compensating taxes, advance sales taxes and other BIR taxes on its
importation of equipments (sic), machineries and spare parts for the
period covering the taxable years 1992 to 1994.

 
 

Noticeably, the CTA decision, penned by then Associate Justice Ramon O. de Veyra, with then
CTA Presiding Judge Ernesto D. Acosta, concurring, is punctuated by a dissenting opinion  [7] of
Associate Judge Amancio Q. Saga who maintained that the phrase ' in lieu of all taxes found in
Section 12 of R.A. No. 7082, supra, refers to exemption from 'direct taxes only and does not
cover 'indirect taxes', such as VAT, compensating tax and advance sales tax.

In time, the BIR Commissioner moved for a reconsideration but the CTA, in its Resolution  [8] of
May 7, 1998, denied the motion, with Judge Amancio Q. Saga reiterating his dissent. [9]

Unable to accept the CTA decision, the BIR Commissioner elevated the matter to the Court of
Appeals (CA) by way of petition for review, thereat docketed as CA-G.R. No. 47895 .
 
As stated at the outset hereof, the appellate court, in the herein challenged Decision  [10] dated
September 17, 1999, dismissed the BIR's petition, thereby effectively affirming the CTA's
judgment.

Relying on its ruling in an earlier case between the same parties and involving the same issue
' CA-G.R. SP No. 40811, decided 16 February 1998 ' the appellate court partly wrote in its
assailed decision:

This Court has already spoken on the issue of what taxes are referred
to in the phrase 'in lieu of all taxes' found in Section 12 of R.A. 7082.
There are no reasons to deviate from the ruling and the same must be
followed pursuant to the doctrine of stare decisis. xxx. 'Stare decisis et
non quieta movere. Stand by the decision and disturb not what is
settled.
 

Hence, this recourse by the BIR Commissioner on the lone assigned error that:

THE COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT IS

EXEMPT FROM THE PAYMENT OF VALUE-ADDED TAXES,
COMPENSATING TAXES, ADVANCE SALES TAXES AND OTHER BIR
TAXES ON ITS IMPORTATIONS, BY VIRTUE OF THE PROVISION IN ITS
FRANCHISE THAT THE 3% FRANCHISE TAX ON ITS GROSS' RECEIPTS'
SHALL BE IN LIEU OF ALL TAXES ON ITS FRANCHISE OR EARNINGS
THEREOF.
 
 

There is no doubt that, insofar as the Court of Appeals is concerned, the issue petitioner
presently raises had been resolved by that court in CA-G.R. SP No. 40811,
entitled Commissioner of Internal Revenue vs. Philippine Long Distance Company. 'There, the
Sixteenth Division of the appellate court declared that under the express provision of Section 12
of R.A. 7082, supra, 'the payment [by PLDT] of the 3% franchise tax of [its] gross receipts shall
be in lieu of all taxes'  exempts PLDT from payment of compensating tax, advance sales tax,
VAT and other internal revenue taxes on its importation of various equipment, machinery and
spare parts for the use of its telecommunications system.

 
Dissatisfied with the CA decision in that case, the BIR Commissioner initially filed with this Court
a motion for time to file a petition for review, docketed in this Court as G.R. No. 134386.
However, on the last day for the filing of the intended petition, the then BIR Commissioner had
a change of heart and instead manifested [11] that he will no longer pursue G.R. No. 134386,
there being no compelling grounds to disagree with the Court of Appeals' decision in CA-G.R.
40811. Consequently, on September 28, 1998, the Court issued a Resolution [12] in G.R. No.
134386 notifying the parties that 'no petition was filed in said case and that the CA judgment
sought to be reviewed therein 'has now become final and executory. Pursuant to said
Resolution, an Entry of Judgment [13] was issued by the Court of Appeals in CA-G.R. SP No.
40811. Hence, the CA's dismissal of CA-G.R. No. 47895 on the additional ground of stare
decisis.

Under the  doctrine of stare decisis et non quieta movere, a point of law already established
will, generally, be followed by the same determining court and by all courts of lower rank in
subsequent cases where the same legal issue is raised. [14] For reasons needing no belaboring,
however, the Court is not at all concluded by the ruling of the Court of Appeals in its earlier CA-
G.R. SP No. 47895.

The Court has time and again stated that the rule on stare decisis  promotes stability in the law
and should, therefore, be accorded respect. However, blind adherence to precedents, simply as
precedent, no longer rules. More important than anything else is that the court is
right, [15] thus its duty to abandon any doctrine found to be in violation of the law in force. [16]

As it were, the former BIR Commissioner's decision not to pursue his petition in G.R. No.
134386 denied the BIR, at least as early as in that case, the opportunity to obtain from the
Court an authoritative interpretation of Section 12 of R.A. 7082. All is, however, not lost. For,
the government is not estopped by acts or errors of its agents, particularly on matters involving
taxes. Corollarily, the erroneous application of tax laws by public officers does not preclude the
subsequent correct application thereof. [17] Withal, the errors of certain administrative officers,
if that be the case, should never be allowed to jeopardize the government's financial
position. [18]

 
Hence, the need to address the main issue tendered herein.

According to the Court of Appeals, the 'in lieu of all taxes clause found in Section 12 of PLDT's
franchise (R.A. 7082) covers all taxes, whether direct or indirect; and that said section states, in
no uncertain terms, that PLDT's payment of the 3% franchise tax on all its gross receipts from
businesses transacted by it under its franchise is in lieu of all taxes on the franchise or earnings
thereof. In fine, the appellate court, agreeing with PLDT, posits the view that the word
'all encompasses any and all taxes collectible under the National Internal Revenue Code (NIRC),
save those specifically mentioned in PLDT's franchise, such as income and real property taxes.

The BIR Commissioner excepts. He submits that the exempting 'in lieu of all taxes'  clause
covers direct taxes only, adding that for indirect taxes to be included in the exemption, the
intention to include must be specific and unmistakable. He thus faults the Court of Appeals for
erroneously declaring PLDT exempt from payment of VAT and other indirect taxes on its
importations. To the Commissioner, PLDT's claimed entitlement to tax refund/credit is without
basis inasmuch as the 3% franchise tax being imposed on PLDT is not a substitute for or in lieu
of indirect taxes.

The sole issue at hand is whether or not PLDT, given the tax component of its franchise, is
exempt from paying VAT, compensating taxes, advance sales taxes and internal revenue taxes
on its importations.

Based on the possibility of shifting the incidence of taxation, or as to who shall bear the burden
of taxation, taxes may be classified into either direct tax or indirect tax.

In context, direct taxes are those that are exacted from the very person who, it is intended or
desired, should pay them; [19] they are impositions for which a taxpayer is directly liable on the
transaction or business he is engaged in. [20]

On the other hand, indirect taxes are those that are demanded, in the first instance, from, or
are paid by, one person in the expectation and intention that he can shift the burden to
someone else. [21] Stated elsewise, indirect taxes are taxes wherein the liability for the
payment of the tax falls on one person but the burden thereof can be shifted or passed on to
another person, such as when the tax is imposed upon goods before reaching the consumer
who ultimately pays for it. When the seller passes on the tax to his buyer, he, in effect, shifts
the tax burden, not the liability to pay it, to the purchaser as part of the price of goods sold or
services rendered.

To put the situation in graphic terms, by tacking the VAT due to the selling price, the seller
remains the person primarily and legally liable for the payment of the tax. What is shifted only
to the intermediate buyer and ultimately to the final purchaser is the burden of the
tax. [22] Stated differently, a seller who is directly and legally liable for payment of an indirect
tax, such as the VAT on goods or services, is not necessarily the person who ultimately bears
the burden of the same tax. It is the final purchaser or end-user of such goods or services who,
although not directly and legally liable for the payment thereof, ultimately bears the burden of
the tax. [23]

There can be no serious argument that PLDT, vis--vis its payment of internal revenue taxes on
its importations in question, is effectively claiming exemption from taxes not falling under the
category of direct taxes. The claim covers VAT, advance sales tax and compensating tax.

The NIRC classifies VAT as 'an indirect tax ' the amount of [which] may be shifted or passed on
to the buyer, transferee or lessee of the goods' . [24] As aptly pointed out by Judge Amancio Q.
Saga in his dissent in C.T.A. Case No. 5178, the 10% VAT on importation of goods partakes of
an excise tax levied on the privilege of importing articles. It is not a tax on the franchise of a
business enterprise or on its earnings. It is imposed on all taxpayers who import goods (unless
such importation falls under the category of an exempt transaction under Sec. 109 of the
Revenue Code) whether or not the goods will eventually be sold, bartered, exchanged or
utilized for personal consumption. The VAT on importation replaces the advance sales tax
payable by regular importers who import articles for sale or as raw materials in the manufacture
of finished articles for sale. [25]

 
Advance sales tax has the attributes of an indirect tax because the tax-paying importer of goods
for sale or of raw materials to be processed into merchandise can shift the tax or, to borrow
from Philippine Acetylene Co, Inc. vs. Commissioner of Internal Revenue,  [26] lay the 'economic
burden of the tax', on the purchaser, by subsequently adding the tax to the selling price of the
imported article or finished product.

Compensating tax also partakes of the nature of an excise tax payable by all persons who
import articles, whether in the course of business or not.  [27] The rationale for compensating
tax is to place, for tax purposes, persons purchasing from merchants in the Philippines on a
more or less equal basis with those who buy directly from foreign countries. [28]

It bears to stress that the liability for the payment of the indirect taxes lies only with the seller
of the goods or services, not in the buyer thereof. Thus, one cannot invoke one's exemption
privilege to avoid the passing on or the shifting of the VAT to him by the
manufacturers/suppliers of the goods he purchased. [29] Hence, it is important to determine if
the tax exemption granted to a taxpayer specifically includes the indirect tax which is shifted to
him as part of the purchase price, otherwise it is presumed that the tax exemption embraces
only those taxes for which the buyer is directly liable. [30]

Time and again, the Court has stated that taxation is the rule, exemption is the exception.
Accordingly, statutes granting tax exemptions must be construed in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority. [31] To him, therefore, who claims a
refund or exemption from tax payments rests the burden of justifying the exemption by words
too plain to be mistaken and too categorical to be misinterpreted. [32]

As may be noted, the clause 'in lieu of all taxes'  in Section 12 of RA 7082 is immediately
followed by the limiting or qualifying clause 'on this franchise or earnings thereof, suggesting
that the exemption is limited to taxes imposed directly on PLDT since taxes' pertaining to
PLDT's franchise or earnings are its direct liability. Accordingly, indirect taxes, not being taxes
on PLDT's franchise or earnings, are outside the purview of the 'in lieu provision.

 
If we were to adhere to the appellate court's interpretation of the law that the ' in lieu of all
taxes'  clause  encompasses the totality of all taxes collectible under the Revenue Code, then,
the immediately following limiting clause 'on this franchise and its earnings'  would be nothing
more than a pure jargon bereft of effect and meaning whatsoever. Needless to stress, this kind
of interpretation cannot be accorded a governing sway following the familiar legal
maxim redendo singula singulis meaning, take the words distributively and apply the reference.
Under this principle, each word or phrase must be given its proper connection in order to give it
proper force and effect, rendering none of them useless or superfluous. [33]

Significantly, in Electric Company [Meralco] vs. Vera, [34] the Court declared the relatively
broader exempting clause 'shall be in lieu of all taxes and assessments of whatsoever nature '
upon the privileges earnings, income franchise ... of the grantee written in par. # 9 of Meralco's
franchise as not so all encompassing as to embrace indirect tax, like compensating tax. There,
the Court said:

It is a well-settled rule or principle in taxation that a compensating tax ' is an

excise tax ' one that is imposed on the performance of an act, the engaging in
an occupation, or the enjoyment of a privilege. A tax levied upon property
because of its ownership is a direct tax, whereas one levied upon property
because of its use is an excise duty. '.
 
The compensating tax being imposed upon ' MERALCO, is an impost on
its use of imported articles and is not in the nature of a direct tax on
the articles themselves, the latter tax falling within the exemption.
Thus, in International Business Machine Corporation vs. Collector of
Internal Revenue, ' which involved the collection of a compensating tax
from the plaintiff-petitioner on business machines imported by it, this
Court stated in unequivocal terms that 'it is not the act of importation
that is taxed under section 190 but the uses of imported goods not
subjected to a sales tax because the 'compensating tax was expressly
designated as a substitute to make up or compensate for the revenue
lost to the government through the avoidance of sales taxes by means
of direct purchases abroad.
 
xxx xxx xxx
xxx If it had been the legislative intent to exempt MERALCO from
paying a tax on the use of imported equipments, the legislative body
could have easily done so by expanding the provision of paragraph 9
and adding to the exemption such words as 'compensating tax or
'purchases from abroad for use in its business, and the like.

 
It may be so that in Maceda vs. Macaraig, Jr. [35] the Court held that an exemption from 'all
taxes granted to the National Power Corporation (NPC) under its charter [36] 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:

xxx 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 demonstrate the intention of
the law to give NPC all the tax exemptions it has been enjoying before.
'.
 
xxx xxx xxx
 
'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. (Italics in the original; words in bracket added)

Of similar import is what we said in Borja vs. Collector of Internal Revenue. [37] There, the

Court upheld the decision of the CTA denying a claim for refund of the compensating taxes paid
on the importation of materials and equipment by a grantee of a heat and power legislative
franchise containing an 'in lieu provision, rationalizing as follows:

xxx Moreover, the petitioner's alleged exemption from the payment of

compensating tax in the present case is not clear or expressed; unlike
the exemption from the payment of income tax which was clear and
expressed in the Carcar case. Unless it appears clearly and manifestly
that an exemption is intended, the provision is to be construed strictly
against the party claiming exemption. xxx.
 

Jurisprudence thus teaches that imparting the 'in lieu of all taxes'  clause a literal meaning, as
did the Court of Appeals and the CTA before it, is fallacious. It is basic that in construing a
statute, it is the duty of courts to seek the real intent of the legislature, even if, by so doing,
they may limit the literal meaning of the broad language. [38]

It cannot be over-emphasized that tax exemption represents a loss of revenue to the

government and must, therefore, not rest on vague inference. When claimed, it must be strictly
construed against the taxpayer who must prove that he falls under the exception. And, if an
exemption is found to exist, it must not be enlarged by construction, since the reasonable
presumption is that the state has granted in express terms all it intended to grant at all, and
that, unless the privilege is limited to the very terms of the statute the favor would be extended
beyond dispute in ordinary cases. [39]

All told, we fail to see how Section 12 of RA 7082 operates as granting PLDT blanket exemption
from payment of indirect taxes, which, in the ultimate analysis, are not taxes on its franchise or
earnings. 'PLDT has not shown its eligibility for the desired exemption. None should be granted.

'As a final consideration, the Court takes particular stock, as the CTA earlier did, of PLDT's
allegation that the Bureau of Customs assessed the company for advance sales tax and
compensating tax for importations entered between October 1, 1992 and May 31, 1994 when
the value-added tax system already replaced, if not totally eliminated, advance sales and
compensating taxes. [40] Indeed, pursuant to Executive Order No. 273 [41] which took effect on
January 1, 1988, a multi-stage value-added tax was put into place to replace the tax on original
and subsequent sales tax. [42] It stands to reason then, as urged by PLDT, that compensating
tax and advance sales tax were no longer collectible internal revenue taxes under the NILRC
when the Bureau of Customs made the assessments in question and collected the
corresponding tax. Stated a bit differently, PLDT was no longer under legal obligation to pay
compensating tax and advance sales tax on its importation from 1992 to 1994.

Parenthetically, petitioner has not made an issue about PLDT's allegations concerning the
abolition of the provisions of the Tax Code imposing the payment of compensating and advance
sales tax on importations and the non-existence of these taxes during the period under review.
On the contrary, petitioner admits that the VAT on importation of goods has 'replace[d] the
compensating tax and advance sales tax under the old Tax Code. [43]

Given the above perspective, the amount PLDT paid in the concept of advance sales tax and
compensating tax on the 1992 to 1994 importations were, in context, erroneous tax payments
and would theoretically be refundable. It should be emphasized, however, that, such
importations were, when made, already subject to VAT.

' Factoring in the fact that a portion of the claim was barred by prescription, the CTA had
determined that PLDT is entitled to a total refundable amount of P94,673,422.00
(P87,257,031.00 of compensating tax + P7,416,391.00 = P94,673,422.00). Accordingly, it
behooves the BIR to grant a refund of the advance sales tax and compensating tax in the total
amount of P94,673,422.00, subject to the condition that PLDT present proof of payment of the
corresponding VAT on said transactions.

WHEREFORE , the petition is partially GRANTED. The Decision of the Court of Appeals in CA-

G.R. No. 47895 dated September 17, 1999 is MODIFIED. The Commissioner of Internal
Revenue is ORDERED to issue a Tax Credit Certificate or to refund to PLDT only the
of P94,673,422.00 advance sales tax and compensating tax erroneously collected by the Bureau
of Customs from October 1, 1992 to May 31, 1994, less the VAT which may have been due on
the importations in question, but have otherwise remained uncollected.

Mindoro II geothermal partnership Vs. CIR

SECOND DIVISION

G.R. No. 193301               March 11, 2013

MINDANAO II GEOTHERMAL PARTNERSHIP, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

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

G.R. No. 194637elements

MINDANAO I GEOTHERMAL PARTNERSHIP, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

Facts:

Mindanao II Geothermal Partnership sold its fully depreciated Nissan Patrol, CIR said t
hat the sale is subject to VAT. Mindanao, in its defense, asserted that the sale is not incid
ental transaction in the course of its business, hence, an isolated transaction that should 
not have been subject to VAT.

Issue:

Whether or not an isolated transaction can be an incidental transaction for purposes of 
VAT liability.

Ruling:

Yes, just because a transaction is said to be an isolated one, it does not follow that it can
not be an incidental transaction.

Mindanao II’s business is to convert the steam supplied to it by PNOC-EDC into electrici
ty and to deliver the electricity to NPC. In the course of business, Mindanao II bought an
d eventually sold a Nissan Patrol. Prior to the sale, the Nissan Patrol was part of Mindan
ao II’s property, plant and equipment. Therefore, the sale of the Nissan Patrol is an incid
ental transaction made in the course of business which should be liable for VAT.

Mindanao II’s sale of the Nissan Patrol is said to be an isolated transaction.  However, it does not
1âwphi1

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.

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 Decision 4 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 ₱3,160,984.69 for the first
quarter of 2003. In CTA Case No. 7287, Mindanao II claims a tax refund or credit of ₱1,562,085.33
for the second quarter of 2003. In CTA Case No. 7317, Mindanao II claims a tax refund or credit of
₱3,521,129.50 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 Date of Filing

(2003)
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 Period Date Filing

Case Covered
No. (2003) Original Amended Administrativ Judicial
Return Return e Claim
Return
7227 1st Quarter 23 April 1 April 13 April 2005 22 April
2003 2004 2005
7287 2nd 22 July 1 April 13 April 2005 7 July 2005
Quarter 2003 2004
7317 3rd 25 Oct. 1 April 13 April 2005 9 Sept. 2005
Quarter 2003 2004
 7317 4th 26 Jan. 1 April 13 April 2005 9 Sept.
Quarter 2004 2004 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
₱7,703,957.79, after disallowing ₱522,059.91 from input VAT16 and deducting ₱18,181.82 from
Mindanao II’s sale of a fully depreciated ₱200,000.00 Nissan Patrol. The input taxes amounting to
₱522,059.91 were disallowed for failure to meet invoicing requirements, while the input VAT on the
sale of the Nissan Patrol was reduced by ₱18,181.82 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 (₱7,703,957.79) 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 Decision 20 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 (₱2,980,887.77)
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 Decision 23 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 ₱3,893,566.14 for the first quarter of 2003. In CTA
Case No. 7286, Mindanao I claims a tax refund or credit of ₱2,351,000.83 for the second quarter of
2003. In CTA Case No. 7318, Mindanao I claims a tax refund or credit of ₱7,940,727.83 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 ₱14,185, 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 Decision 29 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 ₱14,185,294.80 excess input VAT applied for
refund, only ₱11,657,447.14 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 (₱10,523,177.53)
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 Clarification 31 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 ₱2,090.16 was brought about by the timing difference in the
recording of the foreign currency deposit transaction.

B. The amount of ₱2,752.00 arose from the out-of-pocket expenses reimbursed to

SGV & Company which is substantially suppoerted [sic] by an official receipt.

C. The amount of ₱487,355.93 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 ₱3,160,984.69 and ₱1,562,085.33, 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 ₱3,893,566.14, ₱2,351,000.83, and ₱7,940,727.83, 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 Period Close of Last day Actual date of Last day for Actual Date
Case covered by quarter for filing filing filing case of filing
No. VAT Sales in when application application for with CTA45 case
2003 and sales of tax tax refund/ with CTA
amount were refund/tax credit with the (judicial
made credit CIR claim)
certificate (administrative
with the claim)44
CIR
7227 1st Quarter, 31 March 31 March 13 April 2005 12 22 April
₱3,160,984.69 2003 2005 September 2005
2005
 7287 2nd Quarter, 30 June 30 June 13 April 2005 12 7 July 2005
₱1,562,085.33 2003 2005 September
2005
7317 3rd and 4th 30 30 13 April 2005 12 9
Quarters, September September September September
₱3,521,129.50 2003 2005 2005 2005
31 2 January
December 2006
2003 (31
December
2005 being
a
Saturday)

The relevant dates for G.R. No. 194637 (Minadanao I) are:

CTA Period Close of Last day Actual date of Last day for Actual Date
Case covered by quarter for filing filing filing case of filing case
No. VAT Sales in when sales application application for with CTA47 with CTA
2003 and were of tax tax refund/ (judicial
amount made refund/tax credit with the claim)
credit CIR
certificate (administrative
with the claim)46
CIR
7227 1st Quarter, 31 March 31 March 4 April 2005 1 September 22 April 2005
₱3,893,566.14 2003 2005 2005
7287 2nd Quarter, 30 June 30 June 4 April 2005 1 September 7 July 2005
₱2,351,000.83 2003 2005 2005
7317 3rd 30 30 4 April 2005 1 September 9 September
and 4th September September 2005 2005
Quarters, 2003 2005
₱7,940,727.83
31 2 January
December 2006
2003 (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 Banc 53 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 estoppel 54 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 Judicial Claim Action on Claim

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 Judicial Claim Action on Claim

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.  However, it does not
1âwphi1

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 ₱492,198.09 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.

ANTONIO T. CARPIO
Associate Justice

WE CONCUR:

ARTURO D. BRION
Associate Justice
 MARIANO C. DEL CASTILLO MARTIN S. VILLARAMA, JR.*
Associate Justice Associate Justice

ESTELA M. PERLAS BERNABE

Associate Justice

ATTESTATION

I attest that the. conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the I Division Chairperson's Attestation, I
certify that the conclusions in the above Decision had: been reached in consultation before the case
was assigned to the write of the opinion of the Court's Division.

MARIA LOURDES P. A. SERENO

Chief Justice

Footnotes

* Designated acting member per Special Order No. 1426 dated 8 March 2013.

1
 Under Rule 45 of the 1997 Rules of Civil Procedure.

2
 Rollo (G.R. No. 193301), pp. 11-32. Penned by Associate Justice Juanito C. Castañeda, Jr.
with Associate Justices Erlinda P. Uy, Olga Palanca Enriquez, Esperanza R. Fabon-
Victorino, Cielito N. Mindanao-Grulla and Amelia P. Colangco- Manalastas, concurring,
Presiding Justice Ernesto D. Acosta and Associate Justice Lovell R. Bautista penned
Separate Concurring and Dissenting Opinions. Associate Justice Caesar A. Casanova
concurred with Associate Justice Bautista’s Opinion.

3
 Id. at 47-54. Penned by Associate Justice Juanito C. Castañeda, Jr., with Associate
Justices Erlinda P. Uy, Olga Palanca-Enriquez, Esperanza R. Fabon-Victorino, and Cielito N.
Mindaro-Grulla, concurring. Presiding Justice Ernesto D. Acosta and Associate Justice Lovell
R. Bautista penned Separate Concurring and Dissenting Opinions. Associate Justice Caesar
A. Casanova concurred with Associate Justice Bautista’s Opinion. Associate Justice Amelia
R. Cotangco-Manalastas was on leave.

4
 Id. at 179-198. Penned by Associate Justice Caesar A. Casanova, with Presiding
JusticeErnesto D. Acosta and Associate Justice Lovell R. Bautista, concurring.
5
 Id. at 209-218. Penned by Associate Justice Caesar A. Casanova, with Associate Justice
Lovell R. Bautista, concurring. Presiding Justice Ernesto D. Acosta penned a Separate
Concurring andDissenting Opinion.

6
 Under Rule 45 of the 1997 Rules of Civil Procedure.

 Rollo (G.R. No. 194637), pp. 14-26. Penned by Associate Justice Caesar A. Casanova,
7

withAssociate Justices Lovell R. Bautista, Cielito N. Mindaro-Grulla and Amelia C. Cotangco-

Manalastas, concurring. Associate Justice Olga Palanca-Enriquez penned a Separate
Concurringand Dissenting Opinion, with Associate Justices Juanito C. Castañeda, Jr. and
Erlinda P. Uy,concurring. Associate Justice Esperanza R. Fabon-Victorino penned a
Dissenting Opinion.Presiding Justice Ernesto D. Acosta was on leave.

 Id. at 41-51. Penned by Associate Justice Caesar A. Casanova, with Presiding Justice
8

Ernesto D. Acosta, Associate Justices Juanito C. Castañeda, Jr., Erlinda P. Uy, Olga
Palanca-Enriquez, Esperanza R. Fabon-Victorino, Cielito N. Mindaro-Grulla and Amelia C.
Cotangco-Manalastas, concurring. Associate Justice Lovell R. Bautista penned a Separate
Concurring and Dissenting Opinion.

9
 The short title of Republic Act No. 8424 is Tax Reform Act of 1997. It is also sometimes
referred to as the National Internal Revenue Code (NIRC) of 1997. In this ponencia, we refer
to RA 8424 as 1997 Tax Code.

10
 Section 6 of EPIRA provides:

Generation Sector. — Generation of electric power, a business affected with public

interest shall be competitive and open.

Upon the effectivity of this Act, any new generation company shall, before it
operates, secure from the Energy Regulatory Commission (ERC) a certificate of
compliance pursuant to the standards set forth in this Act, as well as health, safety
and environmental clearances from the appropriate government agencies under
existing laws.

Any law to the contrary notwithstanding, power generation shall not be considered a
public utility operation. For this purpose, any person or entity engaged or which shall
engage in power generation and supply of electricity shall not be required to secure a
national franchise.

Upon the implementation of retail competition and open access, the prices charged
by a generation company for the supply of electricity shall not be subject to regulation
by the ERC except as otherwise provided in this Act.

Pursuant to the objective of lowering electricity rates to end-users, sales of generated

power by generation companies shall be value added tax zero-rated.

The ERC shall, in determining the existence of market power abuse or anti-
competitive behavior, require from generation companies the submission of their
financial statements. (Emphasis supplied)

11
 Rollo (G.R. No. 193301), pp. 180-183.
12
 Id. at 179-198.

13
 Id. at 191.

14
 G.R. Nos. 141104 and 148763, 8 June 2007, 524 SCRA 73.

15
 See rollo (G.R. No. 193301), pp. 192-193.

16
 The commissioned independent Certified Public Accountant found the following:

Annex D.1: ₱2,090.16, discrepancy between the input VAT paid to and
acknowledged by the Government Service Insurance System and the amount
claimed by Mindanao II;

Annex D.2: ₱29,861.82, input VAT claims from Tokio Marine Malayan and Citibank
NA Manila which were supported by billing statements but not by official receipts;

Annex D.3: ₱2,752.00, out-of-pocket expenses reimbursed to SGV & Company not
supported by valid invoices or official receipts; and

Annex D.4: ₱487,355.93, input VAT claims from purchases of services supported by
valid 2003 invoices but are paid in 2004.

17
 Rollo (G.R. No. 193301), p. 198.

18
 Id. at 199-207.

19
 G.R. No. 172129, 12 September 2008, 565 SCRA 154.

20
 Rollo (G.R. No. 193301), pp. 209-218.

21
 Id. at 218.

 Id. at 231-256. Pursuant to Section 4(b), Rule 8 of the Revised Rules of the Court of Tax
22

Appeals.

23
 Id. at 11-32.

24
 Id. at 31.

25
 Id. at 47-54.

26
 Id. at 285-307.

27
 Id. at 50.

28
 Rollo (G.R. No. 194637), pp. 231-235.

 Id. at 230-245. Penned by Associate Justice Juanito C. Castañeda, Jr., with Associate
29

Justices Erlinda P. Uy and Olga Palanca-Enriquez, concurring.

30
 Id. at 244.

31
 Id. at 246-254.

32
 Id. at 256-269.

33
 Supra note 14.

34
 Rollo (G.R. No. 194637), p. 278.

35
 Id. at 14-26.

36
 Id. at 25.

 RA 9337 renumbered Section 112(D) of the 1997 Tax Code to 112(C). In this Decision, we
37

refer to Section 112(D) under the 1997 Tax Code as it is currently numbered, 112(C).

38
 G.R. No. 184823, 6 October 2010, 632 SCRA 422.

39
 Rollo (G.R. No. 194637), pp. 47-50.

40
 Rollo (G.R. No. 193301), pp. 83-84.

41
 Rollo (G.R. No. 194637), pp. 70-71.

42
 Rollo (G.R. No. 193301), p. 738; id. at 704.

43
 See note 37.

 The CIR had 120 days, or until 11 August 2005, to act on Mindanao II’s claim. At the time
44

of filing of Mindanao II’s appeal with the CTA, Mindanao II’s application for refund remained
unacted upon. Rollo (G.R. No. 193301), p. 183.

45
 Mindanao II had 30 days from the receipt of the CIR’s denial of its claim or after the
expiration of the 120-day period to appeal the decision or the unacted claim before the CTA.
The 30th day after 11 August 2005, 10 September 2005, fell on a Saturday. Thus, Mindanao
II had until 12 September 2005 to file its judicial claim. See Section 1, Rule 22, The 1997
Rules of Civil Procedure.

46
 The CIR had 120 days, or until 2 August 2005, to act on Mindanao I’s claim. At the time of
filing of Mindanao I’s appeal with the CTA, Mindanao I’s application for refund remained
unacted upon. Rollo (G.R. No. 194637), p. 234.

 Mindanao I had 30 days from the receipt of the CIR’s denial of its claim or after the
47

expiration of the 120-day period to appeal the decision or the unacted claim before the CTA.
Thus, Mindanao II had until 1 September 2005 to file its judicial claim.

48
 G.R. Nos. 187485, 196113, and 197156, 12 February 2013.

49
 Id.
50
 Id.

51
 Id.

52
 On 10 October 2005, Mindanao I received a copy of the letter dated 30 September 2005
from the CIR denying its application for tax refund or credit. Rollo (G.R. No. 194637), p. 235.

53
 The Court En Banc voted in San Roque, thus: Associate Justice Antonio T. Carpio penned
the Decision, with Associate Justices Teresita J. Leonardo-De Castro, Arturo D. Brion,
Diosdado M. Peralta, Lucas P. Bersamin, Roberto A. Abad, Martin S. Villarama, Jr., Jose P.
Perez, and Bienvenido L. Reyes, concurring. Chief Justice Maria Lourdes P.A. Sereno
penned a Dissenting Opinion. Associate Justice Presbitero J. Velasco, Jr., penned a
Dissenting Opinion, and is joined by Associate Justices Jose C. Mendoza and Estela M.
Perlas-Bernabe. Associate Justice Marvic Mario Victor F. Leonen penned a Separate
Opinion, and is joined by Associate Justice Mariano C. Del Castillo.

54
 See Section 246 of the 1997 Tax Code, which states:

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.

55
 529 Phil. 64 (2006).

56
 97 Phil. 992 (1955).

57
 Id.

58
 Section 113. Invoicing and Accounting Requirements for VAT-Registered Persons. -

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

(1) A statement that the seller is a VAT-registered person, followed by his taxpayer’s
identification number (TIN); and

(2) The total amount which the purchaser pays or is obligated to pay to the seller with
the indication that such amount includes the value-added tax.
59
 Section 237. Issuance of Receipts or Sales or Commercial Invoices. - All persons subject
to an internal revenue tax shall, for each sale or transfer of merchandise or for services
rendered valued at Twenty-five pesos (₱25.00) or more, issue duly registered receipts or
sales or commercial invoices, prepared at least in duplicate, showing the date of transaction,
quantity, unit cost and description of merchandise or nature of service: Provided, however,
That in the case of sales, receipts or transfers in the amount of One hundred pesos
(₱100.00) or more, or regardless of the amount, where the sale or transfer is made by a
person liable to value-added tax to another person also liable to value-added tax; or where
the receipt is issued to cover payment made as rentals, commissions, compensations or
fees, receipts or invoices shall be issued which shall show the name, business style, if any,
and address of the purchaser, customer or client: Provided, further, That where the
purchaser is a VAT-registered person, in addition to the information herein required, the
invoice or receipt shall further show the Taxpayer Identification Number (TIN) of the
purchaser.

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

The Commissioner may, in meritorious cases, exempt any person subject to internal
revenue tax from compliance with the provisions of this Section.

60
 Section 4.104-1. Credits for input tax. – Any input tax evidenced by a VAT invoice or official
receipt issued by a VAT-registered person in accordance with Section 108 of the Code, on
the following transactions, shall be creditable against the output tax:

(a) Purchase or importation of goods

1. For sale; or

2. For conversion into or intended to form part of a finished product for sale,
including packaging materials; or

3. For use as supplies in the course of business; or

4. For use as raw materials supplied in the sale of services; or

5. For use in trade or business for which deduction for depreciation or

amortization is allowed under the Code, except automobiles, aircraft and
yachts.

(b) Purchase of real properties for which a VAT has actually been paid;

(c) Purchase of services in which a VAT has actually been paid;

(d) Transactions "deemed sale" under Section 100 (b) of the Code;
(e) Presumptive input tax allowed to be carried over as provided for in Section 4.105-
1 of these Regulations;

(f) A VAT-registered person who is also engaged in transactions not subject to VAT
shall be allowed input tax credit as follows:

1. Total input which can be directly attributed to transactions subject to VAT;

and

2. A ratable portion of any input tax which cannot be directly attributed to

either activity.

Section 4.104-5. Substantiation of claims for input tax credit. – (a) Input taxes shall
be allowed only if the domestic purchase of goods, properties or services is made in
the course of trade or business. The input tax should be supported by an invoice or
receipt showing the information as required under Sections 108 (a) and 238 of the
Code. Input tax on purchases of real property should be supported by a copy of the
public instrument i.e. deed of absolute sale, deed of conditional sale,
contract/agreement to sell, etc., together with the VAT receipt issued by the seller.

A cash-register machine tape issued to a VAT-registered buyer by a VAT-registered

seller from a machine duly registered with the BIR in lieu of the regular sales invoice,
shall constitute valid proof of substantiation of tax credit only if the name and TIN of
the purchaser is indicated in the receipt and authenticated by a duly authorized
representative of the seller.

(b) Input tax on importation shall be supported with the import entry or other
equivalent document showing actual payment of VAT on the imported goods.

(c) Presumptive input tax shall be supported by an inventory of goods as

shown in a detailed list to be submitted to the BIR.

(d) Input tax on "deemed sale" transactions shall be substantiated with the
required invoices.

(e) Input tax from payments made to non-readers shall be supported by a

copy of the VAT declaration/return filed by the resident licensee/lessee in
behalf of the non-resident licensor/lessor evidencing remittance of the VAT
due.

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

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

1. the name, TIN and address of seller;

2. date of transaction;

3. quantity, unit cost and description of merchandise or nature of service;

 4. the name, TIN, business style, if any, and address of the VAT-registered
purchaser, customer or client;

5. the word "zero rated" imprinted on the invoice covering zero-rated sales;
and

6. the invoice value or consideration.

In the case of sale of real property subject to VAT and where the zonal or market
value is higher than the actual consideration, the VAT shall be separately indicated in
the invoice or receipt.

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

If the taxable person is also engaged in exempt operations, he should issue separate
invoices or receipts for the taxable and exempt operations. A "VAT Invoice" shall be
issued only for sales of goods, properties or services subject to VAT imposed in
Sections I 00 and 102 of the Code.

The invoice or receipt shall be prepared at least in duplicate, the original to be given
to the buyer and the duplicate to be retained by the seller as part of his accounting
records.

SO ORDERED.

 ACMDC VS CIR
THIRD DIVISION

G.R. Nos. 141104 & 148763             June 8, 2007

ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

DECISION

CHICO-NAZARIO, J.:

Before this Court are the consolidated cases involving the unsuccessful claims of herein petitioner
Atlas Consolidated Mining and Development Corporation (petitioner corporation) for the refund/credit
of the input Value Added Tax (VAT) on its purchases of capital goods and on its zero-rated sales in
the taxable quarters of the years 1990 and 1992, the denial of which by the Court of Tax Appeals
(CTA), was affirmed by the Court of Appeals.

Petitioner corporation is engaged in the business of mining, production, and sale of various mineral
products, such as gold, pyrite, and copper concentrates. It is a VAT-registered taxpayer. It was
initially issued VAT Registration No. 32-A-6-002224, dated 1 January 1988, but it had to register
anew with the appropriate revenue district office (RDO) of the Bureau of Internal Revenue (BIR)
when it moved its principal place of business, and it was re-issued VAT Registration No. 32-0-
004622, dated 15 August 1990.1

G.R. No. 141104

Petitioner corporation filed with the BIR its VAT Return for the first quarter of 1992. 2 It alleged that it
likewise filed with the BIR the corresponding application for the refund/credit of its input VAT on its
purchases of capital goods and on its zero-rated sales in the amount of P26,030,460.00.3 When its
application for refund/credit remained unresolved by the BIR, petitioner corporation filed on 20 April
1994 its Petition for Review with the CTA, docketed as CTA Case No. 5102. Asserting that it was a
"zero-rated VAT person," it prayed that the CTA order herein respondent Commissioner of Internal
Revenue (respondent Commissioner) to refund/credit petitioner corporation with the amount
of P26,030,460.00, representing the input VAT it had paid for the first quarter of 1992. The
respondent Commissioner opposed and sought the dismissal of the petition for review of petitioner
corporation for failure to state a cause of action. After due trial, the CTA promulgated its Decision 4 on
24 November 1997 with the following disposition –

WHEREFORE, in view of the foregoing, the instant claim for refund is hereby DENIED on the
ground of prescription, insufficiency of evidence and failure to comply with Section 230 of the
Tax Code, as amended. Accordingly, the petition at bar is hereby DISMISSED for lack of
merit.

The CTA denied the motion for reconsideration of petitioner corporation in a Resolution 5 dated 15
April 1998.

When the case was elevated to the Court of Appeals as CA-G.R. SP No. 47607, the appellate court,
in its Decision,6 dated 6 July 1999, dismissed the appeal of petitioner corporation, finding no
reversible error in the CTA Decision, dated 24 November 1997. The subsequent motion for
reconsideration of petitioner corporation was also denied by the Court of Appeals in its
Resolution,7 dated 14 December 1999.

Thus, petitioner corporation comes before this Court, via a Petition for Review on Certiorari under
Rule 45 of the Revised Rules of Court, assigning the following errors committed by the Court of
Appeals –

THE COURT OF APPEALS ERRED IN AFFIRMING THE REQUIREMENT OF REVENUE

REGULATIONS NO. 2-88 THAT AT LEAST 70% OF THE SALES OF THE [BOARD OF
INVESTMENTS (BOI)]-REGISTERED FIRM MUST CONSIST OF EXPORTS FOR ZERO-
RATING TO APPLY.

II
 THE COURT OF APPEALS ERRED IN AFFIRMING THAT PETITIONER FAILED TO
SUBMIT SUFFICIENT EVIDENCE SINCE FAILURE TO SUBMIT PHOTOCOPIES OF VAT
INVOICES AND RECEIPTS IS NOT A FATAL DEFECT.

III

THE COURT OF APPEALS ERRED IN RULING THAT THE JUDICIAL CLAIM WAS FILED
BEYOND THE PRESCRIPTIVE PERIOD SINCE THE JUDICIAL CLAIM WAS FILED
WITHIN TWO (2) YEARS FROM THE FILING OF THE VAT RETURN.

IV

THE COURT OF APPEALS ERRED IN NOT ORDERING CTA TO ALLOW THE RE-
OPENING OF THE CASE FOR PETITIONER TO PRESENT ADDITIONAL EVIDENCE. 8

G.R. No. 148763

G.R. No. 148763 involves almost the same set of facts as in G.R. No. 141104 presented above,
except that it relates to the claims of petitioner corporation for refund/credit of input VAT on its
purchases of capital goods and on its zero-rated sales made in the last three taxable quarters of
1990.

Petitioner corporation filed with the BIR its VAT Returns for the second, third, and fourth quarters of
1990, on 20 July 1990, 18 October 1990, and 20 January 1991, respectively. It submitted separate
applications to the BIR for the refund/credit of the input VAT paid on its purchases of capital goods
and on its zero-rated sales, the details of which are presented as follows –

Date of Application Period Covered Amount Applied For

21 August 1990 2nd Quarter, 1990 P 54,014,722.04

21 November 1990 3rd Quarter, 1990 75,304,774.77

19 February 1991 4th Quarter, 1990 43,829,766.10

When the BIR failed to act on its applications for refund/credit, petitioner corporation filed with the
CTA the following petitions for review –

Date Filed Period Covered CTA Case No.

20 July 1992 2nd Quarter, 1990 4831

9 October 1992 3rd Quarter, 1990 4859

14 January 1993 4th Quarter, 1990 4944

which were eventually consolidated. The respondent Commissioner contested the foregoing
Petitions and prayed for the dismissal thereof. The CTA ruled in favor of respondent Commissioner
and in its Decision,9 dated 30 October 1997, dismissed the Petitions mainly on the ground that the
prescriptive periods for filing the same had expired. In a Resolution, 10 dated 15 January 1998, the
CTA denied the motion for reconsideration of petitioner corporation since the latter presented no
new matter not already discussed in the court's prior Decision. In the same Resolution, the CTA also
denied the alternative prayer of petitioner corporation for a new trial since it did not fall under any of
the grounds cited under Section 1, Rule 37 of the Revised Rules of Court, and it was not supported
by affidavits of merits required by Section 2 of the same Rule.

Petitioner corporation appealed its case to the Court of Appeals, where it was docketed as CA-G.R.
SP No. 46718. On 15 September 2000, the Court of Appeals rendered its Decision, 11 finding that
although petitioner corporation timely filed its Petitions for Review with the CTA, it still failed to
substantiate its claims for the refund/credit of its input VAT for the last three quarters of 1990. In its
Resolution,12 dated 27 June 2001, the appellate court denied the motion for reconsideration of
petitioner corporation, finding no cogent reason to reverse its previous Decision.

Aggrieved, petitioner corporation filed with this Court another Petition for Review on Certiorari under
Rule 45 of the Revised Rules of Court, docketed as G.R. No. 148763, raising the following issues –

A.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT

PETITIONER'S CLAIM IS BARRED UNDER REVENUE REGULATIONS NOS. 2-88 AND 3-
88 I.E., FOR FAILURE TO PTOVE [sic] THE 70% THRESHOLD FOR ZERO-RATING TO
APPLY AND FOR FAILURE TO ESTABLISH THE FACTUAL BASIS FOR THE INSTANT
CLAIM.

B.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN FINDING THAT THERE IS NO

BASIS TO GRANT PETITIONER'S MOTION FOR NEW TRIAL.

There being similarity of parties, subject matter, and issues, G.R. Nos. 141104 and 148763 were
consolidated pursuant to a Resolution, dated 4 September 2006, issued by this Court. The ruling of
this Court in these cases hinges on how it will resolve the following key issues: (1) prescription of the
claims of petitioner corporation for input VAT refund/credit; (2) validity and applicability of Revenue
Regulations No. 2-88 imposing upon petitioner corporation, as a requirement for the VAT zero-rating
of its sales, the burden of proving that the buyer companies were not just BOI-registered but also
exporting 70% of their total annual production; (3) sufficiency of evidence presented by petitioner
corporation to establish that it is indeed entitled to input VAT refund/credit; and (4) legal ground for
granting the motion of petitioner corporation for re-opening of its cases or holding of new trial before
the CTA so it could be given the opportunity to present the required evidence.

Prescription

The prescriptive period for filing an application for tax refund/credit of input VAT on zero-rated sales
made in 1990 and 1992 was governed by Section 106(b) and (c) of the Tax Code of 1977, as
amended, which provided that –

SEC. 106. Refunds or tax credits of input tax. – x x x.

(b) Zero-rated or effectively zero-rated sales. – Any person, except those covered by

paragraph (a) above, whose sales are zero-rated may, within two years after the close of the
quarter when such sales were made, apply for the issuance of a tax credit certificate or
 refund of the input taxes attributable to such sales to the extent that such input tax has not
been applied against output tax.

xxxx

(e) Period within which refund of input taxes may be made by the Commissioner. – The
Commissioner shall refund input taxes within 60 days from the date the application for refund
was filed with him or his duly authorized representative. No refund of input taxes shall be
allowed unless the VAT-registered person files an application for refund within the period
prescribed in paragraphs (a), (b) and (c) as the case may be.

By a plain reading of the foregoing provision, the two-year prescriptive period for filing the application
for refund/credit of input VAT on zero-rated sales shall be determined from the close of the quarter
when such sales were made.

Petitioner contends, however, that the said two-year prescriptive period should be counted, not from
the close of the quarter when the zero-rated sales were made, but from the date of filing of the
quarterly VAT return and payment of the tax due 20 days thereafter, in accordance with Section
110(b) of the Tax Code of 1977, as amended, quoted as follows –

SEC. 110. Return and payment of value-added tax. – x x x.

(b) Time for filing of return and payment of tax. – The return shall be filed and the tax paid
within 20 days following the end of each quarter specifically prescribed for a VAT-registered
person under regulations to be promulgated by the Secretary of Finance: Provided,
however, That any person whose registration is cancelled in accordance with paragraph (e)
of Section 107 shall file a return within 20 days from the cancellation of such registration.

It is already well-settled that the two-year prescriptive period for instituting a suit or proceeding for
recovery of corporate income tax erroneously or illegally paid under Section 230 13 of the Tax Code of
1977, as amended, was to be counted from the filing of the final adjustment return. This Court
already set out in ACCRA Investments Corporation v. Court of Appeals, 14 the rationale for such a
rule, thus –

Clearly, there is the need to file a return first before a claim for refund can prosper inasmuch
as the respondent Commissioner by his own rules and regulations mandates that the
corporate taxpayer opting to ask for a refund must show in its final adjustment return the
income it received from all sources and the amount of withholding taxes remitted by its
withholding agents to the Bureau of Internal Revenue. The petitioner corporation filed its final
adjustment return for its 1981 taxable year on April 15, 1982. In our Resolution dated April
10, 1989 in the case of Commissioner of Internal Revenue v. Asia Australia Express,
Ltd. (G.R. No. 85956), we ruled that the two-year prescriptive period within which to claim a
refund commences to run, at the earliest, on the date of the filing of the adjusted final tax
return. Hence, the petitioner corporation had until April 15, 1984 within which to file its claim
for refund.

Considering that ACCRAIN filed its claim for refund as early as December 29, 1983 with the
respondent Commissioner who failed to take any action thereon and considering further that
the non-resolution of its claim for refund with the said Commissioner prompted ACCRAIN to
reiterate its claim before the Court of Tax Appeals through a petition for review on April 13,
1984, the respondent appellate court manifestly committed a reversible error in affirming the
holding of the tax court that ACCRAIN's claim for refund was barred by prescription.
 It bears emphasis at this point that the rationale in computing the two-year prescriptive
period with respect to the petitioner corporation's claim for refund from the time it filed its final
adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it
made profits or incurred losses in its business operations. The "date of payment", therefore,
in ACCRAIN's case was when its tax liability, if any, fell due upon its filing of its final
adjustment return on April 15, 1982.

In another case, Commissioner of Internal Revenue v. TMX Sales, Inc.,15 this Court further

expounded on the same matter –

A re-examination of the aforesaid minute resolution of the Court in the Pacific Procon case is

warranted under the circumstances to lay down a categorical pronouncement on the
question as to when the two-year prescriptive period in cases of quarterly corporate income
tax commences to run. A full-blown decision in this regard is rendered more imperative in the
light of the reversal by the Court of Tax Appeals in the instant case of its previous ruling in
the Pacific Procon case.

Section 292 (now Section 230) of the National Internal Revenue Code should be interpreted
in relation to the other provisions of the Tax Code in order to give effect the legislative intent
and to avoid an application of the law which may lead to inconvenience and absurdity. In the
case of People vs. Rivera (59 Phil. 236 [1933]), this Court stated that statutes should receive
a sensible construction, such as will give effect to the legislative intention and so as to avoid
an unjust or an absurd conclusion. INTERPRETATIO TALIS IN AMBIGUIS SEMPER
FRIENDA EST, UT EVITATUR INCONVENIENS ET ABSURDUM. Where there is ambiguity,
such interpretation as will avoid inconvenience and absurdity is to be adopted. Furthermore,
courts must give effect to the general legislative intent that can be discovered from or is
unraveled by the four corners of the statute, and in order to discover said intent, the whole
statute, and not only a particular provision thereof, should be considered. (Manila Lodge No.
761, et al. vs. Court of Appeals, et al. 73 SCRA 162 [1976) Every section, provision or clause
of the statute must be expounded by reference to each other in order to arrive at the effect
contemplated by the legislature. The intention of the legislator must be ascertained from the
whole text of the law and every part of the act is to be taken into view. (Chartered Bank vs.
Imperial, 48 Phil. 931 [1921]; Lopez vs. El Hoger Filipino, 47 Phil. 249, cited in Aboitiz
Shipping Corporation vs. City of Cebu, 13 SCRA 449 [1965]).

Thus, in resolving the instant case, it is necessary that we consider not only Section 292
(now Section 230) of the National Internal Revenue Code but also the other provisions of the
Tax Code, particularly Sections 84, 85 (now both incorporated as Section 68), Section 86
(now Section 70) and Section 87 (now Section 69) on Quarterly Corporate Income Tax
Payment and Section 321 (now Section 232) on keeping of books of accounts. All these
provisions of the Tax Code should be harmonized with each other.

xxxx

Therefore, the filing of a quarterly income tax returns required in Section 85 (now Section 68)
and implemented per BIR Form 1702-Q and payment of quarterly income tax should only be
considered mere installments of the annual tax due. These quarterly tax payments which are
computed based on the cumulative figures of gross receipts and deductions in order to arrive
at a net taxable income, should be treated as advances or portions of the annual income tax
due, to be adjusted at the end of the calendar or fiscal year. This is reinforced by Section 87
(now Section 69) which provides for the filing of adjustment returns and final payment of
income tax. Consequently, the two-year prescriptive period provided in Section 292 (now
 Section 230) of the Tax Code should be computed from the time of filing the Adjustment
Return or Annual Income Tax Return and final payment of income tax.

In the case of Collector of Internal Revenue vs. Antonio Prieto (2 SCRA 1007 [1961]), this
Court held that when a tax is paid in installments, the prescriptive period of two years
provided in Section 306 (Section 292) of the National Internal Revenue Code should be
counted from the date of the final payment. This ruling is reiterated in Commissioner of
Internal Revenue vs. Carlos Palanca (18 SCRA 496 [1966]), wherein this Court stated that
where the tax account was paid on installment, the computation of the two-year prescriptive
period under Section 306 (Section 292) of the Tax Code, should be from the date of the last
installment.

In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the
two-year prescriptive period should be counted from the filing of the Adjustment Return on
April 15,1982, TMX Sales, Inc. is not yet barred by prescription.

The very same reasons set forth in the afore-cited cases concerning the two-year prescriptive period
for claims for refund of illegally or erroneously collected income tax may also apply to the Petitions at
bar involving the same prescriptive period for claims for refund/credit of input VAT on zero-rated
sales.

It is true that unlike corporate income tax, which is reported and paid on installment every quarter,
but is eventually subjected to a final adjustment at the end of the taxable year, VAT is computed and
paid on a purely quarterly basis without need for a final adjustment at the end of the taxable year.
However, it is also equally true that until and unless the VAT-registered taxpayer prepares and
submits to the BIR its quarterly VAT return, there is no way of knowing with certainty just how much
input VAT16 the taxpayer may apply against its output VAT;17 how much output VAT it is due to pay
for the quarter or how much excess input VAT it may carry-over to the following quarter; or how
much of its input VAT it may claim as refund/credit. It should be recalled that not only may a VAT-
registered taxpayer directly apply against his output VAT due the input VAT it had paid on its
importation or local purchases of goods and services during the quarter; the taxpayer is also given
the option to either (1) carry over any excess input VAT to the succeeding quarters for application
against its future output VAT liabilities, or (2) file an application for refund or issuance of a tax credit
certificate covering the amount of such input VAT.18 Hence, even in the absence of a final adjustment
return, the determination of any output VAT payable necessarily requires that the VAT-registered
taxpayer make adjustments in its VAT return every quarter, taking into consideration the input VAT
which are creditable for the present quarter or had been carried over from the previous quarters.

Moreover, when claiming refund/credit, the VAT-registered taxpayer must be able to establish that it
does have refundable or creditable input VAT, and the same has not been applied against its output
VAT liabilities – information which are supposed to be reflected in the taxpayer's VAT returns. Thus,
an application for refund/credit must be accompanied by copies of the taxpayer's VAT return/s for
the taxable quarter/s concerned.

Lastly, although the taxpayer's refundable or creditable input VAT may not be considered as illegally
or erroneously collected, its refund/credit is a privilege extended to qualified and registered
taxpayers by the very VAT system adopted by the Legislature. Such input VAT, the same as any
illegally or erroneously collected national internal revenue tax, consists of monetary amounts which
are currently in the hands of the government but must rightfully be returned to the taxpayer.
Therefore, whether claiming refund/credit of illegally or erroneously collected national internal
revenue tax, or input VAT, the taxpayer must be given equal opportunity for filing and pursuing its
claim.
For the foregoing reasons, it is more practical and reasonable to count the two-year prescriptive
period for filing a claim for refund/credit of input VAT on zero-rated sales from the date of filing of the
return and payment of the tax due which, according to the law then existing, should be made within
20 days from the end of each quarter. Having established thus, the relevant dates in the instant
cases are summarized and reproduced below –

Period Covered Date of Date of Date of Filing (Case

Filing (Return w/ Filing (Application w/ w/ CTA)
BIR) BIR)

2nd Quarter, 1990 20 July 1990 21 August 1990 20 July 1992

3rd Quarter, 1990 18 October 1990 21 November 1990 9 October 1992

4th Quarter, 1990 20 January 1991 19 February 1991 14 January 1993

1st Quarter, 1992 20 April 1992 -- 20 April 1994

The above table readily shows that the administrative and judicial claims of petitioner corporation for
refund of its input VAT on its zero-rated sales for the last three quarters of 1990 were all filed within
the prescriptive period.

However, the same cannot be said for the claim of petitioner corporation for refund of its input VAT
on its zero-rated sales for the first quarter of 1992. Even though it may seem that petitioner
corporation filed in time its judicial claim with the CTA, there is no showing that it had previously filed
an administrative claim with the BIR. Section 106(e) of the Tax Code of 1977, as amended, explicitly
provided that no refund of input VAT shall be allowed unless the VAT-registered taxpayer filed an
application for refund with respondent Commissioner within the two-year prescriptive period. The
application of petitioner corporation for refund/credit of its input VAT for the first quarter of 1992 was
not only unsigned by its supposed authorized representative, Ma. Paz R. Semilla, Manager-Finance
and Treasury, but it was not dated, stamped, and initialed by the BIR official who purportedly
received the same. The CTA, in its Decision,19 dated 24 November 1997, in CTA Case No. 5102,
made the following observations –

This Court, likewise, rejects any probative value of the Application for Tax Credit/Refund of
VAT Paid (BIR Form No. 2552) [Exhibit "B'] formally offered in evidence by the petitioner on
account of the fact that it does not bear the BIR stamp showing the date when such
application was filed together with the signature or initial of the receiving officer of
respondent's Bureau. Worse still, it does not show the date of application and the signature
of a certain Ma. Paz R. Semilla indicated in the form who appears to be petitioner's
authorized filer.

A review of the records reveal that the original of the aforecited application was lost during
the time petitioner transferred its office (TSN, p. 6, Hearing of December 9, 1994). Attempt
was made to prove that petitioner exerted efforts to recover the original copy, but to no avail.
Despite this, however, We observe that petitioner completely failed to establish the missing
dates and signatures abovementioned. On this score, said application has no probative
value in demonstrating the fact of its filing within two years after the [filing of the VAT return
for the quarter] when petitioner's sales of goods were made as prescribed under Section
106(b) of the Tax Code. We believe thus that petitioner failed to file an application for refund
in due form and within the legal period set by law at the administrative level. Hence, the case
at bar has failed to satisfy the requirement on the prior filing of an application for refund with
 the respondent before the commencement of a judicial claim for refund, as prescribed under
Section 230 of the Tax Code. This fact constitutes another one of the many reasons for not
granting petitioner's judicial claim.

As pointed out by the CTA, in serious doubt is not only the fact of whether petitioner corporation
timely filed its administrative claim for refund of its input VAT for the first quarter of 1992, but also
whether petitioner corporation actually filed such administrative claim in the first place. For failing to
prove that it had earlier filed with the BIR an application for refund/credit of its input VAT for the first
quarter of 1992, within the period prescribed by law, then the case instituted by petitioner corporation
with the CTA for the refund/credit of the very same tax cannot prosper.

Revenue Regulations No. 2-88 and the 70% export requirement

Under Section 100(a) of the Tax Code of 1977, as amended, a 10% VAT was imposed on the gross
selling price or gross value in money of goods sold, bartered or exchanged. Yet, the same provision
subjected the following sales made by VAT-registered persons to 0% VAT –

(1) Export sales; and

(2) Sales to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects such sales to zero-
rate.

"Export Sales" means the sale and shipment or exportation of goods from the Philippines to
a foreign country, irrespective of any shipping arrangement that may be agreed upon which
may influence or determine the transfer of ownership of the goods so exported, or foreign
currency denominated sales. "Foreign currency denominated sales", means sales to
nonresidents of goods assembled or manufactured in the Philippines, for delivery to
residents in the Philippines and paid for in convertible foreign currency remitted through the
banking system in the Philippines.

These are termed zero-rated sales. A zero-rated sale is still considered a taxable transaction for
VAT purposes, although the VAT rate applied is 0%. A sale by a VAT-registered taxpayer of goods
and/or services taxed at 0% shall not result in any output VAT, while the input VAT on its purchases
of goods or services related to such zero-rated sale shall be available as tax credit or refund. 20

Petitioner corporation questions the validity of Revenue Regulations No. 2-88 averring that the said
regulations imposed additional requirements, not found in the law itself, for the zero-rating of its
sales to Philippine Smelting and Refining Corporation (PASAR) and Philippine Phosphate, Inc.
(PHILPHOS), both of which are registered not only with the BOI, but also with the then Export
Processing Zone Authority (EPZA).21

The contentious provisions of Revenue Regulations No. 2-88 read –

SEC. 2. Zero-rating. – (a) Sales of raw materials to BOI-registered exporters. – Sales of raw
materials to export-oriented BOI-registered enterprises whose export sales, under rules and
regulations of the Board of Investments, exceed seventy percent (70%) of total annual
production, shall be subject to zero-rate under the following conditions:

"(1) The seller shall file an application with the BIR, ATTN.: Division, applying for
zero-rating for each and every separate buyer, in accordance with Section 8(d) of
 Revenue Regulations No. 5-87. The application should be accompanied with a
favorable recommendation from the Board of Investments."

"(2) The raw materials sold are to be used exclusively by the buyer in the
manufacture, processing or repacking of his own registered export product;

"(3) The words "Zero-Rated Sales" shall be prominently indicated in the sales
invoice. The exporter (buyer) can no longer claim from the Bureau of Internal
Revenue or any other government office tax credits on their zero-rated purchases;

(b) Sales of raw materials to foreign buyer. – Sales of raw materials to a nonresident foreign
buyer for delivery to a resident local export-oriented BOI-registered enterprise to be used in
manufacturing, processing or repacking of the said buyer's goods and paid for in foreign
currency, inwardly remitted in accordance with Central Bank rules and regulations shall be
subject to zero-rate.

It is the position of the respondent Commissioner, affirmed by the CTA and the Court of Appeals,
that Section 2 of Revenue Regulations No. 2-88 should be applied in the cases at bar; and to be
entitled to the zero-rating of its sales to PASAR and PHILPHOS, petitioner corporation, as a VAT-
registered seller, must be able to prove not only that PASAR and PHILPHOS are BOI-registered
corporations, but also that more than 70% of the total annual production of these corporations are
actually exported. Revenue Regulations No. 2-88 merely echoed the requirement imposed by the
BOI on export-oriented corporations registered with it.

While this Court is not prepared to strike down the validity of Revenue Regulations No. 2-88, it finds
that its application must be limited and placed in the proper context. Note that Section 2 of Revenue
Regulations No. 2-88 referred only to the zero-rated sales of raw materials to export-oriented BOI-
registered enterprises whose export sales, under BOI rules and regulations, should exceed seventy
percent (70%) of their total annual production.

Section 2 of Revenue Regulations No. 2-88, should not have been applied to the zero-rating of the
sales made by petitioner corporation to PASAR and PHILPHOS. At the onset, it must be
emphasized that PASAR and PHILPHOS, in addition to being registered with the BOI, were also
registered with the EPZA and located within an export-processing zone. Petitioner corporation does
not claim that its sales to PASAR and PHILPHOS are zero-rated on the basis that said sales were
made to export-oriented BOI-registered corporations, but rather, on the basis that the sales were
made to EPZA-registered enterprises operating within export processing zones. Although sales to
export-oriented BOI-registered enterprises and sales to EPZA-registered enterprises located within
export processing zones were both deemed export sales, which, under Section 100(a) of the Tax
Code of 1977, as amended, shall be subject to 0% VAT distinction must be made between these two
types of sales because each may have different substantiation requirements.

The Tax Code of 1977, as amended, gave a limited definition of export sales, to wit: "The sale and
shipment or exportation of goods from the Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon which may influence or determine the transfer of
ownership of the goods so exported, or foreign currency denominated sales." Executive Order No.
226, otherwise known as the Omnibus Investments Code of 1987 - which, in the years concerned
(i.e., 1990 and 1992), governed enterprises registered with both the BOI and EPZA, provided a more
comprehensive definition of export sales, as quoted below:

"ART. 23. "Export sales" shall mean the Philippine port F.O.B. value, determined from
invoices, bills of lading, inward letters of credit, landing certificates, and other commercial
 documents, of export products exported directly by a registered export producer or the net
selling price of export product sold by a registered export producer or to an export trader that
subsequently exports the same: Provided, That sales of export products to another producer
or to an export trader shall only be deemed export sales when actually exported by the latter,
as evidenced by landing certificates of similar commercial documents: Provided, further,
That without actual exportation the following shall be considered constructively exported for
purposes of this provision: (1) sales to bonded manufacturing warehouses of export-oriented
manufacturers; (2) sales to export processing zones; (3) sales to registered export traders
operating bonded trading warehouses supplying raw materials used in the manufacture of
export products under guidelines to be set by the Board in consultation with the Bureau of
Internal Revenue and the Bureau of Customs; (4) sales to foreign military bases, diplomatic
missions and other agencies and/or instrumentalities granted tax immunities, of locally
manufactured, assembled or repacked products whether paid for in foreign currency or not:
Provided, further, That export sales of registered export trader may include commission
income; and Provided, finally, That exportation of goods on consignment shall not be
deemed export sales until the export products consigned are in fact sold by the consignee.

Sales of locally manufactured or assembled goods for household and personal use to
Filipinos abroad and other non-residents of the Philippines as well as returning Overseas
Filipinos under the Internal Export Program of the government and paid for in convertible
foreign currency inwardly remitted through the Philippine banking systems shall also be
considered export sales. (Underscoring ours.)

The afore-cited provision of the Omnibus Investments Code of 1987 recognizes as export sales the
sales of export products to another producer or to an export trader, provided that the export products
are actually exported. For purposes of VAT zero-rating, such producer or export trader must be
registered with the BOI and is required to actually export more than 70% of its annual production.

Without actual exportation, Article 23 of the Omnibus Investments Code of 1987 also considers
constructive exportation as export sales. Among other types of constructive exportation specifically
identified by the said provision are sales to export processing zones. Sales to export processing
zones are subjected to special tax treatment. Article 77 of the same Code establishes the tax
treatment of goods or merchandise brought into the export processing zones. Of particular relevance
herein is paragraph 2, which provides that "Merchandise purchased by a registered zone enterprise
from the customs territory and subsequently brought into the zone, shall be considered as export
sales and the exporter thereof shall be entitled to the benefits allowed by law for such transaction."

Such tax treatment of goods brought into the export processing zones are only consistent with the
Destination Principle and Cross Border Doctrine to which the Philippine VAT system adheres.
According to the Destination Principle, 22 goods and services are taxed only in the country where
these are consumed. In connection with the said principle, the Cross Border Doctrine 23 mandates
that no VAT shall be imposed to form part of the cost of the goods destined for consumption outside
the territorial border of the taxing authority. Hence, actual export of goods and services from the
Philippines to a foreign country must be free of VAT, while those destined for use or consumption
within the Philippines shall be imposed with 10% VAT.24 Export processing zones25 are to be
managed as a separate customs territory from the rest of the Philippines and, thus, for tax purposes,
are effectively considered as foreign territory. For this reason, sales by persons from the Philippine
customs territory to those inside the export processing zones are already taxed as exports.

Plainly, sales to enterprises operating within the export processing zones are export sales, which,
under the Tax Code of 1977, as amended, were subject to 0% VAT. It is on this ground that
petitioner corporation is claiming refund/credit of the input VAT on its zero-rated sales to PASAR and
PHILPHOS.

The distinction made by this Court in the preceding paragraphs between the zero-rated sales to
export-oriented BOI-registered enterprises and zero-rated sales to EPZA-registered enterprises
operating within export processing zones is actually supported by subsequent development in tax
laws and regulations. In Revenue Regulations No. 7-95, the Consolidated VAT Regulations, as
amended,26 the BIR defined with more precision what are zero-rated export sales –

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

(2) The sale of raw materials or packaging materials to a non-resident buyer for delivery to a
resident local export-oriented enterprise to be used in manufacturing, processing, packing or
repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);

(3) The sale of raw materials or packaging materials to an export-oriented enterprise whose
export sales exceed seventy percent (70%) of total annual production;

Any enterprise whose export sales exceed 70% of the total annual production of the
preceding taxable year shall be considered an export-oriented enterprise upon accreditation
as such under the provisions of the Export Development Act (R.A. 7844) and its
implementing rules and regulations;

(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and

(5) Those considered export sales under Articles 23 and 77 of Executive Order No. 226,
otherwise known as the Omnibus Investments Code of 1987, and other special laws, e.g.
Republic Act No. 7227, otherwise known as the Bases Conversion and Development Act of
1992.

The Tax Code of 1997, as amended, 27 later adopted the foregoing definition of export sales, which
are subject to 0% VAT.

This Court then reiterates its conclusion that Section 2 of Revenue Regulations No. 2-88, which
applied to zero-rated export sales to export-oriented BOI-registered enterprises, should not be
applied to the applications for refund/credit of input VAT filed by petitioner corporation since it based
its applications on the zero-rating of export sales to enterprises registered with the EPZA and
located within export processing zones.

Sufficiency of evidence

There can be no dispute that the taxpayer-claimant has the burden of proving the legal and factual
bases of its claim for tax credit or refund, but once it has submitted all the required documents, it is
the function of the BIR to assess these documents with purposeful dispatch. 28 It therefore falls upon
herein petitioner corporation to first establish that its sales qualify for VAT zero-rating under the
existing laws (legal basis), and then to present sufficient evidence that said sales were actually
made and resulted in refundable or creditable input VAT in the amount being claimed (factual basis).

It would initially appear that the applications for refund/credit filed by petitioner corporation cover only
input VAT on its purportedly zero-rated sales to PASAR and PHILPHOS; however, a more thorough
perusal of its applications, VAT returns, pleadings, and other records of these cases would reveal
that it is also claiming refund/credit of its input VAT on purchases of capital goods and sales of gold
to the Central Bank of the Philippines (CBP).

This Court finds that the claims for refund/credit of input VAT of petitioner corporation have sufficient
legal bases.

As has been extensively discussed herein, Section 106(b)(2), in relation to Section 100(a)(2) of the
Tax Code of 1977, as amended, allowed the refund/credit of input VAT on export sales to
enterprises operating within export processing zones and registered with the EPZA, since such
export sales were deemed to be effectively zero-rated sales.29 The fact that PASAR and PHILPHOS,
to whom petitioner corporation sold its products, were operating inside an export processing zone
and duly registered with EPZA, was never raised as an issue herein. Moreover, the same fact was
already judicially recognized in the case Atlas Consolidated Mining & Development Corporation v.
Commissioner of Internal Revenue.30 Section 106(c) of the same Code likewise permitted a VAT-
registered taxpayer to apply for refund/credit of the input VAT paid on capital goods imported or
locally purchased to the extent that such input VAT has not been applied against its output VAT.
Meanwhile, the effective zero-rating of sales of gold to the CBP from 1989 to 1991 31 was already
affirmed by this Court in Commissioner of Internal Revenue v. Benguet Corporation,32 wherein it
ruled that –

At the time when the subject transactions were consummated, the prevailing BIR regulations
relied upon by respondent ordained that gold sales to the Central Bank were zero-rated. The
BIR interpreted Sec. 100 of the NIRC in relation to Sec. 2 of E.O. No. 581 s. 1980 which
prescribed that gold sold to the Central Bank shall be considered export and therefore shall
be subject to the export and premium duties. In coming out with this interpretation, the BIR
also considered Sec. 169 of Central Bank Circular No. 960 which states that all sales of gold
to the Central Bank are considered constructive exports. x x x.

This Court now comes to the question of whether petitioner corporation has sufficiently established
the factual bases for its applications for refund/credit of input VAT. It is in this regard that petitioner
corporation has failed, both in the administrative and judicial level.

Applications for refund/credit of input VAT with the BIR must comply with the appropriate revenue
regulations. As this Court has already ruled, Revenue Regulations No. 2-88 is not relevant to the
applications for refund/credit of input VAT filed by petitioner corporation; nonetheless, the said
applications must have been in accordance with Revenue Regulations No. 3-88, amending Section
16 of Revenue Regulations No. 5-87, which provided as follows –

SECTION 16. Refunds or tax credits of input tax. –

xxxx

(c) Claims for tax credits/refunds. – Application for Tax Credit/Refund of Value-Added Tax
Paid (BIR Form No. 2552) shall be filed with the Revenue District Office of the city or
municipality where the principal place of business of the applicant is located or directly with
the Commissioner, Attention: VAT Division.
A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be
submitted together with the application. The original copy of the said invoice/receipt,
however, shall be presented for cancellation prior to the issuance of the Tax Credit
Certificate or refund. In addition, the following documents shall be attached whenever
applicable:

xxxx

"3. Effectively zero-rated sale of goods and services.

"i) photo copy of approved application for zero-rate if filing for the first time.

"ii) sales invoice or receipt showing name of the person or entity to whom the
sale of goods or services were delivered, date of delivery, amount of
consideration, and description of goods or services delivered.

"iii) evidence of actual receipt of goods or services.

"4. Purchase of capital goods.

"i) original copy of invoice or receipt showing the date of purchase, purchase
price, amount of value-added tax paid and description of the capital
equipment locally purchased.

"ii) with respect to capital equipment imported, the photo copy of import entry
document for internal revenue tax purposes and the confirmation receipt
issued by the Bureau of Customs for the payment of the value-added tax.

"5. In applicable cases,

where the applicant's zero-rated transactions are regulated by certain government agencies,
a statement therefrom showing the amount and description of sale of goods and services,
name of persons or entities (except in case of exports) to whom the goods or services were
sold, and date of transaction shall also be submitted.

In all cases, the amount of refund or tax credit that may be granted shall be limited to the
amount of the value-added tax (VAT) paid directly and entirely attributable to the zero-rated
transaction during the period covered by the application for credit or refund.

Where the applicant is engaged in zero-rated and other taxable and exempt sales of goods
and services, and the VAT paid (inputs) on purchases of goods and services cannot be
directly attributed to any of the aforementioned transactions, the following formula shall be
used to determine the creditable or refundable input tax for zero-rated sale:

Amount of Zero-rated Sale

Total Sales

X
Total Amount of Input Taxes
=
Amount Creditable/Refundable
In case the application for refund/credit of input VAT was denied or remained unacted upon by the
BIR, and before the lapse of the two-year prescriptive period, the taxpayer-applicant may already file
a Petition for Review before the CTA. If the taxpayer's claim is supported by voluminous documents,
such as receipts, invoices, vouchers or long accounts, their presentation before the CTA shall be
governed by CTA Circular No. 1-95, as amended, reproduced in full below –

In the interest of speedy administration of justice, the Court hereby promulgates the following
rules governing the presentation of voluminous documents and/or long accounts, such as
receipts, invoices and vouchers, as evidence to establish certain facts pursuant to Section
3(c), Rule 130 of the Rules of Court and the doctrine enunciated in Compania Maritima vs.
Allied Free Workers Union (77 SCRA 24), as well as Section 8 of Republic Act No. 1125:

1. The party who desires to introduce as evidence such voluminous documents must, after
motion and approval by the Court, present:

(a) a Summary containing, among others, a chronological listing of the numbers,

dates and amounts covered by the invoices or receipts and the amount/s of tax paid;
and (b) a Certification of an independent Certified Public Accountant attesting to the
correctness of the contents of the summary after making an examination, evaluation
and audit of the voluminous receipts and invoices. The name of the accountant or
partner of the firm in charge must be stated in the motion so that he/she can be
commissioned by the Court to conduct the audit and, thereafter, testify in Court
relative to such summary and certification pursuant to Rule 32 of the Rules of Court.

2. The method of individual presentation of each and every receipt, invoice or account for
marking, identification and comparison with the originals thereof need not be done before the
Court or Clerk of Court anymore after the introduction of the summary and CPA certification.
It is enough that the receipts, invoices, vouchers or other documents covering the said
accounts or payments to be introduced in evidence must be pre-marked by the party
concerned and submitted to the Court in order to be made accessible to the adverse party
who desires to check and verify the correctness of the summary and CPA certification.
Likewise, the originals of the voluminous receipts, invoices or accounts must be ready for
verification and comparison in case doubt on the authenticity thereof is raised during the
hearing or resolution of the formal offer of evidence.

Since CTA Cases No. 4831, 4859, 4944, 33 and 5102,34 were still pending before the CTA when the
said Circular was issued, then petitioner corporation must have complied therewith during the course
of the trial of the said cases.

In Commissioner of Internal Revenue v. Manila Mining Corporation,35 this Court denied the claim of
therein respondent, Manila Mining Corporation, for refund of the input VAT on its supposed zero-
rated sales of gold to the CBP because it was unable to substantiate its claim. In the same case, this
Court emphasized the importance of complying with the substantiation requirements for claiming
refund/credit of input VAT on zero-rated sales, to wit –

For a judicial claim for refund to prosper, however, respondent must not only prove that it is a
VAT registered entity and that it filed its claims within the prescriptive period. It
must substantiate the input VAT paid by purchase invoices or official receipts.

This respondent failed to do.

 Revenue Regulations No. 3-88 amending Revenue Regulations No. 5-87 provides the
requirements in claiming tax credits/refunds.

xxxx

Under Section 8 of RA1125, the CTA is described as a court of record. As cases filed before
it are litigated de novo, party litigants should prove every minute aspect of their cases. No
evidentiary value can be given the purchase invoices or receipts submitted to the BIR as the
rules on documentary evidence require that these documents must be formally offered
before the CTA.

This Court thus notes with approval the following findings of the CTA:

x x x [S]ale of gold to the Central Bank should not be subject to the 10% VAT-output
tax but this does not ipso fact mean that [the seller] is entitled to the amount of refund
sought as it is required by law to present evidence showing the input taxes it paid
during the year in question. What is being claimed in the instant petition is the refund
of the input taxes paid by the herein petitioner on its purchase of goods and services.
Hence, it is necessary for the Petitioner to show proof that it had indeed paid the
input taxes during the year 1991. In the case at bar, Petitioner failed to discharge this
duty. It did not adduce in evidence the sales invoice, receipts or other documents
showing the input value added tax on the purchase of goods and services.

xxx

Section 8 of Republic Act 1125 (An Act Creating the Court of Tax Appeals) provides
categorically that the Court of Tax Appeals shall be a court of record and as such it is
required to conduct a formal trial (trial de novo) where the parties must present their
evidence accordingly if they desire the Court to take such evidence into
consideration. (Emphasis and italics supplied)

A "sales or commercial invoice" is a written account of goods sold or services rendered

indicating the prices charged therefor or a list by whatever name it is known which is used in
the ordinary course of business evidencing sale and transfer or agreement to sell or transfer
goods and services.

A "receipt" on the other hand is a written acknowledgment of the fact of payment in money or
other settlement between seller and buyer of goods, debtor or creditor, or person rendering
services and client or customer.

These sales invoices or receipts issued by the supplier are necessary to substantiate the
actual amount or quantity of goods sold and their selling price, and taken collectively are the
best means to prove the input VAT payments.36

Although the foregoing decision focused only on the proof required for the applicant for refund/credit
to establish the input VAT payments it had made on its purchases from suppliers, Revenue
Regulations No. 3-88 also required it to present evidence proving actual zero-rated VAT sales to
qualified buyers, such as (1) photocopy of the approved application for zero-rate if filing for the first
time; (2) sales invoice or receipt showing the name of the person or entity to whom the goods or
services were delivered, date of delivery, amount of consideration, and description of goods or
services delivered; and (3) the evidence of actual receipt of goods or services.
Also worth noting in the same decision is the weight given by this Court to the certification by the
independent certified public accountant (CPA), thus –

Respondent contends, however, that the certification of the independent CPA attesting to the
correctness of the contents of the summary of suppliers' invoices or receipts which were
examined, evaluated and audited by said CPA in accordance with CTA Circular No. 1-95 as
amended by CTA Circular No. 10-97 should substantiate its claims.

There is nothing, however, in CTA Circular No. 1-95, as amended by CTA Circular No. 10-
97, which either expressly or impliedly suggests that summaries and schedules of input VAT
payments, even if certified by an independent CPA, suffice as evidence of input VAT
payments.

xxxx

The circular, in the interest of speedy administration of justice, was promulgated to avoid the
time-consuming procedure of presenting, identifying and marking of documents before the
Court. It does not relieve respondent of its imperative task of pre-marking photocopies of
sales receipts and invoices and submitting the same to the court after the independent CPA
shall have examined and compared them with the originals. Without presenting these pre-
marked documents as evidence – from which the summary and schedules were based, the
court cannot verify the authenticity and veracity of the independent auditor's conclusions.

There is, moreover, a need to subject these invoices or receipts to examination by the CTA
in order to confirm whether they are VAT invoices. Under Section 21 of Revenue Regulation,
No. 5-87, all purchases covered by invoices other than a VAT invoice shall not be entitled to
a refund of input VAT.

xxxx

While the CTA is not governed strictly by technical rules of evidence, as rules of procedure
are not ends in themselves but are primarily intended as tools in the administration of justice,
the presentation of the purchase receipts and/or invoices is not mere procedural technicality
which may be disregarded considering that it is the only means by which the CTA may
ascertain and verify the truth of the respondent's claims.

The records further show that respondent miserably failed to substantiate its claims for input
VAT refund for the first semester of 1991. Except for the summary and schedules of input
VAT payments prepared by respondent itself, no other evidence was adduced in support of
its claim.

As for respondent's claim for input VAT refund for the second semester of 1991, it employed
the services of Joaquin Cunanan & Co. on account of which it (Joaquin Cunanan & Co.)
executed a certification that:

We have examined the information shown below concerning the input tax payments
made by the Makati Office of Manila Mining Corporation for the period from July 1 to
December 31, 1991. Our examination included inspection of the pertinent suppliers'
invoices and official receipts and such other auditing procedures as we considered
necessary in the circumstances. x x x
 As the certification merely stated that it used "auditing procedures considered necessary"
and not auditing procedures which are in accordance with generally accepted auditing
principles and standards, and that the examination was made on "input tax payments by the
Manila Mining Corporation," without specifying that the said input tax payments are
attributable to the sales of gold to the Central Bank, this Court cannot rely thereon and
regard it as sufficient proof of the respondent's input VAT payments for the second
semester.37

As for the Petition in G.R. No. 141104, involving the input VAT of petitioner corporation on its zero-
rated sales in the first quarter of 1992, this Court already found that the petitioner corporation failed
to comply with Section 106(b) of the Tax Code of 1977, as amended, imposing the two-year
prescriptive period for the filing of the application for refund/credit thereof. This bars the grant of the
application for refund/credit, whether administratively or judicially, by express mandate of Section
106(e) of the same Code.

Granting arguendo that the application of petitioner corporation for the refund/credit of the input VAT
on its zero-rated sales in the first quarter of 1992 was actually and timely filed, petitioner corporation
still failed to present together with its application the required supporting documents, whether before
the BIR or the CTA. As the Court of Appeals ruled –

In actions involving claims for refund of taxes assessed and collected, the burden of proof
rests on the taxpayer. As clearly discussed in the CTA's decision, petitioner failed to
substantiate its claim for tax refunds. Thus:

"We note, however, that in the cases at bar, petitioner has relied totally on Revenue
Regulations No. 2-88 in determining compliance with the documentary requirements
for a successful refund or issuance of tax credit. Unmentioned is the applicable and
specific amendment later introduced by Revenue Regulations No. 3-88 dated April 7,
1988 (issued barely after two months from the promulgation of Revenue Regulations
No. 2-88 on February 15, 1988), which amended Section 16 of Revenue Regulations
No. 5-87 on refunds or tax credits of input tax. x x x.

xxxx

"A thorough examination of the evidence submitted by the petitioner before this
court reveals outright the failure to satisfy documentary requirements laid down
under the above-cited regulations. Specifically, petitioner was not able to present the
following documents, to wit:

"a) sales invoices or receipts;

"b) purchase invoices or receipts;

"c) evidence of actual receipt of goods;

"d) BOI statement showing the amount and description of sale of goods, etc.

"e) original or attested copies of invoice or receipt on capital equipment

locally purchased; and
 "f) photocopy of import entry document and confirmation receipt on imported
capital equipment.

"There is the need to examine the sales invoices or receipts in order to ascertain the
actual amount or quantity of goods sold and their selling price. Without them, this
Court cannot verify the correctness of petitioner's claim inasmuch as the regulations
require that the input taxes being sought for refund should be limited to the portion
that is directly and entirely attributable to the particular zero-rated transaction. In this
instance, the best evidence of such transaction are the said sales invoices or
receipts.

"Also, even if sales invoices are produced, there is the further need to submit
evidence that such goods were actually received by the buyer, in this case, by CBP,
Philp[h]os and PASAR.

xxxx

"Lastly, this Court cannot determine whether there were actual local and imported
purchase of capital goods as well as domestic purchase of non-capital goods without
the required purchase invoice or receipt, as the case may be, and confirmation
receipts.

"There is, thus, the imperative need to submit before this Court the original or
attested photocopies of petitioner's invoices or receipts, confirmation receipts and
import entry documents in order that a full ascertainment of the claimed amount may
be achieved.

"Petitioner should have taken the foresight to introduce in evidence all of the missing
documents abovementioned. Cases filed before this Court are litigated de novo. This
means that party litigants should endeavor to prove at the first instance every minute
aspect of their cases strictly in accordance with the Rules of Court, most especially
on documentary evidence." (pp. 37-42, Rollo)

Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the
sovereign authority, and should be construed in strictissimi juris against the person or entity
claiming the exemption. The taxpayer who claims for exemption must justify his claim by the
clearest grant of organic or statute law and should not be permitted to stand on vague
implications (Asiatic Petroleum Co. v. Llanes, 49 Phil. 466; Northern Phil. Tobacco Corp. v.
Mun. of Agoo, La Union, 31 SCRA 304; Reagan v. Commissioner, 30 SCRA 968; Asturias
Sugar Central, Inc. v. Commissioner of Customs, 29 SCRA 617; Davao Light and Power Co.,
Inc. v. Commissioner of Customs, 44 SCRA 122).

There is no cogent reason to fault the CTA's conclusion that the SGV's certificate is "self-
destructive", as it finds comfort in the very SGV's stand, as follows:

"It is our understanding that the above procedure are sufficient for the purpose of the
Company. We make no presentation regarding the sufficiency of these procedures
for such purpose. We did not compare the total of the input tax claimed each quarter
against the pertinent VAT returns and books of accounts. The above procedures do
not constitute an audit made in accordance with generally accepted auditing
standards. Accordingly, we do not express an opinion on the company's claim for
input VAT refund or credit. Had we performed additional procedures, or had we
 made an audit in accordance with generally accepted auditing standards, other
matters might have come to our attention that we would have accordingly reported
on."

The SGV's "disclaimer of opinion" carries much weight as it is petitioner's independent

auditor. Indeed, SGV expressed that it "did not compare the total of the input tax claimed
each quarter against the VAT returns and books of accounts." 38

Moving on to the Petition in G.R. No. 148763, concerning the input VAT of petitioner corporation on
its zero-rated sales in the second, third, and fourth quarters of 1990, the appellate court likewise
found that petitioner corporation failed to sufficiently establish its claims. Already disregarding the
declarations made by the Court of Appeals on its erroneous application of Revenue Regulations No.
2-88, quoted hereunder is the rest of the findings of the appellate court after evaluating the evidence
submitted in accordance with the requirements under Revenue Regulations No. 3-88 –

The Secretary of Finance validly adopted Revenue Regulations [No.] x x x 3-98 pursuant to
Sec. 245 of the National Internal Revenue Code, which recognized his power to "promulgate
all needful rules and regulations for the effective enforcement of the provisions of this Code."
Thus, it is incumbent upon a taxpayer intending to file a claim for refund of input VATs or the
issuance of a tax credit certificate with the BIR x x x to prove sales to such buyers as
required by Revenue Regulations No. 3-98. Logically, the same evidence should be
presented in support of an action to recover taxes which have been paid.

x x x Neither has [herein petitioner corporation] presented sales invoices or receipts showing
sales of gold, copper concentrates, and pyrite to the CBP, [PASAR], and [PHILPHOS],
respectively, and the dates and amounts of the same, nor any evidence of actual receipt by
the said buyers of the mineral products. It merely presented receipts of purchases from
suppliers on which input VATs were allegedly paid. Thus, the Court of Tax Appeals correctly
denied the claims for refund of input VATs or the issuance of tax credit certificates of
petitioner [corporation]. Significantly, in the resolution, dated 7 June 2000, this Court directed
the parties to file memoranda discussing, among others, the submission of proof for "its
[petitioner's] sales of gold, copper concentrates, and pyrite to buyers." Nevertheless, the
parties, including the petitioner, failed to address this issue, thereby necessitating the
affirmance of the ruling of the Court of Tax Appeals on this point. 39

This Court is, therefore, bound by the foregoing facts, as found by the appellate court, for well-
settled is the general rule that the jurisdiction of this Court in cases brought before it from the Court
of Appeals, by way of a Petition for Review on Certiorari under Rule 45 of the Revised Rules of
Court, is limited to reviewing or revising errors of law; findings of fact of the latter are
conclusive.40 This Court is not a trier of facts. It is not its function to review, examine and evaluate or
weigh the probative value of the evidence presented. 41

The distinction between a question of law and a question of fact is clear-cut. It has been held that
"[t]here is a question of law in a given case when the doubt or difference arises as to what the law is
on a certain state of facts; there is a question of fact when the doubt or difference arises as to the
truth or falsehood of alleged facts."42

Whether petitioner corporation actually made zero-rated sales; whether it paid input VAT on these
sales in the amount it had declared in its returns; whether all the input VAT subject of its applications
for refund/credit can be attributed to its zero-rated sales; and whether it had not previously applied
the input VAT against its output VAT liabilities, are all questions of fact which could only be
answered after reviewing, examining, evaluating, or weighing the probative value of the evidence it
presented, and which this Court does not have the jurisdiction to do in the present Petitions for
Review on Certiorari under Rule 45 of the revised Rules of Court.

Granting that there are exceptions to the general rule, when this Court looked into questions of fact
under particular circumstances,43 none of these exist in the instant cases. The Court of Appeals, in
both cases, found a dearth of evidence to support the claims for refund/credit of the input VAT of
petitioner corporation, and the records bear out this finding. Petitioner corporation itself cannot
dispute its non-compliance with the requirements set forth in Revenue Regulations No. 3-88 and
CTA Circular No. 1-95, as amended. It concentrated its arguments on its assertion that the
substantiation requirements under Revenue Regulations No. 2-88 should not have applied to it,
while being conspicuously silent on the evidentiary requirements mandated by other relevant
regulations.

Re-opening of cases/holding of new trial before the CTA

This Court now faces the final issue of whether the prayer of petitioner corporation for the re-opening
of its cases or holding of new trial before the CTA for the reception of additional evidence, may be
granted. Petitioner corporation prays that the Court exercise its discretion on the matter in its favor,
consistent with the policy that rules of procedure be liberally construed in pursuance of substantive
justice.

This Court, however, cannot grant the prayer of petitioner corporation.

An aggrieved party may file a motion for new trial or reconsideration of a judgment already rendered
in accordance with Section 1, Rule 37 of the revised Rules of Court, which provides –

SECTION 1. Grounds of and period for filing motion for new trial or reconsideration. – Within
the period for taking an appeal, the aggrieved party may move the trial court to set aside the
judgment or final order and grant a new trial for one or more of the following causes
materially affecting the substantial rights of said party:

(a) Fraud, accident, mistake or excusable negligence which ordinary prudence could not
have guarded against and by reason of which such aggrieved party has probably been
impaired in his rights; or

(b) Newly discovered evidence, which he could not, with reasonable diligence, have
discovered and produced at the trial, and which if presented would probably alter the result.

Within the same period, the aggrieved party may also move fore reconsideration upon the
grounds that the damages awarded are excessive, that the evidence is insufficient to justify
the decision or final order, or that the decision or final order is contrary to law.

In G.R. No. 148763, petitioner corporation attempts to justify its motion for the re-opening of its
cases and/or holding of new trial before the CTA by contending that the "[f]ailure of its counsel to
adduce the necessary evidence should be construed as excusable negligence or mistake which
should constitute basis for such re-opening of trial as for a new trial, as counsel was of the belief that
such evidence was rendered unnecessary by the presentation of unrebutted evidence indicating that
respondent [Commissioner] has acknowledged the sale of [sic] PASAR and [PHILPHOS] to be zero-
rated." 44 The CTA denied such motion on the ground that it was not accompanied by an affidavit of
merit as required by Section 2, Rule 37 of the revised Rules of Court. The Court of Appeals affirmed
the denial of the motion, but apart from this technical defect, it also found that there was no
justification to grant the same.

On the matter of the denial of the motion of the petitioner corporation for the re-opening of its cases
and/or holding of new trial based on the technicality that said motion was unaccompanied by an
affidavit of merit, this Court rules in favor of the petitioner corporation. The facts which should
otherwise be set forth in a separate affidavit of merit may, with equal effect, be alleged and
incorporated in the motion itself; and this will be deemed a substantial compliance with the formal
requirements of the law, provided, of course, that the movant, or other individual with personal
knowledge of the facts, take oath as to the truth thereof, in effect converting the entire motion for
new trial into an affidavit.45 The motion of petitioner corporation was prepared and verified by its
counsel, and since the ground for the motion was premised on said counsel's excusable negligence
or mistake, then the obvious conclusion is that he had personal knowledge of the facts relating to
such negligence or mistake. Hence, it can be said that the motion of petitioner corporation for the re-
opening of its cases and/or holding of new trial was in substantial compliance with the formal
requirements of the revised Rules of Court.

Even so, this Court finds no sufficient ground for granting the motion of petitioner corporation for the
re-opening of its cases and/or holding of new trial.

In G.R. No. 141104, petitioner corporation invokes the Resolution, 46 dated 20 July 1998, by the CTA
in another case, CTA Case No. 5296, involving the claim of petitioner corporation for refund/credit of
input VAT for the third quarter of 1993. The said Resolution allowed the re-opening of CTA Case No.
5296, earlier dismissed by the CTA, to give the petitioner corporation the opportunity to present the
missing export documents.

The rule that the grant or denial of motions for new trial rests on the discretion of the trial court, 47 may
likewise be extended to the CTA. When the denial of the motion rests upon the discretion of a lower
court, this Court will not interfere with its exercise, unless there is proof of grave abuse thereof. 48

That the CTA granted the motion for re-opening of one case for the presentation of additional
evidence and, yet, deny a similar motion in another case filed by the same party, does not
necessarily demonstrate grave abuse of discretion or arbitrariness on the part of the CTA. Although
the cases involve identical parties, the causes of action and the evidence to support the same can
very well be different. As can be gleaned from the Resolution, dated 20 July 1998, in CTA Case No.
5296, petitioner corporation was claiming refund/credit of the input VAT on its zero-rated sales,
consisting of actual export sales, to Mitsubishi Metal Corporation in Tokyo, Japan. The CTA took into
account the presentation by petitioner corporation of inward remittances of its export sales for the
quarter involved, its Supply Contract with Mitsubishi Metal Corporation, its 1993 Annual Report
showing its sales to the said foreign corporation, and its application for refund. In contrast, the
present Petitions involve the claims of petitioner corporation for refund/credit of the input VAT on
its purchases of capital goods and on its effectively zero-rated sales to CBP and EPZA-registered
enterprises PASAR and PHILPHOS for the second, third, and fourth quarters of 1990 and first
quarter of 1992. There being a difference as to the bases of the claims of petitioner corporation for
refund/credit of input VAT in CTA Case No. 5926 and in the Petitions at bar, then, there are resulting
variances as to the evidence required to support them.

Moreover, the very same Resolution, dated 20 July 1998, in CTA Case No. 5296, invoked by
petitioner corporation, emphasizes that the decision of the CTA to allow petitioner corporation to
present evidence "is applicable pro hac vice or in this occasion only as it is the finding of [the CTA]
that petitioner [corporation] has established a few of the aforementioned material points regarding
the possible existence of the export documents together with the prior and succeeding returns for
the quarters involved, x x x" [Emphasis supplied.] Therefore, the CTA, in the present cases, cannot
be bound by its ruling in CTA Case No. 5296, when these cases do not involve the exact same
circumstances that compelled it to grant the motion of petitioner corporation for re-opening of CTA
Case No. 5296.

Finally, assuming for the sake of argument that the non-presentation of the required documents was
due to the fault of the counsel of petitioner corporation, this Court finds that it does not constitute
excusable negligence or mistake which would warrant the re-opening of the cases and/or holding of
new trial.

Under Section 1, Rule 37 of the Revised Rules of Court, the "negligence" must be excusable and
generally imputable to the party because if it is imputable to the counsel, it is binding on the client.
To follow a contrary rule and allow a party to disown his counsel's conduct would render proceedings
indefinite, tentative, and subject to re-opening by the mere subterfuge of replacing the counsel. What
the aggrieved litigant should do is seek administrative sanctions against the erring counsel and not
ask for the reversal of the court's ruling. 49

As elucidated by this Court in another case,50 the general rule is that the client is bound by the action
of his counsel in the conduct of his case and he cannot therefore complain that the result of the
litigation might have been otherwise had his counsel proceeded differently. It has been held time and
again that blunders and mistakes made in the conduct of the proceedings in the trial court as a result
of the ignorance, inexperience or incompetence of counsel do not qualify as a ground for new trial. If
such were to be admitted as valid reasons for re-opening cases, there would never be an end to
litigation so long as a new counsel could be employed to allege and show that the prior counsel had
not been sufficiently diligent, experienced or learned.

Moreover, negligence, to be "excusable," must be one which ordinary diligence and prudence could
not have guarded against.51 Revenue Regulations No. 3-88, which was issued on 15 February 1988,
had been in effect more than two years prior to the filing by petitioner corporation of its earliest
application for refund/credit of input VAT involved herein on 21 August 1990. CTA Circular No. 1-95
was issued only on 25 January 1995, after petitioner corporation had filed its Petitions before the
CTA, but still during the pendency of the cases of petitioner corporation before the tax court. The
counsel of petitioner corporation does not allege ignorance of the foregoing administrative regulation
and tax court circular, only that he no longer deemed it necessary to present the documents required
therein because of the presentation of alleged unrebutted evidence of the zero-rated sales of
petitioner corporation. It was a judgment call made by the counsel as to which evidence to present in
support of his client's cause, later proved to be unwise, but not necessarily negligent.

Neither is there any merit in the contention of petitioner corporation that the non-presentation of the
required documentary evidence was due to the excusable mistake of its counsel, a ground under
Section 1, Rule 37 of the revised Rules of Court for the grant of a new trial. "Mistake," as it is
referred to in the said rule, must be a mistake of fact, not of law, which relates to the case. 52 In the
present case, the supposed mistake made by the counsel of petitioner corporation is one of law, for
it was grounded on his interpretation and evaluation that Revenue Regulations No. 3-88 and CTA
Circular No. 1-95, as amended, did not apply to his client's cases and that there was no need to
comply with the documentary requirements set forth therein. And although the counsel of petitioner
corporation advocated an erroneous legal position, the effects thereof, which did not amount to a
deprivation of his client's right to be heard, must bind petitioner corporation. The question is not
whether petitioner corporation succeeded in establishing its interests, but whether it had the
opportunity to present its side.53
Besides, litigation is a not a "trial and error" proceeding. A party who moves for a new trial on the
ground of mistake must show that ordinary prudence could not have guarded against it. A new trial is
not a refuge for the obstinate.54 Ordinary prudence in these cases would have dictated the
presentation of all available evidence that would have supported the claims for refund/credit of input
VAT of petitioner corporation. Without sound legal basis, counsel for petitioner corporation
concluded that Revenue Regulations No. 3-88, and later on, CTA Circular No. 1-95, as amended,
did not apply to its client's claims. The obstinacy of petitioner corporation and its counsel is
demonstrated in their failure, nay, refusal, to comply with the appropriate administrative regulations
and tax court circular in pursuing the claims for refund/credit, now subject of G.R. Nos. 141104 and
148763, even though these were separately instituted in a span of more than two years. It is also
evident in the failure of petitioner corporation to address the issue and to present additional evidence
despite being given the opportunity to do so by the Court of Appeals. As pointed out by the appellate
court, in its Decision, dated 15 September 2000, in CA-G.R. SP No. 46718 –

x x x Significantly, in the resolution, dated 7 June 2000, this Court directed the parties to file
memoranda discussing, among others, the submission of proof for "its [petitioner's] sales of
gold, copper concentrates, and pyrite to buyers." Nevertheless, the parties, including the
petitioner, failed to address this issue, thereby necessitating the affirmance of the ruling of
the Court of Tax Appeals on this point. 55

Summary

Hence, although this Court agreed with the petitioner corporation that the two-year prescriptive
period for the filing of claims for refund/credit of input VAT must be counted from the date of filing of
the quarterly VAT return, and that sales to EPZA-registered enterprises operating within economic
processing zones were effectively zero-rated and were not covered by Revenue Regulations No. 2-
88, it still denies the claims of petitioner corporation for refund of its input VAT on its purchases of
capital goods and effectively zero-rated sales during the second, third, and fourth quarters of 1990
and the first quarter of 1992, for not being established and substantiated by appropriate and
sufficient evidence. Petitioner corporation is also not entitled to the re-opening of its cases and/or
holding of new trial since the non-presentation of the required documentary evidence before the BIR
and the CTA by its counsel does not constitute excusable negligence or mistake as contemplated in
Section 1, Rule 37 of the revised Rules of Court.

WHEREFORE, premises considered, the instant Petitions for Review are hereby DENIED, and the
Decisions, dated 6 July 1999 and 15 September 2000, of the Court of Appeals in CA-G.R. SP Nos.
47607 and 46718, respectively, are hereby AFFIRMED. Costs against petitioner.

Ynares-Santiago, Chairperson, Austria-Martinez, Nachura, JJ., concur.