VAT: INDIRECT TAX

Impact of Tax Incidence of Tax

CASE: Contex Corporation vs. Commissioner of Internal Revenue

FACTS:

1. Petitioner Contex Corporation: domestic corporation engaged in the business of manufacturing hospital textiles and garments and other hospital
supplies for export
- Place of business: Subic Bay Freeport Zone (SBFZ)
- Duly registered with the Subic BayMetropolitan Authority (SBMA) as a Subic Bay Freeport Enterprise (RA 7227)
- As an SBMA-registered firm, petitioner is exempt from all local and national internal revenue taxes except for the preferential tax (Section 12c of
RA 7227)
- Registered with the BIR as a NON-VAT TAXPAYER (Certificate of Registration RDO)

2. Jan 1, 1997 to Dec 31, 1998: petitioner purchased various supplies and materials necessary in the conduct of its manufacturing business

3. The suppliers of these goods SHIFTED UNTO PETITIONER the 10% VAT on the purchased items, which led the petitioner to pay input taxes
(P539,411.88 and P504,057.49 for 1997 and 1998, resp.)

4. Acting on the belief that it was exempt from all national and local taxes, including VAT, petitioner filed two applications for tax refund or tax credit of the
VAT it paid

5. Revenue District Officer of BIR RDO Mr. Carlos denied the 1st
application letter

6. Petitioner filed another application for tax refund/credit directly with Regional Director of BIR Region IV Atty. Pagabao
- Sought a refund or issuance of a tax credit certificate (P1,108,307.72), representing erroneously paid input VAT (Jan 1, 1997 to Nov 30, 1998)
7. No response from BIR Regional Director

8. Petitioner elevated the matter to CTA in a petition for review

- Section 112(A) if read in relation to Section 106(A)(2)(a) of NIRC and Section 12(b) and (c) of RA 7227 would show that it was not liable in any way
for any VAT

9. In opposing the claim for tax refund or tax credit, BIR asked CTA to apply the rule that claims for refund are strictly construed against the taxpayer
- Since petitioner failed to establish both its right to a tax refund or tax credit and its compliance with the rules on tax refund (Sections 204 and 229 of
Tax Code), its claim should be denied

10. CTA: petition partially granted; respondent is hereby ordered to refund or in the alternative to issue a tax credit certificate in favor of petitioner (P683,061.90)
representing erroneously paid input VAT
- Petitioner misread Sections 106(A)(2)(a) and 112(A) of Tax Code these provisions apply only to those entities registered as VAT taxpayers whose
sales are zero-rated
- Petitioner does not fall under this category, since it is a non-VAT taxpayer as evidenced by the Certificate of Registration RDO
- Petitioner is exempt from the imposition of input VAT on its purchases of supplies and materials
- Petitioner is required to pay as a SBFZ-registered enterprise is a 5% preferential tax
- Disallowed all refunds of input VAT paid by petitioner prior to June 29, 1997 for being barred by the 2-yr prescriptive period (Section 229, Tax Code)
- Also limited the refund only to the input VAT paid by the petitioner on supplies and materials directly used by the petitioner in the manufacture of goods
- Struck down all claims for charges, and all materials and supplies shipped or delivered to the petitioner’s Makati and Pasay City offices
11. CIR filed a petition for review of the CTA decision by the CA
The exemption of Contex Corporation under RA 7227 was limited only to DIRECT TAXES and not to indirect taxes such as the input component of the
VAT

- VAT is a burden passed on by a VAT-registered person to the end users; hence, the direct liability for the tax lies with the suppliers and not Contex

12. CA: reversed CTA’s decision; in favor of CIR; Contex’s claim for refund of erroneously paid taxes is denied
- The exemption from duties and taxes on the importation of raw materials, capital, and equipment of SBFZ-registered enterprises under RA 7227
and its implementing rules covers only “the VAT imposable under Section 107 of Tax Code, which is direct liability of the importer, and in no way
includes the VAT of the seller-exporter the burden of which was passed on to the importer as an additional costs of the goods
- Exemption granted by RA 7227 relates to the act of importation
(Section 107 specifically imposes the VAT on importations
- Exemption of SBFZ-registered enterprises from internal revenue taxes is qualified as pertaining only to those for which they may be directly liable
(direct tax, and only in connection with their importation of raw materials, capital, and equipment as well as the sale of their goods and services)

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 13. Petitioner moved for reconsideration of CA decision; denied
14. Hence, this instant petition.

ISSUES:
(1) Whether or not the VAT exemption embodied in RA 7227 applies to petitioner as a purchaser

(2) Whether or not petitioner may claim a refund on the Input VAT erroneously passed on to it by its suppliers

HELD:
(1) YES, limited to the VAT on which it is directly liable as a seller hence, it cannot claim any refund or exemption for any input VAT it paid, if
any, on its purchases of raw materials and supplies;

(2) NO

RATIO:

❖ VAT

- Indirect tax
- As such, the amount of tax paid on the goods, properties or services bought, transferred, or leased may be shifted or passed on by the seller, transferor,
or lessor to the buyer, transferee or lessee
- Unlike a direct tax, such as the income tax, which primarily taxes an individual’s ability to pay based on his income or net wealth, an indirect tax, such
as the VAT, is a tax on consumption of goods, services, or certain transactions involving the same
- VAT thus forms a substantial portion of consumer expenditures

❖ INDIRECT TAXATION
- Liability for the tax vs. burden of the tax
- The amount of tax paid may be shifted or passed on by the seller to the buyer
- What is transferred in such instances is not the liability for the tax, but the TAX BURDEN
- In adding or including the VAT due to the selling price, the seller remains the person primarily and legally liable for the payment of the tax. What is
shifted only to the intermediate buyer and ultimately to the final purchaser is the burden of the tax
- A seller who is directly and legally liable for payment of an indirect tax, such as the VAT on goods or services is not necessarily the person who
ultimately bears the burden of the same tax. It is the final purchaser or consumer of such goods or services who, although not directly and legally liable
for the payment thereof, ultimately bears the burden of the tax.

❖ PREFERENTIAL TREATMENTS:
(a) VATExemption
- Sale of goods or properties and/or services and the use or lease of properties is not subject to VAT (output tax) and the seller is not allowed
any tax credit on VAT (input tax) previously paid
- VAT is removed at the exempt stage (i.e., at the point of the sale, barter or exchange of the goods/properties)
- The person making the exempt sale of goods, properties or services shall not bill any output tax to his customers because the said transaction
is not subject to tax
- A VAT-registered purchaser of VAT-exempt goods/properties or services which are exempt from VAT is not entitled to any input tax on such
purchase despite the issuance of a VAT invoice or receipt
(b) Zero-rated Sales
- Sales by VAT-registered persons which are subject to 0% rate (tax burden is not passed on to the purchaser)

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

IN THE CASE AT BAR:

(1)

• Petitioner’s claim to VAT exemption in the instant case for its purchases of supplies and raw materials is founded mainly on Section 12(b) and (c) of RA 7227,
which basically exempts them from all national and local internal revenue taxes, including VAT and Section 4(A)(a) of BIR Revenue Regulations No. 1-95.

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 • Petitioner rightly claims that it is indeed VAT-exempt and this fact is not controverted by the respondent. In fact, petitioner is registered as a NON-VAT taxpayer
per Certificate of Registration issued by the BIR. As such, it is EXEMPT from VAT on all its sales and importations of goods and services

Petitioner’s claim, however, for exemption from VAT for its purchases of supplies and raw materials is incongruous with its claim that it is VAT- exempt, for
only VAT-registered entities can claim Input VAT Credit/Refund.

• While it is true that the petitioner should not have been liable for the VAT inadvertently passed on to it by its supplier since such is a zero-rated sale on the part
of the supplier, the petitioner is not the proper party to claim such VAT refund.
• Since the transaction is deemed a zero-rated sale, petitioner’s supplier may claim an Input VAT credit with no corresponding Output VAT liability. Congruently,
no Output VAT may be passed on to the petitioner.
• As an exempt VAT taxpayer, it is not allowed any tax credit on VAT (input tax) previously paid.
• Rather, it is the petitioner’s suppliers who are the proper parties to
claim the tax credit and accordingly refund the petitioner of the VAT erroneously passed on to the latter.

Commissioner of Internal Revenue, petitioner

CA and Commonwealth Management and Services Corporation, respondents

FACTS:

1. Commonwealth Management and Services Corp. (COMASERCO) is a corporation duly organized and existing under the laws of the
Philippines. It is an affiliate of Philippine American Life Insurance Co. (Philamlife), organized by the latter to perform collection,
consultative and other technical services, including functioning as an internal auditor, of Philamlife and its other affiliates.

2. On January 24, 1992, the BIR issued an assessment to Commonwealth Management and Services Corp. (COMASERCO) for
deficiency value-added tax (VAT) amounting to P351,851.01, for taxable year 1988

3. On February 10, 1992, COMASERCO filed with the BIR, a letter-protest objecting to the latter's finding of deficiency VAT. On August
20, 1992, the Commissioner of Internal Revenue sent a collection letter to COMASERCO demanding payment of the deficiency VAT.

4. On September 29,1992, COMASERCO filed with the CTA a petition for review contesting the Commissioner's assessment. Its
arguments are as follows:

• The services it rendered to Philamlife and its affiliates, relating to collections, consultative and other technical assistance,
including functioning as an internal auditor, were on a "no-profit, reimbursement-of-cost-only" basis;

• That it was not engaged in the business of providing services to Philamlife and its affiliates and that it was established to
ensure operational orderliness and administrative efficiency of Philamlife and its affiliates, and not in the sale of services;
and

• That it was not profit-motivated, thus not engaged in business. In fact, it did not generate profit but suffered a net loss in
taxable year 1988. Since it was not engaged in business, it was not liable to pay VAT.

CTA: Denied COMASERCO's petition. Affirmed the Commissioner's deficiency VAT assessment for the year 1988.

CA: Reversed CTA ruling. Cancelled the assessment for deficiency VAT for the year 1988. The basis for the CA's ruling was a prior
ruling it made in another case involving COMASERCO, where it was held that COMASERCO was not liable to pay fixed and
contractor's tax for services rendered to Philamlife and its affiliates and as such was not engaged in business of providing services to
Philamlife and its affiliates.

Hence, the instant petition for review on certiorari by the Commissioner.

ISSUE:

Whether COMASERCO was engaged in the sale of services, and thus liable to pay VAT thereon.
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HELD:

Petition granted. Reversed CA ruling. Reinstated CTA ruling. COMASERCO ordered to pay deficiency VAT as per the assessment
issued by the Commissioner for the taxable year 1988.

1. Who are the persons liable for VAT?

"Section 99, NIRC. Persons liable. - Any person who, in the course of trade or business, sells, barters or exchanges goods, renders
services, or engages in similar transactions and any person who imports goods shall be subject to the value-added tax (VAT) imposed
in Sections 100 to 102 of this Code.""

2. What does "in the course of trade or business" mean?

COMASERCO: The term "in the course of trade or business" requires that the "business" is carried on with a view to profit or
livelihood. In other words, the activities of the entity must be profit-oriented.

SC: Under Sec. 105 (Persons Liable) of R.A. No. 7716, or the Expanded VAT Law (EVAT), 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 organization (irrespective of the
disposition of its net income and whether or not it sells exclusively to members of their guests), or government entity.

This definition applies to all transactions even to those made prior to the enactment of the EVAT Law, which merely stresses that even
a nonstock, nonprofit organization or government entity is liable to pay VAT for the sale of goods and services.

3. Are non-stock, nonprofit organizations or government entities (such as COMASERCO) liable to pay VAT for the sale of goods and services?

COMASERCO: No, profit motive is material in ascertaining who to tax for purposes of determining liability for VAT.

SC: Yes, even a non-stock, non-profit, organization or government entity, is liable to pay VAT on the sale of goods or services.

It is immaterial whether the primary purpose of a corporation indicates that it receives payments for services rendered to its affiliates
on a reimbursement-on-cost basis only, without realizing profit, for purposes of determining liability for VAT on services rendered. As
long as the entity provides service for a fee, remuneration or consideration, then the service rendered is subject to VAT.

This contention finds support in BIR Ruling No. 010-98 issued by the Commissioner on February 5, 1998, which provides that a
domestic corporation that provided technical, research, management and technical assistance to its affiliated companies and received
payments on a reimbursement-of-cost basis, without any intention of realizing profit, was subject to VAT on services rendered. In fact,
even if such corporation was organized without any intention of realizing profit, any income or profit generated by the entity in the
conduct of its activities, was subject to income tax.

4. Is COMASERCO liable to pay VAT?

COMASERCO: Because COMASERCO is not motivated by profit, as defined by its primary purpose in the articles of incorporation,
stating that it is operating "only on reimbursement-of-cost basis, without any profit," it couldn't be said that it is performing acts in the
course of trade or business. Hence, it is not liable for the payment of VAT.

SC: The services rendered by COMASERCO to Philamlife and its affiliates are subject to VAT. The performance of all kinds of services
for others for a fee, remuneration or consideration is considered as sale of services subject to VAT. (See items 1-3 in ratio.)

5. Can the CA's ruling in a prior case involving COMASERCO be made applicable in the instant case?

SC: No. The issue in the first case (i.e., whether COMASERCO is engaged in business to determine liability for the payment of fixed
and percentage taxes), is different from the present case, which involves COMASERCO's liability for VAT.

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Commissioner of Internal Revenue vs. Sony Philippines, Inc.
G.R. No. 178697, November 17, 2010
635 SCRA 234

FACTS:
Petitioner CIR examined the books of accounts and other accounting records of respondent Sony Philippines, Inc. CIR found Sony
liable for deficiency VAT on advertising expense it paid for evidenced by a VAT invoice receipt. Due to adverse economic conditions,
Sony Philippines received a subsidy from its affiliate Sony Singapore. The amount of said subsidy is equivalent to its advertising
expense.

ISSUE:
Is the subsidy subject to VAT?

RULING:
No. The subsidy for the services rendered by the advertising companies, paid for by the taxpayer evidenced by a VAT invoice, using its
affiliate’s dole out or assistance in view of the taxpayer’s dire or adverse economic conditions, in the amount equivalent to the latter’s
advertising expense but the affiliate never received any good, properties, or service from the taxpayer, is not subject to VAT. The dole-
out is not subject to VAT since there is no sale, barter or exchange in the subsidy given. The reimbursement by the affiliate may be
considered as income of the taxpayer, and, therefore, subject to income tax, but the same cannot be subject to VAT.

COMMISSIONER OF INTERNAL REVENUE versus SONY PHILIPPINES, INC.

G.R. No. 178697 November 17, 2010

Facts:

1. the CIR issued Letter of Authority (LOA 19734) authorizing certain revenue officers to examine Sonys books of accounts and other
accounting records regarding revenue taxes for the period 1997 and unverified prior years.

2. A preliminary assessment for 1997 deficiency taxes and penalties was issued by the CIR which Sony protested.

3. Thereafter, acting on the protest, the CIR issued final assessment notices, the formal letter of demand and the details of
discrepancies.

4. The CIR assessed a deficiency VAT - P11,141,014.41

Issue:

1. Whether or not he Letter of Authority is Valid

2. Whether or not respondent (Sony) is liable for the deficiency VAT in the amount of P11,141,014.41

Ruling:

1. Based on Section 13 of the Tax Code, a Letter of Authority or LOA is the authority given to the appropriate revenue officer assigned
to perform assessment functions. It empowers or enables said revenue officer to examine the books of account and other accounting
records of a taxpayer for the purpose of collecting the correct amount of tax.

There must be a grant of authority before any revenue officer can conduct an examination or assessment. Equally important is
that the revenue officer so authorized must not go beyond the authority given. In the absence of such an authority, the assessment or
examination is a nullity.

The LOA 19734 covered the period 1997 and unverified prior years. For said reason, the CIR acting through its revenue officers went
beyond the scope of their authority because the deficiency VAT assessment they arrived at was based on records from January to
March 1998 or using the fiscal year which ended in March 31, 1998.

It violated also Section C of Revenue Memorandum Order No. 4390 - A Letter of Authority should cover a taxable period not
exceeding one taxable year.

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2. CIRs argument that Sonys advertising expense could not be considered as an input VAT credit because the same was eventually reimbursed by
Sony International Singapore (SIS).

Sonys deficiency VAT assessment stemmed from the CIRs disallowance of the input VAT credits that should have been realized
from the advertising expense of the latter. It is evident under Section 110 of the 1997 Tax Code that an advertising expense duly
covered by a VAT invoice is a legitimate business expense. There is also no denying that Sony incurred advertising expense. Aluquin
testified that advertising companies issued invoices in the name of Sony and the latter paid for the same. Indubitably, Sony incurred
and paid for advertising expense/ services. Where the money came from is another matter all together but will definitely not change
said fact.

The CIR further argues that Sony itself admitted that the reimbursement from SIS was income and, thus, taxable.

Insofar as the subsidy may be considered as income and, therefore, subject to income tax, the Court agrees. However, the Court does
not agree that the same subsidy should be subject to the 10% VAT. To begin with, the said subsidy termed by the CIR as
reimbursement was not even exclusively earmarked for Sonys advertising expense for it was but an assistance or aid in view of Sonys
dire or adverse economic conditions, and was only equivalent to the latters (Sonys) advertising expenses.

There must be a sale, barter or exchange of goods or properties before any VAT may be levied. Certainly, there was no such sale, barter
or exchange in the subsidy given by SIS to Sony. It was but a dole out by SIS and not in payment for goods or properties sold, bartered
or exchanged by Sony.

MINDANAO II GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF INTERNAL REVENUE

G.R. No. 193301 March 11, 2013

Facts:

1. Mindanao II allegedly entered into a BOT contract with the Philippine National Oil Corporation – Energy Development Company
(PNOCEDC) for finance, engineering, supply, installation, testing, commissioning, operation, and maintenance of a 48.25 megawatt
geothermal power plant.

2. 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 PNOCEDC is its only revenue generating activity which is in the ambit of VAT zero-rated sales under the EPIRA Law.

3. The amendment of the NIRC of 1997 modified the VAT rate applicable to sales of generated power by generation companies from
10% to 0%.

4. Mindanao II makes domestic purchases of goods and services and accumulates therefrom creditable input taxes.

5. Pursuant to NIRC, Mindanao II alleges that it can use its accumulated input tax credits to offset its output tax liability.

6. Mindanao II filed an application for refund and/or issuance of tax credit certificate with the BIR

7. The application for refund by Mindanao II remains unacted upon by the CIR.

8. Hence, these three petitions.

9. The Court of Tax Appeals’ Ruling: 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.

10. The CTA First Division found that Mindanao II is entitled to a refund in the modified amount of P7,703,957.79, after disallowing
P522,059.91 from input VAT and deducting P18,181.82 from Mindanao II’s sale of a fully depreciated P200,000.00 Nissan Patrol.

11. The input taxes amounting to P522,059.91 were disallowed for failure to meet invoicing requirements, while the input VAT on the
sale of the Nissan Patrol was reduced by P18,181.82 because the output VAT for the sale was not included in the VAT declarations.

12. Mindanao II filed a motion for partial reconsideration.

13. It stated that the sale of the fully depreciated Nissan Patrol is a onetime transaction and is not incidental to its VAT zero-rated
operations.

Issue:
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 Whether the sale of the fully depreciated Nissan Patrol is a onetime transaction and is not incidental to the VAT zero rated
operation of Mindanao II

Ruling:

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 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.

Mindanao II relies on Commissioner of Internal Revenue v. Magsaysay Lines, Inc. (Magsaysay) and Imperial v. Collector of Internal
Revenue (Imperial) 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."

Mindanao II’s sale of the Nissan Patrol is said to be an isolated transaction. However, it does not follow that an isolated transaction
cannot be an incidental transaction for purposes of VAT liability. Indeed, a reading of Section 105 of the 1997 Tax Code would show
that a transaction "in the course of trade or business" includes "transactions incidental thereto." Mindanao II’s business is to convert the
steam supplied to it by PNOCEDC 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.

POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION, PETITIONER, V. COMMISSIONER OF

INTERNAL RESPONDENT. [G.R. No. 198146, August 08, 2017

FACTS:

Petitioner Power Sector Assets and Liabilities Management Corporation (PSALM) is a government-owned and controlled corporation
created under Republic Act No. 9136 (RA 9136), also known as the Electric Power Industry Reform Act of 2001 (EPIRA). Section 50 of
RA 9136 states that the principal purpose of PSALM is to manage the orderly sale, disposition, and privatization of the National Power
Corporation (NPC) generation assets, real estate and other disposable assets, and Independent Power Producer (IPP) contracts with the
objective of liquidating all NPC financial obligations and stranded contract costs in an optimal manner.

PSALM conducted public biddings for the privatization of the Pantabangan-Masiway Hydroelectric Power Plant (Pantabangan-
Masiway Plant) and Magat Hydroelectric Power Plant (Magat Plant) on 8 September 2006 and 14 December 2006, respectively. First
Gen Hydropower Corporation with its $129 Million bid and SN Aboitiz Power Corporation with its $530 Million bid were the winning
bidders for the Pantabangan-Masiway Plant and Magat Plant, respectively.

On 28 August 2007, the NPC received a letter dated 14 August 2007 from the Bureau of Internal Revenue (BIR) demanding immediate
payment of P3,813,080,472 deficiency value-added tax (VAT) for the sale of the Pantabangan-Masiway Plant and Magat Plant. The
NPC indorsed BIR's demand letter to PSALM.

On 30 August 2007, the BIR, NPC, and PSALM executed a Memorandum of Agreement (MOA).

On 21 September 2007, PSALM filed with the Department of Justice (DOJ) a petition for the adjudication of the dispute with the BIR to
resolve the issue of whether the sale of the power plants should be subject to VAT. The case was docketed as OSJ Case No. 2007-3.
On 13 March 2008, the DOJ ruled in favor of PSALM.

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The BIR moved for reconsideration, alleging that the DOJ had no jurisdiction since the dispute involved tax laws administered by the
BIR and therefore within the jurisdiction of the Court of Tax Appeals (CTA). Furthermore, the BIR stated that the sale of the subject
power plants by PSALM to private entities is in the course of trade or business, as contemplated under Section 105 of the National
Internal Revenue Code (NIRC) of 1997, which covers incidental transactions. Thus, the sale is subject to VAT. On 14 January 2009, the
DOJ denied BIR's Motion for Reconsideration.

The BIR went up to the Court of Appeals which held that the petition filed by PSALM with the DOJ was really a protest against the
assessment of deficiency VAT, which under Section 204 of the NIRC of 1997 is within the authority of the Commissioner of Internal
Revenue (CIR) to resolve. In fact, PSALM's objective in filing the petition was to recover the P3,813,080,472 VAT which was allegedly
assessed erroneously and which PSALM paid under protest to the BIR.

Quoting paragraph H of the MOA among the BIR, NPC, and PSALM, the Court of Appeals stated that the parties in effect agreed to
consider a DOJ ruling favorable to PSALM as the latter's application for refund.

Citing Section 4 of the NIRC of 1997, as amended by Section 3 of Republic Act No. 8424 (RA 8424) and Section 7 of Republic Act No.
9282 (RA 9282), the Court of Appeals ruled that the CIR is the proper body to resolve cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the NIRC or other
laws administered by the BIR. The Court of Appeals stressed that jurisdiction is conferred by law or by the Constitution; the parties,
such as in this case, cannot agree or stipulate on it by conferring jurisdiction in a body that has none.

In conclusion, the Court of Appeals found that the DOJ Secretary gravely abused his discretion amounting to lack of jurisdiction when
he assumed jurisdiction over OSJ Case No. 2007-3. PSALM moved for reconsideration, which the Court of Appeals denied in its 3
August 2011 Resolution. Hence, this petition.

ISSUE: Whether the sale of the power plants is subject to VAT?

To resolve the issue of whether the sale of the Pantabangan-Masiway and Magat Power Plants by petitioner PSALM to private entities
is subject to VAT, the Court must determine whether the sale is "in the course of trade or business" as contemplated under Section 105
of the NIRC, which reads:

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. xxx

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)

Under Section 50 of the EPIRA law, PSALM's principal purpose is to manage the orderly sale, disposition, and privatization of the
NPC generation assets, real estate and other disposable assets, and IPP contracts with the objective of liquidating all NPC financial
obligations and stranded contract costs in an optimal manner.

PSALM asserts that the privatization of NPC assets, such as the sale of the Pantabangan-Masiway and Magat Power Plants, is pursuant
to PSALM's mandate under the EPIRA law and is not conducted in the course of trade or business. PSALM cited the 13 May 2002 BIR
Ruling No. 020-02, that PSALM's sale of assets is not conducted in pursuit of any commercial or profitable activity as to fall within the
ambit of a VAT-able transaction under Sections 105 and 106 of the NIRC.

On the other hand, the CIR argues that the previous exemption of NPC from VAT under Section 13 of Republic Act No. 6395 (RA 6395)
was expressly repealed by Section 24 of Republic Act No. 9337 (RA 9337).

As a consequence, the CIR posits that the VAT exemption accorded to PSALM under BIR Ruling No. 020-02 is also deemed revoked
since PSALM is a successor-in-interest of NPC. Furthermore, the CIR avers that prior to the sale, NPC still owned the power plants and
not PSALM, which is just considered as the trustee of the NPC properties. Thus, the sale made by NPC or its successors-in-interest of
its power plants should be subject to the 10% VAT beginning 1 November 2005 and 12% VAT beginning 1 February 2007.

We do not agree with the CIR's position, which is anchored on the wrong premise that PSALM is a successor-in-interest of NPC.
PSALM is not a successor-in-interest of NPC. PSALM, a government-owned and controlled corporation, was created under the EPIRA
law to manage the orderly sale and privatization of NPC assets with the objective of liquidating all of NPC's financial obligations in an
optimal manner. Clearly, NPC and PSALM have different functions. Since PSALM is not a successor-in-interest of NPC, the repeal
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by RA 9337 of NPC's VAT exemption does not affect PSALM.

In any event, even if PSALM is deemed a successor-in-interest of NPC, still the sale of the power plants is not "in the course of trade or
business" as contemplated under Section 105 of the NIRC, and thus, not subject to VAT. The sale of the power plants is not in pursuit
of a commercial or economic activity but a governmental function mandated by law to privatize NPC generation assets. PSALM
was created primarily to liquidate all NPC financial obligations and stranded contract costs in an optimal manner. The purpose and
objective of PSALM are explicitly stated in Section 50 of the EPIRA law.

PSALM is limited to selling only NPC assets and IPP contracts of NPC. The sale of NPC assets by PSALM is not "in the course of trade
or business" but purely for the specific purpose of privatizing NPC assets in order to liquidate all NPC financial obligations. Thus, it is
very clear that the sale of the power plants was an exercise of a governmental function mandated by law for the primary purpose of
privatizing NPC assets in accordance with the guidelines imposed by the EPIRA law.

The CIR argues that the Magsaysay case, which involved the sale in 1988 of NDC vessels, is not applicable in this case since it was
decided under the 1986 NIRC. The CIR maintains that under Section 105 of the 1997 NIRC, which amended Section 99 of the 1986
NIRC, the phrase "in the course of trade or business" was expanded, and now covers incidental transactions. Since NPC still owns the
power plants and PSALM may only be considered as trustee of the NPC assets, the sale of the power plants is considered an incidental
transaction which is subject to VAT.

We disagree with the CIR's position. PSALM owned the power plants which were sold. PSALM's ownership of the NPC assets is
clearly stated under Sections 49, 51, and 55 of the EPIRA law.

Under the EPIRA law, the ownership of the generation assets, real estate, IPP contracts, and other disposable assets of the NPC was
transferred to PSALM. Clearly, PSALM is not a mere trustee of the NPC assets but is the owner thereof. Precisely, PSALM, as the
owner of the NPC assets, is the government entity tasked under the EPIRA law to privatize such NPC assets.

The CIR alleges that the sale made by NPC and/or its successors-in interest of the power plants is an incidental transaction which
should be subject to VAT. This is erroneous. As previously discussed, the power plants are already owned by PSALM, not NPC. Under
the EPIRA law, the ownership of these power plants was transferred to PSALM for sale, disposition, and privatization in order to
liquidate all NPC financial obligations.

Unlike the Mindanao II case, the power plants in this case were not previously used in PSALM's business. The power plants, which
were previously owned by NPC were transferred to PSALM for the specific purpose of privatizing such assets. The sale of the power
plants cannot be considered as an incidental transaction made in the course of NPC's or PSALM's business. Therefore, the sale of the
power plants should not be subject to VAT.

MEDICARD PHILIPPINES, INC VS. CIR (GR NO. 222743) APRIL 5, 2017

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

MEDICARD filed it first, second, and third quarterly VAT Returns through Electronic Filing and Payment System (EFPS) on April 20,
July 25, and October 25, 2006, respectively, and its fourth quarterly VAT Return on January 25, 2007.
Upon finding some discrepancies between MEDICARD’s Income Tax Returns (ITR) and VAT Returns, the CIR issued a Letter Notice
(LN) dated September 20, 2007. Subsequently, the CIR also issued a Preliminary Assessment Notice (PAN) against MEDICARD for
deficiency VAT. MEDICARD received CIR’s FAN dated December 10, 2007 for allegedly deficiency VAT for taxable year 2006
including penalties.

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

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

9
the contemplation of RR No. 4-2007. Furthermore, MEDICARD’s earnings from its clinics and laboratory facilities cannot be excluded
from its gross receipts because the operation of these clinics and laboratory is merely an incident to MEDICARD’s line of business as an
HMO.

MEDICARD filed a Motion for Reconsideration but it was denied. Petitioner elevated the matter to the CTA en banc.

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

ISSUES:

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

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

RULING

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

The LN cannot replace the LOA required under the law even if the same was issued by the CIR himself. Under RR No. 12-2002, LN is
issued to a person found to have underreported sales/receipts per data generated under the RELIEF system. Upon receipt of the LN, a
taxpayer may avail of the BIR’s Voluntary Assessment and Abatement Program. If a taxpayer fails or refuses to avail of the said
program, the BIR may avail of administrative and criminal remedies, particularly closure, criminal action, or audit and investigation.
Since the law specifically requires an LOA and RMO No. 32-2005 requires the conversion of the previously issued LN to an LOA, the
absence thereof cannot be simply swept under the rug, as the CIR would have it. In fact, Revenue Memorandum Circular No. 40-2003
considers an LN as a notice of audit or investigation only for the purpose of disqualifying the taxpayer from amending his returns. The
revenue officers not having authority to examine MEDICARD in the first place, the assessment issued by the CIR is inescapably void.

2. No.
The Court said that the main difference between an HMO arid an insurance company is that HMOs undertake to provide or
arrange for the provision of medical services through participating physicians while insurance companies simply undertake to
indemnify the insured for medical expenses incurred up to a pre-agreed limit. In the present case, the VAT is a tax on the value added
by the performance of the service by the taxpayer. It is, thus, this service and the value charged thereof by the taxpayer that is taxable
under the NIRC.

In Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue, 38the Court adopted the principal object and purpose object in
determining whether the MEDICARD therein is engaged in the business of insurance and therefore liable for documentary stamp tax.
The Court held therein that an HMO engaged in preventive, diagnostic and curative medical services is not engaged in the business of
an insurance

The Court likewise rules that for purposes of determining the VAT liability of an HMO, the amounts earmarked and actually spent for
medical utilization of its members should not be included in the computation of its gross receipts.

Diza vs Secretary of Finance, GR No. 193007, July 19, 2011

FACTS:

Petitioners filed a petition for declaratory relief assailing the validity of the impending imposition of value added tax (VAT) by the
Bureau of Internal Revenue (BIR)

on the collections of tollway operators.

Petitioners claim that, since the VAT would result in increased toll fees, they have an interest as regular users of tollways in stopping
the BIR action.

10
Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to include toll fees within the meaning of “sale of
services” that are subject to VAT; that a toll fee is a “user’s tax,” not a sale of services; that to impose VAT on toll fees would amount to
a tax on public service; and that, since VAT was never factored into the formula for computing toll fees, its imposition would violate
the non-impairment clause of the constitution.

On the other hand, the government avers that the NIRC imposes VAT on all kinds of services of franchise grantees, including tollway
operations. The government also argues that petitioners have no right to invoke the non-impairment of contracts clause since they
clearly have no personal interest in existing toll operating agreements (TOAs) between the government and tollway operators. At any
rate, the non-impairment clause cannot limit the State’s sovereign taxing power which is generally read into contracts.

ISSUE:

Procedural issues: (optional to recite)

1. Whether or not the Court may treat the petition for declaratory relief as one for prohibition?

2. Whether or not the petitioners have legal standing to file the petition?

Substantive issues:

1. Whether or not the government is unlawfully expanding VAT coverage by including tollway operators and tollway
operations in the terms “franchise grantees” and “sale of services” under Section 108 of the NIRC?

2. Whether or not the imposition of VAT on tollway operators would:

a. Amount to a tax on a tax and not a tax on services?

b. Impair the tollway operator’s right to a reasonable return of investment under their TOA’s? and,

c. Not administratively feasible and cannot be implemented?

RULING:

On the procedural issues:

1. Yes.

There are precedents for treating a petition for declaratory relief as one for prohibition if the case has far reaching implications and
raises questions that need to be resolved for the public good. Moreover, a petition for prohibition is a proper remedy to prohibit or
nullify acts of executive officials that amount to usurpation of legislative authority.

Here, the imposition of VAT on toll fees has far-reaching implications. Its imposition would impact, not only on the more than half a
million motorists who use the tollways every day, but more so on the government’s effort to raise revenue for funding various projects
and for reducing budgetary deficits.

To dismiss the petition and resolve the issues later, after the challenged VAT has been imposed, could cause more mischief both to the
tax-paying public and the government.

2. The same may be said of the requirement of locus standi which is a mere procedural requisite.

On the substantive issues:

11
 1. No. It is plain view that the law (Section 108 of the NIRC) imposes VAT on “all kinds of services” rendered in the
Philippines for a fee, including those specified in the list. The enumeration of the affected services is not exclusive. By
qualifying “services” with the words “all kinds,” Congress has given the term “services” an all-encompassing meaning.
The listing of specific services are intended to illustrate how pervasive and broad is the VAT’s reach rather than establish
concrete limits to its application. Thus, every activity that can be imagined as a form of “service” rendered for a fee should
be deemed included unless some provision of law especially

excludes it.

2. A) No. Tollway fees are not taxes.

VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as an indirect tax. In indirect taxation, a distinction
is made between the liability for the tax and burden of the tax. The seller who is liable for the VAT may shift or pass on the amount of
VAT it paid on goods, properties or services to the buyer. In such a case, what is transferred is not the seller’s liability but merely the
burden of the VAT.

Consequently, VAT on tollway operations is not really a tax on the tollway user, but on the tollway operator. Under Section 105 of the
Code, VAT is imposed on any person who, in the course of trade or business, sells or renders services for a fee. In other words, the
seller of services, who in this case is the tollway operator, is the person liable for VAT. The latter merely shifts the burden of VAT to the
tollway user as part of the toll fees.

For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees were deemed as a “user’s tax.” VAT is assessed
against the tollway operator’s gross receipts and not necessarily on the toll fees.

B) Petitioners have no personality to invoke the non-impairment of contract clause on behalf of private investors in the tollway
projects. She will neither be prejudiced by nor be affected by the alleged diminution in return of investments that may result
from the VAT imposition. She has no interest at all in the profits to be earned under the TOAs. The interest in and right to
recover investments solely belongs to the private tollway investors. Besides, her allegation that the private investor’s rate of
recovery will be adversely affected by imposing VAT on tollway operations is purely speculative.

C) No. Administrative feasibility is one of the canons of a sound tax system. It simply means that the tax system should be
capable of being effectively administered and enforced with the least inconvenience to the taxpayer. Non-observance of the
canon, however, will not render a tax imposition invalid “except to the extent that specific constitutional or statutory
limitations are impaired.” Thus, even if the imposition of VAT on tollway operations may seem burdensome to implement,
it is not necessarily invalid unless some aspect of it is shown to violate any law or the Constitution.

Here, it remains to be seen how the taxing authority will actually implement the VAT on tollway operations.

12
G.R. No. 209776, December 07, 2016

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. UNITED CADIZ SUGAR FARMERS ASSOCIATION MULTI-
PURPOSE COOPERATIVE, Respondent.

DECISION

BRION, J.:

Before us is the petition for review on certiorari1 (under Rule 45 of the Rules of Court) filed by the Commissioner of Internal Revenue
(CIR) to assail the June 5, 2013 decision2 and the October 30, 2013 resolution3 of the Court of Tax Appeals (CTA) en banc in CTA EB No.
846 (CTA Case No. 7995).

In the assailed decision and resolution, the CTA en banc affirmed the decision4 and resolution5 of the CTA Second Division (CTA
division).

The Facts

By law, the CIR is empowered, among others, to act on and approve claims for tax refunds or credits.

The respondent United Cadiz Sugar Farmers Association Multi-purpose Cooperative (UCSFA-MPC) is a multi-purpose cooperative
with a Certificate of Registration issued by the Cooperative Development Authority (CDA) dated January 14, 2004.6

In accordance with Revenue Regulations (RR) No. 20-2001, the Bureau of Internal Revenue (BIR) issued BIR Ruling No. RR12-08-
2004,7 otherwise known as the "Certificate of Tax Exemption" in favor of UCSFA-MPC.

In November 2007, BIR Regional Director Rodita B. Galanto of BIR Region 12 - Bacolod City required UCSFA-MPC to pay in advance
the value-added tax (VAT) before her office could issue the Authorization Allowing Release of Refined Sugar (AARRS) from the sugar
refinery/mill. This was the first instance that the Cooperative was required to do so. This prompted the cooperative to confirm with
the BIR8 whether it is exempt from the payment of VAT pursuant to Section 109(1) of the National Internal Revenue Code (NIRC).9

The BIR responded favorably to UCSFA-MPC's query. In BIR Ruling No. ECCP-015-08,10 the CIR11 ruled that the cooperative "is
considered as the actual producer of the members' sugarcane production, because it primarily provided the various inputs (fertilizers),
capital, technology transfer, and farm management." (emphasis supplied) The CIR thus confirmed that UCSFA-MPC's sale of produce to
members and non-members is exempt from the payment of VAT.

As a result, Regional Director Galanto no longer required the advance payment of VAT from UCSFA-MPC and began issuing AARRS
in its favor, thereby allowing the cooperative to withdraw its refined sugar from the refinery. But, in November 2008, the
administrative legal opinion notwithstanding, Regional Director Galanto, again demanded the payment of advance VAT from UCSFA-
MPC. Unable to withdraw its refined sugar from the refinery/mill for its operations, UCSFA-MPC was forced to pay advance VAT
under protest.

On November 11, 2009, UCSFA-MPC filed an administrative claim for refund with the BIR, asserting that it had been granted tax
exemption under Article 61 of Republic Act No. (RA) 6938, otherwise known as the Cooperative Code of the Philippines (Cooperative
Code),12 and Section 109(1) of the NIRC.13

On November 16, 2009, it likewise filed a judicial claim for refund before the CTA division. During the trial, UCSFA-MPC presented,
among other documents, its Certificates of Registration14 and Good Standing15 issued by the CDA; Certificate of Tax Exemption,16 and
BIR Ruling No. ECCP-015-08 issued by the BIR,17 as well as its Summary of VAT Payments Under Protest, Certificates of Advance
Payment, official receipts, and payment forms to substantiate its claim.

The CTA division ruled in UCSFA-MPC's favor,18 thus upholding the cooperative's exemption from the payment of VAT; the division
held that the amount of P3,469,734.00 representing advance VAT on 34,017 LKG bags of refined sugar withdrawn from the refinery,
was illegally or erroneously collected by the BIR. The CIR moved but failed to obtain reconsideration of the CTA division ruling.

The CIR then sought recourse before the CTA en banc. In its assailed decision,19 the CTA en banc affirmed the CTA division's ruling and
ruled that UCSFA-MPC successfully proved its entitlement to tax exemption through its Certificate of Tax Exemption and BIR Ruling
No. ECCP-015-08 (which confirmed its status as a tax-exempt cooperative). The CTA en banc also held that both its administrative and
judicial claims for refund were timely filed, having been filed within the two-year prescriptive period,20 in accordance with the
requirements of Sections 204(C) and 229 of the NIRC.

In denying the CIR's motion for reconsideration,21 the CTA en banc further ruled that the payment of VAT on sales necessarily includes
the exemption from the payment of advance VAT. It also struck down the argument questioning the validity of UCSFA-MPC's
Certificate of Good Standing for having been raised belatedly and thus considered waived.

13
Finally, it also held that as a tax-exempt cooperative, UCSFA-MPC is not required to file monthly VAT declarations. The presentation
of these documents is therefore not essential in proving its claim for refund.

These developments gave rise to the present petition.

The Court's Ruling

We find the petition unmeritorious.

We have consistently ruled that claims for tax refunds, when based on statutes granting tax exemption, partake of the nature of an
exemption.22 Tax refunds and exemptions are exceptions rather than the rule and for this reason are highly disfavored. 23 Hence, in
evaluating a claim for refund, the rule of strict interpretation applies.

This rule requires the claimant to prove not only his entitlement to a refund, but also his due observance of the reglementary periods
within which he must file his administrative and judicial claims for refund.24 Non-compliance with these substantive and procedural due
process requirements results in the denial of the claim.25cralawred It is then essential for us to discuss each requirement and evaluate
whether these have been duly complied with in the present case.

Procedural requirements: Present

claim for refund was timely filed.

UCSFA-MPC s claim for refund - grounded as it is on payments of advance VAT alleged to have been illegally and
erroneously collected from November 15, 2007 to February 13, 2009 - is governed by Sections 204(C)26 and 22927 of the NIRC. These
provisions are clear: within two years from the date of payment of tax, the claimant must first file an administrative claim with the
CIR28 before filing its judicial claim with the courts of law.29 Both claims must be filed within a two-year reglementary
period.30 Timeliness of the filing of the claim is mandatory and jurisdictional. The court 31 cannot take cognizance of a judicial claim for
refund filed either prematurely or out of time.

In the present case, the court a quo found that while the judicial claim was filed merely five days after filing the administrative claim,
both claims were filed within the two-year reglementary period. Thus, the CTA correctly exercised jurisdiction over the judicial claim
filed by UCSFA-MPC.

Substantive requirements: UCSFA

MPC proved its entitlement to refund

As mentioned, the rule on strict interpretation requires the claimant to sufficiently establish his entitlement to a tax refund. If the
claimant asserts that he should be refunded the amount of tax he has previously paid because he is exempted from paying the tax,32 he
must point to the specific legal provision of law granting him the exemption. His right cannot be based on mere implication. 33

In this case, the cooperative claims that it is exempted — based on Section 61 of R.A. 6938 and Section 109(1) of the NIRC — from
paying advance VAT when it withdraws refined sugar from the refinery/mill as required by RR. No. 6-2007. UCSFA-MPC thus alleges
that the amounts of advance VAT it paid under protest from November 15, 2007 to February 13, 2009, were illegally arid erroneously
collected.

UCSFA-MPC 's sale of refined sugar

is VAT-exempt.

As a general rule under the NIRC, a seller shall be liable for VAT34 on the sale of goods or properties based on the gross selling price or
gross value in money of the thing sold.35 However, certain transactions are exempted from the imposition of VAT.36 One exempted
transaction is the sale of agricultural food products in their original state. 37 Agricultural food products that have undergone simple
processes of preparation or preservation for the market are nevertheless considered to be in their original state. 38

Sugar is an agricultural food product. Notably, tax regulations differentiate between raw sugar and refined sugar.39

For internal revenue purposes, the sale of raw cane sugar is exempt from VAT40 because it is considered to be in its original state.41 On
the other hand, refined sugar is an agricultural product that can no longer be considered to be in its original state because it has
undergone the refining process; its sale is thus subject to VAT.

Although the sale of refined sugar is generally subject to VAT, such transaction may nevertheless qualify as a VAT-exempt transaction
if the sale is made by a cooperative. Under Section 109(1) of the NIRC,42sales by agricultural cooperatives are exempt from VAT provided
the following conditions concur, viz:

First, the seller must be an agricultural cooperative duly registered with the CDA.43 An agricultural cooperative is "duly registered"
when it has been issued a certificate of registration by the CDA. This certificate is conclusive evidence of its registration.44

Second, the cooperative must sell either:

14
1) exclusively to its members; or

2) to both members and non-members, its produce, whether in its original state or processed form.45

The second requisite differentiates cooperatives according to its customers. If the cooperative transacts only with members, all its sales
are VAT-exempt, regardless of what it sells. On the other hand, if it transacts with both members and non-members, the product sold
must be the cooperative's own produce in order to be VAT-exempt. Stated differently, if the cooperative only sells its produce or goods
that it manufactures on its own, its entire sales is VAT-exempt.46

A cooperative is the producer of the sugar if it owns or leases the land tilled, incurs the cost of agricultural production of the sugar, and
produces the sugar cane to be refined.47 It should not have merely purchased the sugar cane from its planters-members.48

UCSFA-MPC satisfies these requisites in the present case.

First, UCSFA-MPC presented its Certificate of Registration issued by the CDA. It does not appear in the records that the CIR ever
objected to the authenticity or validity of this certificate. Thus, the certificate is conclusive proof that the cooperative is duly registered
with the CDA.49

While its certificate of registration is sufficient to establish the cooperative's due registration, we note that it also presented the
Certificate of Good Standing that the CDA issued. This further corroborates its claim that it is duly registered with the CDA.

Second, the cooperative also presented BIR Ruling No. ECCP-015-08, which states that UCSFA-MPC "is considered as the actual
producer of the members' sugar cane production because it primarily provided the various productions inputs (fertilizers), capital,
technology transfer, and farm management." It concluded that the cooperative "has direct participation in the sugar cane production of
its farmers-members."

Thus, the BIR itself acknowledged and confirmed that UCSFA-MPC is the producer of the refined sugar it sells. Under the principle of
equitable estoppel,50 the petitioner is now precluded from unilaterally revoking its own pronouncement and unduly depriving the
cooperative of an exemption clearly granted by law.

With the UCSFA-MPC established as a duly registered cooperative and the producer of sugar cane, its sale of refined sugar is exempt
from VAT, whether the sale is made to members or to non-members.

The VAT-exempt nature of the sales made by agricultural cooperatives under the NIRC is consistent with the tax exemptions granted
to qualified cooperatives under the Cooperative Code which grants cooperatives exemption from sales tax51 on transactions with
members and non-members.52

These conclusions reduce the issue in the case to whether the granted exemption also covers the payment of advance VAT upon
withdrawal of refined sugar from the refinery or mill.

Exemption from VAT on sale of

refined sugar by an agricultural
cooperative includes the exemption
from the requirement of advance
payment thereof.

The CTA en banc ruled that the cooperative is exempted from the payment of advance VAT.53 It also ruled that the exemption from the
payment of VAT on sales necessarily includes the exemption from the payment of advance VAT. 54

The CIR argues that the exemption granted by the Cooperative Code and NIRC, on which the Certificate of Tax Exemption and BIR
Ruling No. ECC-015-08 issued in favor of UCSFA-MPC were based, only covers VAT on the sale of produced sugar. It does not
include the exemption from the payment of advance VAT in the withdrawal of refined sugar from the sugar mill.55

The CIR's argument fails to persuade us.

As we discussed above, the sale of refined sugar by an agricultural cooperative is exempt from VAT. To fully understand the difference
between VAT on the sale of refined sugar and the advance VAT upon withdrawal of refined sugar, we distinguish between the tax
liability that arises from the imposition of VAT and the obligation of the taxpayer to pay the same.

Persons liable for VAT on the sale of goods shall pay the VAT due, in general, on a monthly basis. VAT accruing from the sale of goods in
the current month shall be payable the following month.56 However, there are instances where VAT is required to be paid in
advance,57 such as in the sale of refined sugar.58

To specifically address the policies and procedures governing the advance payment of VAT on the sale of refined sugar, RR Nos. 6-
2007 and 13-2008 were issued.

15
Under these regulations, VAT on the sale of refined sugar that, under regular circumstances, is payable within the month following the
actual sale of refined sugar, shall nonetheless be paid in advance before the refined sugar can even be withdrawn from the sugar
refinery/mill by the sugar owner. Any advance VAT paid by sellers of refined sugar shall be allowed as credit against their output tax on
the actual gross selling price of refined sugar.59

Recall in this regard that VAT is a transaction tax imposed at every stage of the distribution process: on the sale, barter, exchange, or
lease of goods or services.60 Simply stated, VAT generally arises because an actual sale, barter, or exchange has been consummated.

In the sugar industry, raw sugar is processed in a refinery/mill which thereafter transforms the raw sugar into refined sugar. The
refined sugar is then withdrawn or taken out of the refinery/mill and sold to customers.61 Under this flow, the withdrawal of refined
sugar evidently takes place prior to its sale.

The VAT implications of the withdrawal of refined sugar from the sugar refinery/mill and the actual sale of refined sugar are
different. While the sale is the actual transaction upon which VAT is imposed, the withdrawal gives rise to the obligation to pay the
VAT due, albeit in advance. Therefore, the requirement for the advance payment of VAT for refined sugar creates a special situation:
While the transaction giving rise to the imposition of VAT — the actual sale of refined sugar — has not yet taken place, the VAT that
would be due from the subsequent sale is, nonetheless, already required to be paid earlier, which is before the withdrawal of the goods
from the sugar refinery/mill.

To be clear, the transaction subject to VAT is still the sale of refined sugar. The withdrawal of sugar is not a separate transaction subject
to VAT. It is only the payment thereof that is required to be made in advance.

While the payment of advance VAT on the sale of refined sugar is, in general, required before these goods may be withdrawn from the
refinery/mill, cooperatives are exempt from this requirement because they are cooperatives.

Revenue regulations specifically provide that such withdrawal shall not be subject to the payment of advance VAT if the following
requisites are present, viz:

First, the withdrawal is made by a duly accredited and registered agricultural cooperative in good standing.62 It was later clarified
that a cooperative is in good standing if it is a holder of a certificate of good standing issued by the CDA.63

Second, the cooperative should also the producer of the sugar being withdrawn.64

Third, the cooperative withdrawing the refined sugar should subsequently sell the same to either its members or another agricultural
cooperative.65

In sum, the sale of refined sugar by an agricultural cooperative duly registered with the CDA is exempt from VAT. A qualified
cooperative also enjoys exemption from the requirement of advance payment of VAT upon withdrawal from the refinery/mill. The
agricultural cooperative's exemption from the requirement of advance payment is a logical consequence of the exemption from VAT of
its sales of refined sugar. We elaborate on this point as follows:

First, the VAT required to be paid in advance (upon withdrawal) is the same VAT to be imposed on the subsequent sale of refined
sugar. If the very transaction (sale of refined sugar) is VAT-exempt, there is no VAT to be paid in advance because, simply, there is no
transaction upon which VAT is to be imposed.

Second, any advance VAT paid upon withdrawal shall be allowed as credit against its output tax arising from its sales of refined sugar.
If all sales by a cooperative are VAT-exempt, no output tax shall materialize. It is simply absurd to require a cooperative to make
advance VAT payments if it will not have any output tax against which it can use/credit its advance payments.

Thus, we sustain the CTA en banc's ruling that if the taxpayer is exempt from VAT on the sale of refined sugar, necessarily, it is also
exempt from the advance payment of such tax.

Tax regulations cannot impose

additional requirements other than
what is required under the law as a
condition for tax exemption.

Insisting that UCSFA-MPC does not enjoy exemption from the payment of advance VAT, the CIR questions the cooperative's
compliance with tax regulations that require cooperatives to make additional documentary submissions to the BIR prior to the issuance
of a certificate of tax exemption.

According to the CIR, RR No. 13-2008 requires an agricultural producer cooperative duly registered with the CDA to be in good
standing before it can avail of the exemption from the advance payment of VAT. It claims that the cooperative failed to present any
certificate of good standing. While it did present a certificate of good standing, the cooperative only acquired this certificate on August

16
25, 2009. Hence, it was not exempt from advance payment of VAT during the period subject of its refund, or between November 15,
2007 to February 15, 2009.66

We disagree with this CIR submission.

First, the CTA observed that the petitioner questioned the cooperative's certificate of good standing for the first time in its motion for
reconsideration filed before the CTA en banc. Thus, the CTA en banc was correct in ruling that under the Rules of Court the argument is
deemed waived, having been belatedly raised. No new issue in a case can be raised in a pleading, which issue, by due diligence, could
have been raised in previous pleadings.67

Second, the certificate of good standing is one of the requirements for the issuance of a certificate of tax exemption under RR No. 20-
2001.

Article 2(d) of the Cooperative Code defines a certificate of tax exemption as "the ruling granting exemption to the cooperative" issued
by the BIR. In turn, under RR No. 20-2001, the cooperative shall file a letter-application for the issuance of certificate of tax exemption,
attaching thereto its certificates of registration and good standing duly issued by the CDA.68 The certificate of tax exemption shall
remain valid so long as the cooperative is "in good standing" as ascertained by the CDA. 69

In line with the presumption of regularity in the performance of duties of public officers, the issuance of the certificate of tax exemption
in favor of UCSFA-MPC presupposes that the cooperative submitted to the BIR the complete documentary requirements for
application, including its certificate of good standing. Simply stated, when the cooperative's certificate of tax exemption was issued in
2004, it had already obtained its certificate of good standing from the CDA.

The fact that its certificate of good standing was dated August 25, 2009, should not be detrimental to UCSFA-MPC's case. As it
correctly points out, a certificate of good standing is renewed and issued annually by the CDA. Its renewal simply shows that it has
remained to be in good standing with the CDA since its original registration. More importantly, no evidence was presented to show
that either the certificate of registration or certificate of good standing had been previously revoked.

Third, as discussed earlier, the exemption from VAT on the sale of refined sugar carries with it the exemption from the payment of
advance VAT before the withdrawal of refined sugar from the refinery/mill.

Section 109(1) of the NIRC clearly sets forth only two requisites for the exemption of the sale of refined sugar from VAT. Tax
regulations implementing Sections 61 and 62 of the Cooperative Code as well as Section 109(1) of the NIRC must be read together, and
read as well to be consistent with the laws from which they have been derived. Thus, RR 20-2001 must be understood to implement the
same principle as the Cooperative Code and the NIRC and not add to the existing requirements provided by these laws.

We must remember that regulations may not enlarge, alter, or restrict the provisions of the law it administers; it cannot engraft
additional requirements not contemplated by the legislature.70 A taxpayer-claimant should not be required to submit additional
documents beyond what is required by the law; the taxpayer-claimant should enjoy the exemption it has, by law, always been entitled
to.

Hence, once the cooperative has sufficiently shown that it has satisfied the requirements under Section 109(1) of the NIRC for the
exemption from VAT on its sale of refined sugar (i.e., that it is duly registered with the CDA and it is the producer of the sugar cane
from which refined sugar is derived), its exemption from the advance payment of VAT should automatically be granted and
recognized.

On these bases, we reject the CIR's insistence that RR No. 13-2008 requires the submission of a certificate of good standing as a
condition to a cooperative's exemption from the requirement of advance payment of VAT. In the same vein, the petitioner's argument
that the submission of monthly VAT declarations and quarterly VAT returns is essential to a claim for tax refund must also fail.

The Certificate of Tax Exemption and

BIR Ruling No. ECCP-015-2008 have
not been revoked.

Finally, the CIR questions the validity of the certificate of exemption and BIR Ruling No. ECCP-015-08 used by UCSFA-MPC to prove
its exemption from tax. Citing Commissioner of Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc.,71 the CIR
insists that the BIR rulings on which the cooperative anchors its exemption were, in the first place, deemed revoked when it filed an
Answer to the cooperative's judicial claim for refund before the CTA Division.72

On the other hand, UCSFA-MPC points out that, while the case cited held that the filing of an answer by the CIR is a revocation of
prior rulings issued in favor of the taxpayer-claimant, it has a recognized exception: the principle of non-retroactivity of rulings under
Section 246 of the NIRC.73

We agree with UCSFA-MPC.

17
The basic rule is that if any BIR ruling or issuance promulgated by the CIR is subsequently revoked or nullified by the CIR herself or by
the court, the revocation/nullification cannot be applied retroactively to the prejudice of the taxpayers. Hence, even if we consider that
the CIR had revoked the rulings previously issued in favor of UCSFA-MPC upon the filing of her answer, it cannot effectively deprive
UCSFA-MPC of its rights under the rulings prior to their revocation.

We note that, as pointed out by UCSFA-MPC, this principle was recognized as an exception in the very case the CIR cited, although the
CIR opted to omit this portion of the cited case.

Being exempt from VAT on the sale of refined sugar and the requirement of advance payment of VAT, the amounts that UCSFA-MPC
had paid from November 15, 2007 to February 13, 2009, were illegally and erroneously collected. Accordingly, a refund is in order.

WHEREFORE, we DENY the petition and accordingly AFFIRM the June 5, 2013 decision and the October 30, 2013 resolution of the
CTA en banc in CTA EB No. 846.

SO ORDERED

CORAL BAY NICKEL CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

BERSAMIN, J.:

This appeal is brought by a taxpayer whose claim for the refund or credit pertaining to its alleged unutilized input tax for the third and
fourth quarters of the year 2002 amounting to P50,124,086.75 had been denied by the Commissioner of Internal Revenue. The Court of
Tax Appeals (CTA) En Banc and in Division denied its appeal.

We sustain the denial of the appeal.

Antecedents

The petitioner, a domestic corporation engaged in the manufacture of nickel and/or cobalt mixed sulphide, is a VAT entity registered
with the Bureau of Internal Revenue (BIR). It is also registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone
Export Enterprise at the Rio Tuba Export Processing Zone under PEZA Certificate of Registration dated December 27,
2002.1chanrobleslaw

On August 5, 2003,2 the petitioner filed its Amended VAT Return declaring unutilized input tax from its domestic purchases of capital
goods, other than capital goods and services, for its third and fourth quarters of 2002 totalling P50,124,086.75. On June 14, 2004, 3 it filed
with Revenue District Office No. 36 in Palawan its Application for Tax Credits/Refund (BIR Form 1914) together with supporting
documents.

Due to the alleged inaction of the respondent, the petitioner elevated its claim to the CTA on July 8, 2004 by petition for review,
praying for the refund of the aforesaid input VAT (CTA Case No. 7022).4chanrobleslaw

After trial on the merits, the CTA in Division promulgated its decision on March 10, 20085 denying the petitioner's claim for refund on
the ground that the petitioner was not entitled to the refund of alleged unutilized input VAT following Section 106(A)(2)(a)(5) of the
National Internal Revenue Code (NIRC) of 1997, as amended, in relation to Article 77(2) of the Omnibus Investment Code and
conformably with the Cross Border Doctrine. In support of its ruling, the CTA in Division cited Commissioner of Internal Revenue
v. Toshiba Information Equipment (Phils) Inc. (Toshiba)6 and Revenue Memorandum Circular ("RMC") No. 42-03.7chanrobleslaw

After the CTA in Division denied its Motion for Reconsideration8 on July 2, 2008,9 the petitioner elevated the matter to the CTA En
Banc (CTA EB Case No. 403), which also denied the petition through the assailed decision promulgated on May 29,
2009.10chanrobleslaw

The CTA En Banc denied the petitioner's Motion for Reconsideration through the resolution dated December 10, 2009. 11chanrobleslaw

Hence, this appeal, whereby the petitioner contends that Toshiba is not applicable inasmuch as the unutilized input VAT subject of its

18
claim w(as incurred from May 1, 2002 to December 31, 2002 as a VAT-registered taxpayer, not as a PEZA-registered enterprise; that
during the period subject of its claim, it was not yet registered with PEZA because it was only on December 27, 2002 that its Certificate
of Registration was issued;12 that until then, it could not have refused the payment of VAT on its purchases because it could not present
any valid proof of zero-rating to its VAT-registered suppliers; and that it complied with all the procedural and substantive
requirements under the law and regulations for its entitlement to the refund.13chanrobleslaw

Issue

Was the petitioner, an entity located within an ECOZONE, entitled to the refund of its unutilized input taxes incurred before it became
a PEZA registered entity?

Ruling of the Court

The appeal is bereft of merit.

We first explain why we have given due course to the petition for review on certiorari despite the petitioner's premature filing of its
judiqial claim in the CTA.

The petitioner filed with the BIR on June 10, 2004 its application for tax refund or credit representing the unutilized input tax for the
third and fourth quarters of 2002. Barely 28 days later, it brought its appeal in the CTA contending that there was inaction on the part
of the petitioner despite its not having waited for the lapse of the 120-day period mandated by Section 112 (D) of the 1997 NTRC. At
the time of the petitioner's appeal, however, the applicable rule was that provided under BIR Ruling No. DA-489-03,14 issued on
December 10, 2003, to wit:ChanRoblesVirtualawlibrary

It appears, therefore, that it is not necessary for the Commissioner of Internal Revenue to first act unfavorably on the claim for refund
before the Court of Tax Appeals could validly take cognizance of the case. This is so because of the positive mandate of Section 230 of
the Tax Code and also by virtue of the doctrine that the delay of the Commissioner in rendering his decision does not extend the
reglementary period prescribed by statute.

Incidentally, the taxpayer could not be faulted for taking advantage of the full two-year period set by law for filing his claim for refund
[with the Commissioner of Internal Revenue]. Indeed, no provision in the tax code requires that the claim for refund be fxled at the
earliest instance in order to give the Commissioner an opportunity to rule on it and the court to review the ruling of the Commissioner
of Internal Revenue on appeal. xxx

As pronounced in Silicon Philippines Inc. vs. Commissioner of Internal Revenue,15 the exception to the mandatory and jurisdictional
compliance with the 120+30 day-period is when the claim for the tax refund or credit was filed in the period between December 10,
2003 and October 5, 2010 during which BIR Ruling No. DA-489-03 was still in effect. Accordingly, the premature filing of the judicial
claim was allowed, giving to the CTA jurisdiction over the appeal.

As to the main issue, we sustain the assailed decision of the CTA En Banc.

The petitioner's insistence, that Toshiba is not applicable because Toshiba Information Equipment (Phils) Inc., the taxpayer involved
thereat, was a PEZA-registered entity during the time subject of the claim for tax refund or credit, is unwarranted. The most significant
difference between Toshiba and this case is that Revenue Memorandum Circular No. 74-9916 was not yet in effect at the
time Toshiba Information Equipment (Phils) Inc. brought its claim for refund. Regardless of the distinction, however, Toshiba actually
discussed the VAT implication of PEZA-registered enterprises and ECOZONE-located enterprises in its entirety, which
renders Toshiba applicable to the petitioner's case.

Prior to the effectivity of RMC 74-99, the old VAT rule for PEZA-registered enterprises was based on their choice of fiscal incentives,
namely: (1) if the PEZA-registered enterprise chose the 5% preferential tax on its gross income in lieu of all taxes, as provided by
Republic Act No. 7916, as amended, then it was VAT-exempt; and (2) if the PEZA-registered enterprise availed itself of the income tax
holiday under Executive Order No. 226, as amended, it was subject to VAT at 10%17 (now, 12%). Based on this old rule, Toshiba allowed
the claim for refund or credit on the part of Toshiba Information Equipment (Phils) Inc.

This is not true with the petitioner. With the issuance of RMC 74-99, the distinction under the old rule was disregarded and the new
circular took into consideration the two important principles of the Philippine VAT system: the Cross Border Doctrine and the
Destination Principle. Thus, Toshiba opined:ChanRoblesVirtualawlibrary

The rule that any sale by a VAT-registered supplier from the Customs Territory to a PEZA-registered enterprise shall be considered an
export sale and subject to zero percent (0%) VAT was clearly established only on 15 October 1999, upon the issuance of RMC No. 74-99.
Prior to the said date, however, whether or not a PEZA-registered enterprise was VAT-exempt depended on the type of fiscal

19
incentives availed of by the said enterprise. This old rule on VAT-exemption or liability of PEZA-registered enterprises, followed by
the BIR, also recognized and affirmed by the CTA, the Court of Appeals, and even this Court, cannot be lightly disregarded
considering the great number of PEZA-registered enterprises which did rely on it to determine its tax liabilities, as well as, its
privileges.

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

xxxx

This old rule clearly did not take into consideration the Cross Border Doctrine essential to the VAT system or the fiction of the
ECOZONE as a foreign territory. It relied totally on the choice of fiscal incentives of the PEZA-registered enterprise. Again, for
emphasis, the old VAT rule for PEZA-registered enterprises was based on their choice of fiscal incentives: (1) If the PEZA-registered
enterprise chose the five percent (5%) preferential tax on its gross income, in lieu of all taxes, as provided by Rep. Act No. 7916, as
amended, then it would be VAT-exempt; (2) If the PEZA-registered enterprise availed of the income tax holiday under Exec. Order No.
226, as amended, it shall be subject to VAT at ten percent (10%). Such distinction was abolished by RMC No. 74-99, which
categorically declared that all sales of goods, properties, and services made by a VAT-registered supplier from the Customs Territory
to an ECOZONE enterprise shall be subject to VAT, at zero percent (0%) rate, regardless of the tatter's type or class of PEZA
registration; and, thus, affirming the nature of a PEZA-registered or an ECOZONE enterprise as a VAT-exempt entity.18 (underscoring
and Emphasis supplied)

Furthermore, Section 8 of Republic Act No. 7916 mandates that PEZA shall manage and operate the ECOZONE as a separate customs
territory. The provision thereby establishes the fiction that an ECOZONE is a foreign tenitory separate and distinct from the customs
territory. Accordingly, the sales made by suppliers from a customs territory to a purchaser located within an ECOZONE will be
considered as exportations. Following the Philippine VAT system's adherence to the Cross Border Doctrine and Destination Principle,
the VAT implications are that "no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the
territorial border of the taxing authority"19 Thus, Toshiba has discussed that:ChanRoblesVirtualawlibrary

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

It is important to note herein that respondent Toshiba is located within an ECOZONE. An ECOZONE or a Special Economic Zone
has been described as —

. . . [S]elected areas with highly developed or which have the potential to be developed into agro-industrial, industrial, tourist,
recreational, commercial, banking, investment and financial centers whose metes and bounds are fixed or delimited by Presidential
Proclamations. An ECOZONE may contain any or all of the following: industrial estates (IEs), export processing zones (EPZs), free
trade zones and tourist/recreational centers.

The national territory of the Philippines outside of the proclaimed borders of the ECOZONE shall be referred to as the Customs
Territory.

Section 8 of Rep. Act No. 7916, as amended, mandates that the PEZA shall manage and operate the ECOZONES as a separate customs
territory; thus, creating the fiction that the ECOZONE is a foreign territory. As a result, sales made by a supplier in the Customs
Territory to a purchaser in the ECOZONE shall be treated as an exportation from the Customs Territory. Conversely, sales made by
a supplier from the ECOZONE to a purchaser in the Customs Territory shall be considered as an importation into the Customs
Territory.20 (underscoring and emphasis are supplied)

The petitioner's principal office was located in Barangay Rio Tuba, Bataraza, Palawan. 21 Its plant site was specifically located inside the
Rio Tuba Export Processing Zone — a special economic zone (ECOZONE) created by Proclamation No. 304, Series of 2002, in relation
to Republic Act No. 7916. As such, the purchases of goods and services by the petitioner that were destined for consumption within the
ECOZONE should be free of VAT; hence, no input VAT should then be paid on such purchases, rendering the petitioner not entitled to
claim a tax refund or credit. Verily, if the petitioner had paid the input VAT, the CTA was correct in holding that the petitioner's proper
recourse was not against the Government but against the seller who had shifted to it the output VAT following RMC No. 42-
03,22 which provides:ChanRoblesVirtualawlibrary

In case the supplier alleges that it reported such sale as a taxable sale, the substantiation of remittance of the output taxes of the seller
(input taxes of the exporter-buyer) can only be established upon the thorough audit of the suppliers' VAT returns and corresponding

20
books and records. It is, therefore, imperative that the processing office recommends to the concerned BIR Office the audit of the
records of the seller.

In the meantime, the claim for input tax credit by the exporter-buyer should be denied without prejudice to the claimant's right to seek
reimbursement of the VAT paid, if any, from its supplier.

We should also take into consideration the nature of VAT as an indirect tax. Although the seller is statutorily liable for the payment of
VAT, the amount of the tax is allowed to be shifted or passed on to the buyejr. 23 However, reporting and remittance of the VAT paid to
the BIR remained to be the seller/supplier's obligation. Hence, the proper party to seek the tax refund or credit should be the suppliers,
not the petitioner.

In view of the foregoing considerations, the Court must uphold the rejection of the appeal of the petitioner. This Court has repeatedly
poirited out that a claim for tax refund or credit is similar to a tax exemption and should be strictly construed against the taxpayer. The
burden of proof to show that he is ultimately entitled to the grant of such tax refund or credit rests on the taxpayer. 24 Sadly, the
petitioner has not discharged its burden.

WHEREFORE, the Court AFFIRMS the decision promulgated on May 29, 2009 in CTA EB Case No. 403; and ORDERS the petitioner
to pay the costs of suit.

SO ORDERED.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. SEAGATE TECHNOLOGY (PHILIPPINES), respondent. (G.R. No.
153866; February 11, 2005)

PRINCIPLE:

Business companies registered in and operating from the Special Economic Zone in Naga, Cebu are entities exempt from all internal
revenue taxes and the implementing rules relevant thereto, including the value-added taxes or VAT. Although export sales are not
deemed exempt transactions, they are nonetheless zero-rated. Hence, the distinction between exempt entities and exempt transactions
has little significance, because the net result is that the taxpayer is not liable for the VAT. A VAT-registered enterprise may comply
with all requisites to claim a tax refund of or credit for the input VAT it paid on capital goods it purchased. In short, after compliance
with all requisites, such enterprise is entitled to refund or credit.

FACTS:

A VAT-registered enterprise, STP has principal office address at the new Cebu Township One, Special Economic Zone, Barangay
Cantao-an, Naga, Cebu. STP is registered with the Philippine Export Zone Authority (PEZA) and certified to engage in the
manufacture of recording components primarily used in computers for export. VAT returns were filed for the period 1 April 1998 to 30
June 1999. With supporting documents, a claim for refund of VAT input taxes in the amount of 28 million pesos (inclusive of the 12-
million VAT input taxes subject of this Petition for Review) was filed on 4 October 1999.

CIR did not act promptly upon STP's claim so the latter elevated the case to the CTA for review in order to toll the running of the two-
year prescriptive period.

On appeal, CIR asserted that by virtue of the PEZA registration alone of STP, the latter is not subject to the VAT. According to CIR,
STP's sales transactions intended for export are not exempt.

ISSUE:
[1] Is STP entitled to refund or tax credit for puchases?

HELD:
[1] Yes, STP is entitled to refund or tax credit

As a PEZA-registered enterprise within a special economic zone, STP is entitled to the fiscal incentives and benefit provided for in
21
either PD 66 or EO 226. It shall, moreover, enjoy all privileges, benefits, advantages or exemptions under both Republic Act Nos. (RA)
7227 and 7844.

Its sales transactions intended for export may not be exempt, but like its purchase transactions, they are zero-rated. No prior
application for the effective zero rating of its transactions is necessary. Being VAT-registered and having satisfactorily complied with
all the requisites for claiming a tax refund of or credit for the input VAT paid on capital goods purchased, STP is entitled to such VAT
refund or credit.

STP, which as an entity is exempt, is different from its transactions which are not exempt. The end result, however, is that it is not
subject to the VAT. The non-taxability of transactions that are otherwise taxable is merely a necessary incident to the tax exemption
conferred by law upon it as an entity, not upon the transactions themselves.

Yes, Seagate is entitled to refund or credit. As a PEZA-registered enterprise within a special economic zone, respondent is entitled to
the fiscal incentives and benefit provided for in either PD 66 or EO 226. It shall, moreover, enjoy all privileges, benefits, advantages or
exemptions under both Republic Act Nos. (RA) 7227 and 7844.

Respondent, which as an entity is exempt, is different from its transactions which are not exempt. The end result, however, is that it is
not subject to the VAT. The non-taxability of transactions that are otherwise taxable is merely a necessary incident to the tax exemption
conferred by law upon it as an entity, not upon the transactions themselves.

The petitioner’s assertion that the capital goods and services respondent has purchased are not considered used in the VAT business,
and thus no VAT refund or credit is due is non sequitur. On this matter, the SC held that by the VAT’s very nature as a tax on
consumption, the capital goods and services respondent has purchased are subject to the VAT, although at zero rate.

Seagate has complied with all the requisites for VAT refund or credit. First, respondent is a VAT-registered entity. Second, the input
taxes paid on the capital goods of respondent are duly supported by VAT invoices and have not been offset against any output taxes.

To summarize, special laws expressly grant preferential tax treatment to business establishments registered and operating within an
ecozone, which by law is considered as a separate customs territory. As such, respondent is exempt from all internal revenue taxes,
including the VAT, and regulations pertaining thereto. Its sales transactions intended for export may not be exempt, but like its
purchase transactions, they are zero-rated. No prior application for the effective zero rating of its transactions is necessary. Being VAT-
registered and having satisfactorily complied with all the requisites for claiming a tax refund of or credit for the input VAT paid on
capital goods purchased, respondent is entitled to such VAT refund or credit.

Having determined that respondent’s purchase transactions are subject to a zero VAT rate, the SC has determined that tax refund or
credit is in order.

Zero-Rated and Effectively Zero-Rated Transactions

Although both are taxable and similar in effect, zero-rated transactions differ from effectively zero-rated transactions as to their
source.

Zero-rated transactions generally refer to the export sale of goods and supply of services. 47 The tax rate is set at zero.48 When applied
to the tax base, such rate obviously results in no tax chargeable against the purchaser. The seller of such transactions charges no
output tax,49 but can claim a refund of or a tax credit certificate for the VAT previously charged by suppliers.

Effectively zero-rated transactions, however, refer to the sale of goods 50 or supply of services51 to persons or entities whose
exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such
transactions to a zero rate.52 Again, as applied to the tax base, such rate does not yield any tax chargeable against the purchaser. The
seller who charges zero output tax on such transactions can also claim a refund of or a tax credit certificate for the VAT previously
charged by suppliers.

Zero Rating and Exemption

In terms of the VAT computation, zero rating and exemption are the same, but the extent of relief that results from either one of
them is not.

Applying the destination principle53 to the exportation of goods, automatic zero rating54 is primarily intended to be enjoyed by the
seller who is directly and legally liable for the VAT, making such seller internationally competitive by allowing the refund or
credit of input taxes that are attributable to export sales.55 Effective zero rating, on the contrary, is intended to benefit the purchaser
who, not being directly and legally liable for the payment of the VAT, will ultimately bear the burden of the tax shifted by the
suppliers.

22
In both instances of zero rating, there is total relief for the purchaser from the burden of the tax.56 But in an exemption there is
only partial relief,57 because the purchaser is not allowed any tax refund of or credit for input taxes paid.58

Exempt Transaction >and Exempt Party

The object of exemption from the VAT may either be the transaction itself or any of the parties to the transaction. 59

An exempt transaction, on the one hand, involves goods or services which, by their nature, are specifically listed in and expressly
exempted from the VAT under the Tax Code, without regard to the tax status -- VAT-exempt or not -- of the party to
the transaction.60 Indeed, such transaction is not subject to the VAT, but the seller is not allowed any tax refund of or credit for any
input taxes paid.

An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax Code, a special law or an
international agreement to which the Philippines is a signatory, and by virtue of which its taxable transactions become exempt
from the VAT.61 Such party is also not subject to the VAT, but may be allowed a tax refund of or credit for input taxes paid,
depending on its registration as a VAT or non-VAT taxpayer.

As mentioned earlier, the VAT is a tax on consumption, the amount of which may be shifted or passed on by the seller to the
purchaser of the goods, properties or services.62 While the liability is imposed on one person, the burden may be passed on to
another. Therefore, if a special law merely exempts a party as a seller from its direct liability for payment of the VAT, but does not
relieve the same party as a purchaser from its indirect burden of the VAT shifted to it by its VAT-registered suppliers, the purchase
transaction is not exempt. Applying this principle to the case at bar, the purchase transactions entered into by respondent are not
VAT-exempt.

LAWS MENTIONED IN THIS CASE:

PD 66 = exemption from internal revenue laws and regulations for raw materials, etc. brough into the zone to be stored, broken up, etc.

Despite availment of PD 66 benefits, the following will still apply: net-operating loss carry over; accelerated depreciation; foreign
exchange and financial assistance; and exemption from export taxes, local taxes and licenses.

EO 226 = income tax holiday; additional deduction for labor expense; simplification of customs procedure; unrestricted use of
consigned equipment; access to a bonded manufacturing warehouse system; privileges for foreign nationals employed; tax credits on
domestic capital equipment, as well as for taxes and duties on raw materials; and exemption from contractors taxes, wharfage dues,
taxes and duties on imported capital equipment and spare parts, export taxes, duties, imposts and fees, local taxes and licenses, and
real property taxes.

Despite availment of EO 226 benefits, the following will still apply: net-operating loss carry over; accelerated depreciation; foreign
exchange and financial assistance; and exemption from export taxes, local taxes and licenses.

RA 7227 = tax and duty-free importation of raw materials, capital and equipment. Availment of RA 7227 benefits does not stop the
ecozone benefits under RA 7916.

RA 7227 = no local or national taxes shall be imposed in the zone. Banking and finance shall also be liberalized under minimum
Bangko Sentral regulation with the establishment of foreign currency depository units of local commercial banks and offshore banking
units of foreign banks.

RA 7844 = negotiable tax credits for locally-produced materials used as inputs. PD 1853 = preferential credit facilities

23
Fort Bonifacio Development Corp. v. CIR (2014)

Facts:

The Court has consolidated these three petitions as they involve the same parties, similar facts and common questions of law.

Theory of Petitioner

Petitioner claims that "the 10% value-added tax is based on the gross selling price or gross value in money of the ‘goods’ sold, bartered
or exchanged." Petitioner likewise claims that by definition, the term "goods" was limited to "movable, tangible objects which is
appropriable or transferable" and that said term did not originally include "real property." It was previously defined as follows under
Revenue Regulations No. 5-87:

(p) "Goods" means any movable, tangible objects which h is appropriable or transferrable. Republic Act No. 7716 (E-VAT Law, January
1, 1996) expanded the coverage of the original VAT Law (Executive Order No. 273), specifically Section 100 of the old NIRC.
According to petitioner, while under Executive Order No. 273, the term "goods" did not include real properties, Republic Act No. 7716,
in amending Section 100, explicitly included in the term "goods" "real properties held primarily for sale to customers or held for lease
in the ordinary course of trade or business." Consequently, the sale, barter, or exchange of real properties was made subject to a VAT
equivalent to 10% (later increased to 12%, pursuant to Republic Act No. 9337) of the gross selling price of real properties.

Among the new provisions included by Executive Order No. 273 in the NIRC was the following:

SEC. 105. Transitional Input Tax Credits. — A person who becomes liable to value-added tax or any person who elects to be a VAT
registered person shall, subject to the filing of an inventory as prescribed by regulations, be allowed input tax on his beginning
inventory of goods, materials and supplies equivalent to 8%of the value of such inventory or the actual value-added tax paid on such
goods, materials and supplies, whichever is higher, which shall be creditable against the output tax.

Theory of Respondents

Petitioner’s claims for refund were consistently denied in the three cases now before us. Even if in one case, G.R. No. 180035, petitioner
succeeded in getting a favorable decision from the CTA, the grant of refund or tax credit was subsequently reversed on respondents’
Motion for Reconsideration, and such denial of petitioner’s claim was affirmed by the Court of Appeals. Respondents’ reasons for
denying petitioner’s claims are summarized in their Comment in G.R. No. 175707, and we quote:

REASONS WHY PETITION SHOULD BE DENIED OR DISMISSED

1. The 8% input tax credit provided for in Section 105 of the NIRC, in relation to Section 100 thereof, is based on the value of the
improvements on the land.

2. The taxpayer is entitled to the input tax credit provided for in Section 105 of the NIRC only if it has previously paid VAT or sales
taxes on its inventory of land.

3. Section 4.105-1 of Revenue Regulations No. 7-95 of the BIR is valid, effective and has the force and effect of law, which implemented
Section 105 of the NIRC.

In respondents’ Comment dated November 3, 2008 in G.R. No. 180035, they averred that petitioner’s claim for the 8%
transitional/presumptive input tax is "inconsistent with the purpose and intent of the law in granting such tax refund or tax credit."
Respondents raise the following arguments:

1. The transitional input tax provided under Section 105 in relation to Section 100 of the Tax Code, as amended by EO No. 273 effective
January 1, 1988, is subject to certain conditions which petitioner failed to meet.

24
2. The claim for petitioner for transitional input tax is in the nature of a tax exemption which should be strictly construed against it.

3. Revenue Regulations No. 7-95 is valid and consistent with provisions of the NIRC.76 Moreover, respondents contend that:

"[P]etitioner is not legally entitled to any transitional input tax credit, whether it be the 8% presumptive inputtax credit or any actual
input tax credit in respect of its inventory of land brought into the VAT regime beginning January 1, 1996, in view of the following:

1. VAT free acquisition of the raw land.– petitioner purchased and acquired, from the Government, the aforesaid raw land under a
VAT free sale transaction. The Government, as a vendor, was tax- exempt and accordingly did not pass on any VAT or sales tax as part
of the price paid therefor by the petitioner.

2. No transitory input tax on inventory of land is allowed. Section 105 of the Code, as amended by Republic Act No. 7716, and as
implemented by Section 4.105-1 of Revenue Regulations No. 7-95, expressly provides that no transitional input tax credit shall be
allowed to real estate dealers in respect of their beginning inventory of land brought into the VAT regime beginning January 1, 1996
(supra). Likewise, the Transitory Provisions [(a) (iii)] of Revenue Regulations No. 7-95 categorically states that "for real estate dealers,
the presumptive input tax of 8% of the book value of improvements constructed on or after January 1, 1998 (effectivity of E.O. 273)
shall be allowed." For purposes of subparagraphs (i), (ii) and (iii) above, an inventory as of December 31, 1995 of such goods or
properties and improvements showing the quantity, description, and amount should be filed with the RDO not later than January 31,
1996. It is admitted that petitioner filed its inventory listing of real properties on September 19, 1996 or almost nine (9) months late in
contravention [of] the requirements in Revenue Regulations No. 7-95."

Issues:

The main issue before us now is whether or not petitioner is entitled to a refund of the amounts of: 1) ₱486,355,846.78 in G.R. No.
175707, 2) ₱77,151,020.46 for G.R. No. 180035, and 3) ₱269,340,469.45 in G.R. No. 181092, which it paid as value-added tax, or to a tax
credit for said amounts.

To resolve the issue stated above, it is also necessary to determine:

● Whether the transitional/presumptive input tax credit under Section 105 of the NIRC may be claimed only on the
"improvements" on real properties;

● Whether there must have been previous payment of sales tax or value added tax by petitioner on its land before it may claim the
input tax credit granted by Section 105 of the NIRC;

● Whether Revenue Regulations No. 7-95 is a valid implementation of Section 105 of the NIRC; and

● Whether the issuance of Revenue Regulations No. 7-95 by the BIR, and declaration of validity of said Regulations by the Court of
Tax Appeals and the Court of Appeals, was in violation of the fundamental principle of separation of powers.

Rulings:

A. G.R. No. 175707

1. CTA Case No. 5885 Decision (October 13, 2000)

The CTA traced the history of "transitional input tax credit" from the original VAT Law of 1988 (Executive Order No. 273) up to the
Tax Reform Act of 1997 and looked into Section 105 of the Tax Code. According to the CTA, the BIR issued Revenue Regulations No.
5-87, specifically Section 26(b), to implement the provisions of Section 105. The CTA concluded from these provisions that "the
purpose of granting transitional input tax credit to be utilized as payment for output VAT is primarily to give recognition to the sales
tax component of inventories which would qualify as input tax credit had such goods been acquired during the effectivity of the VAT
Law of 1988." The CTA stated that the purpose of transitional input tax credit remained the same even after the amendments
introduced by the E-VAT Law. The CTA held that "the rationale in granting the transitional input tax credit also serves as its condition
25
for its availment as a benefit" and that "[i]nherent in the law is the condition of prior payment of VAT or sales taxes." The CTA
excluded petitioner from availing of the transitional input tax credit provided by law, reasoning that "to base the 8% transitional input
tax on the book value of the land is to negate the purpose of the law in granting such benefit. It would be tantamount to giving an
undeserved bonus to real estate dealers similarly situated as petitioner which the Government cannot afford to
provide." Furthermore, the CTA held that respondent was correct in basing the 8% transitional input tax credit on the value of the
improvements on the land, citing Section 4.105-1 of Revenue Regulations No. 7-95, which the CTA claims is consistent and in harmony
with the law it seeks to implement. Thus, the CTA denied petitioner’s claim for refund.

2. CA-G.R. No. 61516 Decision (April 22, 2003)

The Court of Appeals affirmed the CTA and ruled that petitioner is not entitled to refund or tax credit in the amount of
₱486,355,846.78 and stated that "Revenue Regulations No. 7-95 is a valid implementation of the NIRC."87 According to the Court of
Appeals:

"[P]etitioner acquired the contested property from the National Government under a VAT-free transaction. The Government, as a
vendor was outside the operation of the VAT and ergo, could not possibly have passed on any VAT or sales tax as part of the purchase
price to the petitioner as vendee."

x x x [T]he grant of transitional input tax credit indeed presupposes that the manufacturers, producers and importers should have
previously paid sales taxes on their inventories. They were given the benefit of transitional input tax credits, precisely, to make up for
the previously paid sales taxes which were now abolished by the VAT Law. It bears stressing that the VAT Law took the place of
privilege taxes, percentage taxes and sales taxes on original or subsequent sale of articles. These taxes were substituted by the VAT at
the constant rate of 0% or 10%.

3. CA-G.R. No. 61516 Resolution (November 30, 2006)

Upon petitioner’s Motion for Reconsideration, the Court of Appeals affirmed its decision, but we find the following statement by the
appellate court worthy of note:

We concede that the inventory restrictions under Revenue Regulation No. 7-95 limiting the coverage of the inventory only to
acquisition cost of the materials used in building "improvements" has already been deleted by Revenue Regulation 6-97. This
notwithstanding, we are poised to sustain our earlier ruling as regards the refund presently claimed.

B. G.R. No. 180035

1. CTA Case No. 6021 Decision (January 30, 2002)

The CTA sustained petitioner’s position and held that respondent erred in basing the transitional input tax credit of real estate dealers
on the value of the improvements. The CTA ratiocinated as follows:

This Court, in upholding the position taken by the petitioner, is convinced that Section 105 of the Tax Code is clear in itself. Explicit
therefrom is the fact that a taxpayer shall be allowed a transitional/presumptive input tax credit based on the value of its beginning
inventory of goods which is defined in Section 100 as to encompass even real property. x x x.

The CTA went on to point out inconsistencies it had found between the transitory provisions of Revenue Regulations No. 7-95 and the
law it sought to implement, in the following manner:

Notice that letter (a)(ii) of the x x x transitory provisions states that goods or properties purchased with the object of resalein their
present condition comes with the corresponding 8% presumptive input tax of the value of the goods, which amount may also be
credited against the output tax of a VAT-registered person. It must be remembered that Section 100 as amended by Republic Act No.

26
7716 extends the term "goods or properties" to real properties held primarily for sale to customers or held for lease in the ordinary
course of trade or business. This provision alone entitles Petitioner to the 8%presumptive input tax of the value of the land (goods or
properties) sold. However in letter (a)(iii) of the same Transitory Provisions, Respondent apparently changed his (sic) course when it
declared that real estate dealers are only entitled to the 8% of the value of the improvements. This glaring inconsistency between the
two provisions prove that Revenue Regulations No. 7-95 was not a result of an intensive study and analysis and may have been
haphazardly formulated.

Clearly, Petitioner is entitled to the presumptive input tax in the amount of ₱5,698,200,256.00, computed as follows:

Book Value of Inventory x x x ₱71,227,503,200.00

Multiply by Presumptive

Input Tax rate _____ 8%

Available Presumptive Input Tax ₱5,698,200,256.00

To prove the fact of overpayment, Petitioner presented the original Monthly VAT Declaration for the month of January 1998 showing
the amount of ₱77,151,020.46 as the cash component of the value- added taxes paid (Exhibits E-14 & E-14-A) which is the subject
matter of the instant claim for refund.

In Petitioner’s amended quarterly VAT return for the 1st quarter of 1998 (Exhibit D-1), Petitioner deducted the amount of
₱77,151,020.46 from the total available input tax toshow that the amount being claimed would no longer be available as input tax
credit.

In conclusion, the Petitioner has satisfactorily proven its entitlement to the refund of value-added taxes paid for the first quarter of
taxable year 1998.

WHEREFORE, in view of the foregoing, the Petition for Review is GRANTED.

2. CTA Case No. 6021 Resolution (March 28, 2003)

The CTA reversed its earlier ruling upon respondents’ motion for reconsideration and thus denied petitioner’s claim for refund. The
CTA reasoned and concluded as follows:

The vortex of the controversy in the instant case actually involves the question of whether or not Section 4.105-1 of Revenue
Regulations No. 7-95, issued by the Secretary of Finance upon recommendation of the Commissioner of Internal Revenue, is valid and
consistent with and not violative of Section 105 of the Tax Code, in relation to Section 100 (a)(1)(A).

xxxx

Section 105, which requires the filing of an inventory for the grant of the transitional input tax, is couched in a manner where there is a
need for an implementing rule or regulation to carry its intendment. True to its wordings, the BIR issued Revenue Regulations No. 7-
95 (specifically Section 4.105-1) which succinctly mentioned that the basis of the presumptive input tax shall be the improvements in
case of real estate dealers.

xxxx

WHEREFORE, in view of the foregoing, the instant Motion for Reconsideration filed by respondents is hereby GRANTED.

3. CA-G.R. SP No. 76540 Decision (April 30, 2007)

27
The Court of Appeals affirmed the CTA’s Resolution denying petitioner’s claim for refund, and we quote portions of the discussion
from the Court of Appeals decision below:

To Our mind, the key to resolving the jugular issue of this controversy involves a deeper analysis on how the much-contested
transitional input tax credit has been encrypted in the country’s value added tax (VAT) system.

xxxx
x x x [T]he Commissioner of Internal Revenue promulgated Revenue Regulations No. 7-95which laid

down, among others, the basis of the transitional input tax credit for real estate dealers:

xxxx

The Regulation unmistakably allows credit for transitional input tax of any person who becomes liable to VAT or who elects to be a
VAT registered person. More particularly, real estate dealers who were beforehand not subject to VAT are allowed a tax credit to
cushion the staggering effect of the newly imposed 10% output VAT liability under RA No. 7716.

Bearing in mind the purpose of the transitional input tax credit under the VAT system, We find it incongruous to grant petitioner’s
claim for tax refund. We take note of the fact that petitioner acquired the Global City lots from the National Government. The
transaction was not subject to any sales or business tax. Since the seller did not pass on any tax liability to petitioner, the latter may not
claim tax credit. Clearly then, petitioner cannot simply demand that it is entitled to the transitional input tax credit.

Lawmakers went on to say that the creditable input tax shall be whichever is higher between the value of the inventory and the actual
VAT paid. Necessarily then, a comparison of these two figures would have to be made. This strengthens Our view that previous
payment of the VAT is indispensable to determine the actual value of the input tax creditable against the output tax. So too, this is in
consonance with the present tax credit method adopted in this jurisdiction whereby an entity can credit against or subtract from the
VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports.

Petitioner insists that the term "goods" which was one of the bases in computing the transitional input tax credit must be construed so
as to include real properties held primarily for sale to customers. Petitioner posits that respondent Commissioner practically rewrote
the law when it issued Revenue Regulations No. 7-95 which limited the basis of the 8% transitional input tax credit to the value of
improvements alone.

Petitioner is clearly mistaken.

The term "goods" has been defined to mean any movable or tangible objects which are appreciable or tangible. More specifically, the
word "goods" is always used to designate wares, commodities, and personal chattels; and does not include chattels real. "Real
property" on the other hand, refers to land, and generally whatever is erected or growing upon or affixed to land. It is therefore quite
absurd to equate "goods" as being synonymous to "properties". The vast difference between the terms "goods" and "real properties" is
so obvious that petitioner’s assertion must be struck down for being utterly baseless and specious.

Along this line, We uphold the validity of Revenue Regulations No. 7-95. The authority of the Secretary of Finance, in conjunction with
the Commissioner of Internal Revenue, to promulgate all needful rules and regulations for the effective enforcement of internal
revenue laws cannot be controverted. Neither can it be disputed that such rules and regulations, as well as administrative opinions
and rulings, ordinarily should deserve weight and respect by the courts. Much more fundamental than either of the above, however, is
that all such issuances must not override, but must remain consistent and in harmony with, the law they seek to apply and implement.
Administrative rules and regulations are intended to carry out, neither to supplant nor to modify, the law. Revenue Regulations No. 7-
95 is clearly not inconsistent with the prevailing statute insofar as the provision on transitional input tax credit is concerned.

4. CA-G.R. SP No. 76540 Resolution (October 8, 2007)

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In this Resolution, the Court of Appeals denied petitioner’s Motion for Reconsideration of its Decision dated April 30, 2007.

C. G.R. No. 181092

1. CTA Case No. 5694 Decision (September 29, 2000)

Applying the rule on statutory construction that particular words, clauses and phrases should not be studied as detached and isolated
expressions, but the whole and every part of the statute must be considered in fixing the meaning of any of its parts in order to
produce a harmonious whole, the phrase "transitional input tax" found in Section 105 should be understood to encompass goods,
materials and supplies which are subject to VAT, in line with the context of "input tax" as defined in Section 104, most especially that
the latter includes, and immediately precedes, the former under its statutory meaning. Petitioner’s contention that the 8% transitional
input tax is statutorily presumed to the extent that its real properties which have not been subjected to VAT are entitled thereto, would
directly contradict "input tax" as defined in Section 104 and would invariably cause disharmony.

The CTA held that the 8% transitional input tax should not be viewed as an outright grant or presumption without need of prior taxes
having been paid. Expounding on this, the CTA said: The simple instance in the aforesaid paragraphs of requiring the tax on the
materials, supplies or goods comprising the inventory to be currently unutilized as deferred sales tax credit before the 8% presumptive
input tax can be enjoyed readily leads to the inevitable conclusion that such 8% tax cannot be just granted toany VAT liable person if
he has no priorly paid creditable sales taxes. Legislative intent thus clearly points to priorly paid taxes on goods, materials and
supplies before a VAT registered person can avail of the 8% presumptive input tax.

2. CA-G.R. SP No. 61158 Decision (December 28, 2007)

The Court of Appeals affirmed the CTA’s denial of petitioner’s claim for refund and upheld the validity of the questioned Revenue
Regulation issued by respondent Commissioner ofInternal Revenue, reasoning as follows:

Sec. 105 of the NIRC, as amended, provides that the allowance for the 8% input tax on the beginning inventory of a VAT-covered
entity is "subject to the filing of an inventory as prescribed by regulations." This means that the legislature left to the BIR the
determination of what will constitute the beginning inventory ofgoods, materials and supplies which will, in turn, serve as the basis
for computing the 8% input tax.

While the power to tax cannot be delegated to executive agencies, details as to the enforcement and administration of an exercise of
such power may be left to them, including the power to determine the existence of facts on which its operation depends x x x. Hence,
there is no gainsaying that the CIR and the Secretary of Finance, in limiting the application of the input tax of real estate dealers to
improvements constructed on or after January 1, 1988, merely exercised their delegated authority under Sec. 105, id., to promulgate
rules and regulations defining what should be included in the beginning inventory of a VAT-registered entity.

xxxx

In the instant case, We find that, contrary to petitioner’s attacks against its validity, the limitation on the beginning inventory of real
estate dealers contained in Sec. 4.105-1 of RR No. 7-95 is reasonable and consistent with the natureof the input VAT. x x x.

As previously stated, the issues here have already been passed upon and resolved by this Court En Banc twice, in decisions that have
reached finality, and we are bound by the doctrine of stare decisis to apply those decisions to these consolidated cases, for they involve
the same facts, issues, and even parties.

Thus, we find for the petitioner.

Fort Bonifacio vs CIR

Case Digest GR 173425 Jan 22 2013

29
Facts:

In 1995, Fort Bonifacio Development Corporation purchased from the national government a portion of the Fort Bonifacio reservation.
On January 1, 1996, the enactment of RA 7716 extended the coverage of VAT to real properties held primarily for sale to customers or
held for lease in the ordinary course of trade or business. Thus, FBDC sought to register by submitting to BIR an inventory of all its
real properties, the book value of which aggregated to about P71 B.

In October 1996, FBDC started selling Global City lots to interested buyers. For the first quarter of 1997, it paid the output VAT by
making cash payments to the BIR and credited its unutilized input tax credit on purchases of goods and services. Realizing that its 8%
transitional input tax credit was not applied in computing its output VAT for the first quarter of 1997, FBDC filed with the BIR a claim
for refund of the amount erroneously paid as output VAT for the said period.

The CTA denied refund on the ground that “the benefit of transitional input tax credit comes with the condition that business taxes
should have been paid first.” It contends that since FBDC acquired the Global City property under a VAT-free sale transaction, it
cannot avail of the transitional input tax credit. The CTA likewise pointed out that under RR 7-95, implementing Section 105 of the old
NIRC, the 8% transitional input tax credit should be based on the value of the improvements on land such as buildings, roads,
drainage system and other similar structures, constructed on or after January 1, 1998, and not on the book value of the real property.

Issue 1:

W/N prior payment of taxes is required in availing of the transitional input tax credit

No. First, nothing in Sec 105 of the NIRC indicates that prior payment of taxes is necessary to avail of the transitional input tax credit.
Clearly, all it requires is for the taxpayer to file a beginning inventory with the BIR. Courts cannot limit the application or coverage of a
law nor can it impose conditions not provided therein because to do so constitutes judicial legislation.

Second, prior payment of taxes is not required to avail of the transitional input tax credit because it is not a tax refund per se but a tax
credit. Tax credit is not synonymous to tax refund. Tax refund is defined as the money that a taxpayer overpaid and is thus returned
by the taxing authority. Tax credit, on the other hand, is an amount subtracted directly from one’s total tax liability. It is any amount
given to a taxpayer as a subsidy, a refund, or an incentive to encourage investment. Thus, unlike a tax refund, prior payment of taxes
is not a prerequisite to avail of a tax credit.

30
Lastly, the fact that FBDC acquired the Global City property under a tax-free transaction makes no difference as prior payment of taxes
is not a pre-requisite.

Issue 2:

W/N the transitional input tax credit applies only to the value of improvements

No. Section 4.105-1 of RR 7-95, insofar as it limits the transitional input tax credit to the value of the improvement of the real
properties, is a nullity. The 8% transitional input tax credit should not be limited to the value of the improvements on the real
properties but should include the value of the real properties as well.

Hence, since FBDC is entitled to the 8% transitional input tax credit which is more than sufficient to cover its output tax for the first
taxable quarter, the amount of VAT output taxes erroneously paid must be refunded.

Issue 3: W/N the Tax Code allows either a cash refund or a tax credit for input VAT

Yes. First, a careful reading of Section 112 of the Tax Code shows that it does not prohibit cash refund or tax credit of transitional input
tax in the case of zero-rated or effectively zero-rated VAT registered taxpayers, who do not have any output VAT.

The phrase “except transitional input tax” in Section 112 of the Tax Code was inserted to distinguish creditable input tax from
transitional input tax credit. Transitional input tax credits are input taxes on a taxpayer’s beginning inventory of goods, materials, and
supplies equivalent to 8% (then 2%) or the actual VAT paid on such goods, materials and supplies, whichever is higher. It may only be
availed of once by first-time VAT taxpayers. Creditable input taxes, on the other hand, are input taxes of VAT taxpayers in the course
of their trade or business, which should be applied within two years after the close of the taxable quarter when the sales were made.

As regards Section 110, while the law only provides for a tax credit, a taxpayer who erroneously or excessively pays his output tax is
still entitled to recover the payments he made either as a tax credit or a tax refund

31
Here, since FBDC still has available transitional input tax credit, it filed a claim for refund to recover the output VAT it erroneously or excessively paid
for the 1st quarter of 1997. Thus, there is no reason for denying its claim for tax refund/credit.

ATLAS CONSOLIDATED MINING DEVT CORP vs. CIR

524 SCRA 73, 103
GR Nos. 141104 & 148763, June 8, 2007

"The taxpayer must justify his claim for tax exemption or refund by the clearest grant of organic or statute law and should not be permitted to stand on
vague implications."

"Export processing zones (EPZA) are effectively considered as foreign territory for tax purposes."

FACTS: Petitioner corporation, a VAT-registered taxpayer engaged in mining, production, and sale of various mineral products, filed claims with the
BIR for refund/credit of input VAT on its purchases of capital goods and on its zero-rated sales in the taxable quarters of the years 1990 and 1992. BIR
did not immediately act on the matter prompting the petitioner to file a petition for review before the CTA. The latter denied the claims on the grounds
that for zero-rating to apply, 70% of the company's sales must consists of exports, that the same were not filed within the 2-year prescriptive period (the
claim for 1992 quarterly returns were judicially filed only on April 20, 1994), and that petitioner failed to submit substantial evidence to support its claim
for refund/credit.
The petitioner, on the other hand, contends that CTA failed to consider the following: sales to PASAR and PHILPOS within the EPZA as zero-rated
export sales; the 2-year prescriptive period should be counted from the date of filing of the last adjustment return which was April 15, 1993, and not on
every end of the applicable quarters; and that the certification of the independent CPA attesting to the correctness of the contents of the summary of
suppliers’ invoices or receipts examined, evaluated and audited by said CPA should substantiate its claims.

ISSUE: Did the petitioner corporation sufficiently establish the factual bases for its applications for refund/credit of input VAT?

HELD: No. Although the 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 PASAR and PHILPOS inside the EPZA are taxed as
exports because these export processing zones 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, 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 period claimed for not being established and substantiated by appropriate and sufficient
evidence.
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.

COMMISSIONER OF INTERNAL REVENUE v. SAN ROQUE POWER CORPORATION. G.R. No. 187485; February 12, 2013.

FACTS: San Roque Power Corporation, Taganito Mining Corporation, and Philix Mining Corporation, are all domestic corporations having their
respective line of business.

The petition stemmed from the separate claims of the parties before the CIR for tax refund and/or credit. The respective petitions were decided on the
basis of their filing of such within the periods prescribed by the law.

Thus, after review, the CTA En Banc rendered the following judgments:

With respect to San Roque Corporation, the CTA En Banc denied CIRs petition holding that San Roque's judicial claim was not prematurely filed.

As regards to Taganito Mining Corporation, the CTA En Banc granted the CIRs petition on the fround that Taganitos judicial claim was prematurely
filed.

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As to Philex Mining Corporation, the CTA En Banc denied Philexs petition on the ground that its judicial claim long after the expiration of the 120-day
period.

ISSUE: Whether or not the judicial claims for tax refund or credit were filed within the mandatory period prescribed by law?

HELD: Records show that a mere 13 days after it filed its amended administrative claim with the Commissioner on 28 March 2003, San Roque filed a
Petition for Review with the CTA docketed as CTA Case No. 6647.

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 the statute books for more than fifteen (15) years before San Roque filed its judicial claim.

Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates the doctrine of exhaustion of administrative
remedies and renders the petition premature and thus without a cause of action, with the effect that the CTA does not acquire jurisdiction over the
taxpayers petition. Philippine jurisprudence is replete with cases upholding and reiterating these doctrinal principles.

San Roque's failure to comply with the 120-day mandatory period renders its petition for review with the CTA void. 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 petitions validity.

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.

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 taxpayers claim for tax refund or credit, whether or not the Commissioner
questions the numerical correctness of the claim of the taxpayer. The 120-day period may extend beyond the two-year prescriptive period, as long as the
administrative claim is filed within the two-year prescriptive period. However, San Roque's fatal mistake is that it did not wait for the Commissioner to
decide within the 120-day mandatory period. 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 taxpayers claim.

The taxpayer cannot simply file a petition with the CTA without waiting for the Commissioners 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. 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 Commissioners decision, or if the
Commissioner does not act on the taxpayers claim within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of
the 120-day period.

As to Taganito, it also filed its petition for review with the CTA without waiting for the 120-day period to lapse. Taganito filed a Petition for Review on
14 February 2007 with the CTA. Taganito is similarly situated as San Roque - both cannot claim being misled, misguided, or confused by the Atlas
doctrine.

However, Taganito can invoke BIR Ruling No. DA-489-03 dated 10 December 2003, which expressly ruled that the taxpayer-claimant need not wait for
the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review. Thus, Taganito is deemed to have filed its
judicial claim with the CTA on time.

With respect to Philex, it timely filed its administrative claim on 20 March 2006, within the two-year prescriptive period. Even if the two-year
prescriptive period is computed from the date of payment of the output VAT under Section 229, Philex still filed its administrative claim on time. The
Commissioner had until 17 July 2006, the last day of the 120-day period, to decide Philexs claim. Since the Commissioner did not act on Philexs claim on
or before 17 July 2006, Philex had until 17 August 2006, the last day of the 30-day period, to file its judicial claim. The CTA EB held that 17 August 2006
was indeed the last day for Philex to file its judicial claim. However, Philex filed its Petition for Review with the CTA only on 17 October 2007, or four
hundred twentysix (426) days after the last day of filing. In short, Philex was late by one year and 61 days in filing its judicial claim.

Philex did not file any petition with the CTA within the 120-day period. Philex did not also file any petition with the CTA within 30 days after the

33
expiration of the 120-day period. Philex filed its judicial claim long after the expiration of the 120-day period, in fact 426 days after the lapse of the 120-
day period. Theinaction of the Commissioner on Philexs claim during the 120-day period is, by express provision of law, deemed a denial of Philexs
claim. Philex had 30 days from the expiration of the 120-day period to file its judicial claim with the CTA. Philexs failure to do so rendered the deemed a
denial decision of the Commissioner final and inappealable. The right to appeal to the CTA from a decision or deemed a denial decision of the
Commissioner is merely a statutory privilege, not a constitutional right. The exercise of such statutory privilege requires strict compliance with the
conditions attached by the statute for its exercise.

xxx

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. Thus, 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.

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, 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).

***

The input VAT is not excessively collected as understood under Section 229 because at the time the input VAT is collected the amount paid is correct
and proper. The input VAT is a tax liability of, and legally paid by, a VAT-registered seller of goods, properties or services used as input by another
VAT-registered person in the sale of his own goods, properties, or services. The second VAT-registered person, who is not legally liable for the input
VAT, is the one who applies the input VAT as credit for his own output VAT. If the input VAT is in fact excessively collected as understood under
Section 229, then it is the first VAT-registered person - the taxpayer who is legally liable and who is deemed to have legally paid for the input VAT -
who can ask for a tax refund or credit under Section 229 as an ordinary refund or credit outside of the VAT System. In such event, the second VAT-
registered taxpayer will have no input VAT to offset against his own output VAT.

In a claim for refund or credit of excess input VAT under Section 110(B) and Section 112(A), the input VAT is not excessively collected as understood
under Section 229. At the time of payment of the input VAT the amount paid is the correct and proper amount. Under the VAT System, there is no claim
or issue that the input VAT is excessively collected, that is, that the input VAT paid is more than what is legally due. The person legally liable for the
input VAT cannot claim that he overpaid the input VAT by the mere existence of an excess input VAT. The term excess input VAT simply means that
the input VAT available as credit exceeds the output VAT, not that the input VAT is excessively collected because it is more than what is legally due.
Thus, the taxpayer who legally paid the input VAT cannot claim for refund or credit of the input VAT as excessively collected under Section 229.

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

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

34
Under Section 110(B), a taxpayer can apply his input VAT only against his output VAT. The only exception is when the taxpayer is expressly zero-rated
or effectively zero-rated under the law, like companies generating power through renewable sources of energy. Thus, a non zerorated VAT-registered
taxpayer who has no output VAT because he has no sales cannot claim a tax refund or credit of his unused input VAT under the VAT System. Even if
the taxpayer has sales but his input VAT exceeds his output VAT, he cannot seek a tax refund or credit of his excess input VAT under the VAT System.
He can only carry-over and apply his excess input VAT against his future output VAT. If such excess input VAT is an excessively collected tax, the
taxpayer should be able to seek a refund or credit for such excess input VAT whether or not he has output VAT.

The VAT System does not allow such refund or credit. Such excess input VAT is not an excessively collected tax under Section 229. The excess input
VAT is a correctly and properly collected tax. However, such excess input VAT can be applied against the output VAT because the VAT is a tax imposed
only on the value added by the taxpayer. If the input VAT is in fact excessively collected under Section 229, then it is the person legally liable to pay the
input VAT, not the person to whom the tax was passed on as part of the purchase price and claiming credit for the input VAT under the VAT System,
who can file the judicial claim under Section 229. Thus, it is clear that there must be a wrongful payment because what is paid, or part of it, is not legally
due.

***

There is nothing in RMC 49-03 that states, expressly or impliedly, that the taxpayer need not wait for the 120-day period to expire before filing a judicial
claim with the CTA. RMC 49-03 merely authorizes the BIR to continue processing the administrative claim even after the taxpayer has filed its judicial
claim, without saying that the taxpayer can file its judicial claim before the expiration of the 120-day period.

Thus, if the taxpayer files its judicial claim before the expiration of the 120-day period, the BIR will nevertheless continue to act on the administrative
claim because such premature filing cannot divest the Commissioner of his statutory power and jurisdiction to decide the administrative claim within
the 120-day period.

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

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

***

BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query made by a government agency tasked with processing tax
refunds and credits, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. This government agency is also
the addressee, or the entity responded to, in BIR Ruling No. DA-489-03.

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

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

San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its judicial claim prematurely on 10 April 2003, before the issuance
of BIR Ruling No. DA-489-03 on 10 December 2003. To repeat, San Roque cannot claim that it was misled by the BIR into filing its judicial claim
prematurely because BIR Ruling No. DA-489-03 was issued only after San Roque filed its judicial claim. At the time San Roque filed its judicial claim,
the law as applied and administered by the BIR was that the Commissioner had 120 days to act on administrative claims.

This was in fact the position of the BIR prior to the issuance of BIR Ruling No. DA-489-03. Indeed, San Roque never claimed the benefit of BIR Ruling
No. DA- 489-03 or RMC 49-03, whether in this Court, the CTA, or before the Commissioner.

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

Philex cannot claim the benefit of BIR Ruling No. DA-489-03 because Philex did not file its judicial claim prematurely but filed it long after the lapse of
the 30-day period following the expiration of the 120-day period.

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***

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

Under Section 4.106-2(c), the 60-day period is still mandatory and jurisdictional.

There can be no dispute that under Section 106(d) of the 1977 Tax

Code, as amended by RA 7716, the Commissioner has a 60-day period to act on the administrative claim.This 60-day period is mandatory and
jurisdictional.

Section 4.106-2(c) did not change Section 106(d) as amended by RA

7716, but merely implemented it, for two reasons. First, Section 4.106-2(c) still expressly requires compliance with the 60-day period. This cannot be
disputed.

Second, under the novel amendment introduced by RA 7716, mere inaction by the Commissioner during the 60-day period is deemed a denial of the
claim. Thus, Section 4.106-2(c) states that if no action on the claim for tax refund/credit has been taken by the Commissioner after the sixty (60) day
period, the taxpayer may already file the judicial claim even long before the lapse of the two-year prescriptive period. Prior to the amendment by RA
7716, the taxpayer had to wait until the two-year prescriptive period was about to expire if the Commissioner did not act on the claim. With the
amendment by RA 7716, the taxpayer need not wait until the two-year prescriptive period is about to expire before filing the judicial claim because mere
inaction by the Commissioner during the 60-day period is deemed a denial of the claim. This is the meaning of the phrase but before the lapse of the two
(2) year period in Section 4.106-2(c). As Section 4.106- 2(c) reiterates that the judicial claim can be filed only after the sixty (60) day period, this period
remains mandatory and jurisdictional. Clearly,

Section 4.106-2(c) did not amend Section 106(d) but merely faithfully implemented it.

Section 112(D) of the 1997 Tax Code is clear, unequivocal, and categorical that the Commissioner has 120 days to act on an administrative claim. The
taxpayer can file the judicial claim (1) only within thirty days after the Commissioner partially or fully denies the claim within the 120- day period, or (2)
only within thirty days from the expiration of the 120- day period if the Commissioner does not act within the 120-day period. There can be no dispute
that upon effectivity of the 1997 Tax Code on 1 January 1998, or more than five years before San Roque filed its administrative claim on 28 March 2003,
the law has been clear: the 120- day period is mandatory and jurisdictional. San Roques claim, having been filed administratively on 28 March 2003, is
governed by the 1997 Tax Code, not the 1977 Tax Code. Since San Roque filed its judicial claim before the expiration of the 120-day mandatory and
jurisdictional period, San Roques claim cannot prosper.

San Roque cannot also invoke Section 4.106-2(c), which expressly provides that the taxpayer can only file the judicial claim after the lapse of the 60-day
period from the filing of the administrative claim.

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

MICROSOFT PHILIPPINES v. CIR, GR No. 180173, 2011-04-06

Facts:

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

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

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

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

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

Issues:

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

Ruling:

The petition lacks merit.

Principles:

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

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

Sec. 4.108-1. Invoicing Requirements. - All VAT-registered persons shall, for every sale or lease of goods or properties or services, issue duly registered
receipts or sales or commercial invoices which must show:... the name, TIN and address of seller;... date of transaction;... quantity, unit cost and
description of merchandise or nature of service;... the name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or
client;... the word "zero-rated" imprinted on the invoice covering zero-rated sales;

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

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

We have ruled in several cases[11] that the printing of the word "zero-rated" is required to be placed on VAT invoices or receipts covering zero-rated
sales in order to be entitled to claim for tax credit or refund. In Panasonic v. Commissioner of

Internal Revenue,[12] we held that the appearance of the word "zero-rated" on the face of invoices covering zero-rated sales prevents buyers from falsely
claiming input VAT from their purchases when no VAT is actually paid. Absent such word, the... government may be refunding taxes it did not collect.

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