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G.R. No.

158885 April 2, 2009

FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner,

vs.

COMMISSIONER OF INTERNAL REVENUE, REGIONAL DIRECTOR, REVENUE


REGION NO. 8, CHIEF, ASSESSMENT DIVISION, REVENUE REGION NO. 8, BIR,
Respondents.

G.R. No. 170680 April 2, 2009

FORT BONIFACIO DEVELOPMENT CORPORATION, Petitioner,

vs.

COMMISSIONER OF INTERNAL REVENUE and REVENUE DISTRICT OFFICER,


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

TINGA, J.:

The value-added tax (VAT) system was first introduced in the Philippines on 1 January 1988,
with the tax imposable on "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."1 The first VAT law is found in Executive Order No. 273 (E.O. 273), which
amended several provisions of the then National Internal Revenue Code of 1986 (Old NIRC).
E.O. No. 273 likewise accommodated the potential burdens of the shift to the VAT system by
allowing newly liable VAT-registered persons to avail of a transitional input tax credit, as
provided for in Section 105 of the old NIRC, as amended by E.O. No. 273. Said Section 105 is
quoted, thus:

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.2

There are other measures contained in E.O. No. 273 which were similarly intended to ease the
shift to the VAT system. These measures also took the form of "transitional input taxes which
can be credited against output tax,"3 and are found in Section 25 of E.O. No. 273, the section
entitled "Transitory Provisions." Said transitory provisions, which were never incorporated in the
Old NIRC, read:
Sec.25. Transitory provisions. (a) All VAT-registered persons shall be allowed transitional input
taxes which can be credited against output tax in the same manner as provided in Sections 104 of
the National Internal Revenue Code as follows:

1) The balance of the deferred sales tax credit account as of December 31, 1987 which are
accounted for in accordance with regulations prescribed therefor;

2) A presumptive input tax equivalent to 8% of the value of the inventory as of December 31,
1987 of materials and supplies which are not for sale, the tax on which was not taken up or
claimed as deferred sales tax credit; and

3) A presumptive input tax equivalent to 8% of the value of the inventory as of December 31,
1987 as goods for sale, the tax on which was not taken up or claimed as deferred sales tax credit.

Tax credit prescribed in paragraphs (2) and (3) above shall be allowed only to a VAT-registered
person who files an inventory of the goods referred to in said paragraphs as provided in
regulations.

(b) Any unused tax credit certificate issued prior to January 1, 1988 for excess tax credits which
are applicable against advance sales tax shall be surrendered to, and replaced by the
Commissioner with new tax credit certificates which can be used in payment for value-added tax
liabilities.

(c) Any person already engaged in business whose gross sales or receipts for a 12-month period
from September 1, 1986 to August 1, 1987, exceed the amount of 200,000.00, or any person
who has been in business for less than 12 months as of August 1, 1987 but expects his gross sales
or receipts to exceed P200,000 on or before December 31, 1987, shall apply for registration on or
before October 29, 1987.4

On 1 January 1996, Republic Act (Rep. Act) No. 7716 took effect.5 It amended provisions of the
Old NIRC principally by restructuring the VAT system. It was under Rep. Act No. 7716 that
VAT was imposed for the first time on the sale of real properties. This was accomplished by
amending Section 100 of the NIRC to include "real properties" among the "goods or properties,"
the sale, barter or exchange of which is made subject to VAT. The relevant portions of Section
100, as amended by Rep. Act No. 7716, thus read:

Sec.100. Value-added-tax on sale of goods or properties. (a) Rate and base of tax. There
shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a
value-added tax equivalent to 10% of the gross selling price or gross value in money of the
goods, or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor.

(1) The term 'goods or properties' shall mean all tangible and intangible objects which are
capable of pecuniary estimation and shall include:
(A) Real properties held primarily for sale to customers or held for lease in the ordinary course
of trade or business;

The provisions of Section 105 of the NIRC, on the transitional input tax credit, had remained
intact despite the enactment of Rep. Act No. 7716. Said provisions would however be amended
following the passage of the new National Internal Revenue Code of 1997 (New NIRC), also
officially known as Rep Act No. 8424. The section on the transitional input tax credit was
renumbered from Section 105 of the Old NIRC to Section 111(A) of the New NIRC. The new
amendments on the transitional input tax credit are relatively minor, hardly material to the case at
bar. They are highlighted below for easy reference:

Section 111. Transitional/Presumptive Input Tax Credits. - (A) 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 according to rules and regulations
prescribed by the Secretary of finance, upon recommendation of the Commissioner, be allowed
input tax on his beginning inventory of goods, materials and supplies equivalent for eight percent
(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.7 (Emphasis
supplied).

Rep. Act No. 8424 also made part of the NIRC, for the first time, the concept of "presumptive
input tax credits," with Section 111(b) of the New NIRC providing as follows:

(B) Presumptive Input Tax Credits. - (1) Persons or firms engaged in the processing of sardines,
mackerel and milk, and in manufacturing refined sugar and cooking oil, shall be allowed a
presumptive input tax, creditable against the output tax, equivalent to one and one-half percent (1
1/2%) of the gross value in money of their purchases of primary agricultural products which are
used as inputs to their production.

As used in this Subsection, the term 'processing' shall mean pasteurization, canning and activities
which through physical or chemical process alter the exterior texture or form or inner substance
of a product in such manner as to prepare it for special use to which it could not have been put in
its original form or condition.

(2) Public works contractors shall be allowed a presumptive input tax equivalent to one and one-
half percent (1 1/2%) of the contract price with respect to government contracts only in lieu of
actual input taxes therefrom.8

What we have explained above are the statutory antecedents that underlie the present petitions
for review. We now turn to the factual antecedents.
I. Petitioner Fort Bonifacio Development Corporation (FBDC) is engaged in the development
and sale of real property. On 8 February 1995, FBDC acquired by way of sale from the national
government, a vast tract of land that formerly formed part of the Fort Bonifacio military
reservation, located in what is now the Fort Bonifacio Global City (Global City) in Taguig City.9
Since the sale was consummated prior to the enactment of Rep. Act No. 7716, no VAT was paid
thereon. FBDC then proceeded to develop the tract of land, and from October, 1966 onwards it
has been selling lots located in the Global City to interested buyers.

Following the effectivity of Rep. Act No. 7716, real estate transactions such as those regularly
engaged in by FBDC have since been made subject to VAT. As the vendor, FBDC from thereon
has become obliged to remit to the Bureau of Internal Revenue (BIR) output VAT payments it
received from the sale of its properties to the Bureau of Internal Revenue (BIR). FBDC likewise
invoked its right to avail of the transitional input tax credit and accordingly submitted an
inventory list of real properties it owned, with a total book value of 71,227,503,200.00.11

On 14 October 1996, FBDC executed in favor of Metro Pacific Corporation two (2) contracts to
sell, separately conveying two (2) parcels of land within the Global City in consideration of the
purchase prices at 1,526,298,949.00 and 785,009,018.00, both payable in installments.12 For
the fourth quarter of 1996, FBDC earned a total of 3,498,888,713.60 from the sale of its lots, on
which the output VAT payable to the BIR was 318,080,792.14. In the context of remitting its
output VAT payments to the BIR, FBDC paid a total of 269,340,469.45 and utilized (a)
28,413,783.00 representing a portion of its then total transitional/presumptive input tax credit of
5,698,200,256.00, which petitioner allocated for the two (2) lots sold to Metro Pacific; and (b)
its regular input tax credit of 20,326,539.69 on the purchase of goods and services.13

Between July and October 1997, FBDC sent two (2) letters to the BIR requesting appropriate
action on whether its use of its presumptive input VAT on its land inventory, to the extent of
28,413,783.00 in partial payment of its output VAT for the fourth quarter of 1996, was in order.
After investigating the matter, the BIR recommended that the claimed presumptive input tax
credit be disallowed. Consequently, the BIR issued to FBDC a Pre-Assessment Notice (PAN)
dated 23 December 1997 for deficiency VAT for the 4th quarter of 1996. This was followed by a
letter of respondent Commissioner of Internal Revenue (CIR),15 addressed to and received by
FBDC on 5 March 1998, disallowing the presumptive input tax credit arising from the land
inventory on the basis of Revenue Regulation 7-95 (RR 7-95) and Revenue Memorandum
Circular 3-96 (RMC 3-96). Section 4.105-1 of RR 7-95 provided the basis in main for the CIRs
opinion, the section reading, thus:

Sec.4.105-1. Transitional input tax on beginning inventories. Taxpayers who became VAT-
registered persons upon effectivity of RA No. 7716 who have exceeded the minimum turnover of
500,000.00 or who voluntarily register even if their turnover does not exceed 500,000.00 shall
be entitled to a presumptive input tax on the inventory on hand as of December 31, 1995 on the
following: (a) goods purchased for resale in their present condition; (b) materials purchased for
further processing, but which have not yet undergone processing; (c) goods which have been
manufactured by the taxpayer; (d) goods in process and supplies, all of which are for sale or for
use in the course of the taxpayers trade or business as a VAT-registered person.

However, in the case of real estate dealers, the basis of the presumptive input tax shall be the
improvements, such as buildings, roads, drainage systems, and other similar structures,
constructed on or after the effectivity of EO 273 (January 1, 1988).

The transitional input tax shall be 8% of the value of the inventory or actual VAT paid,
whichever is higher, which amount may be allowed as tax credit against the output tax of the
VAT-registered person.

The CIR likewise cited from the Transitory Provisions of RR 7-95, particularly the following:

(a) Presumptive Input Tax Credits -(iii) For real estate dealers, the presumptive input tax of 8%
of the book value of improvements on or after January 1, 1988 (the effectivity of E.O. 273) shall
be allowed.

For purposes of sub-paragraphs (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 filed
with the RDO not later than Janaury 31, 1996.

Consequently, FBDC received an Assessment Notice in the amount of 45,188,708.08,


representing deficiency VAT for the 4th quarter of 1996, including surcharge, interest and
penalty. After respondent Regional Director denied FBDCs motion for reconsideration/protest,
FBDC filed a petition for review with the Court of Tax Appeals (CTA), docketed as C.T.A. Case
No. 5665.16 On 11 August 2000, the CTA rendered a decision affirming the assessment made by
the respondents.17 FBDC assailed the CTA decision through a petition for review filed with the
Court of Appeals, docketed as CA-G.R. SP No. 60477. On 15 November 2002, the Court of
Appeals rendered a decision affirming the CTA decision, but removing the surcharge, interests
and penalties, thus reducing the amount due to 28,413,783.00.18 From said decision, FBDC
filed a petition for review with this Court, the first of the two petitions now before us, seeking the
reversal of the CTA decision dated 11 August 2000 and a pronouncement that FBDC is entitled
to the transitional/presumptive input tax credit of P28,413,783.00. This petition has been
docketed as G.R. No. 158885.

The second petition, which is docketed as G.R. No. 170680, involves the same parties and legal
issues, but concerns the claim of FBDC that it is entitled to claim a similar
transitional/presumptive input tax credit, this time for the third quarter of 1997. A brief recital of
the anteceding facts underlying this second claim is in order.

For the third quarter of 1997, FBDC derived the total amount of 3,591,726,328.11 from its sales
and lease of lots, on which the output VAT payable to the BIR was 359,172,632.81.19
Accordingly, FBDC made cash payments totaling 347,741,695.74 and utilized its regular input
tax credit of 19,743,565.73 on purchases of goods and services.20 On 11 May 1999, FBDC
filed with the BIR a claim for refund of the amount of 347,741,695.74 which it had paid as
VAT for the third quarter of 1997.21 No action was taken on the refund claim, leading FBDC to
file a petition for review with the CTA, docketed as CTA Case No. 5926. Utilizing the same
valuation22 of 8% of the total book value of its beginning inventory of real properties (or
71,227,503,200.00) FBDC argued that its input tax credit was more than enough to offset the
VAT paid by it for the third quarter of 1997.23

On 17 October 2000, the CTA promulgated its decision24 in CTA Case No. 5926, denying the
claim for refund. FBDC then filed a petition for review with the Court of Appeals, docketed as
CA-G.R. SP No. 61517. On 3 October 2003, the Court of Appeals rendered a decision25
affirming the judgment of the CTA. As a result, FBDC filed its second petition, docketed as G.R.
No. 170680.

II. The two petitions were duly consolidated26 and called for oral argument on 18 April 2006.
During the oral arguments, the parties were directed to discuss the following issues:

1. In determining the 10% value-added tax in Section 100 of the [Old NIRC] on the sale of real
properties by real estate dealers, is the 8% transitional input tax credit in Section 105 applied
only to the improvements on the real property or is it applied on the value of the entire real
property?

2. Are Section 4.105.1 and paragraph (a)(III) of the Transitory Provisions of Revenue
Regulations No. 7-95 valid in limiting the 8% transitional input tax to the improvements on the
real property?

While the two issues are linked, the main issue is evidently whether Section 105 of the Old
NIRC may be interpreted in such a way as to restrict its application in the case of real estate
dealers only to the improvements on the real property belonging to their beginning inventory,
and not the entire real property itself. There would be no controversy before us if the Old NIRC
had itself supplied that limitation, yet the law is tellingly silent in that regard. RR 7-95, which
imposes such restrictions on real estate dealers, is discordant with the Old NIRC, so it is alleged.

III. On its face, there is nothing in Section 105 of the Old NIRC that prohibits the inclusion of
real properties, together with the improvements thereon, in the beginning inventory of goods,
materials and supplies, based on which inventory the transitional input tax credit is computed. It
can be conceded that when it was drafted Section 105 could not have possibly contemplated
concerns specific to real properties, as real estate transactions were not originally subject to
VAT. At the same time, when transactions on real properties were finally made subject to VAT
beginning with Rep. Act No. 7716, no corresponding amendment was adopted as regards Section
105 to provide for a differentiated treatment in the application of the transitional input tax credit
with respect to real properties or real estate dealers.
It was Section 100 of the Old NIRC, as amended by Rep. Act No. 7716, which made real estate
transactions subject to VAT for the first time. Prior to the amendment, Section 100 had imposed
the VAT "on every sale, barter or exchange of goods," without however specifying the kind of
properties that fall within or under the generic class "goods" subject to the tax.

Rep. Act No. 7716, which significantly is also known as the Expanded Value-Added Tax
(EVAT) law, expanded the coverage of the VAT by amending Section 100 of the Old NIRC in
several respects, some of which we will enumerate. First, it made every sale, barter or exchange
of "goods or properties" subject to VAT.27 Second, it generally defined "goods or properties" as
"all tangible and intangible objects which are capable of pecuniary estimation."28 Third, it
included a non-exclusive enumeration of various objects that fall under the class "goods or
properties" subject to VAT, including "[r]eal properties held primarily for sale to customers or
held for lease in the ordinary course of trade or business."29

From these amendments to Section 100, is there any differentiated VAT treatment on real
properties or real estate dealers that would justify the suggested limitations on the application of
the transitional input tax on them? We see none.

Rep. Act No. 7716 clarifies that it is the real properties "held primarily for sale to customers or
held for lease in the ordinary course of trade or business" that are subject to the VAT, and not
when the real estate transactions are engaged in by persons who do not sell or lease properties in
the ordinary course of trade or business. It is clear that those regularly engaged in the real estate
business are accorded the same treatment as the merchants of other goods or properties available
in the market. In the same way that a milliner considers hats as his goods and a rancher considers
cattle as his goods, a real estate dealer holds real property, whether or not it contains
improvements, as his goods.

Had Section 100 itself supplied any differentiation between the treatment of real properties or
real estate dealers and the treatment of the transactions involving other commercial goods, then
such differing treatment would have constituted the statutory basis for the CIR to engage in such
differentiation which said respondent did seek to accomplish in this case through Section 4.105-1
of RR 7-95. Yet the amendments introduced by Rep. Act No. 7716 to Section 100, coupled with
the fact that the said law left Section 105 intact, reveal the lack of any legislative intention to
make persons or entities in the real estate business subject to a VAT treatment different from
those engaged in the sale of other goods or properties or in any other commercial trade or
business.

If the plain text of Rep. Act No. 7716 fails to supply any apparent justification for limiting the
beginning inventory of real estate dealers only to the improvements on their properties, how then
were the CIR and the courts a quo able to justify such a view?

IV.The fact alone that the denial of FBDCs claims is in accord with Section 4.105-1 of RR 7-95
does not, of course, put this inquiry to rest. If Section 4.105-1 is itself incongruent to Rep. Act
No. 7716, the incongruence cannot by itself justify the denial of the claims. We need to inquire
into the rationale behind Section 4.105-1, as well as the question whether the interpretation of the
law embodied therein is validated by the law itself.

The CTA, in its rulings, proceeded from a thesis which is not readily apparent from the texts of
the laws we have cited. The transitional input tax credit is conditioned on the prior payment of
sales taxes or the VAT, so the CTA observed. The introduction of the VAT through E.O. No.
273 and its subsequent expansion through Rep. Act No. 7716 subjected various persons to the
tax for the very first time, leaving them unable to claim the input tax credit based on their
purchases before they became subject to the VAT. Hence, the transitional input tax credit was
designed to alleviate that relatively iniquitous loss. Given that rationale, according to the CTA, it
would be improper to allow FBDC, which had acquired its properties through a tax-free
purchase, to claim the transitional input tax credit. The CTA added that Section 105.4.1 of RR 7-
95 is consonant with its perceived rationale behind the transitional input tax credit since the
materials used for the construction of improvements would have most likely involved the
payment of VAT on their purchase.

Concededly, this theory of the CTA has some sense, extravagantly extrapolated as it is though
from the seeming silence on the part of the provisions of the law. Yet ultimately, the theory is
woefully limited in perspective.

It is correct, as pointed out by the CTA, that upon the shift from sales taxes to VAT in 1987
newly-VAT registered people would have been prejudiced by the inability to credit against the
output VAT their payments by way of sales tax on their existing stocks in trade. Yet that inequity
was precisely addressed by a transitory provision in E.O. No. 273 found in Section 25 thereof.
The provision authorized VAT-registered persons to invoke a "presumptive input tax equivalent
to 8% of the value of the inventory as of December 31, 1987 of materials and supplies which are
not for sale, the tax on which was not taken up or claimed as deferred sales tax credit", and a
similar presumptive input tax equivalent to 8% of the value of the inventory as of December 31,
1987 of goods for sale, the tax on which was not taken up or claimed as deferred sales tax
credit.30

Section 25 of E.O. No. 273 perfectly remedies the problem assumed by the CTA as the basis for
the introduction of transitional input tax credit in 1987. If the core purpose of the tax credit is
only, as hinted by the CTA, to allow for some mode of accreditation of previously-paid sales
taxes, then Section 25 alone would have sufficed. Yet E.O. No. 273 amended the Old NIRC
itself by providing for the transitional input tax credit under Section 105, thereby assuring that
the tax credit would endure long after the last goods made subject to sales tax have been
consumed.

If indeed the transitional input tax credit is integrally related to previously paid sales taxes, the
purported causal link between those two would have been nonetheless extinguished long ago.
Yet Congress has reenacted the transitional input tax credit several times; that fact simply belies
the absence of any relationship between such tax credit and the long-abolished sales taxes.
Obviously then, the purpose behind the transitional input tax credit is not confined to the
transition from sales tax to VAT.

There is hardly any constricted definition of "transitional" that will limit its possible meaning to
the shift from the sales tax regime to the VAT regime. Indeed, it could also allude to the
transition one undergoes from not being a VAT-registered person to becoming a VAT-registered
person. Such transition does not take place merely by operation of law, E.O. No. 273 or Rep. Act
No. 7716 in particular. It could also occur when one decides to start a business. Section 105
states that the transitional input tax credits become available either to (1) a person who becomes
liable to VAT; or (2) any person who elects to be VAT-registered. The clear language of the law
entitles new trades or businesses to avail of the tax credit once they become VAT-registered. The
transitional input tax credit, whether under the Old NIRC or the New NIRC, may be claimed by
a newly-VAT registered person such as when a business as it commences operations. If we view
the matter from the perspective of a starting entrepreneur, greater clarity emerges on the
continued utility of the transitional input tax credit.

Following the theory of the CTA, the new enterprise should be able to claim the transitional
input tax credit because it has presumably paid taxes, VAT in particular, in the purchase of the
goods, materials and supplies in its beginning inventory. Consequently, as the CTA held below,
if the new enterprise has not paid VAT in its purchases of such goods, materials and supplies,
then it should not be able to claim the tax credit. However, it is not always true that the
acquisition of such goods, materials and supplies entail the payment of taxes on the part of the
new business. In fact, this could occur as a matter of course by virtue of the operation of various
provisions of the NIRC, and not only on account of a specially legislated exemption.

Let us cite a few examples drawn from the New NIRC. If the goods or properties are not
acquired from a person in the course of trade or business, the transaction would not be subject to
VAT under Section 105.31 The sale would be subject to capital gains taxes under Section
24(D),32 but since capital gains is a tax on passive income it is the seller, not the buyer, who
generally would shoulder the tax.

If the goods or properties are acquired through donation, the acquisition would not be subject to
VAT but to donors tax under Section 98 instead.33 It is the donor who would be liable to pay
the donors tax,34 and the donation would be exempt if the donors total net gifts during the
calendar year does not exceed 100,000.00.35

If the goods or properties are acquired through testate or intestate succession, the transfer would
not be subject to VAT but liable instead for estate tax under Title III of the New NIRC.36 If the
net estate does not exceed 200,000.00, no estate tax would be assessed.37
The interpretation proffered by the CTA would exclude goods and properties which are acquired
through sale not in the ordinary course of trade or business, donation or through succession, from
the beginning inventory on which the transitional input tax credit is based. This prospect all but
highlights the ultimate absurdity of the respondents' position. Again, nothing in the Old NIRC
(or even the New NIRC) speaks of such a possibility or qualifies the previous payment of VAT
or any other taxes on the goods, materials and supplies as a pre-requisite for inclusion in the
beginning inventory.

It is apparent that the transitional input tax credit operates to benefit newly VAT-registered
persons, whether or not they previously paid taxes in the acquisition of their beginning inventory
of goods, materials and supplies. During that period of transition from non-VAT to VAT status,
the transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer. At the
very beginning, the VAT-registered taxpayer is obliged to remit a significant portion of the
income it derived from its sales as output VAT. The transitional input tax credit mitigates this
initial diminution of the taxpayers income by affording the opportunity to offset the losses
incurred through the remittance of the output VAT at a stage when the person is yet unable to
credit input VAT payments.

There is another point that weighs against the CTAs interpretation. Under Section 105 of the
Old NIRC, the rate of the transitional input tax credit is "8% of the value of such inventory or the
actual value-added tax paid on such goods, materials and supplies, whichever is higher."38 If
indeed the transitional input tax credit is premised on the previous payment of VAT, then it does
not make sense to afford the taxpayer the benefit of such credit based on "8% of the value of
such inventory" should the same prove higher than the actual VAT paid. This intent that the CTA
alluded to could have been implemented with ease had the legislature shared such intent by
providing the actual VAT paid as the sole basis for the rate of the transitional input tax credit.

The CTA harped on the circumstance that FBDC was excused from paying any tax on the
purchase of its properties from the national government, even claiming that to allow the
transitional input tax credit is "tantamount to giving an undeserved bonus to real estate dealers
similarly situated as [FBDC] which the Government cannot afford to provide." Yet the tax laws
in question, and all tax laws in general, are designed to enforce uniform tax treatment to persons
or classes of persons who share minimum legislated standards. The common standard for the
application of the transitional input tax credit, as enacted by E.O. No. 273 and all subsequent tax
laws which reinforced or reintegrated the tax credit, is simply that the taxpayer in question has
become liable to VAT or has elected to be a VAT-registered person. E.O. No. 273 and the
subsequent tax laws are all decidedly neutral and accommodating in ascertaining who should be
entitled to the tax credit, and it behooves the CIR and the CTA to adopt a similarly judicious
perspective.
IV.Given the fatal flaws in the theory offered by the CTA as supposedly underlying the
transitional input tax credit, is there any other basis to justify the limitations imposed by the CIR
through RR 7-95? We discern nothing more. As seen in our discussion, there is no logic that
coheres with either E.O. No. 273 or Rep. Act No. 7716 which supports the restriction imposed
on real estate brokers and their ability to claim the transitional input tax credit based on the value
of their real properties. In addition, the very idea of excluding the real properties itself from the
beginning inventory simply runs counter to what the transitional input tax credit seeks to
accomplish for persons engaged in the sale of goods, whether or not such "goods" take the form
of real properties or more mundane commodities.

Under Section 105, the beginning inventory of "goods" forms part of the valuation of the
transitional input tax credit. Goods, as commonly understood in the business sense, refers to the
product which the VAT-registered person offers for sale to the public. With respect to real estate
dealers, it is the real properties themselves which constitute their "goods." Such real properties
are the operating assets of the real estate dealer.

Section 4.100-1 of RR No. 7-95 itself includes in its enumeration of "goods or properties" such
"real properties held primarily for sale to customers or held for lease in the ordinary course of
trade or business." Said definition was taken from the very statutory language of Section 100 of
the Old NIRC. By limiting the definition of goods to "improvements" in Section 4.105-1, the
BIR not only contravened the definition of "goods" as provided in the Old NIRC, but also the
definition which the same revenue regulation itself has provided.

The Court of Tax Appeals claimed that under Section 105 of the Old NIRC the basis for the
inventory of goods, materials and supplies upon which the transitional input VAT would be
based "shall be left to regulation by the appropriate administrative authority". This is based on
the phrase "filing of an inventory as prescribed by regulations" found in Section 105.
Nonetheless, Section 105 does include the particular properties to be included in the inventory,
namely goods, materials and supplies. It is questionable whether the CIR has the power to
actually redefine the concept of "goods," as she did when she excluded real properties from the
class of goods which real estate companies in the business of selling real properties may include
in their inventory. The authority to prescribe regulations can pertain to more technical matters,
such as how to appraise the value of the inventory or what papers need to be filed to properly
itemize the contents of such inventory. But such authority cannot go as far as to amend Section
105 itself, which the Commissioner had unfortunately accomplished in this case.

It is of course axiomatic that a rule or regulation must bear upon, and be consistent with, the
provisions of the enabling statute if such rule or regulation is to be valid.39 In case of conflict
between a statute and an administrative order, the former must prevail.40 Indeed, the CIR has no
power to limit the meaning and coverage of the term "goods" in Section 105 of the Old NIRC
absent statutory authority or basis to make and justify such limitation. A contrary conclusion
would mean the CIR could very well moot the law or arrogate legislative authority unto himself
by retaining sole discretion to provide the definition and scope of the term "goods."

V.At this juncture, we turn to some of the points raised in the dissent of the esteemed Justice
Antonio T. Carpio.

The dissent adopts the CTAs thesis that the transitional input tax credit applies only when taxes
were previously paid on the properties in the beginning inventory. Had the dissenting view won,
it would have introduced a new requisite to the application of the transitional input tax credit and
required the taxpayer to supply proof that it had previously paid taxes on the acquisition of
goods, materials and supplies comprising its beginning inventory. We have sufficiently rebutted
this thesis, but the dissent adds a twist to the argument by using the term "presumptive input tax
credit" to imply that the transitional input tax credit involves a presumption that there was a
previous payment of taxes.

Let us clarify the distinction between the presumptive input tax credit and the transitional input
tax credit. As with the transitional input tax credit, the presumptive input tax credit is creditable
against the output VAT. It necessarily has come into existence in our tax structure only after the
introduction of the VAT. As quoted earlier,41 E.O. No. 273 provided for a "presumptive input
tax credit" as one of the transitory measures in the shift from sales taxes to VAT, but such
presumptive input tax credit was never integrated in the NIRC itself. It was only in 1997, or
eleven years after the VAT was first introduced, that the presumptive input tax credit was first
incorporated in the NIRC, more particularly in Section 111(B) of the New NIRC. As borne out
by the text of the provision,42 it is plain that the presumptive input tax credit is highly limited in
application as it may be claimed only by "persons or firms engaged in the processing of sardines,
mackerel and milk, and in manufacturing refined sugar and cooking oil;"43 and "public works
contractors."44

Clearly, for more than a decade now, the term "presumptive input tax credit" has contemplated a
particularly idiosyncratic tax credit far divorced from its original usage in the transitory
provisions of E.O. No. 273. There is utterly no sense then in latching on to the term as having
any significant meaning for the purpose of the cases at bar.

The dissent, in arguing for the effectivity of Section 4.105-1 of RR 7-95, ratiocinates in this
manner: (1) Section 4.105-1 finds basis in Section 105 of the Old NIRC, which provides that the
input tax is allowed on the "beginning inventory of goods, materials and supplies;" (2) input
taxes must have been paid on such goods, materials and supplies; (3) unlike real property itself,
the improvements thereon were already subject to VAT even prior to the passage of Rep. Act
No. 7716; (4) since no VAT was paid on the real property prior to the passage of Rep. Act No.
7716, it could not form part of the "beginning inventory of goods, materials and supplies."
This chain of premises have already been debunked. It is apparent that the dissent believes that
only those "goods, materials and supplies" on which input VAT was paid could form the basis of
valuation of the input tax credit. Thus, if the VAT-registered person acquired all the goods,
materials and supplies of the beginning inventory through a sale not in the ordinary course of
trade or business, or through succession or donation, said person would be unable to receive a
transitional input tax credit. Yet even RR 7-95, which imposes the restriction only on real estate
dealers permits such other persons who obtained their beginning inventory through tax-free
means to claim the transitional input tax credit. The dissent thus betrays a view that is even more
radical and more misaligned with the language of the law than that expressed by the CIR.

VI.A final observation. Section 4.105.1 of RR No. 7-95, insofar as it disallows real estate dealers
from including the value of their real properties in the beginning inventory of goods, materials
and supplies, has in fact already been repealed. The offending provisions were deleted with the
enactment of Revenue Regulation No. 6-97 (RR 6-97) dated 2 January 1997, which amended RR
7-95.45 The repeal of the basis for the present assessments by RR 6-97 only highlights the
continuing absurdity of the position of the BIR towards FBDC.

FBDC points out that while the transactions involved in G.R. No. 158885 took place during the
effectivity of RR 7-95, the transactions involved in G.R. No. 170680 in fact took place after RR
No. 6-97 had taken effect. Indeed, the assessments subject of G.R. No. 170680 were for the third
quarter of 1997, or several months after the effectivity of RR 6-97. That fact provides additional
reason to sustain FBDCs claim for refund of its 1997 Third Quarter VAT payments.
Nevertheless, since the assailed restrictions implemented by RR 7-95 were not sanctioned by law
in the first place there is no longer need to dwell on such fact.

WHEREFORE, the petitions are GRANTED. The assailed decisions of the Court of Tax Appeals
and the Court of Appeals are REVERSED and SET ASIDE. Respondents are hereby (1)
restrained from collecting from petitioner the amount of 28,413,783.00 representing the
transitional input tax credit due it for the fourth quarter of 1996; and (2) directed to refund to
petitioner the amount of 347,741,695.74 paid as output VAT for the third quarter of 1997 in
light of the persisting transitional input tax credit available to petitioner for the said quarter, or to
issue a tax credit corresponding to such amount. No pronouncement as to costs.

SO ORDERED.

DANTE O. TINGA

Associate Justice
G.R. No. 184823 October 6, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.

AICHI FORGING COMPANY OF ASIA, INC., Respondent.

DECISION

DEL CASTILLO, J.:

A taxpayer is entitled to a refund either by authority of a statute expressly granting such right,
privilege, or incentive in his favor, or under the principle of solutio indebiti requiring the return
of taxes erroneously or illegally collected. In both cases, a taxpayer must prove not only his
entitlement to a refund but also his compliance with the procedural due process as non-
observance of the prescriptive periods within which to file the administrative and the judicial
claims would result in the denial of his claim.

This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the
July 30, 2008 Decision1 and the October 6, 2008 Resolution2 of the Court of Tax Appeals
(CTA) En Banc.

Factual Antecedents

Respondent Aichi Forging Company of Asia, Inc., a corporation duly organized and existing
under the laws of the Republic of the Philippines, is engaged in the manufacturing, producing,
and processing of steel and its by-products.3 It is registered with the Bureau of Internal Revenue
(BIR) as a Value-Added Tax (VAT) entity4 and its products, "close impression die steel
forgings" and "tool and dies," are registered with the Board of Investments (BOI) as a pioneer
status.

On September 30, 2004, respondent filed a claim for refund/credit of input VAT for the period
July 1, 2002 to September 30, 2002 in the total amount of 3,891,123.82 with the petitioner
Commissioner of Internal Revenue (CIR), through the Department of Finance (DOF) One-Stop
Shop Inter-Agency Tax Credit and Duty Drawback Center.6

Proceedings before the Second Division of the CTA

On even date, respondent filed a Petition for Review7 with the CTA for the refund/credit of the
same input VAT. The case was docketed as CTA Case No. 7065 and was raffled to the Second
Division of the CTA.
In the Petition for Review, respondent alleged that for the period July 1, 2002 to September 30,
2002, it generated and recorded zero-rated sales in the amount of 131,791,399.00,8 which was
paid pursuant to Section 106(A) (2) (a) (1), (2) and (3) of the National Internal Revenue Code of
1997 (NIRC);9 that for the said period, it incurred and paid input VAT amounting to
3,912,088.14 from purchases and importation attributable to its zero-rated sales;10 and that in
its application for refund/credit filed with the DOF One-Stop Shop Inter-Agency Tax Credit and
Duty Drawback Center, it only claimed the amount of 3,891,123.82.11

In response, petitioner filed his Answer12 raising the following special and affirmative defenses,
to wit:

4. Petitioners alleged claim for refund is subject to administrative investigation by the Bureau;

5. Petitioner must prove that it paid VAT input taxes for the period in question;

6. Petitioner must prove that its sales are export sales contemplated under Sections 106(A) (2)
(a), and 108(B) (1) of the Tax Code of 1997;

7. Petitioner must prove that the claim was filed within the two (2) year period prescribed in
Section 229 of the Tax Code;

8. In an action for refund, the burden of proof is on the taxpayer to establish its right to refund,
and failure to sustain the burden is fatal to the claim for refund; and

9. Claims for refund are construed strictly against the claimant for the same partake of the nature
of exemption from taxation.13

Trial ensued, after which, on January 4, 2008, the Second Division of the CTA rendered a
Decision partially granting respondents claim for refund/credit. Pertinent portions of the
Decision read:

For a VAT registered entity whose sales are zero-rated, to validly claim a refund, Section 112
(A) of the NIRC of 1997, as amended, provides:

SEC. 112. Refunds or Tax Credits of Input Tax. (A) Zero-rated or Effectively Zero-rated
Sales. Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may,
within two (2) years after the close of the taxable quarter when the sales were made, apply for
the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to
such sales, except transitional input tax, to the extent that such input tax has not been applied
against output tax:

Pursuant to the above provision, petitioner must comply with the following requisites: (1) the
taxpayer is engaged in sales which are zero-rated or effectively zero-rated; (2) the taxpayer is
VAT-registered; (3) the claim must be filed within two years after the close of the taxable quarter
when such sales were made; and (4) the creditable input tax due or paid must be attributable to
such sales, except the transitional input tax, to the extent that such input tax has not been applied
against the output tax.

The Court finds that the first three requirements have been complied [with] by petitioner.

With regard to the first requisite, the evidence presented by petitioner, such as the Sales Invoices
(Exhibits "II" to "II-262," "JJ" to "JJ-431," "KK" to "KK-394" and "LL") shows that it is
engaged in sales which are zero-rated.

The second requisite has likewise been complied with. The Certificate of Registration with OCN
1RC0000148499 (Exhibit "C") with the BIR proves that petitioner is a registered VAT taxpayer.

In compliance with the third requisite, petitioner filed its administrative claim for refund on
September 30, 2004 (Exhibit "N") and the present Petition for Review on September 30, 2004,
both within the two (2) year prescriptive period from the close of the taxable quarter when the
sales were made, which is from September 30, 2002.

As regards, the fourth requirement, the Court finds that there are some documents and claims of
petitioner that are baseless and have not been satisfactorily substantiated.

In sum, petitioner has sufficiently proved that it is entitled to a refund or issuance of a tax credit
certificate representing unutilized excess input VAT payments for the period July 1, 2002 to
September 30, 2002, which are attributable to its zero-rated sales for the same period, but in the
reduced amount of 3,239,119.25, computed as follows:

Amount of Claimed Input VAT 3,891,123.82


Less:
Exceptions as found by the ICPA 41,020.37
Net Creditable Input VAT 3,850,103.45
Less:
Output VAT Due 610,984.20
Excess Creditable Input VAT 3,239,119.25

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


GRANTED. Accordingly, respondent is hereby ORDERED TO REFUND OR ISSUE A TAX
CREDIT CERTIFICATE in favor of petitioner [in] the reduced amount of THREE MILLION
TWO HUNDRED THIRTY NINE THOUSAND ONE HUNDRED NINETEEN AND 25/100
PESOS (3,239,119.25), representing the unutilized input VAT incurred for the months of July
to September 2002.

SO ORDERED.
Dissatisfied with the above-quoted Decision, petitioner filed a Motion for Partial
Reconsideration, insisting that the administrative and the judicial claims were filed beyond the
two-year period to claim a tax refund/credit provided for under Sections 112(A) and 229 of the
NIRC. He reasoned that since the year 2004 was a leap year, the filing of the claim for tax
refund/credit on September 30, 2004 was beyond the two-year period, which expired on
September 29, 2004.16 He cited as basis Article 13 of the Civil Code,17 which provides that
when the law speaks of a year, it is equivalent to 365 days. In addition, petitioner argued that the
simultaneous filing of the administrative and the judicial claims contravenes Sections 112 and
229 of the NIRC.18 According to the petitioner, a prior filing of an administrative claim is a
"condition precedent"19 before a judicial claim can be filed. He explained that the rationale of
such requirement rests not only on the doctrine of exhaustion of administrative remedies but also
on the fact that the CTA is an appellate body which exercises the power of judicial review over
administrative actions of the BIR. 20

The Second Division of the CTA, however, denied petitioners Motion for Partial
Reconsideration for lack of merit. Petitioner thus elevated the matter to the CTA En Banc via a
Petition for Review.21

Ruling of the CTA En Banc

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

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

We are not persuaded. Section 114 of the 1997 NIRC, and We quote, to wit:

SEC. 114. Return and Payment of Value-added Tax. (A) In General. Every person liable
to pay the value-added tax imposed under this Title shall file a quarterly return of the amount of
his gross sales or receipts within twenty-five (25) days following the close of each taxable
quarter prescribed for each taxpayer: Provided, however, That VAT-registered persons shall pay
the value-added tax on a monthly basis.

Based on the above-stated provision, a taxpayer has twenty five (25) days from the close of each
taxable quarter within which to file a quarterly return of the amount of his gross sales or receipts.
In the case at bar, the taxable quarter involved was for the period of July 1, 2002 to September
30, 2002. Applying Section 114 of the 1997 NIRC, respondent has until October 25, 2002 within
which to file its quarterly return for its gross sales or receipts [with] which it complied when it
filed its VAT Quarterly Return on October 20, 2002.
In relation to this, the reckoning of the two-year period provided under Section 229 of the 1997
NIRC should start from the payment of tax subject claim for refund. As stated above, respondent
filed its VAT Return for the taxable third quarter of 2002 on October 20, 2002. Thus,
respondent's administrative and judicial claims for refund filed on September 30, 2004 were filed
on time because AICHI has until October 20, 2004 within which to file its claim for refund.

In addition, We do not agree with the petitioner's contention that the 1997 NIRC requires the
previous filing of an administrative claim for refund prior to the judicial claim. This should not
be the case as the law does not prohibit the simultaneous filing of the administrative and judicial
claims for refund. What is controlling is that both claims for refund must be filed within the two-
year prescriptive period.

In sum, the Court En Banc finds no cogent justification to disturb the findings and conclusion
spelled out in the assailed January 4, 2008 Decision and March 13, 2008 Resolution of the CTA
Second Division. What the instant petition seeks is for the Court En Banc to view and appreciate
the evidence in their own perspective of things, which unfortunately had already been considered
and passed upon.

WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and
DISMISSED for lack of merit. Accordingly, the January 4, 2008 Decision and March 13, 2008
Resolution of the CTA Second Division in CTA Case No. 7065 entitled, "AICHI Forging
Company of Asia, Inc. petitioner vs. Commissioner of Internal Revenue, respondent" are hereby
AFFIRMED.

SO ORDERED.

Petitioner sought reconsideration but the CTA En Banc denied23 his Motion for
Reconsideration.

Issue

Hence, the present recourse where petitioner interposes the issue of whether respondents
judicial and administrative claims for tax refund/credit were filed within the two-year
prescriptive period provided in Sections 112(A) and 229 of the NIRC.

Petitioners Arguments

Petitioner maintains that respondents administrative and judicial claims for tax refund/credit
were filed in violation of Sections 112(A) and 229 of the NIRC.25 He posits that pursuant to
Article 13 of the Civil Code, since the year 2004 was a leap year, the filing of the claim for tax
refund/credit on September 30, 2004 was beyond the two-year period, which expired on
September 29, 2004.
Petitioner further argues that the CTA En Banc erred in applying Section 114(A) of the NIRC in
determining the start of the two-year period as the said provision pertains to the compliance
requirements in the payment of VAT.28 He asserts that it is Section 112, paragraph (A), of the
same Code that should apply because it specifically provides for the period within which a claim
for tax refund/ credit should be made.

Petitioner likewise puts in issue the fact that the administrative claim with the BIR and the
judicial claim with the CTA were filed on the same day.30 He opines that the simultaneous filing
of the administrative and the judicial claims contravenes Section 229 of the NIRC, which
requires the prior filing of an administrative claim.31 He insists that such procedural requirement
is based on the doctrine of exhaustion of administrative remedies and the fact that the CTA is an
appellate body exercising judicial review over administrative actions of the CIR.

Respondents Arguments

For its part, respondent claims that it is entitled to a refund/credit of its unutilized input VAT for
the period July 1, 2002 to September 30, 2002 as a matter of right because it has substantially
complied with all the requirements provided by law.33 Respondent likewise defends the CTA En
Banc in applying Section 114(A) of the NIRC in computing the prescriptive period for the claim
for tax refund/credit. Respondent believes that Section 112(A) of the NIRC must be read
together with Section 114(A) of the same Code.

As to the alleged simultaneous filing of its administrative and judicial claims, respondent
contends that it first filed an administrative claim with the One-Stop Shop Inter-Agency Tax
Credit and Duty Drawback Center of the DOF before it filed a judicial claim with the CTA.35 To
prove this, respondent points out that its Claimant Information Sheet No. 4970236 and BIR Form
No. 1914 for the third quarter of 2002,37 which were filed with the DOF, were attached as
Annexes "M" and "N," respectively, to the Petition for Review filed with the CTA.38
Respondent further contends that the non-observance of the 120-day period given to the CIR to
act on the claim for tax refund/credit in Section 112(D) is not fatal because what is important is
that both claims are filed within the two-year prescriptive period.39 In support thereof,
respondent cites Commissioner of Internal Revenue v. Victorias Milling Co., Inc.40 where it was
ruled that "[i]f, however, the [CIR] takes time in deciding the claim, and the period of two years
is about to end, the suit or proceeding must be started in the [CTA] before the end of the two-
year period without awaiting the decision of the [CIR]."41 Lastly, respondent argues that even if
the period had already lapsed, it may be suspended for reasons of equity considering that it is not
a jurisdictional requirement.
Our Ruling

The petition has merit. Unutilized input VAT must be claimed within two years after the close of
the taxable quarter when the sales were made.In computing the two-year prescriptive period for
claiming a refund/credit of unutilized input VAT, the Second Division of the CTA applied
Section 112(A) of the NIRC, which states:

SEC. 112. Refunds or Tax Credits of Input Tax. (A) Zero-rated or Effectively Zero-rated
Sales Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may,
within two (2) years after the close of the taxable quarter when the sales were made, apply for
the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to
such sales, except transitional input tax, to the extent that such input tax has not been applied
against output tax: Provided, however, That in the case of zero-rated sales under Section
106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign currency
exchange proceeds thereof had been duly accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer
is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods
or properties or services, and the amount of creditable input tax due or paid cannot be directly
and entirely attributed to any one of the transactions, it shall be allocated proportionately on the
basis of the volume of sales. (Emphasis supplied.)

The CTA En Banc, on the other hand, took into consideration Sections 114 and 229 of the NIRC,
which read:

SEC. 114. Return and Payment of Value-Added Tax.(A) In General. Every person liable
to pay the value-added tax imposed under this Title shall file a quarterly return of the amount of
his gross sales or receipts within twenty-five (25) days following the close of each taxable
quarter prescribed for each taxpayer: Provided, however, That VAT-registered persons shall pay
the value-added tax on a monthly basis.

Any person, whose registration has been cancelled in accordance with Section 236, shall file a
return and pay the tax due thereon within twenty-five (25) days from the date of cancellation of
registration: Provided, That only one consolidated return shall be filed by the taxpayer for his
principal place of business or head office and all branches.

SEC. 229. Recovery of tax erroneously or illegally collected. No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been excessively or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty
or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from
the date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even without written claim therefor,
refund or credit any tax, where on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid. (Emphasis supplied.)

Hence, the CTA En Banc ruled that the reckoning of the two-year period for filing a claim for
refund/credit of unutilized input VAT should start from the date of payment of tax and not from
the close of the taxable quarter when the sales were made.43

The pivotal question of when to reckon the running of the two-year prescriptive period,
however, has already been resolved in Commissioner of Internal Revenue v. Mirant Pagbilao
Corporation,44 where we ruled that Section 112(A) of the NIRC is the applicable provision in
determining the start of the two-year period for claiming a refund/credit of unutilized input VAT,
and that Sections 204(C) and 229 of the NIRC are inapplicable as "both provisions apply only to
instances of erroneous payment or illegal collection of internal revenue taxes."45 We explained
that:

The above proviso [Section 112 (A) of the NIRC] clearly provides in no uncertain terms that
unutilized input VAT payments not otherwise used for any internal revenue tax due the taxpayer
must be claimed within two years reckoned from the close of the taxable quarter when the
relevant sales were made pertaining to the input VAT regardless of whether said tax was paid or
not. As the CA aptly puts it, albeit it erroneously applied the afore quoted Sec. 112 (A),
"[Prescriptive period commences from the close of the taxable quarter when the sales were made
and not from the time the input VAT was paid nor from the time the official receipt was issued."
Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the pertinent transaction,
said taxpayer only has a year to file a claim for refund or tax credit of the unutilized creditable
input VAT. The reckoning frame would always be the end of the quarter when the pertinent sales
or transaction was made, regardless when the input VAT was paid. Be that as it may, and given
that the last creditable input VAT due for the period covering the progress billing of September
6, 1996 is the third quarter of 1996 ending on September 30, 1996, any claim for unutilized
creditable input VAT refund or tax credit for said quarter prescribed two years after September
30, 1996 or, to be precise, on September 30, 1998. Consequently, MPCs claim for refund or tax
credit filed on December 10, 1999 had already prescribed.

Reckoning for prescriptive period under Secs. 204(C) and 229 of the NIRC inapplicable, To be
sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of the NIRC which,
for the purpose of refund, prescribes a different starting point for the two-year prescriptive limit
for the filing of a claim therefor. Secs. 204(C) and 229 respectively provide:
Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit
Taxes. The Commissioner may (c) Credit or refund taxes erroneously or illegally received
or penalties imposed without authority, refund the value of internal revenue stamps when they
are returned in good condition by the purchaser, and, in his discretion, redeem or change unused
stamps that have been rendered unfit for use and refund their value upon proof of destruction. No
credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the
Commissioner a claim for credit or refund within two (2) years after the payment of the tax or
penalty: Provided, however, That a return filed showing an overpayment shall be considered as a
written claim for credit or refund.

Sec. 229. Recovery of Tax Erroneously or Illegally Collected. No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, of any sum alleged to have been excessively or in any manner
wrongfully collected without authority, or of any sum alleged to have been excessively or in any
manner wrongfully collected, until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty,
or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from
the date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid.

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

MPCs creditable input VAT not erroneously paid

For perspective, under Sec. 105 of the NIRC, creditable input VAT is an indirect tax which can
be shifted or passed on to the buyer, transferee, or lessee of the goods, properties, or services of
the taxpayer. The fact that the subsequent sale or transaction involves a wholly-tax exempt client,
resulting in a zero-rated or effectively zero-rated transaction, does not, standing alone, deprive
the taxpayer of its right to a refund for any unutilized creditable input VAT, albeit the erroneous,
illegal, or wrongful payment angle does not enter the equation.

Considering the foregoing discussion, it is clear that Sec. 112 (A) of the NIRC, providing a two-
year prescriptive period reckoned from the close of the taxable quarter when the relevant sales or
transactions were made pertaining to the creditable input VAT, applies to the instant case, and
not to the other actions which refer to erroneous payment of taxes.46 (Emphasis supplied.)
In view of the foregoing, we find that the CTA En Banc erroneously applied Sections 114(A)
and 229 of the NIRC in computing the two-year prescriptive period for claiming refund/credit of
unutilized input VAT. To be clear, Section 112 of the NIRC is the pertinent provision for the
refund/credit of input VAT. Thus, the two-year period should be reckoned from the close of the
taxable quarter when the sales were made.

The administrative claim was timely filed

Bearing this in mind, we shall now proceed to determine whether the administrative claim was
timely filed.

Relying on Article 13 of the Civil Code,47 which provides that a year is equivalent to 365 days,
and taking into account the fact that the year 2004 was a leap year, petitioner submits that the
two-year period to file a claim for tax refund/ credit for the period July 1, 2002 to September 30,
2002 expired on September 29, 2004.48

We do not agree.

In Commissioner of Internal Revenue v. Primetown Property Group, Inc.,49 we said that as


between the Civil Code, which provides that a year is equivalent to 365 days, and the
Administrative Code of 1987, which states that a year is composed of 12 calendar months, it is
the latter that must prevail following the legal maxim, Lex posteriori derogat priori.50 Thus:

Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative
Code of 1987 deal with the same subject matter the computation of legal periods. Under the
Civil Code, a year is equivalent to 365 days whether it be a regular year or a leap year. Under the
Administrative Code of 1987, however, a year is composed of 12 calendar months. Needless to
state, under the Administrative Code of 1987, the number of days is irrelevant.

There obviously exists a manifest incompatibility in the manner of computing legal periods
under the Civil Code and the Administrative Code of 1987. For this reason, we hold that Section
31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law, governs
the computation of legal periods. Lex posteriori derogat priori.

Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this case, the
two-year prescriptive period (reckoned from the time respondent filed its final adjusted return on
April 14, 1998) consisted of 24 calendar months, computed as follows:
Year 1 1st calendar month April 15, 1998 to May 14, 1998

2nd calendar month May 15, 1998 to June 14, 1998

3rd calendar month June 15, 1998 to July 14, 1998

4th calendar month July 15, 1998 to August 14, 1998

5th calendar month August 15, 1998 to September 14, 1998

6th calendar month September 15, 1998 to October 14, 1998

7th calendar month October 15, 1998 to November 14, 1998

8th calendar month November 15, 1998 to December 14, 1998

9th calendar month December 15, 1998 to January 14, 1999

10th calendar month January 15, 1999 to February 14, 1999

11th calendar month February 15, 1999 to March 14, 1999

12th calendar month March 15, 1999 to April 14, 1999

Year 2 13th calendar month April 15, 1999 to May 14, 1999

14th calendar month May 15, 1999 to June 14, 1999

15th calendar month June 15, 1999 to July 14, 1999

16th calendar month July 15, 1999 to August 14, 1999

17th calendar month August 15, 1999 to September 14, 1999

18th calendar month September 15, 1999 to October 14, 1999

19th calendar month October 15, 1999 to November 14, 1999

20th calendar month November 15, 1999 to December 14, 1999

21st calendar month December 15, 1999 to January 14, 2000

22nd calendar month January 15, 2000 to February 14, 2000

23rd calendar month February 15, 2000 to March 14, 2000

24th calendar month March 15, 2000 to April 14, 2000


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

Applying this to the present case, the two-year period to file a claim for tax refund/credit for the
period July 1, 2002 to September 30, 2002 expired on September 30, 2004. Hence, respondents
administrative claim was timely filed.

The filing of the judicial claim was premature

However, notwithstanding the timely filing of the administrative claim, we are constrained to
deny respondents claim for tax refund/credit for having been filed in violation of Section 112(D)
of the NIRC, which provides that:

SEC. 112. Refunds or Tax Credits of Input Tax. (D) Period within which Refund or Tax
Credit of Input Taxes shall be Made. In proper cases, the Commissioner shall grant a refund or
issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days
from the date of submission of complete documents in support of the application filed in
accordance with Subsections (A) and (B) hereof.

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

Section 112(D) of the NIRC clearly provides that the CIR has "120 days, from the date of the
submission of the complete documents in support of the application [for tax refund/credit],"
within which to grant or deny the claim. In case of full or partial denial by the CIR, the
taxpayers recourse is to file an appeal before the CTA within 30 days from receipt of the
decision of the CIR. However, if after the 120-day period the CIR fails to act on the application
for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA
within 30 days.

In this case, the administrative and the judicial claims were simultaneously filed on September
30, 2004. Obviously, respondent did not wait for the decision of the CIR or the lapse of the 120-
day period. For this reason, we find the filing of the judicial claim with the CTA premature.
Respondents assertion that the non-observance of the 120-day period is not fatal to the filing of
a judicial claim as long as both the administrative and the judicial claims are filed within the
two-year prescriptive period52 has no legal basis.

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

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

With regard to Commissioner of Internal Revenue v. Victorias Milling, Co., Inc.53 relied upon
by respondent, we find the same inapplicable as the tax provision involved in that case is Section
306, now Section 229 of the NIRC. And as already discussed, Section 229 does not apply to
refunds/credits of input VAT, such as the instant case.

In fine, the premature filing of respondents claim for refund/credit of input VAT before the
CTA warrants a dismissal inasmuch as no jurisdiction was acquired by the CTA.

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

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice
G.R. No. 205543 June 30, 2014

SAN ROQUE POWER CORPORATION, Petitioner,

vs.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

Before the Court is a Petition for Review on Certiorari under Rule 16, Section 1 of A.M. No. 05-
11-07-CTA, otherwise known as the Revised Rules of the Court of Tax Appeals, in relation to
Rule 45 of the Rules of Court, filed by San Roque Power Corporation (San Roque), seeking the
reversal of the Decision1 dated June 4, 2012 and Resolution2 dated January 21, 2013 of the
Court of Tax Appeals (CTA) en bane in C.T.A. EB No. 789. The CTA en bane, in its assailed
Decision, affirmed the Decision3 dated January 10, 2011 of the CTA First Division in C.T.A.
Case Nos. 7744 & 7802, which dismissed the judicial claims of San Roque for the refund or tax
credit of its excess/unutilized creditable input taxes for the four quarters of 2006; and in its
assailed Resolution, denied the Motion for Reconsideration of San Roque.

San Roque is a domestic corporation principally engaged in the power-generation business. It is


registered with the Board of Investments on a preferred pioneer status for the construction and
operation of hydroelectric power-generating plants, as well as with the Bureau of Internal
Revenue (BIR) as a Value-Added Tax (VAT) taxpayer.

On October 11, 1997, San Roque entered intoa Power Purchase Agreement (PPA) with the
National Power Corporation (NPC) to develop the San Roque hydroelectric facilities located at
Lower Agno River in San Miguel, Pangasinan (Project) on a build-operate-transfer basis. During
the co-operation period of 25 years, commencing from the completion date of the power station,
all the electricity generated by the Project would be sold to and purchased exclusively by
NPC.San Roque commenced commercial operations in May 2003.
San Roque alleged that in 2006, it incurred creditable input taxes from its purchase of capital
goods, importation of goods other than capital goods, and payment for the services of non-
residents. San Roque subsequently filed with the BIR separate claims for refund or tax credit of
its creditable input taxes for all four quarters of 2006. San Roque averred that it did not have any
output taxes to which it could have applied said creditable input taxes because: (a) the sale by
San Roque of electricity, generated through hydropower, a renewable source of energy, is subject
to 0% VAT under Section 108(B)(7) of the National Internal Revenue Code (NIRC) of 1997, as
amended; and (b) NPC is exempted from all taxes, direct and indirect, under Republic Act No.
6395, otherwise known as the NPC Charter, so the sale by San Roque of electricity exclusively
to NPC, under the PPA dated October 11, 1997, is effectively zero-rated under Section 108(B)(3)
of the NIRC of 1997, as amended.4 When the Commissioner of Internal Revenue (CIR) failed to
take action on its administrative claims, San Roque filed two separate Petitions for Review
before the CTA, particularly, C.T.A. Case No. 7744 (covering the first, third, and fourth quarters
of 2006) and C.T.A. Case No. 7802 (covering the second quarter of 2006). The two cases were
consolidated before the CTA First Division.

The details concerning the administrative and judicial claims of San Roque for refund or tax
credit of its creditable input taxes for the four quarters of 2006 are summarized in table form
below:

Tax

Period

2006 VAT Return Administrative Claim Judicial Claim

First

Quarter Filed: April 21, 2006

Amended: November 7,

2006 Filed: April 11, 2007

Amount: 2,857,174.95

Amended: March 10, 2008


Amount: 3,128,290.74 Filed: March 28, 2008

CTA Case No. 7744

Amount: 12,114,877.34

(for 1st, 3rd, and 4th

Quarters

of 2006)

Second

Quarter Filed: July 15, 2006

Amended: November 8,

2006

Amended: February 5,

2007 Filed: July 10, 2007

Amount: 15,044,030.82

Amended: March 10, 2008

Amount: 15,548,630.55 Filed: June 27, 2008

CTA Case No. 7802

Amount: 15,548,630.55

Third

Quarter Filed: October 19, 2006

Amended: February 5,

2007 Filed: August 31, 2007

Amount: 4,122,741.54

Amended: September 21,


2007

Amount: 3,675,574.21 Filed: March 28, 2008

CTA Case No. 7744

Amount: 12,114,877.34

(for 1st, 3rd, and 4th

Quarters

of 2006)

Fourth

Quarter Filed: January 22, 2007

Amended: May 12, 2007 Filed: August 31, 2007

Amount: 6,223,682.61

Amended: September 21,

2007

Amount: 5,311,012.39 Filed: March 28, 2008

CTA Case No. 7744

Amount: 12,114,877.34

(for 1st, 3rd, and 4th

Quarters

of 2006)

On January 10, 2011, the CTA First Division rendered a Decision on the consolidated
judicialclaims of San Roque, with the following findings:

As to [San Roques] original applications for refund is concerned, the Commissioner of Internal
Revenuehas one hundred twenty days or until August 9, 2007, November 7, 2007 and December
29, 2007 within which to make decision. After the lapse of the one hundred twenty[-]day period,
[San Roque] should have elevated its claim with the Court within thirty (30) days starting from
August 10, 2007 to September 8, 2007 for its first quarter claim, November 8, 2007 to December
7, 2007 for its second quarter claim, and December 30, 2007 toJanuary 28, 2008 for its third and
fourth quarters claims pursuant to Section 112(D) of the NIRC in relation to Section 11 of
[Republic Act No.] 1125, as amended by Section 9 of [Republic Act No.] 9282. Unfortunately,
the Petitions for Review on March 28, 2008 for the first, third and fourth quarters claims and on
June 27, 2008 for the second quarter claim, were filed beyond the 30-day period set by law and
therefore, the Court has no jurisdiction to entertain the subject matter of the case considering that
the 30-day appeal period provided under Section 11 of [RepublicAct No.] 1125 is a jurisdictional
requirement as held in the case of Ker & Co., Ltd. vs. Court of Tax Appeals, x x x:

xxxx

Likewise, if we reckoned the one hundred twenty[-]day period from the date of the amended
applications for refund on March 10, 2008 for the first and second quarters claims and September
21, 2007 for the third and fourth quarters claims, both Petitions for Reviewwould still be denied.

With respect to the amended application for refund of input tax for the first and second quarters
of 2006 on March 10, 2008, the Commissioner of Internal Revenue has one hundred twenty days
or until July 8, 2008 within which to make a decision. After the lapse of the said 120-day period,
[San Roque] had thirty days or until August 7, 2008 within which to appeal to this Court.[San
Roque], however, appealed via Petitions for Review on March 28, 2008 for its first quarter claim
and on June 27, 2008 for its second quarter claim, which are clearly before the lapse of the 120-
day period. This violates the rule on exhaustion of administrative remedies.

xxxx

The premature invocation ofthe courts intervention, like the instant Petitions for Review, is fatal
to ones cause of action; and the case is susceptible of dismissal for failure to state a cause of
action. Moreover, such premature appeal will also warrant the dismissal of the Petitions for
Review inasmuch as no jurisdiction was acquired by the Court in line with the recent
pronouncement made by the Supreme Court in the case of Commissioner of Internal Revenue vs.
Aichi Forging Company of Asia, Inc.

As far as the amended application for refund covering the third and fourth quarter[s] filed on
September 21, 2007 is concerned, the Commissioner of Internal Revenue has one hundred
twenty days or until January 19, 2008 within which to make a decision. After the lapse of the
said one hundred twenty day[-]period, [San Roque] should have elevated its claim with the Court
within thirty (30) daysstarting from January 20, 2008 to February 18, 2008. Unfortunately, the
Petition for Review covering said third and fourth quarter[s] was filed March 28, 2008 beyond
the 30-day period set by law and therefore, the Court has no jurisdiction to entertain the subject
matter of the case.

Other issues raised now become moot and academic.5

The dispositive portion of the foregoing Decision of the CTA First Division reads:

WHEREFORE, these consolidated Petitions for Review, CTA Case Nos. 7744 covering the first,
third and fourth quarter[s] and 7802 covering [the] second quarter are hereby DISMISSEDsince
the Court has no jurisdiction thereof.6

San Roque filed a Motion for Reconsideration but it was denied by the CTA First Division in a
Resolution7 dated May 31, 2011.

San Roque filed a Petition for Review before the CTA en banc, protesting against the retroactive
application of Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.8 In
Aichi, promulgated on October 6, 2010, the Supreme Court strictly required compliance with the
120+30 day periods under Section 112 of the NIRC of 1997, as amended.

In its Decision dated June 4, 2012, the CTA en bancupheld the application of Aichiand explained
that there was no retroactive application of the same. The 120+30 day periods had already been
provided in the NIRC of 1997, as amended, evenbefore the promulgation of Aichi. Aichi merely
interpreted the provisions of Section 112 of the NIRC of 1997, as amended.

The CTA en bancapplied the 120+30 day periods and found, same as the CTA First Division,
that while San Roque timely filed its administrative claims for refund or tax credit of creditable
input taxes for the four quarters of 2006, it filed its judicial claimsbeyond the 30-day prescriptive
period, reckoned from the lapse of the 120-day period for the CIR to act on the original
administrative claims. The CTA en bancstressed that the 30-day period within which to appeal
with the CTA is jurisdictional and failure to comply therewith would bar the appeal and deprive
the CTA of its jurisdiction.9

The CTA en bancfurther stated in its Decision that even if it counted the 120-day period from the
filing of the amended administrative claims for refund on March 10, 2008 for the first and
second quarter claims, and on September 21, 2007 for the third and fourth quarter claims, the
CTA still did not acquire jurisdiction over C.T.A.Case Nos. 7744 and 7802. Following the
120+30 day periods, the judicial claims of San Roque for the first and second quarters were
prematurely filed,while the judicial claims for the third and fourth quarters were filed late.

Lastly, the CTA en bancadjudged that San Roque cannot rely on San Roque Power Corporation
v. Commissioner of Internal Revenue, promulgated on November 25, 2009 [San Roque
(2009)],10 which granted the claims for refund or tax credit of the creditable input taxes of San
Roque for the four quarters of 2002, on the following grounds: (a) The main issue in San Roque
(2009)was whether or not San Roque had zero-rated or effectively zero-rated sales in 2002, to
which the creditable input taxes could be attributed, while the pivotal issue inthe instant case is
whether or not San Roque complied with the prescriptive periods under Section 112 of the NIRC
of 1997, as amended, when it filed its administrative and judicial claims for refund or tax credit
of itscreditable input taxes for the four quarters of 2006; (b) The claims for refund or tax credit in
San Roque (2009) involved the four quarters of 2002,when sales of electric power by generation
companies to the NPC were explicitly VAT zero-rated under Section 6 of Republic Act No.
9136, otherwise known as the Electric Power Industry Reform Act (EPIRA) of 2001. Eventually,
Republic Act No. 9337, otherwise known as the Extended VAT Law (EVAT Law), took effect
on November 1, 2005, and Section 24 of said law already expressly repealed Section 6 of the
EPIRA; and (3) In San Roque (2009), San Roque failed to comply with Section 112(A)11 of the
NIRC of 1997, as amended, and prematurely filed its administrative claim for the third quarter of
2002 on October 25, 2002, when its zero-rated sales of electric power to NPC were made only in
the fourth quarter of 2002, which closed on December 31. 2002. In the instant case, San
Roquedid not comply with the 120+30 day periods under Section 112(C) of the NIRC, as
amended, thus, the CTA did not acquire jurisdiction over the judicial claims.

In the end, the CTA en bancdecreed:


Finding no reversible error, we affirm the assailed Decision dated January 10, 2011 and
Resolution dated May 31, 2011 rendered by the First Division in C.T.A. Case Nos. 7744 and
7802.

WHEREFORE, premises considered, the present Petition for Review is hereby DENIED, and
accordingly DISMISSEDfor lack of merit.12

In its Resolution dated January 21, 2013, the CTA en bancdenied the Motion for Reconsideration
of San Roque.

Hence, San Roque filed the Petition at bar assigning six reversible errors on the part of the CTA
en banc, viz:

I.

THE HONORABLE CTA EN BANCCOMMITTED REVERSIBLE ERROR IN DISMISSING


[SAN ROQUES] PETITIONS FOR REVIEW AND APPLYING RETROACTIVELY THE
AICHI RULING IN THAT AT THE TIME IT FILED ITS PETITIONS FOR REVIEW, [SAN
ROQUE] ACTED IN GOOD FAITH IN ACCORDANCE WITH THE THEN PREVAILING
RULE AND JURISPRUDENCE CONSISTENTLY UPHELD FOR ALMOST A DECADE BY
THE HONORABLE CTA IN THE ABSENCE THEN OF A RULING FROM THIS
HONORABLE COURT.

II.

THE HONORABLE CTA EN BANCCOMMITTED REVERSIBLE ERROR IN APPLYING


THE AICHI RULING TO [SAN ROQUES] CLAIM FILED YEARS BEFORE ITS
PROMULGATION IN THAT THE AICHI RULING, WHICH LAID DOWN A NEW RULE
OF PROCEDURE WHICH AFFECTS SUSBSTANTIVE RIGHTS, SHOULD BE APPLIED
PROSPECTIVELY IN LIGHT OF THE LAW AND SETTLED JURISPRUDENCE
UPHOLDING THE PRINCIPLE OF PROSPECTIVITY.
III.

THE HONORABLE CTA EN BANCCOMMITTED REVERSIBLE ERROR IN APPLYING


RETROACTIVELY THE AICHI RULING IN THAT ITS RETROACTIVE APPLICATION
TO [SAN ROQUES] PENDING CLAIM WILL BE UNJUST AND UNFAIR AND WILL
CERTAINLY PRODUCE SUBSTANTIAL INEQUITABLE RESULTS AND GRAVE
INJUSTICE TO [SAN ROQUE] AND MANY TAXPAYERS WHO RELIED IN GOOD
FAITH ON ITS THEN CONSISTENT RULINGS FOR ALMOST A DECADE.

IV.

THE HONORABLE CTA EN BANCCOMMITTED REVERSIBLE ERROR IN APPLYING


RETROACTIVELY THE AICHI RULING IN THAT ITS RETROACTIVE APPLICATION
GOES AGAINST THE BASIC POLICIES AND THE SPIRIT OF THE EPIRA LAW.

V.

[SAN ROQUE] SHOULD BE GIVEN THE SAME TREATMENT AS THOSE DECIDED IN


PRECEDENT CASES PROMULGATED PRIOR TO THE PROMULGATION OF THE AICHI
RULING IN ACCORDANCE WITH THE EQUAL PROTECTION CLAUSE OF THE
CONSTITUTION AND THE DOCTRINEOF EQUITABLE ESTOPPEL.

VI.

RECENTLY, THIS HONORABLE COURT EN BANCHAS CATEGORICALLY RULED


THAT THE AICHI RULING SHALL BE APPLIED PROSPECTIVELY.13

There is no merit in the instant Petition.


At the crux of the controversy are the prescriptive periods for the filing of administrative and
judicial claims for refund or tax credit of creditable input taxes under Section 112 of the NIRC of
1997, as amended, which provide:

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

(A) Zero-Rated or Effectively Zero-Rated Sales. Any VATregistered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paidattributable to such sales, except transitional input tax, to the
extent thatsuch input tax has not been applied against output tax: x x x

xxxx

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

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

Contrary to the assertion of San Roque, it was only in Aichi that the issue of the prescriptive
periods under Section 112 of the NIRC of 1997, as amended, was first squarely raised before and
addressed by the Court. The Court significantly ruled in Aichi that: (a) Section 112 of the NIRC
of 1997, as amended, particularly governs claims for refund or tax credit of creditable input
taxes, which is distinct from Sections 204(C) and 229 of the same statute which concern
erroneously or illegally collected taxes; (b) The two year prescriptive period under Section
112(A) of the NIRC of 1997, as amended, pertains only to administrative claims for refund or tax
credit of creditable input taxes, and not to judicial claims for the same; (c) Following
Commissioner of Internal Revenue v. Mirant Pagbilao Corporation,14 the two-year prescriptive
period under Section 112(A) of the NIRC of 1997, as amended, is reckoned from the close of the
taxable quarter when the sales were made; (d) In determining the end of the two-year
prescriptive period under Section 112(A) of the NIRC of 1997, as amended, the Administrative
Code of 1987 prevails over the Civil Code, so that a year is composed of 12 calendar months;
and (e) The 120-day period, under what is presently Section 112(C) of the NIRC of 1997, as
amended, is crucial in filing an appeal with the CTA, for whether the CIR issues a decision on
the administrative claim before the lapse of the 120-day period or the CIR made no decision on
the administrative claim after the 120-day period, the taxpayer has 30 days within which to file
an appeal with the CTA.

The Court en banc had the opportunity to further expound on the prescriptive periods under
Section 112 of the NIRC of 1997, as amended, in its Decision in the consolidated cases of
Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito Mining
Corporation v. Commissioner of Internal Revenue, and Philex Mining Corporation v.
Commissioner of Internal Revenue, promulgated in 2013 [San Roque (2013)].15

According to the Court in San Roque (2013), the prescriptive periods under Section 112 of the
NIRC of 1997, as amended, shall be interpreted as follows:

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 any time 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).16
(Emphasis deleted.)

The Court emphasized in San Roque (2013) that a claim for refund or tax credit, like a claim for
tax exemption, is construed strictly against the taxpayer. It cited Aichi and pointed out that one
of the conditions for a judicial claim for refund or tax credit under the VAT system is
compliance with the 120+30 day mandatory and jurisdictional periods under Section 112(C) of
the NIRC of 1997, as amended. Guided by the aforementioned law and jurisprudence, the Court
now determines whether or not San Roque complied in the instant case with the prescriptive
periods under Section 112 of the NIRC of 1997, as amended.
As the following tables will show, San Roque filed its administrative claims for refund or tax
credit of its creditable input taxes for the four quarters of 2006 within the two-year prescriptive
period under Section 112(A) of the NIRC of 1997, as amended, whether reckoned from the close
of the taxable quarter when the relevant zero-rated or effectively zero-rated sales were made, in
accordance with Mirant and Aichi; or from the date of filing of the quarterly VAT return and
payment of the tax due 20 days after the close of the taxable quarter, following Atlas
Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue18:

According to Mirant and Aichi

Tax Period

2006 Close of Quarter

When Relevant Sales

were Made End of the Two-Year

Prescriptive Period Date of Filing of

Administrative

Claim

First Quarter March 31, 2006 March 31, 2008 April 11, 2007

Second Quarter June 30, 2006 June 30, 2008 July 10, 2007

Third Quarter September 30, 2006 September 30, 2008 August 31, 2007

Fourth Quarter December 31, 2006 December 31, 2008 August 31, 2007

According to Atlas

Tax Period

2006 Filing of Returns and

Payment of Taxes 20

Days after the Close

of Taxable Quarter End of the Two-Year


Prescriptive Period Date of Filing of

Administrative

Claim

First Quarter April 20, 2006 April 20, 2008 April 11, 2007

Second Quarter July 20, 2006 July 20, 2008 July 10, 2007

Third Quarter

October 20, 2006 October 20, 2008 August 31, 2007

Fourth Quarter

January 21, 200619 January 21, 2009 August 31, 2007

San Roque, however, failed to comply with the 120+30 day periods for the filing of its judicial
claims, as can be gleaned from the table below:

Tax

Period

2006

Date of

Filing of

Administrative

Claim

End of 120-Day Period for

CIR to Decide End of 30-day

Period to File

Appeal with

CTA Date of Actual

Filing of

Judicial Claim No. of Days:


End of 120-day

Period to Filing of Judicial Claim

First Quarter

April 11, 2007

August 9, 2007

September 8, 2007

March 28, 2008 232 days

Second Quarter

July 10, 2007

November 7, 2007

December 7, 2007

June 27, 2008 233 days

Third Quarter

August 31, 2007

December 29, 2007

January 28, 2008

March 28, 2008

90 days

Fourth

Quarter August 31, 2007

December 29, 2007

January 28, 2008

March 28, 2008 90 days

Because San Roque filed C.T.A. Case Nos. 7744 and 7802 beyond the 30-day mandatory period
under Section 112(C) of the NIRC of 1997, as amended, the CTA First Division did not acquire
jurisdiction over said cases and correctly dismissed the same.
San Roque in the present case is in exactly the same position as Philex Mining Corporation
(Philex) in San Roque (2013). Hence, the ruling of the Court on the judicial claim of Philex in
San Roque (2013) is worth reproducing hereunder:

Philex timely filed its administrative claim on 20 March 2006, within the two-year prescriptive
period. Even if the two-year prescriptive period is computed from the date of payment of the
output VAT under Section 229, Philex still filed its administrative claim on time. Thus, the Atlas
doctrine is immaterial in this case.The Commissioner had until 17 July 2006, the last day of the
120-day period, to decide 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 twenty-six (426) days after the last day of filing. In short, Philex
was late by one year and 61 days in filing its judicial claim. As the CTA EB correctly found:
Evidently, the Petition for Review in C.T.A. Case No. 7687 was filed 426 days late.Thus, the
Petition for Review in C.T.A. Case No. 7687 should have been dismissed on the ground that the
Petition for Review was filed way beyond the 30-day prescribed period; thus, no jurisdiction was
acquired by the CTA Division; x x x.

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

The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of
the Commissioner on 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. Philex failed to comply
with the statutory conditions and must thus bear the consequences.21 (Citations omitted.)
Both the CTA First Division and CTA en banc went a step further and also computed the 120+30
day periods from the date of filing by San Roque of its amended administrative claims on March
10, 2008 for the first and second quarters of 2006, and on September 21, 2007 for the third and
fourth quarters of 2006. According to the CTA First Division and CTA en banc, if the 120-day
period was reckoned from the dates of filing of the amended administrative claims, the judicial
claims for the first and second quarters were premature, while the judicial claims for the third
and fourth quarters were late.

For the Court, there is no more point in considering the amended administrative claims for the
first and second quarters of 2006. The amended administrative claims were filed on March 10,
2008after the 120+30 day periods for filing the judicial claims, counting from the date of filing
of the original administrative claims for the first and second quarters of 2006, had already
expired on September 8, 2007and December 7, 2007, respectively. Taking cognizance of the
amended administrative claims in such a situation would result in the revival of judicial claims
that had already prescribed.

Meanwhile, San Roque filed its amended administrative claims for the third and fourth quarters
of 2006 on September 21, 2007, before the end of the 120-day period for the CIR to decide on
the original administrative claims for the same taxable quarters. Nonetheless, even if the Court
counts the 120+30 day periods from the date of filing of said amended administrative claims, the
judicial claims of San Roque would still be belatedly filed:

Tax

Period

2006

Date of

Filing of

Administrative

Claim

End of 120-Day Period for

CIR to Decide End of 30-day

Period to File

Appeal with
CTA Date of Actual

Filing of

Judicial Claim No. of Days:

End of 120-day

Period to Filing

of Judicial

Claim

Third

Quarter

September 21,

2007 January 19,

2008 February 18,

2008 March 28, 2008 69 days

Fourth

Quarter September 21,

2007 January 19,

2008

February 18,

2008 March 28, 2008 69 days

Unable to contest the belated filing of its judicial claims, San Roque argues against the
supposedly retroactive application of Aichi and the strict observance of the 120+30 day periods.

As the CTA en banc held, Aichi was not applied retroactively to San Roque in the instant case.
The 120+30 day periods have already been prescribed under Section 112(C) of the NIRC of
1997, as amended, when San Roque filed its administrative and judicial claims for refund or tax
credit of its creditable input taxes for the four quarters of 2006. The Court highlights the
pronouncement in San Roque (2013)that strict compliance with the 120+30 day periods is
necessary for the judicial claim to prosper, except for the period from the issuance of BIR Ruling
No. DA-489-03 on December 10, 2003 to October 6, 2010when Aichi was promulgated, which
again reinstated the 120+30day periods as mandatory and jurisdictional.

It is still necessary for the Court to explain herein how BIR Ruling No. DA-489-03 is an
exception to the strict observance of the 120+30 day periods for judicial claims. BIR Ruling No.
DA-489-03 affected only the 120-day period as the BIR held therein that "a taxpayer-claimant
need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA
by way of Petition for Review. Neither is it required that the Commissioner should first act on
the claim of a particular taxpayer before the CTA may acquire jurisdiction, particularly if the
claim is about to prescribe." Consequently, BIR Ruling No. DA-489-03 may only be invoked by
taxpayers who relied on the same and prematurely filed their judicial claims before the expiration
of the 120-day period for the CIR to act on their administrative claims, provided that the
taxpayers filed such judicial claims from December 10, 2003 to October 6, 2010. BIR Ruling
No. DA-489-03 did not touch upon the 30-day prescriptive period for filing an appeal with the
CTA and cannot be cited by taxpayers, such as San Roque, who belatedly filed their judicial
claims more than 30 days after receipt of the adverse decision of the CIR on their administrative
claims or the lapse of 120 days without the CIR acting on their administrative claims. Pertaining
to the similarly situated Philex, the Court ruled in San Roque (2013) that:

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

San Roque harps that the Court itself categorically declared in the following paragraph in San
Roque (2013) that Aichi shall be applied prospectively:

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


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

The Court is not persuaded. The afore quoted paragraph should be understood in the context of
the entire San Roque (2013). The statement of the Court on applying Mirant and Aichi
prospectively should be understood relative to, and never apart from, Atlas and BIR Ruling No.
DA-489-03.

The Court explained in San Roque (2013), under the heading "Effectivity and Scope of the Atlas,
Mirant and Aichi Doctrines," that:

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

The Atlas doctrine has no relevance to the 120+30 day periods under Section 112(C) because the
application of the 120+30 day periods was not in issue in Atlas. The application of the 120+30
day periods was first raised in Aichi, which adopted the verba legis rule in holding that the
120+30 day periods are mandatory and jurisdictional.

To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly
against the taxpayer. One of the conditions for a judicial claim of refund or credit under the VAT
System is compliance with the 120+30 day mandatory and jurisdictional periods. Thus, strict
compliance with the 120+30 day periods is necessary for such a claim to prosper, whether
before, during, or after the effectivity of the Atlasdoctrine, except for the period from the
issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October 2010 when the
Aichidoctrine was adopted, which again reinstated the 120+30 day periods as mandatory and
jurisdictional.25 (Emphases supplied.)

As for BIR Ruling No. DA-489-03, the Court clarified its period of effectivity, thus:

There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA
does not acquire jurisdiction over a judicial claim that is filed before the expiration of the 120-
day period. There are, however, two exceptions to this rule. The first exception is if the
Commissioner, through a specific ruling, misleads a particular taxpayer to prematurely file a
judicialclaim with the CTA. Such specific ruling is applicable only to suchparticular taxpayer.
The second exception is where the Commissioner, through a general interpretative rule issued
under Section 4 of the Tax Code, misleads all taxpayers into filing prematurely judicial claims
with the CTA. In these cases, the Commissioner cannot be allowed to later on question the
CTAs assumption of jurisdiction over such claim since equitable estoppel has set in as expressly
authorized under 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, notby a particular taxpayer, but by a government agency tasked with processing tax
refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of
the Department of Finance. This governmentagency is also the addressee, or the entity responded
to, in BIR Ruling No. DA-489-03. Thus, while this government agency mentions in its query to
the Commissioner the administrative claim of Lazi Bay Resources Development, Inc., the
agency was in fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay
Resources Development, Inc., where the taxpayer did not wait for the lapse of the 120-day
period.

Clearly, BIR Ruling No. DA-489-03 isa 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 Aichion 6 October 2010, where this Court held that the 120+30 day
periods are mandatory and jurisdictional.26 (Emphasis supplied.)

Based on the foregoing, "prospective application" of Aichiand Mirant, in the context of San
Roque (2013), only meant that the rulings in said cases would not retroactively affect taxpayers
who relied on Atlasand/or DA-489-03 when they filed their administrative and judicial claims
for refund or tax credit of creditable input taxes during the period when Atlasand DA-489-03
were still in effect. Aichiand Mirantcan still be applied to cases involving administrative and
judicial claims filed prior to the promulgation of said cases and outside the period of effectivity
of Atlas and DA-489-03, such as the instant case.

WHEREFORE, premises considered, the instant Petition for Review is DENIED and the
Decision dated June 4, 2012 and Resolution dated January 21, 2013 of the Court of Tax Appeals
en bane in C.T.A. EB No. 789 are AFFIRMED.

No costs.

SO ORDERED.