Act Need To Know

COMMISSIONER OF G.R. No.
152609
INTERNAL REVENUE,
Petitioner, Present:
Panganiban, J.,
Chairman,
Sandoval-Gutierrez,
- versus - Corona,
Carpio Morales, and
Garcia, JJ
AMERICAN EXPRESS
INTERNATIONAL, INC. Promulgated:
(PHILIPPINE BRANCH),
Respondent. June 29, 2005
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x
DECISION
PANGANIBAN, J.:
s a general rule, the value-added tax (VAT) system uses the destination principle. However, our VAT law
itself provides for a clear exception, under which the supply of service shall be zero-rated when the
A
following requirements are met: (1) the service is performed in the Philippines; (2) the service falls under
any of the categories provided in Section 102(b) of the Tax Code; and (3) it is paid for in acceptable foreign
currency that is accounted for in accordance with the regulations of the Bangko Sentral ng Pilipinas. Since
respondents services meet these requirements, they are zero-rated. Petitioners Revenue Regulations that alter
or revoke the above requirements are ultra vires and invalid.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the February 28, 2002
Decision[2] of the Court of Appeals (CA) in CA-GR SP No. 62727. The assailed Decision disposed as follows:
WHEREFORE, premises considered, the petition is hereby DISMISSED for lack of

merit. The assailed decision of the Court of Tax Appeals (CTA) is AFFIRMEDin toto.[3]
The Facts
Quoting the CTA, the CA narrated the undisputed facts as follows:
[Respondent] is a Philippine branch of American Express International, Inc., a

corporation duly organized and existing under and by virtue of the laws of the State of
Delaware, U.S.A., with office in the Philippines at the Ground Floor, ACE Building, corner Rada
and de la Rosa Streets, Legaspi Village, Makati City. It is a servicing unit of American Express
International, Inc. - Hongkong Branch (Amex-HK) and is engaged primarily to facilitate the
collections of Amex-HK receivables from card members situated in the Philippines and
payment to service establishments in the Philippines.
Amex Philippines registered itself with the Bureau of Internal Revenue (BIR), Revenue
District Office No. 47 (East Makati) as a value-added tax (VAT) taxpayer effective March 1988
and was issued VAT Registration Certificate No. 088445 bearing VAT Registration No. 32A-3-
004868. For the period January 1, 1997 to December 31, 1997, [respondent] filed with the BIR
its quarterly VAT returns as follows:
Exhibit Period Covered Date Filed
D 1997 1st Qtr. April 18, 1997

F 2nd Qtr. July 21, 1997
G 3rd Qtr. October 2, 1997
H 4th Qtr. January 20, 1998
On March 23, 1999, however, [respondent] amended the aforesaid returns and
declared the following:
Taxable Output Zero-rated Domestic Input

Exh 1997 Sales VAT Sales Purchases VAT
I 1st qtr P59,597.20 P5,959.72 P17,513,801.11 P6,778,182.30 P677,818.23

J 2nd qtr 67,517.20 6,751.72 17,937,361.51 9,333,242.90 933,324.29
K 3rd qtr 51,936.60 5,193.66 19,627,245.36 8,438,357.00 843,835.70
L 4th qtr 67,994.30 6,799.43 25,231,225.22 13,080,822.10 1,308,082.21
Total P247,045.30 P24,704.53 P80,309,633.20 P37,630,604.30 P3,763,060.43
On April 13, 1999, [respondent] filed with the BIR a letter-request for the refund of
its 1997 excess input taxes in the amount of P3,751,067.04, which amount was arrived at after
deducting from its total input VAT paid of P3,763,060.43 its applied output VAT liabilities only
for the third and fourth quarters of 1997 amounting to P5,193.66 and P6,799.43, respectively.
[Respondent] cites as basis therefor, Section 110 (B) of the 1997 Tax Code, to state:
Section 110. Tax Credits. -
xxxxxxxxx
(B) Excess Output or Input Tax. - If at the end of any taxable quarter
the output tax exceeds the input tax, the excess shall be paid by the VAT-
registered person. If the input tax exceeds the output tax, the excess shall
be carried over to the succeeding quarter or quarters. Any input tax
attributable to the purchase of capital goods or to zero-rated sales by a VAT-
registered person may at his option be refunded or credited against other
internal revenue taxes, subject to the provisions of Section 112.
There being no immediate action on the part of the [petitioner], [respondents]

petition was filed on April 15, 1999.
In support of its Petition for Review, the following arguments were raised by
[respondent]:
A. Export sales by a VAT-registered person, the consideration for

which is paid for in acceptable foreign currency inwardly remitted to the
Philippines and accounted for in accordance with existing regulations of the
Bangko Sentral ng Pilipinas, are subject to [VAT] at zero percent (0%).
According to [respondent], being a VAT-registered entity, it is subject to the
VAT imposed under Title IV of the Tax Code, to wit:
Section 102.(sic) Value-added tax on sale of

services.- (a) Rate and base of tax. - There shall be levied,
assessed and collected, a value-added tax equivalent to
10% percent of gross receipts derived by any person
engaged in the sale of services. The phrase sale of services
means the performance of all kinds of services for others
for a fee, remuneration or consideration, including those
performed or rendered by construction and service
contractors: stock, real estate, commercial, customs and
immigration brokers; lessors of personal property; lessors
or distributors of cinematographic films; persons engaged
in milling, processing, manufacturing or repacking goods
for others; and similar services regardless of whether o[r]
not the performance thereof calls for the exercise or use
of the physical or mental faculties: Provided That the
following services performed in the Philippines by VAT-
registered persons shall be subject to 0%:
(1) xxx
(2) Services other than those
mentioned in the preceding
subparagraph, the consideration
is paid for in acceptable foreign
currency which is remitted
inwardly to the Philippines and
accounted for in accordance
with the rules and regulations
of the BSP. x x x.
In addition, [respondent] relied on VAT Ruling No. 080-89, dated

April 3, 1989, the pertinent portion of which reads as follows:
In Reply, please be informed that, as a VAT

registered entity whose service is paid for in acceptable
foreign currency which is remitted inwardly to the
Philippines and accounted for in accordance with the rules
and regulations of the Central [B]ank of the Philippines,
your service income is automatically zero rated effective
January 1, 1998. [Section 102(a)(2) of the Tax Code as
amended].[4] For this, there is no need to file an application
for zero-rate.
B. Input taxes on domestic purchases of taxable goods and services

related to zero-rated revenues are available as tax refund in accordance with
Section 106 (now Section 112) of the [Tax Code] and Section 8(a) of
[Revenue] Regulations [(RR)] No. 5-87, to state:
Section 106. Refunds or tax credits of input tax.

-
(A) Zero-rated or effectively Zero-rated Sales.

- Any VAT-registered person, except those covered by
paragraph (a) above, whose sales are zero-rated or are
effectively zero-rated, may, within two (2) years after the
close of the taxable quarter when such sales were made,
apply for the issuance of tax credit certificate or refund of
the input taxes due or attributable to such sales, to the
extent that such input tax has not been applied against
output tax. x x x. [Section 106(a) of the Tax Code][5]
Section 8. Zero-rating. - (a) In general. - A zero-

rated sale is a taxable transaction for value-added tax
purposes. A sale by a VAT-registered person of goods
and/or services taxed at zero rate shall not result in any
output tax. The input tax on his purchases of goods or
services related to such zero-rated sale shall be available
as tax credit or refundable in accordance with Section 16
of these Regulations. x x x. [Section 8(a), [RR] 5-87].[6]
[Petitioner], in his Answer filed on May 6, 1999, claimed by way of Special and
Affirmative Defenses that:
7. The claim for refund is subject to investigation by the Bureau of

Internal Revenue;
8. Taxes paid and collected are presumed to have been made in

accordance with laws and regulations, hence, not refundable. Claims for tax
refund are construed strictly against the claimant as they partake of the
nature of tax exemption from tax and it is incumbent upon the [respondent]
to prove that it is entitled thereto under the law and he who claims
exemption must be able to justify his claim by the clearest grant of organic
or statu[t]e law. An exemption from the common burden [cannot] be
permitted to exist upon vague implications;
9. Moreover, [respondent] must prove that it has complied with the

governing rules with reference to tax recovery or refund, which are found in
Sections 204(c) and 229 of the Tax Code, as amended, which are quoted as
follows:
Section 204. Authority of the Commissioner to

Compromise, Abate and Refund or Credit Taxes. - The
Commissioner may - x x x.
(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 payment of the tax or
penalty: Provided, however, That a return filed with an
overpayment shall be considered a written claim for credit
or refund.
Section 229. Recovery of tax erroneously or

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

begun (sic) 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.
From the foregoing, the [CTA], through the Presiding Judge Ernesto D. Acosta
rendered a decision[7] in favor of the herein respondent holding that its services are subject to
zero-rate pursuant to Section 108(b) of the Tax Reform Act of 1997 and Section 4.102-2 (b)(2)
of Revenue Regulations 5-96, the decretal portion of which reads as follows:
WHEREFORE, in view of all the foregoing, this Court finds the

[petition] meritorious and in accordance with law. Accordingly, [petitioner]
is hereby ORDERED to REFUND to [respondent] the amount
of P3,352,406.59 representing the latters excess input VAT paid for the year
1997.[8]
Ruling of the Court of Appeals

In affirming the CTA, the CA held that respondents services fell under the first type enumerated in Section 4.102-
2(b)(2) of RR 7-95, as amended by RR 5-96. More particularly, its services were not of the same class or of the
same nature as project studies, information, or engineering and architectural designs for non-resident foreign
clients; rather, they were services other than the processing, manufacturing or repacking of goods for persons
doing business outside the Philippines. The consideration in both types of service, however, was paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas.
Furthermore, the CA reasoned that reliance on VAT Ruling No. 040-98 was unwarranted. By requiring that
respondents services be consumed abroad in order to be zero-rated, petitioner went
beyond the sphere of interpretation and into that of legislation. Even granting that it is valid, the ruling cannot
be given retroactive effect, for it will be harsh and oppressive to respondent, which has already relied upon VAT
Ruling No. 080-89 for zero rating.
Hence, this Petition.[9]
The Issue
Petitioner raises this sole issue for our consideration:
Whether or not the Court of Appeals committed reversible error in holding that respondent is
entitled to the refund of the amount of P3,352,406.59 allegedly representing excess input VAT
for the year 1997.[10]
The Courts Ruling
The Petition is unmeritorious.
Sole Issue:
Entitlement to Tax Refund
Section 102 of the Tax Code[11] provides:
Sec. 102. Value-added tax on sale of services and use or lease of properties. -- (a) Rate
and base of tax. -- There shall be levied, assessed and collected, a value-added tax equivalent
to ten percent (10%) of gross receipts derived from the sale or exchange of services x x x.
The phrase 'sale or exchange of services' means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or consideration, including those
performed or rendered by x x x persons engaged in milling, processing, manufacturing or
repacking goods for others; x x x services of banks, non-bank financial intermediaries and
finance companies; x x x and similar services regardless of whether or not the performance
thereof calls for the exercise or use of the physical or mental faculties. The phrase 'sale or
exchange of services' shall likewise include:
xxxxxxxxx
(3) The supply of x x x commercial knowledge or information;
(4) The supply of any assistance that is ancillary and subsidiary to
and is furnished as a means of enabling the application or enjoyment of x
x x any such knowledge or information as is mentioned in subparagraph
(3);
xxxxxxxxx
(6) The supply of technical advice, assistance or services rendered
in connection with technical management or administration of any x x x
commercial undertaking, venture, project or scheme;
xxxxxxxxx
"The term 'gross receipts means the total amount of money or its equivalent
representing the contract price, compensation, service fee, rental or royalty, including the
amount charged for materials supplied with the services and deposits and advanced payments
actually or constructively received during the taxable quarter for the services performed or to
be performed for another person, excluding value-added tax.
"(b) Transactions subject to zero percent (0%) rate. -- The following services
performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%)
rate[:]
(1) Processing, manufacturing or repacking goods for other persons

doing business outside the Philippines which goods are subsequently
exported, where the services are paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding

subparagraph, the consideration for which is paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of
the [BSP];
xxxxxxxxx
Zero Rating of
Other Services
The law is very clear. Under the last paragraph quoted above, services performed by VAT-registered persons in
the Philippines (other than the processing, manufacturing or repacking of goods for persons doing business
outside the Philippines), when paid in acceptable foreign currency and accounted for in accordance with the
rules and regulations of the BSP, are zero-rated.
Respondent is a VAT-registered person that facilitates the collection and payment of receivables belonging to
its non-resident foreign client, for which it gets paid in acceptable foreign currency inwardly remitted and
accounted for in conformity with BSP rules and regulations. Certainly, the service it renders in the Philippines is
not in the same category as processing, manufacturing or repacking of goods and should, therefore, be zero-
rated. In reply to a query of respondent, the BIR opined in VAT Ruling No. 080-89 that the income respondent
earned from its parent companys regional operating centers (ROCs) was automatically zero-rated effective
January 1, 1988.[12]
Service has been defined as the art of doing something useful for a person or company for a fee[13] or useful
labor or work rendered or to be rendered by one person to another. [14]For facilitating in the Philippines the
collection and payment of receivables belonging to its Hong Kong-based foreign client, and getting paid for it in
duly accounted acceptable foreign currency, respondent renders service falling under the category of zero
rating. Pursuant to the Tax Code, a VAT of zero percent should, therefore, be levied upon the supply of that
service.[15]
The Credit Card System

and Its Components
For sure, the ancillary business of facilitating the said collection is different from the mainbusiness of issuing
credit cards.[16] Under the credit card system, the credit card company extends credit accommodations to its
card holders for the purchase of goods and services from its member establishments, to be reimbursed by them
later on upon proper billing. Given the complexities of present-day business transactions, the components of
this system can certainly function as separate billable services.
Under RA 8484,[17] the credit card that is issued by banks[18] in general, or by non-banks in particular, refers to any
card x x x or other credit device existing for the purpose of obtaining x x x goods x x x or services x x x on
credit;[19] and is being used usually on a revolving basis.[20] This means that the consumer-credit arrangement
that exists between the issuer and the holder of the credit card enables the latter to procure goods or services
on a continuing basis as long as the outstanding balance does not exceed a specified limit. [21] The card holder is,
therefore, given the power to obtain present control of goods or service on a promise to pay for them in the
future.[22]
Business establishments may extend credit sales through the use of the credit card facilities of a non-bank credit
card company to avoid the risk of uncollectible accounts from their customers. Under
this system, the establishments do not deposit in their bank accounts the credit card drafts[23] that arise from
the credit sales. Instead, they merely record their receivables from the credit card company and periodically
send the drafts evidencing those receivables to the latter.
The credit card company, in turn, sends checks as payment to these business establishments, but it does not
redeem the drafts at full price. The agreement between them usually provides for discounts to be taken by the
company upon its redemption of the drafts.[24] At the end of each month, it then bills its credit card holders for
their respective drafts redeemed during the previous month. If the holders fail to pay the amounts owed, the
company sustains the loss.[25]
In the present case, respondents role in the consumer credit[26]
process described above primarily consists of gathering the bills and credit card drafts of different service
establishments located in the Philippines and forwarding them to the ROCs outside the country. Servicing the
bill is not the same as billing. For the former type of service alone, respondent already gets paid.
The parent company -- to which the ROCs and respondent belong -- takes charge not only of redeeming the
drafts from the ROCs and sending the checks to the service establishments, but also of billing the credit card
holders for their respective drafts that it has redeemed. While it usually imposes finance charges[27] upon the
holders, none may be exacted by respondent upon either the ROCs or the card holders.
Branch and Home Office
By designation alone, respondent and the ROCs are operated as branches. This means that each of them is a
unit, an offshoot, lateral extension, or division[28] located at some distance from the home office[29] of the parent
company; carrying separate inventories; incurring their own expenses; and generating their respective incomes.
Each may conduct sales operations in any locality as an extension of the principal office. [30]
The extent of accounting activity at any of these branches depends upon company policy,[31] but the financial
reports of the entire business enterprise -- the credit card company to which they all belong -- must always show
its financial position, results of operation, and changes in its financial position as a single unit. [32] Reciprocal
accounts are reconciled or eliminated, because they lose all significance when the branches and home office are
viewed as a single entity.[33] In like manner, intra-company profits or losses must be offset against each other for
accounting purposes.
Contrary to petitioners assertion,[34] respondent can sell its services to another branch of the same parent
company.[35] In fact, the business concept of a transfer price allows goods and services to be sold between and
among intra-company units at cost or above cost.[36]A branch may be operated as a revenue center, cost center,
profit center or investment center, depending upon the policies and accounting system of its parent
company.[37]Furthermore, the latter may choose not to make any sale itself, but merely to function as a control
center, where most or all of its expenses are allocated to any of its branches.[38]
Gratia argumenti that the sending of drafts and bills by service establishments to respondent is equivalent to
the act of sending them directly to its parent company abroad, and that the parent companys subsequent
redemption of these drafts and billings of credit card holders is also attributable to respondent, then with greater
reason should the service rendered by respondent be zero-rated under our VAT system. The service partakes of
the nature of export sales as
applied to goods,[39] especially when rendered in the Philippines by a VAT-registered person[40] that gets paid in
acceptable foreign currency accounted for in accordance with BSP rules and regulations.
VAT Requirements for

the Supply of Service
The VAT is a tax on consumption[41] expressed as a percentage of the value added to goods or
services[42] purchased by the producer or taxpayer.[43] As an indirect tax[44] on services,[45] its main object is the
transaction[46] itself or, more concretely, the performance of all kinds of services[47] conducted in the course of
trade or business in the Philippines.[48] These services must be regularly conducted in this country; undertaken
in pursuit of a commercial or an economic activity;[49] for a valuable consideration; and not exempt under the
Tax Code, other special laws, or any international agreement.[50]
Without doubt, the transactions respondent entered into with its Hong Kong-based client meet all these
requirements.
First, respondent regularly renders in the Philippines the service of facilitating the collection and payment of
receivables belonging to a foreign company that is a clearly separate and distinct entity.
Second, such service is commercial in nature; carried on over a sustained period of time; on a significant scale;
with a reasonable degree of frequency; and not at random, fortuitous or attenuated.
Third, for this service, respondent definitely receives consideration in foreign currency that is accounted for in
conformity with law.
Finally, respondent is not an entity exempt under any of our laws or international agreements.
Services Subject to
Zero VAT
As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach of the
tax.[51] Goods and services are taxed only in the country where they are consumed. Thus, exports are zero-rated,
while imports are taxed.
Confusion in zero rating arises because petitioner equates the performance of a particular type of service with
the consumption of its output abroad. In the present case, the facilitation of the collection of receivables is
different from the utilization or consumption of the outcome of such service. While the facilitation is done in the
Philippines, the consumption is not. Respondent renders assistance to its foreign clients -- the ROCs outside the
country -- by receiving the bills of service establishments located here in the country and forwarding them to
the ROCs abroad. The consumption contemplated by law, contrary to petitioners administrative
interpretation,[52] does not imply that the service be done abroad in order to be zero-rated.
Consumption is the use of a thing in a way that thereby exhausts it. [53] Applied to services, the term means the
performance or successful completion of a contractual duty, usually resulting in the performers release from
any past or future liability x x x.[54] The services rendered by respondent are performed or successfully completed
upon its sending to its foreign client the drafts and bills it has gathered from service establishments here. Its
services, having been performed in the Philippines, are therefore also consumed in the Philippines.
Unlike goods, services cannot be physically used in or bound for a specific place when their destination is
determined. Instead, there can only be a predetermined end of a course [55]when determining the service
location or position x x x for legal purposes.[56]Respondents facilitation service has no physical existence, yet
takes place upon rendition, and therefore upon consumption, in the Philippines. Under the destination principle,
as petitioner asserts, such service is subject to VAT at the rate of 10 percent.
Respondents Services Exempt

from the Destination Principle
However, the law clearly provides for an exception to the destination principle; that is, for a zero percent VAT
rate for services that are performed in the Philippines, paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the [BSP].[57] Thus, for the supply of service to be zero-rated as
an exception, the law merely requires that first, the service be performed in the Philippines; second, the service
fall under any of the categories in Section 102(b) of the Tax Code; and, third, it be paid in acceptable foreign
currency accounted for in accordance with BSP rules and regulations.
Indeed, these three requirements for exemption from the destination principle are met by respondent. Its
facilitation service is performed in the Philippines. It falls under the second category found in Section 102(b) of
the Tax Code, because it is a service other than processing, manufacturing or repacking of goods as mentioned
in the provision. Undisputed is the fact that such service meets the statutory condition that it be paid in
acceptable foreign currency duly accounted for in accordance with BSP rules. Thus, it should be zero-rated.
Performance of Service versus

Product Arising from Performance
Again, contrary to petitioners stand, for the cost of respondents service to be zero-rated, it need not be tacked in as
part of the cost of goods exported.[58] The law neither imposes such requirement nor associates services with exported
goods. It simply states that the servicesperformed by VAT-registered persons in the Philippines -- services other than
the processing, manufacturing or repacking of goods for persons doing business outside this country -- if paid in
acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP, are zero-rated.
The service rendered by respondent is clearly different from the product that arises from the rendition of such service.
The activity that creates the income must not be confused with the main business in the course of which that income
is realized.[59]
Tax Situs of a
Zero-Rated Service
The law neither makes a qualification nor adds a condition in determining the tax situs of a zero-rated service.
Under this criterion, the place where the service is rendered determines the jurisdiction [60] to impose the
VAT.[61] Performed in the Philippines, such service is necessarily subject to its jurisdiction, [62] for the State
necessarily has to have a substantial connection[63] to it, in order to enforce a zero rate.[64] The place of payment
is immaterial;[65] much less is the place where the output of the service will be further or ultimately used.
Statutory Construction
or Interpretation Unnecessary
As mentioned at the outset, Section 102(b)(2) of the Tax Code is very clear. Therefore, no statutory construction
or interpretation is needed. Neither can conditions or limitations be introduced where none is provided for.
Rewriting the law is a forbidden ground that only Congress may tread upon.
The Court may not construe a statute that is free from doubt.[66] [W]here the law speaks in clear and categorical
language, there is no room for interpretation. There is only room for application. [67] The Court has no choice but
to see to it that its mandate is obeyed.[68]

No Qualifications
Under RR 5-87
In implementing the VAT provisions of the Tax Code, RR 5-87 provides for the zero rating of services other than
the processing, manufacturing or repacking of goods -- in general and without qualifications -- when paid for by
the person to whom such services are rendered in acceptable foreign currency inwardly remitted and duly
accounted for in accordance with the BSP (then Central Bank) regulations. Section 8 of RR 5-87 states:
SECTION 8. Zero-rating. -- (a) In general. -- A zero-rated sale is a taxable transaction

for value-added tax purposes. A sale by a VAT-registered person of goods and/or services
taxed at zero rate shall not result in any output tax. The input tax on his purchases of goods or
services related to such zero-rated sale shall be available as tax credit or refundable in
accordance with Section 16 of these Regulations.
xxxxxxxxx
(c) Zero-rated sales of services. -- The following services rendered by VAT-

registered persons are zero-rated:
(1) Services in connection with the processing,

manufacturing or repacking of goods for persons doing
business outside the Philippines, where such goods are
actually shipped out of the Philippines to said persons or
their assignees and the services are paid for in acceptable
foreign currency inwardly remitted and duly accounted for
under the regulations of the Central Bank of the
Philippines.
xxxxxxxxx
(3) Services performed in the Philippines other
than those mentioned in subparagraph (1) above which
are paid for by the person or entity to whom the service is
rendered in acceptable foreign currency inwardly remitted
and duly accounted for in accordance with Central Bank
regulations. Where the contract involves payment in both
foreign and local currency, only the service corresponding
to that paid in foreign currency shall enjoy zero-rating. The
portion paid for in local currency shall be subject to VAT at
the rate of 10%.
RR 7-95
Broad Enough
RR 7-95, otherwise known as the Consolidated VAT Regulations,[69] reiterates the above-quoted provision and further
presents as examples only the services performed in the Philippines byVAT-registered hotels and other service
establishments. Again, the condition remains that these services must be paid in acceptable foreign currency
inwardly remitted and accounted for in accordance with the rules and regulations of the BSP. The term other
service establishments is obviously broad enough to cover respondents facilitation service. Section 4.102-2 of
RR 7-95 provides thus:
SECTION 4.102-2. Zero-Rating. -- (a) In general. -- A zero-rated sale by a VAT registered

person, which is a taxable transaction for VAT purposes, shall not result in any output tax.
However, the input tax on his purchases of goods, properties or services related to such zero-
rated sale shall be available as tax credit or refund in accordance with these regulations.
(b) Transaction subject to zero-rate. -- The following services performed in the

Philippines by VAT-registered persons shall be subject to 0%:
(1) Processing, manufacturing or repacking goods for other persons

doing business outside the Philippines which goods are subsequently
exported, where the services are paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the BSP;
(2) Services other than those mentioned in the preceding

subparagraph, e.g. those rendered by hotels and other service
establishments, the consideration for which is paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of
the BSP;
xxxxxxxxx
Meaning of as well as
in RR 5-96
Section 4.102-2(b)(2) of RR 7-95 was subsequently amended by RR 5-96 to read as follows:
Section 4.102-2(b)(2) -- Services other than processing, manufacturing or repacking

for other persons doing business outside the Philippines for goods which are subsequently
exported, as well as services by a resident to a non-resident foreign client such as project
studies, information services, engineering and architectural designs and other similar services,
the consideration for which is paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP."
Aside from the already scopious coverage of services in Section 4.102-2(b)(2) of RR 7-95, the amendment
introduced by RR 5-96 further enumerates specific services entitled to zero rating. Although superfluous, these
sample services are meant to be merely illustrative. In this provision, the use of the term as well as is not
restrictive. As a prepositional phrase with an adverbial relation to some other word, it simply means in addition
to, besides, also or too.[70]
Neither the law nor any of the implementing revenue regulations aforequoted categorically defines or limits the
services that may be sold or exchanged for a fee, remuneration or consideration. Rather, both merely enumerate
the items of service that fall under the term sale or exchange of services. [71]
Ejusdem Generis
Inapplicable
The canon of statutory construction known as ejusdem generis or of the same kind or specie does not apply to
Section 4.102-2(b)(2) of RR 7-95 as amended by RR 5-96.
First, although the regulatory provision contains an enumeration of particular or specific words, followed by the
general phrase and other similar services, such words do not constitute a readily discernible class and are
patently not of the same kind.[72] Project studies involve investments or marketing; information services focus
on data technology; engineering and architectural designs require creativity. Aside from calling for the exercise
or use of mental faculties or perhaps producing written technical outputs, no common denominator to the
exclusion of all others characterizes these three services. Nothing sets them apart from other and similar general
services that may involve advertising, computers, consultancy, health care, management, messengerial work --
to name only a few.
Second, there is the regulatory intent to give the general phrase and other similar services a broader
meaning.[73] Clearly, the preceding phrase as well as is not meant to limit the effect of and other similar services.
Third, and most important, the statutory provision upon which this regulation is based is by itself not restrictive.
The scope of the word services in Section 102(b)(2) of the Tax Code is broad; it is not susceptible of narrow
interpretation.[74]
VAT Ruling
Nos. 040-98 and 080-89
VAT Ruling No. 040-98 relied upon by petitioner is a less general interpretation at the administrative
level,[75] rendered by the BIR commissioner upon request of a taxpayer to clarify certain provisions of the VAT
law. As correctly held by the CA, when this ruling states that the service must be destined for consumption
outside of the Philippines[76] in order to qualify for zero rating, it contravenes both the law and the regulations
issued pursuant to it.[77] This portion of VAT Ruling No. 040-98 is clearly ultra vires and invalid.[78]
Although [i]t is widely accepted that the interpretation placed upon a statute by the executive officers, whose
duty is to enforce it, is entitled to great respect by the courts, [79]this interpretation is not conclusive and will
have to be ignored if judicially found to be erroneous [80] and clearly absurd x x x or improper.[81] An
administrative issuance that overrides the law it merely seeks to interpret, instead of remaining consistent and
in harmony with it, will not be countenanced by this Court. [82]
In the present case, respondent has relied upon VAT Ruling No. 080-89, which clearly recognizes its zero rating.
Changing this status will certainly deprive respondent of a refund of the substantial amount of excess input taxes
to which it is entitled.
Again, assuming arguendo that VAT Ruling No. 040-98 revoked VAT Ruling No. 080-89, such revocation could
not be given
retroactive effect if the application of the latter ruling would only be prejudicial to respondent. [83] Section 246
of the Tax Code categorically declares that [a]ny revocation x x x of x x x any of the rulings x x x promulgated by
the Commissioner shall not be given retroactive application if the revocation x x x will be prejudicial to the
taxpayers.[84]
It is also basic in law that no x x x rule x x x shall be given retrospective effect [85] unless explicitly stated.[86] No
indication of such retroactive application to respondent does the Court find in VAT Ruling No. 040-98. Neither
do the exceptions enumerated in Section 246[87] of the Tax Code apply.
Though vested with the power to interpret the provisions of the Tax Code[88] and not bound by predecessors
acts or rulings, the BIR commissioner may render a different construction to a statute [89] only if the new
interpretation is in congruence with the law. Otherwise, no amount of interpretation can ever revoke, repeal or
modify what the law says.
Consumed Abroad
Not Required by Legislature
Interpellations on the subject in the halls of the Senate also reveal a clear intent on the part of the legislators
not to impose the condition of being consumed abroad in order for services performed in the Philippines by a
VAT-registered person to be zero-rated. We quote the relevant portions of the proceedings:
Senator Maceda: Going back to Section 102 just for the moment. Will the Gentleman kindly
explain to me - I am referring to the lower part of the first paragraph with the Provided. Section
102. Provided that the following services performed in the Philippines by VAT registered
persons shall be subject to zero percent. There are three here. What is the difference between
the three here which is subject to zero percent and Section 103 which is exempt transactions,
to being with?
Senator Herrera: Mr. President, in the case of processing and manufacturing or repacking
goods for persons doing business outside the Philippines which are subsequently exported,
and where the services are paid for in acceptable foreign currencies inwardly remitted, this is
considered as subject to 0%. But if these conditions are not complied with, they are subject to
the VAT.
In the case of No. 2, again, as the Gentleman pointed out, these three are zero-rated and the
other one that he indicated are exempted from the very beginning. These three enumerations
under Section 102 are zero-rated provided that these conditions indicated in these three
paragraphs are also complied with. If they are not complied with, then they are not entitled to
the zero ratings. Just like in the export of minerals, if these are not exported, then they cannot
qualify under this provision of zero rating.
Senator Maceda: Mr. President, just one small item so we can leave this. Under the proviso,
it is required that the following services be performed in the Philippines.
Under No. 2, services other than those mentioned above includes, let us say, manufacturing
computers and computer chips or repacking goods for persons doing business outside the
Philippines. Meaning to say, we ship the goods to them in Chicago or Washington and they
send the payment inwardly to the Philippines in foreign currency, and that is, of course, zero-
rated.
Now, when we say services other than those mentioned in the preceding subsection[,] may I
have some examples of these?
Senator Herrera: Which portion is the Gentleman referring to?
Senator Maceda: I am referring to the second paragraph, in the same Section 102. The first
paragraph is when one manufactures or packages something here and he sends it abroad and
they pay him, that is covered. That is clear to me. The second paragraph says Services other
than those mentioned in the preceding subparagraph, the consideration of which is paid for
in acceptable foreign currency
One example I could immediately think of -- I do not know why this comes to my mind tonight
-- is for tourism or escort services. For example, the services of the tour operator or tour escort
-- just a good name for all kinds of activities -- is made here at the Midtown Ramada Hotel or
at the Philippine Plaza, but the payment is made from outside and remitted into the country.
Senator Herrera: What is important here is that these services are paid in acceptable foreign
currency remitted inwardly to the Philippines.
Senator Maceda: Yes, Mr. President. Like those Japanese tours which include $50 for the
services of a woman or a tourist guide, it is zero-rated when it is remitted here.
Senator Herrera: I guess it can be interpreted that way, although this tourist guide should also
be considered as among the professionals. If they earn more than P200,000, they should be
covered.
xxxxxxxxx
Senator Maceda: So, the services by Filipino citizens outside the Philippines are subject to VAT,
and I am talking of all services. Do big contractual engineers in Saudi Arabia pay VAT?
Senator Herrera: This provision applies to a VAT-registered person. When he performs

services in the Philippines, that is zero-rated.
Senator Maceda: That is right."[90]
Legislative Approval
By Reenactment
Finally, upon the enactment of RA 8424, which substantially carries over the particular provisions on zero rating
of services under Section 102(b) of the Tax Code, the principle of legislative approval of administrative
interpretation by reenactment clearly obtains. This principle means that the reenactment of a statute
substantially unchanged is persuasive indication of the adoption by Congress of a prior executive construction. [91]
The legislature is presumed to have reenacted the law with full knowledge of the contents of the revenue
regulations then in force regarding the VAT, and to have approved or confirmed them because they would carry
out the legislative purpose. The particular provisions of the regulations we have mentioned earlier are,
therefore, re-enforced. When a statute is susceptible of the meaning placed upon it by a ruling of the
government agency charged with its enforcement and the [l]egislature thereafter [reenacts] the provisions
[without] substantial change, such action is to some extent confirmatory that the ruling carries out the legislative
purpose.[92]
In sum, having resolved that transactions of respondent are zero-rated, the Court upholds the formers
entitlement to the refund as determined by the appellate court. Moreover, there is no conflict between the
decisions of the CTA and CA. This Court respects the findings and conclusions of a specialized court like the CTA
which, by the nature of its functions, is dedicated exclusively to the study and consideration of tax cases and has
necessarily developed an expertise on the subject.[93]
Furthermore, under a zero-rating scheme, the sale or exchange of a particular service is completely freed from
the VAT, because the seller is entitled to recover, by way of a refund or as an input tax credit, the tax that is
included in the cost of purchases attributable to the sale or exchange. [94] [T]he tax paid or withheld is not
deducted from the tax base.[95]Having been applied for within the reglementary period, [96] respondents refund
is in order.
WHEREFORE, the Petition is hereby DENIED, and the assailed Decision AFFIRMED. No pronouncement as to
costs.
SO ORDERED.
G.R. No. 188260 November 13, 2013
LUZON HYDRO CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
BERSAMIN, J.:
This case involves a claim for refund or tax credit to cover petitioner Luzon Hydro Corporation's unutilized
Input Value-Added Tax (VAT) worth 1 2,920,665 .16 corresponding to the four quarters of taxable year 2001.
The Case
The petitioner brought this action in the Court of Tax Appeals (CTA) after the Commissioner of Internal
Revenue (respondent) did not act on the claim (CTA Case No. 6669). The CTA 2nd Division denied the claim on
May 2, 2008 on the ground that the petitioner did not prove that it had zero-rated sales for the four quarters
of 2001.1 The CT A En Banc denied the petitioner's motion for reconsideration, and affirmed the decision of
the CTA 2nd Division through its decision dated May 5, 2009.2 Hence, the petitioner appeals the decision of the
CTA En Banc.
Antecedents
The petitioner, a corporation duly organized under the laws of the Philippines, has been registered with the
Bureau of Internal Revenue (BIR) as a VAT taxpayer under Taxpayer Identification No. 004-266-526. It was
formed as a consortium of several corporations, namely: Northern Mini Hydro Corporation, Aboitiz Equity
Ventures, Inc., Ever Electrical Manufacturing, Inc. and Pacific Hydro Limited.
Pursuant to the Power Purchase Agreement entered into with the National Power Corporation (NPC), the
electricity produced by the petitioner from its operation of the Bakun Hydroelectric Power Plant was to be sold
exclusively to NPC.3 Relative to its sale to NPC, the petitioner was granted by the BIR a certificate for Zero Rate
for VAT purposes in the periods from January 1, 2000 to December 31, 2000; February 1, 2000 to December
31, 2000 (Certificate No. Z-162-2000); and from January 2, 2001 to December 31, 2001 (Certificate No. 2001-
269).4
The petitioner alleged herein that it had incurred input VAT in the amount of ₱9,795,427.89 on its domestic
purchases of goods and services used in its generation and sales of electricity to NPC in the four quarters of
2001;5and that it had declared the input VAT of ₱9,795,427.89 in its amended VAT returns for the four
quarters on 2001, as follows:6
Exhibit Date Filed Period Covered Input VAT (P)
F May 25, 2001 1st quarter – 2001 1,903,443.96
I July 23, 2001 2nd quarter – 2001 2,166,051.96
L July 23, 2002 3rd quarter –2001 1,598,482.39
O July 24, 2002 4th quarter – 2001 4,127,449.58
Total 9,795,427.89
On November 26, 2001, the petitioner filed a written claim for refund or tax credit relative to its unutilized
input VAT for the period from October 1999 to October 2001 aggregating ₱14,557,004.38. 7 Subsequently, on
July 24, 2002, it amended the claim for refund or tax credit to cover the period from October 1999 to May
2002 for ₱20,609,047.56.8
The BIR, through Revenue Examiner Felicidad Mangabat of Revenue District Office No. 2 in Vigan City,
concluded an investigation, and made a recommendation in its report dated August 19, 2002 favorable to the
petitioner’s claim for the period from January 1, 2001 to December 31, 2001.9
Respondent Commissioner of Internal Revenue (Commissioner) did not ultimately act on the petitioner’s claim
despite the favorable recommendation. Hence, on April 14, 2003, the petitioner filed its petition for review in
the CTA, praying for the refund or tax credit certificate (TCC) corresponding to the unutilized input VAT paid
for the four quarters of 2001 totalling ₱9,795,427.88.10
Answering on May 29, 2003,11 the Commissioner denied the claim, and raised the following special and
affirmative defenses, to wit:
xxxx
7. The petitioner has failed to demonstrate that the taxes sought to be refunded were erroneously or
illegally collected;
8. In an action for tax refund, the burden is upon the taxpayer to prove that he is entitled thereto, and
failure to sustain the same is fatal to the action for tax refund;
9. It is incumbent upon petitioner to show compliance with the provisions of Section 112 and Section
229, both of the National Internal Revenue Code, as amended;
10. Claims for refund are construed strictly against the claimant for the same partakes the nature of
exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, G.R. No. L-13509, January
30, 1970, 31 SCRA 95) and as such they are looked upon [with] disfavor (Western Minolco Corp. vs.
Commissioner of Internal Revenue, 124 SCRA 121);
11. Taxes paid and collected are presumed to have been made in accordance with the law and
regulations, hence, not refundable.12
xxxx
On October 30, 2003, the parties submitted a Joint Stipulation of Facts and Issues, 13 which the CTA in Division
approved on November 10, 2003. The issues to be resolved were consequently the following:
1. Whether or not the input value added tax being claimed by petitioner is supported by sufficient
documentary evidence;
2. Whether petitioner has excess and unutilized input VAT from its purchases of domestic goods and
services, including capital goods in the amount of ₱9,795,427.88;
3. Whether or not the input VAT being claimed by petitioner is attributable to its zero-rated sale of
electricity to the NPC;
4.Whether or not the operation of the Bakun Hydroelectric Power Plant is directly connected and
attributable to the generation and sale of electricity to NPC, the sole business of petitioner; and 5.
Whether or not the claim filed by the petitioner was filed within the reglementary period provided by
law.14
While the case was pending hearing, the Commissioner, through the Assistant Commissioner for Assessment
Services, informed the petitioner by the letter dated March 3, 2005 that its claim had been granted in the
amount of ₱6,874,762.72, net of disallowances of ₱2,920,665.16. Accompanying the letter was the TCC for
₱6,874,762.72 (TCC No. 00002618).15
On May 3, 2005, the petitioner filed a Motion for Leave of Court to Amend Petition for Review in consideration
of the partial grant of the claim through TCC No. 00002618. The CTA in Division granted the motion on May 11,
2005, and admitted the Amended Petition for Review, whereby the petitioner sought the refund or tax credit
in the reduced amount of ₱2,920,665.16. The CTA in Division also directed the respondent to file a
supplemental answer within ten days from notice. 16
When no supplemental answer was filed within the period thus allowed, the CTA in Division treated the
answer filed on May 16, 2003 as the Commissioner’s answer to the Amended Petition for Review. 17
Thereafter, the petitioner presented testimonial and documentary evidence to support its claim. On the other
hand, the Commissioner submitted the case for decision based on the pleadings. 18 On May 2, 2007, the case
was submitted for decision without the memorandum of the Commissioner. 19
Ruling of the CTA in Division
The CTA in Division promulgated its decision in favor of the respondent denying the petition for review, viz:
In petitioner’s VAT returns for the four quarters of 2001, no amount of zero-rated sales was declared. Likewise,
petitioner did not submit any VAT official receipt of payments for services rendered to NPC. The only proof
submitted by petitioner is a letter from Regional Director Rene Q. Aguas, Revenue Region No. 1, stating that
the financial statements and annual income tax return constitute sufficient secondary proof of effectively zero-
rated and that based on their examination and evaluation of the financial statements and annual income tax
return of petitioner for taxable year 2000, it had annual gross receipts of Ph₱187,992,524.00. This Court
cannot give credence to the said letter as it refers to taxable year 2000, while the instant case refers to taxable
year 2001.
Without zero-rated sales for the four quarters of 2001, the input VAT payments of Ph₱9,795,427.88 (including
the present claim of Ph₱2,920,665.16) allegedly attributable thereto cannot be refunded. It is clear under
Section 112 (A) of the NIRC of 1997 that the refund/tax credit of unutilized input VAT is premised on the
existence of zero-rated or effectively zero-rated sales.
xxxx
For petitioner’s non-compliance with the first requisite of proving that it had effectively zero-rated sales for
the four quarters of 2001, the claimed unutilized input VAT payments of Ph₱2,920,665.16 cannot be granted.
WHEREFORE, the instant Petition for Review is hereby DENIED for lack of merit.
SO ORDERED.20
On May 21, 2008, the petitioner moved to reconsider the decision of the CTA in Division. 21 However, the CTA
in Division denied the petitioner’s motion for reconsideration on September 5, 2008. 22
Decision of the CTA En Banc
On October 17, 2008, the petitioner filed a petition for review in the CTA En Banc (CTA E.B No. 420), posing the
main issue whether or not the CTA in Division erred in denying its claim for refund or tax credit upon a finding
that it had not established its having effectively zero-rated sales for the four quarters of 2001.
On May 5, 2009, the CTA En Banc promulgated the assailed decision affirming the Division, and denying the
claim for refund or tax credit, stating:
The other argument of petitioner that even if the tax credit certificate will not be used as evidence, it was able
to prove that it has zero-rated sale as shown in its financial statements and income tax returns quoting the
letter opinion of Regional Director Rene Q. Aguas that the statements and the return are considered sufficient
to establish that it generated zero-rated sale of electricity is bereft of merit. As found by the Court a quo, the
letter opinion refers to taxable year 2000, while the instant case covers taxable year 2001; hence, cannot be
given credence. Even assuming for the sake of argument that the financial statements, the return and the
letter opinion relates to 2001, the same could not be taken plainly as it is because there is still a need to
produce the supporting documents proving the existence of such zero-rated sales, which is wanting in this
case. Considering that there are no zero-rated sales to speak of for taxable year 2001, petitioner is, therefore,
not entitled to a refund of Ph₱2,920,665.16 input tax allegedly attributable thereto since it is basic
requirement under Section 112 (A) of the NIRC that there should exists a zero-rated sales in order to be
entitled to a refund of unutilized input tax.
It is settled that tax refunds, like tax exemptions, are construed strictly against the taxpayer and that the
claimant has the burden of proof to establish the factual basis of its claim for tax credit or refund. Failure in
this regard, petitioner’s claim must therefore, fail.
WHEREFORE, the instant Petition for Review is hereby DENIED for lack of merit.
SO ORDERED.23
On June 10, 2009, the CTA En Banc also denied the petitioner’s motion for reconsideration.24
Issue
Aggrieved, the petitioner has appealed, urging as the lone issue: –
WHETHER THE CTA EN BANC COMMITTED A REVERSIBLE ERROR IN AFFIRMING THE DECISION OF THE CTA.
In its August 3, 2009 petition for review,25 the petitioner has argued as follows:
(1) Its sale of electricity to NPC was automatically zero-rated pursuant to Republic Act No. 9136
(EPIRA Law); hence, it need not prove that it had zero-rated sales in the period from January 1, 2001
to December 31, 2001 by the presentation of VAT official receipts that would contain all the necessary
information required under Section 113 of the National Internal Revenue Code of 1997, as
implemented by Section 4.108-1 of Revenue Regulations No. 7-95. Evidence of sale of electricity to
NPC other than official receipts could prove zero-rated sales.
(2) The TCC, once issued, constituted an administrative opinion that deserved consideration and
respect by the CTA En Banc.
(3) The CTA En Banc was devoid of any authority to determine the existence of the petitioner’s zero-
rated sales, inasmuch as that would constitute an encroachment on the powers granted to an
administrative agency having expertise on the matter.
(4) The CTA En Banc manifestly overlooked evidence not disputed by the parties and which, if
properly considered, would justify a different conclusion.26
The petitioner has prayed for the reversal of the decision of the CTA En Banc, and for the remand of the case
to the CTA for the reception of its VAT official receipts as newly discovered evidence. It has supported the
latter relief prayed for by representing that the VAT official receipts had been misplaced by Edwin Tapay, its
former Finance and Accounting Manager, but had been found only after the CTA En Banc has already affirmed
the decision of the CTA in Division. In the alternative, it has asked that the Commissioner allow the claim for
refund or tax credit of ₱2,920,665.16.
In the comment submitted on December 3, 2009,27 the Commissioner has insisted that the petitioner’s claim
cannot be granted because it did not incur any zero-rated sale; that its failure to comply with the invoicing
requirements on the documents supporting the sale of services to NPC resulted in the disallowance of its claim
for the input tax; and the claim should also be denied for not being substantiated by appropriate and sufficient
evidence.
In its reply filed on February 4, 2010,28 the petitioner reiterated its contention that it had established its claim
for refund or tax credit; and that it should be allowed to present the official receipts in a new trial.
Ruling of the Court
The petition is without merit.
Section 112 of the National Internal Revenue Code 1997 provides:
SEC. 112. Refunds or Tax Credits of Input Tax.—
(A) Zero-rated or Effectively Zero-rated Sales--Any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable
to such sales, except transitional input tax, to the extent that such input tax has not been applied against
output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B)
and Section 108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly
accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided,
further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or
exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be
directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis
of the volume of sales.
xxxx
A claim for refund or tax credit for unutilized input VAT may be allowed only if the following requisites concur,
namely: (a) the taxpayer is VAT-registered; (b) the taxpayer is engaged in zero-rated or effectively zero-rated
sales; (c) the input taxes are due or paid; (d) the input taxes are not transitional input taxes; (e) the input taxes
have not been applied against output taxes during and in the succeeding quarters; (f) the input taxes claimed
are attributable to zero-rated or effectively zero-rated sales; (g) for zero-rated sales under Section 106(A)(2)(1)
and (2); 106(B); and 108(B)(1) and (2), the acceptable foreign currency exchange proceeds have been duly
accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas; (h) where there
are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be
directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the
basis of sales volume; and (i) the claim is filed within two years after the close of the taxable quarter when
such sales were made.29
The petitioner did not competently establish its claim for refund or tax credit.1avvphi1 We agree with the CTA
En Banc that the petitioner did not produce evidence showing that it had zero-rated sales for the four quarters
of taxable year 2001. As the CTA En Banc precisely found, the petitioner did not reflect any zero-rated sales
from its power generation in its four quarterly VAT returns, which indicated that it had not made any sale of
electricity. Had there been zero-rated sales, it would have reported them in the returns. Indeed, it carried the
burden not only that it was entitled under the substantive law to the allowance of its claim for refund or tax
credit but also that it met all the requirements for evidentiary substantiation of its claim before the
administrative official concerned, or in the de novo litigation before the CTA in Division. 30
Although the petitioner has correctly contended here that the sale of electricity by a power generation
company like it should be subject to zero-rated VAT under Republic Act No. 9136,31 its assertion that it need
not prove its having actually made zero-rated sales of electricity by presenting the VAT official receipts and
VAT returns cannot be upheld. It ought to be reminded that it could not be permitted to substitute such vital
and material documents with secondary evidence like financial statements.
We further find to be lacking in substance and bereft of merit the petitioner’s insistence that the CTA En Banc
should not have disregarded the letter opinion by BIR Regional Director Rene Q. Aguas to the effect that its
financial statements and its return were sufficient to establish that it had generated zero-rated sale of
electricity. To recall, the CTA En Banc rejected the insistence because, firstly, the letter opinion referred to
taxable year 2000 but this case related to taxable year 2001, and, secondly, even assuming for the sake of
argument that the financial statements, the return and the letter opinion had related to taxable year 2001,
they still could not be taken at face value for the purpose of approving the claim for refund or tax credit due to
the need to produce the supporting documents proving the existence of the zero-rated sales, which did not
happen here. In that respect, the CTA En Banc properly disregarded the letter opinion as irrelevant to the
present claim of the petitioner.
We further see no reason to grant the prayer of the petitioner for the remand of this case to enable it to
present before the CTA newly discovered evidence consisting in VAT official receipts.
Ordinarily, the concept of newly discovered evidence is applicable to litigations in which a litigant seeks a new
trial or the re-opening of the case in the trial court. Seldom is the concept appropriate when the litigation is
already on appeal, particularly in this Court. The absence of a specific rule on newly discovered evidence at this
late stage of the proceedings is not without reason. The propriety of remanding the case for the purpose of
enabling the CTA to receive newly discovered evidence would undo the decision already on appeal and require
the examination of the pieces of newly discovered evidence, an act that the Court could not do by virtue of its
not being a trier of facts. Verily, the Court has emphasized in Atlas Consolidated Mining and Development
Corporation v. Commissioner of Internal Revenue32 that a judicial claim for tax refund or tax credit brought to
the CTA is by no means an original action but an appeal by way of a petition for review of the taxpayer’s
unsuccessful administrative claim; hence, the taxpayer has to convince the CTA that the quasi-judicial agency a
quo should not have denied the claim, and to do so the taxpayer should prove every minute aspect of its case
by presenting, formally offering and submitting its evidence to the CTA, including whatever was required for
the successful prosecution of the administrative claim as the means of demonstrating to the CTA that its
administrative claim should have been granted in the first place.
Nonetheless, on the proposition that we may relax the stringent rules of procedure for the sake of rendering
justice, we still hold that the concept of newly discovered evidence may not apply herein. In order that newly
discovered evidence may be a ground for allowing a new trial, it must be fairly shown that: (a) the evidence is
discovered after the trial; (b) such evidence could not have been discovered and produced at the trial even
with the exercise of reasonable diligence; (c) such evidence is material, not merely cumulative, corroborative,
or impeaching; and (d) such evidence is of such weight that it would probably change the judgment if
admitted.33
The first two requisites are not attendant. To start with, the proposed evidence was plainly not newly
discovered considering the petitioner s admission that its former Finance and Accounting Manager had
misplaced the VAT official receipts. If that was true, the misplaced receipts were forgotten evidence. And,
secondly, the receipts, had they truly existed, could have been sooner discovered and easily produced at the
trial with the exercise of reasonable diligence. But the petitioner made no convincing demonstration that it
had exercised reasonable diligence. The Court cannot accept its tender of such receipts and return now, for,
indeed, the non-production of documents as vital and material as such receipts and return were to the success
of its claim for refund or tax credit was improbable, as it goes against the sound business practice of
safekeeping relevant documents precisely to ensure their future use to support an eventual substantial claim
for refund or tax credit.
WHEREFORE, the Court DENIES the petition for review on certiorari for its lack of merit; AFFIRMS the decision
dated May 5, 2009 of the Court of Tax Appeals En Bane; and ORDERS the petitioner to pay the costs of suit.
SO ORDERED.
SAN ROQUE POWER CORPORATION, G.R. No. 180345
��Petitioner,
Present:
CORONA, J.,
��Chairperson,
- versus - CHICO-NAZARIO,��
VELASCO, JR.,
NACHURA, and
PERALTA, JJ.
COMMISSIONER OF INTERNAL REVENUE, Promulgated:

��Respondent.��
November 25, 2009

x- - - - - - - - - - - - - - - - - - - - - - - -�- - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CHICO-NAZARIO, J.:
��In this Petition for Review on Certiorari, under Rule 45 of the Revised Rules of Court, petitioner
San Roque Power Corporation assails the Decision[1] of the Court of Tax Appeals (CTA) En Banc dated 20
September 2007 in CTA EB No. 248, affirming the Decision[2] dated 23 March 2006 of the CTA Second Division in
CTA Case No. 6916, which dismissed the claim of petitioner for the refund and/or issuance of a tax credit
certificate in the amount of Two Hundred Forty-Nine Million Three Hundred Ninety-Seven Thousand Six Hundred
Twenty Pesos and 18/100 (P249,397,620.18) allegedly representing unutilized input Value Added Tax (VAT) for
the period covering January to December 2002.�
Respondent, as the Commissioner of the Bureau of Internal Revenue (BIR), is responsible for the
assessment and collection of all national internal revenue taxes, fees, and charges, including the Value Added
Tax (VAT), imposed by Section 108[3] of the National Internal Revenue Code (NIRC) of 1997.�Moreover, it is
empowered to grant refunds or issue tax credit certificates in accordance with Section 112 of the NIRC of 1997
for unutilized input VAT paid on zero-rated or effectively zero-rated sales and purchases of capital goods, to wit:
SEC. 112.�Refunds or Tax Credits of Input Tax. -
(A)�Zero-rated or Effectively Zero-rated Sales�Any VAT-registered person, whose

sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the
taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or
refund of creditable input tax due or paid attributable to such sales, except transitional input
tax, to the extent that such input tax has not been applied against output tax: Provided,
however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and
Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had
been duly accounted for in accordance with the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services,
and the amount of creditable input tax due or paid cannot be directly and entirely attributed
to any one of the transactions, it shall be allocated proportionately on the basis of the volume
of sales.
�(B) Capital Goods�A VAT-registered person may apply for the issuance of a tax credit
certificate or refund of input taxes paid on capital goods imported or locally purchased, to the
extent the such input taxes have not been applied against output taxes.�The application may
be made only within two (2) years after the close of the taxable quarter when the importation
or purchase was made.
On the other hand, petitioner is a domestic corporation organized under the corporate laws of the
Republic of the Philippines.�On 14 October 1997, it was incorporated for the sole purpose of building and
operating the San Roque Multipurpose Project in San Manuel, Pangasinan, which is an indivisible project
consisting of the power station, the dam, spillway, and other related facilities. [4]�It is registered with the Board
of Investments (BOI) on a preferred pioneer status to engage in the design, construction, erection, assembly, as
well as own, commission, and operate electric power-generating plants and related activities, for which it was
issued the Certificate of Registration No. 97-356 dated 11 February 1998.[5] As a seller of services, petitioner is
registered with the BIR as a VAT taxpayer under Certificate of Registration No. OCN-98-006-007394.[6]
On 11 October 1997, petitioner entered into a Power Purchase Agreement (PPA) with the National
Power Corporation (NPC) to develop the hydro potential of the Lower Agno River, and to be able to generate
additional power and energy for the Luzon Power Grid, by developing and operating the San Roque
Multipurpose Project.�The PPA provides that petitioner shall be responsible for the design, construction,
installation, completion and testing and commissioning of the Power Station and it shall operate and maintain
the same, subject to the instructions of the NPC.�During the cooperation period of 25 years commencing from
the completion date of the Power Station, the NPC shall purchase all the electricity generated by the Power
Plant.[7]
Because of the exclusive nature of the PPA between petitioner and the NPC, petitioner applied for and
was granted five Certificates of Zero Rate by the BIR, through the Chief Regulatory Operations Monitoring
Division, now the Audit Information, Tax Exemption & Incentive Division.�Based on these certificates, the zero-
rated status of petitioner commenced on 27 September 1998 and continued throughout the year 2002.[8]
For the period January to December 2002, petitioner filed with the respondent its Monthly VAT
Declarations and Quarterly VAT Returns.�Its Quarterly VAT Returns showed excess input VAT payments on
account of its importation and domestic purchases of goods and services, as follows[9]:
Period Covered Date Filed Particulars Amount

1st Quarter April 20, 2002 Tax Due for the Quarter (Box 13C) P��26,247.27
Input Tax carried over from previous qtr 296,124,429.21
(22B)
(January 1, Input VAT on Domestic Purchases for the
2002to Qtr
(22D) 95,003,348.91
March 31, 2002) Input VAT on Importation of Goods for the
Qtr
(22F) 20,758,668.00
Total Available Input tax (23) 411,886,446.12
VAT Refund/TCC Claimed (24A) 173,909,435.66
Net Creditable Input Tax (25) 237,977,010.46
VAT payable (Excess Input Tax) (26) (237,950,763.19)
Tax Payable (overpayment) (28) (237,950,763.19)
2nd Quarter July 24, 2002 Tax Due for the Quarter (Box 13C) P��blank
Input Tax carried over from previous qtr (22B) 237,950,763.19
(April 1, 2002 to Input VAT on Domestic Purchases for the Qtr
(22D) 65,206,499.83
June 30, 2002) Input VAT on Importation of Goods for the Qtr
(22F) 18,485,758.00
3rd Quarter October 25, Tax Due for the Quarter (Box 13C) P��blank
2002 Input Tax carried over from previous qtr (22B) 199,428,027.47
(July 1, 2002 to Input VAT on Domestic Purchases for the Qtr
(22D) 28,924,020.79
September 30, Input VAT on Importation of Goods for the Qtr
2002)
(22F) 1,465,875.00
VAT Refund/TCC Claimed (24A) Blank
4th Quarter January 23, Tax Due for the Quarter (Box 13C) P��34,996.36
2003 Input Tax carried over from previous qtr (22B) 114,082,153.62
(October 1, Input VAT on Domestic Purchases for the Qtr
2002 to (22D) 18,166,330.54
Input VAT on Importation of Goods for the Qtr
December 31,
(22F) 2,308,837.00
2002)
On 19 June 2002, 25 October 2002, 27 February 2003, and 29 May 2003, petitioner filed with the BIR
four separate administrative claims for refund of Unutilized Input VAT paid for the period January to March
2002, April to June 2002, July to September 2002, and October to December 2002, respectively. In these letters
addressed to the BIR, Carlos Echevarria (Echevarria), the Vice President and Director of Finance of petitioner,
explained that petitioner�s sale of power to NPC are subject to VAT at zero percent rate, in accordance with
Section 108(B)(3) of the NIRC.[10]�Petitioner sought to recover the total amount of P250,258,094.25,
representing its unutilized excess VAT on its importation of capital and other taxable goods and services for the
year 2002, broken down as follows[11]:
Qtr
Involved Output Tax Input Tax
Domestic Purchases Importations Excess Input Tax
(A) (B) (C) (D) = (B) + (C) �(A)
st
1 P 26,247.27 P95,003,348.91 P20,758,668.00 P115,735,769.84
2nd - 65,206,499.83 18,485,758.00 83,692,257.83
3rd - 28,924,020.79 1,465,875.00 30,389,895.79
4th 34,996.36 18,166,330.54 2,308,837.00 20,440,171.18
P61,243.63 P207,300,200.07 P43,019,138.00 P250,258,094.44
Petitioner amended its Quarterly VAT Returns, particularly the items on (1) Input VAT on Domestic
Purchases during the first quarter of 2002; (2) Input VAT on Domestic Purchases for the fourth quarter of 2002;
and (3) Input VAT on Importation of Goods for the fourth quarter of 2002.�The amendments read as follows[12]:
Period Covered Date Filed Particulars Amount

1st Quarter April 24, Tax Due for the Quarter (Box 13C) P��26,247.27
2003 Input Tax carried over from previous qtr 297,719,296.25
(January 1, (22B)
2002 to Input VAT on Domestic Purchases for the Qtr
(22D) 95,126,981.69
March 31, 2002)
(22F) 20,758,668.00
2nd Quarter April 24, 2003 Tax Due for the Quarter (Box 13C) P��blank
(April 1, 2002 to Input VAT on Domestic Purchases for the Qtr
(22D) 65,206,499.83
June 30, 2002) Input VAT on Importation of Goods for the Qtr
(22F) 18,485,758.00
3rd Quarter October 25, 2002 Tax Due for the Quarter (Box 13C) P��blank
(July 1, 2002 to Input VAT on Domestic Purchases for the Qtr
(22D) 28,924,020.79
September 30, Input VAT on Importation of Goods for the Qtr
2002) (22F) 1,465,875.00
VAT Refund/TCC Claimed (24A) Blank
4th Quarter January 23, 2003 Tax Due for the Quarter (Box 13C) P��34,996.36
(October 1, Input VAT on Domestic Purchases for the Qtr
2002 to (22D) 17,918,056.50
Input VAT on Importation of Goods for the Qtr
December 31, (22F) 1,573,004.00
2002)
On 30 May 2003 and 31 July 2003, petitioner filed two letters with the BIR to amend its claims for tax
refund or credit for the first and fourth quarter of 2002, respectively.�Petitioner sought to recover a total
amount of P249,397,620.18 representing its unutilized excess VAT on its importation and domestic purchases
of goods and services for the year 2002, broken down as follows[13]:
Qtr
Involved Date Filed Output Tax Input Tax
Domestic Purchases Importations Excess Input Tax
(A) (B) (C) (D) = (B) + (C) �(A)
1st 30-May-03 P 26,247.27 P95,126,981.69 P20,758,668.00 P115,859,402.42
2nd 25-Oct-02 - 65,206,499.83 18,185,758.00 83,692,257.83
3rd 27-Feb-03 - 28,924,920.79 1,465,875,00 30,389,895.79
4th 31-Jul-03 34,996.36 17,918,056.50 1,573,004.00 19,456,064.14
P61,243.63 P207,175,558.81 P42,283,305.00 P249,397,620.18
Respondent failed to act on the request for tax refund or credit of petitioner, which prompted the latter
to file on 5 April 2004, with the CTA in Division, a Petition for Review, docketed as CTA Case No. 6916 before it
could be barred by the two-year prescriptive period within which to file its claim.�Petitioner sought the refund
of the amount of P249,397,620.18 representing its unutilized excess VAT on its importation and local purchases
of various goods and services for the year 2002.[14]�
During the proceedings before the CTA Second Division, petitioner presented the following documents,
among other pieces of evidence: (1) Petitioner�s Amended Quarterly VAT return for the 4th Quarter of 2002
marked as Exhibit �A,�showing the amount of P42,500,000.00 paid by NTC to petitioner for all the electricity
produced during test runs; (2) the special audit report, prepared by the CPA firm of Punongbayan and Araullo
through a partner, Angel A. Aguilar (Aguilar), and the attached schedules, marked as Exhibits �J-2�to �J-21�; (3)
Sales Invoices and Official Receipts and related documents issued to petitioner for the year 2002, marked as
Exhibits �J-4-A1� to �J-4-L265�; (4) Audited Financial Statements of Petitioner for the year 2002, with
comparative figures for 2001, marked as Exhibit �K�; and (5) the Affidavit of Echevarria dated 9 February 2005,
marked as Exhibit �L�.[15]
During the hearings, the parties jointly stipulated on the issues involved:
1.��Whether or not petitioner�s sales are subject to value-added taxes at effectively

zero percent (0%) rate;
2.��Whether or not petitioner incurred input taxes which are attributable to its
effectively zero-rated transactions;
3.��Whether or not petitioner�s importation and purchases of capital goods and

related services are within the scope and meaning of �capital goods�under Revenue
Regulations No. 7-95;
4.��Whether or not petitioner�s input taxes are sufficiently substantiated with VAT
invoices or official receipts;
5.��Whether or not the VAT input taxes being claimed for refund/tax credit by
petitioner (had) been credited or utilized against any output taxes or (had) been
carried forward to the succeeding quarter or quarters; and
6.��Whether or not petitioner is entitled to a refund of VAT input taxes it paid

from January 1, 2002 to December 31, 2002 in the total amount of Two Hundred
Forty Nine Million Three Hundred Ninety Seven Thousand Six Hundred Twenty and
18/100 Pesos (P249,397,620.18).
��Simply put, the issue is:�whether or not petitioner is entitled to refund or tax credit in the amount
of P249,397,620.18 representing its unutilized input VAT paid on importation and purchases of capital and other
taxable goods and services from January 1 to December 31, 2002.
After a hearing on the merits, the CTA Second Division rendered a Decision [16] dated 23 March
2006 denying petitioner�s claim for tax refund or credit. The CTA noted that petitioner based its claim on
creditable input VAT paid, which is attributable to (1) zero-rated or effectively zero-rated sale, as provided under
Section 112(A) of the NIRC, and (2) purchases of capital goods, in accordance with Section 112(B) of the
NIRC.��The court ruled that in order for petitioner to be entitled to the refund or issuance of a tax credit
certificate on the basis of Section 112(A) of the NIRC, it must establish that it had incurred zero-rated sales or
effectively zero-rated sales for the taxable year 2002.��Since records show that petitioner did not make any
zero-rated or effectively-zero rated sales for the taxable year 2002, the CTA reasoned that petitioner�s claim
must be denied.�Parenthetically, the court declared that the claim for tax refund or credit based on Section
112(B) of the NIRC requires petitioner to prove that it paid input VAT on capital goods purchased, based on the
definition of capital goods provided under Section 4.112-1(b) of Revenue Regulations No. 7-95�i.e., goods or
properties which have an estimated useful life of greater than one year, are treated as depreciable assets under
Section 34(F) of the NIRC, and are used directly or indirectly in the production or sale of taxable goods and
services.�The CTA found that the evidence offered by petitioner�the suppliers�invoices and official receipts
and Import Entries and Internal Revenue Declarations and the audit report of the Court-commissioned
Independent Certified Public Accountant (CPA) are insufficient to prove that the importations and domestic
purchases were classified as capital goods and properties entered as part of the �Property, Plant and
Equipment�account of the petitioner. �The dispositive part of the said Decision reads:
WHEREFORE, the instant Petition for Review is DENIED for lack of merit.[17]
Not satisfied with the foregoing Decision dated 23 March 2006, petitioner filed a Motion for
Reconsideration which was denied by the CTA Second Division in a Resolution dated 4 January 2007.[18]
Petitioner filed an appeal with the CTA En Banc, docketed as CTA EB No. 248. �The CTA En
Banc promulgated its Decision[19] on 20 September 2007 denying petitioner�s appeal.�The CTA En
Banc reiterated the ruling of the Division that petitioner�s claim based on Section 112(A) of the NIRC should be
denied since it did not present any records of any zero-rated or effectively zero-rated transactions.�It clarified
that since petitioner failed to prove that any sale of its electricity had transpired, petitioner may base its claim
only on Section 112(B) of the NIRC, the provision governing the purchase of capital goods.�The court noted that
the report of the Court-commissioned auditing firm, Punongbayan & Araullo, dealt specifically with the
unutilized input taxes paid or incurred by petitioner on its local and foreign purchases of goods and services
attributable to its zero-rated sales, and not to purchases of capital goods. �It decided that petitioner failed to
prove that the purchases evidenced by the invoices and receipts, which petitioner presented, were classified as
capital goods which formed part of its �Property, Plant and Equipment,�especially since petitioner failed to
present its books of account.�The dispositive part of the said Decision reads:
WHEREFORE, premises considered, the instant petition is

hereby DISMISSED.�Accordingly, the assailed Decision and Resolution are
hereby AFFIRMED.[20]
The CTA En Banc denied petitioner�s Motion for Reconsideration in a Resolution dated 22 October
[21]
2007.
Hence, the present Petition for Review where the petitioner raises the following errors allegedly
committed by the CTA En banc:
I
THE COURT OF TAX APPEALS EN BANC COMMITTED SERIOUS ERROR AND ACTED WITH GRAVE
ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION IN FAILING OR
REFUSING TO APPRECIATE THE OVERWHELMING AND UNCONTROVERTED EVIDENCE
SUBMITTED BY THE PETITIONER, THUS DEPRIVING PETITIONER OF ITS PROPERTY WITHOUT
DUE PROCESS; AND
II
THE COURT OF TAX APPEALS COMMITTED SERIOUS ERROR AND ACTED WITH GRAVE ABUSE
OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN RULING THAT THE
ABSENCE OF ZERO-RATED SALES BY PETITIONER DURING THE YEAR COVERED BY THE CLAIM
FOR REFUND DOES NOT ENTITLE PETITIONER TO A REFUND OF ITS EXCESS VAT INPUT TAXES
ATTRIBUTABLE TO ZERO-RATED SALES, CONTRARY TO PROVISIONS OF LAW.[22]
The present Petition is meritorious.
The main issue in this case is whether or not petitioner may claim a tax refund or credit in the amount
of P249,397,620.18 for creditable input tax attributable to zero-rated or effectively zero-rated sales pursuant to
Section 112(A) of the NIRC or for input taxes paid on capital goods as provided under Section 112(B) of the NIRC.
To resolve the issue, this Court must re-examine the facts and the evidence offered by the parties. It is
an accepted doctrine that this Court is not a trier of facts.�It is not its function to review, examine and evaluate
or weigh the probative value of the evidence presented.�However, this rule does not apply where the judgment
is premised on a misapprehension of facts, or when the appellate court failed to notice certain relevant facts
which if considered would justify a different conclusion.[23]
After reviewing the records, this Court finds that petitioner�s claim for refund or credit is justified under
Section 112(A) of the NIRC which states that:
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.
To claim refund or tax credit under Section 112(A), petitioner must comply with the following criteria:
(1) the taxpayer is VAT registered; (2) the taxpayer is engaged in zero-rated or effectively zero-rated sales; (3)
the input taxes are due or paid; (4) the input taxes are not transitional input taxes; (5) the input taxes have not
been applied against output taxes during and in the succeeding quarters; (6) the input taxes claimed are
attributable to zero-rated or effectively zero-rated sales; (7) for zero-rated sales under Section 106(A)(2)(1) and
(2); 106(B); and 108(B)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted
for in accordance with BSP rules and regulations; (8) where there are both zero-rated or effectively zero-rated
sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these
sales, the input taxes shall be proportionately allocated on the basis of sales volume; and (9) the claim is filed
within two years after the close of the taxable quarter when such sales were made.[24]
Based on the evidence presented, petitioner complied with the abovementioned

requirements.�Firstly, petitioner had adequately proved that it is a VAT registered taxpayer when it presented
Certificate of Registration No. OCN-98-006-007394, which it attached to its Petition for Review dated 29 March
2004 filed before the CTA in Division.�Secondly, it is unquestioned that petitioner is engaged in providing
electricity for NPC, an activity which is subject to zero rate, under Section 108(B)(3) of the NIRC.�Thirdly,
petitioner offered as evidence suppliers�VAT invoices or official receipts, as well as Import Entries and Internal
Revenue Declarations (Exhibits �J-4-A1�to �J-4-L265�), which were examined in the audit conducted by Aguilar,
the Court-commissioned Independent CPA.�Significantly, Aguilar noted in his audit report (Exhibit �J-2�) that
of the P249,397,620.18 claimed by petitioner, he identified items with incomplete documentation and errors in
computation with a total amount of P3,266,009.78.�Based on these findings, the remaining input VAT
of P246,131,610.40 was properly documented and recorded in the books.�The said report reads:
In performing the procedures referred under the Procedures Performed section of this report,
no matters came to our attention that cause us to believe that the amount of input VAT applied
for as tax credit certificate/refund of P249,397,620.18 for the period January 1, 2002 to
December 31, 2002 should be adjusted except for input VAT claimed with incomplete
documentation, those with various and other exceptions on the supporting documents and
those with errors in computation totaling P3,266,009.78, as discussed in the Findings and
Results of the Agreed-Upon Audit Procedures Performed sections of this report.�We have
also ascertained that the input VAT claimed are properly recorded in the books and, except as
specifically identified in the Findings and Results of the Agreed-Upon Audit Procedures
Performed sections of this report, are properly supported by original and appropriate
suppliers�VAT invoices and/or official receipts.[25]
Fourthly, the input taxes claimed, which consisted of local purchases and importations made in 2002, are not
transitional input taxes, which Section 111 of the NIRC defines as input taxes allowed on the beginning inventory
of goods, materials and supplies.[26]�Fifthly, the audit report of Aguilar affirms that the input VAT being claimed
for tax refund or credit is net of the input VAT that was already offset against output VAT amounting
to P26,247.27 for the first quarter of 2002 and P34,996.36 for the fourth quarter of 2002,[27] as reflected in the
Quarterly VAT Returns.[28] ��
The main dispute in this case is whether or not petitioner�s claim complied with the sixth
requirement�the existence of zero-rated or effectively zero-rated sales, to which creditable input taxes may be
attributed. The CTA in Division and en banc denied petitioner�s claim solely on this ground.�The tax courts
based this conclusion on the audited report, marked as Exhibit �J-2,�stating that petitioner made no sale of
electricity to NPC in 2002.[29]�Moreover, the affidavit of Echevarria (Exhibit �L�), petitioner�s Vice President
and Director for Finance, contained an admission that no commercial sale of electricity had been made in favor
of NPC in 2002 since the project was still under construction at that time.[30]
However, upon closer examination of the records, it appears that on 2002, petitioner carried out a
�sale�of electricity to NPC.�The fourth quarter return for the year 2002, which petitioner filed, reported a zero-
rated sale in the amount of P42,500,000.00.[31]�In the Affidavit of Echevarria dated 9 February 2005 (Exhibit
�L�), which was uncontroverted by respondent, the affiant stated that although no commercial sale was made
in 2002, petitioner produced and transferred electricity to NPC during the testing period in exchange for the
amount of P42,500,000.00, to wit:[32]
A:�San Roque Power Corporation has had no sale yet during 2002.�The P42,500,000.00
which was paid to us by Napocor was something similar to a more cost recovery scheme.�The
pre-agreed amount would be about equal to our costs for producing the electricity during the
testing period and we just reflected this in our 4th quarter return as a zero-rated sale.�x x x.
The Court is not unmindful of the fact that the transaction described hereinabove was not a commercial
sale.�In granting the tax benefit to VAT-registered zero-rated or effectively zero-rated taxpayers, Section 112(A)
of the NIRC does not limit the definition of �sale�to commercial transactions in the normal course of
business.�Conspicuously, Section 106(B) of the NIRC, which deals with the imposition of the VAT, does not limit
the term �sale�to commercial sales, rather it extends the term to transactions that are �deemed�sale, which
are thus enumerated:
��SEC 106. Value-Added Tax on Sale of Goods or Properties.
xxxx
(B)��Transactions Deemed Sale.�The following transactions shall be deemed sale:
��(1)�Transfer, use or consumption not in the course of business of

goods or properties originally intended for sale or for use in the course of business;
��(2)�Distribution or transfer to:
��(a) Shareholders or investors as share in the profits of

the VAT-registered persons; or
��(b) Creditors in payment of debt;

��(3)�Consignment of goods if actual sale is not made within sixty (60)
days following the date such goods were consigned; and
��(4) �Retirement from or cessation of business, with respect to

inventories of taxable goods existing as of such retirement or cessation. (Our
emphasis.)
After carefully examining this provision, this Court finds it an equitable construction of the law that when the
term �sale�is made to include certain transactions for the purpose of imposing a tax, these same transactions
should be included in the term �sale�when considering the availability of an exemption or tax benefit from the
same revenue measures.�It is undisputed that during the fourth quarter of 2002, petitioner transferred to NPC
all the electricity that was produced during the trial period.�The fact that it was not transferred through a
commercial sale or in the normal course of business does not deflect from the fact that such transaction is
deemed as a sale under the law.
The seventh requirement regarding foreign currency exchange proceeds is inapplicable where
petitioner�s zero-rated sale of electricity to NPC did not involve foreign exchange and consisted only of a single
transaction wherein NPC paid petitioner P42,500,000.00 in exchange for the electricity transferred to it by
petitioner.�Similarly, the eighth requirement is inapplicable to this case, where the only sale transaction
consisted of an effectively zero-rated sale and there are no exempt or taxable sales that transpired, which will
require the proportionate allocation of the creditable input tax paid.
The last requirement determines that the claim should be filed within two years after the close of the
taxable quarter when such sales were made.�The sale of electricity to NPC was reported at the fourth quarter
of 2002, which closed on 31 December 2002.�Petitioner had until 30 December 2004 to file its claim for refund
or credit.�For the period January to March 2002, petitioner filed an amended request for refund or tax credit
on 30 May 2003; for the period July 2002 to September 2002, on 27 February 2003; and for the period October
2002 to December 2002, on 31 July 2003.[33]�In these three quarters, petitioners seasonably filed its requests
for refund and tax credit.�However, for the period April 2002 to May 2002, the claim was filed prematurely
on 25 October 2002, before the last quarter had closed on 31 December 2002.[34]�
Despite this lapse in procedure, this Court notes that petitioner was able to positively show that it was
able to accumulate excess input taxes on various importations and local purchases in the amount
of P246,131,610.40, which were attributable to a transfer of electricity in favor of NPC.�The fact that it had filed
its claim for refund or credit during the quarter when the transfer of electricity had taken place, instead of at
the close of the said quarter does not make petitioner any less entitled to its claim.�Given the special
circumstances of this case, wherein petitioner was incorporated for the sole purpose of constructing or
operating a power plant that will transfer all the electricity it generates to NPC, there is no danger that petitioner
would try to fraudulently claim input tax paid on purchases that will be attributed to sale transactions that are
not zero-rated.�Substantial justice, equity and fair play are on the side of the petitioner.�Technicalities and
legalisms, however, exalted, should not be misused by the government to keep money not belonging to it,
thereby enriching itself at the expense of its law abiding citizens.
��Substantial justice, equity and fair play are on the side of

petitioner.�Technicalities and legalisms, however exalted, should not be misused by the
government to keep money not belonging to it, thereby enriching itself at the expense of its
law-abiding citizens. �Under the principle of solutio indebiti provided in Art. 2154, Civil Code,
the BIR received something �when there [was] no right to demand it,�and thus, it has the
obligation to return it.�Heavily militating against respondent Commissioner is the ancient
principle that no one, not even the State, shall enrich oneself at the expense of
another.�Indeed, simple justice requires the speedy refund of the wrongly held taxes. [35]
It bears emphasis that effective zero-rating is not intended as a benefit to the person legally liable to
pay the tax, such as petitioner, but to relieve certain exempt entities, such as the NPC, from the burden of
indirect tax so as to encourage the development of particular industries.�Before, as well as after, the adoption
of the VAT, certain special laws were enacted for the benefit of various entities and international agreements
were entered into by the Philippines with foreign governments and institutions exempting sale of goods or
supply of services from indirect taxes at the level of their suppliers.�Effective zero-rating was intended to relieve
the exempt entity from being burdened with the indirect tax which is or which will be shifted to it had there
been no exemption.�In this case, petitioner is being exempted from paying VAT on its purchases to relieve NPC
of the burden of additional costs that petitioner may shift to NPC by adding to the cost of the electricity sold to
the latter.[36]
Section 13 of Republic Act No. 6395, otherwise known as the NPC Charter, further clarifies that it is the
lawmakers�intention that NPC be made completely exempt from all taxes, both direct and indirect:
��Sec. 13.�Non-profit Character of the Corporation; Exemption from all Taxes,

Duties, Fees, Imposts and Other Charges by Government and Governmental Instrumentalities.
- The corporation shall be non-profit and shall devote all its returns from its capital investment,
as well as excess revenues from its operation, for expansion.�To enable the corporation to
pay its indebtedness and obligations and in furtherance and effective implementation of the
policy enunciated in Section 1 of this Act, the corporation is hereby declared exempt:
��(a)��From the payment of all taxes, duties, fees, imposts, charges, costs
and service fees in any court or administrative proceedings in which it may be a party,
restrictions and duties to the Republic of the Philippines, its provinces, cities, municipalities,
and other government agencies and instrumentalities;
��(b)��From all income taxes, franchise taxes, and realty taxes to be paid
to the National Government, its provinces, cities, municipalities and other government
agencies and instrumentalities;
��(c)��From all import duties, compensating taxes and advanced sales tax
and wharfage fees on import of foreign goods, required for its operations and projects; and
��(d)��From all taxes, duties, fees, imposts, and all other charges imposed
by the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum products used by the corporation in the
generation, transmission, utilization, and sale of electric power.
To limit the exemption granted to the NPC to direct taxes, notwithstanding the general and broad
language of the statute will be to thwart the legislative intention in giving exemption from all forms of taxes and
impositions, without distinguishing between those that are direct and those that are not.[37]
Congress granted NPC a comprehensive tax exemption because of the significant public interest
involved.�This is enunciated in Section 1 of Republic Act No. 6395:
��Section 1.�Declaration of Policy.�Congress hereby declares that (1) the

comprehensive development, utilization and conservation of Philippine water resources for all
beneficial uses, including power generation, and (2) the total electrification of the Philippines
through the development of power from all sources to meet the needs of industrial
development and dispersal and the needs of rural electrification are primary objectives of the
nation which shall be pursued coordinately and supported by all instrumentalities and
agencies of government, including its financial institutions.
The ability of the NPC to provide sufficient and affordable electricity throughout the country greatly affects our
industrial and rural development.�Erroneously and unjustly depriving industries that generate electrical power
of tax benefits that the law clearly grants will have an immediate effect on consumers of electricity and long
term effects on our economy.
��In the same breath, we cannot lose sight of the fact that it is the declared policy of the State,
expressed in Section 2 of Republic Act No. 9136, otherwise known as the EPIRA Law, �to ensure and
accelerate the total electrification of the country;��to enhance the inflow of private capital and broaden the
ownership base of the power generation, transmission and distribution sectors;�and �to promote the utilization
of indigenous and new and renewable energy resources in power generation in order to reduce dependence on
imported energy.��Further, Section 6 provides that �pursuant to the objective of lowering electricity rates to
end-users, sales of generated power by generation companies shall be value-added tax zero-rated.
��Section 75 of said law succinctly declares that �this Act shall, unless the context indicates otherwise,
be construed in favor of the establishment, promotion, preservation of competition and power empowerment so
that the widest participation of the people, whether directly or indirectly is ensured.�
��The objectives as set forth in the EPIRA Law can only be achieved if government were to allow
petitioner and others similarly situated to obtain the input tax credits available under the law.�Denying
petitioner such credits would go against the declared policies of the EPIRA Law.
��The legislative grant of tax relief (whether in the EPIRA Law or the Tax Code) constitutes a sovereign
commitment of Government to taxpayers that the latter can avail themselves of certain tax reliefs and incentives
in the course of their business activities here.�Such a commitment is particularly vital to foreign investors who
have been enticed to invest heavily in our country�s infrastructure, and who have done so on the firm assurance
that certain tax reliefs and incentives can be availed of in order to enable them to achieve their projected returns
on these very long-term and heavily funded investments.�While the government�s ability to keep its
commitment is put in doubt, credit rating turns to worse; the costs of borrowing becomes higher and the harder
it will be to attract foreign investors.�The country�s earnest efforts to move forward will all be put to naught.�
Having decided that petitioner is entitled to claim refund or tax credit under Section 112(A) of the NIRC
or on the basis of effectively zero-rated sales in the amount of P246,131,610.40, there is no more need to
establish its right to make the same claim under Section 112(B) of the NIRC or on the basis of purchase of capital
goods.
Finally, respondent contends that according to well-established doctrine, a tax refund, which is in the
nature of a tax exemption, should be construed strictissimi juris against the taxpayer.[38]��However, when the
claim for refund has clear legal basis and is sufficiently supported by evidence, as in the present case, then the
Court shall not hesitate to grant the same.[39]�
WHEREFORE, the instant Petition for Review is GRANTED.�The Decision of the Court of Tax Appeals En
Banc dated 20 September 2007 in CTA EB Case No. 248, affirming the Decision dated 23 March 2006 of the CTA
Second Division in CTA Case No. 6916, is REVERSED. �Respondent Commissioner of Internal Revenue is ordered
to refund, or in the alternative, to issue a tax credit certificate to petitioner San Roque Power Corporation in the
amount of Two Hundred Forty-Six Million One Hundred Thirty-One Thousand Six Hundred Ten Pesos and 40/100
(P246,131,610.40), representing unutilized input VAT for the period 1 January 2002 to 31 December 2002. ��No
costs.
��SO ORDERED.
G.R. No. 197525 June 4, 2014
VISAYAS GEOTHERMAL POWER COMPANY, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
MENDOZA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the February
7, 2011 Decision1 and the June 27, 2011 Resolution2 of the Court of Tax Appeals En Banc (CTA En Banc) in CTA
EB Case Nos. 561 and 562, which reversed and set aside the April 17, 2009 Decision of the CT A Second Division
in CTA Case No. 7559.
The Facts:
Petitioner Visayas Geothermal Power Company (VGPC) is a special limited partnership duly organized and
existing under Philippine Laws with its principal office at Milagro, Ormoc City, Province of Leyte. It is principally
engaged in the business of power generation through geothermal energy and the sale of generated power to
the Philippine National Oil Company (PNOC),pursuant to the Energy Conversion Agreement.
VGPC filed with the Bureau of Internal Revenue (BIR)its Original Quarterly VAT Returns for the first to fourth
quarters of taxable year 2005 on April 25, 2005, July 25, 2005, October 25, 2006, and January 20, 2006,
respectively.
On December 6, 2006, it filed an administrative claim for refund for the amount of 14,160,807.95 with the BIR
District Office No. 89 of Ormoc City on the ground that it was entitled to recover excess and unutilized input
VAT payments for the four quarters of taxable year 2005, pursuant to Republic Act (R.A.) No. 9136, 3 which
treated sales of generated power subject to VAT to a zero percent (0%) rate starting June 26, 2001.
Nearly one month later, on January3, 2007, while its administrative claim was pending, VGPC filed its judicial
claim via a petition for review with the CTA praying for a refund or the issuance of a tax credit certificate in the
amount of 14,160,807.95, covering the four quarters of taxable year 2005.
In its April 17, 2009 Decision, the CTA Second Division partially granted the petition as follows:
WHEREFORE, in view of the foregoing considerations, the Petition for Review is hereby PARTIALLY GRANTED.
Accordingly, respondent is ORDERED TO REFUND or, in the alternative, TO ISSUE A TAX CREDIT CERTIFICATE in
favor of petitioner the reduced amount of SEVEN MILLION SIX HUNDRED NINENTY NINE THOUSAND THREE
HUNDRED SIXTY SIX PESOS AND 37/100 (₱7,699,366.37) representing unutilized input VAT paid on domestic
purchases of non-capital goods and services, services rendered by non-residents, and importations of non-
capital goods for the first to fourth quarters of taxable year 2005.
SO ORDERED.4
The CTA Second Division found that only the amount of 7,699,366.37 was duly substantiated by the required
evidence. As to the timeliness of the filing of the judicial claim, the Court ruled that following the case of
Commissioner of Internal Revenue (CIR) v. Mirant Pagbilao Corporation (Mirant), 5 both the administrative and
judicial claims were filed within the two-year prescriptive period provided in Section 112(A) of the National
Internal Revenue Code of 1997 (NIRC),the reckoning point of the period being the close of the taxable quarter
when the sales were made.
In its October 29, 2009 Resolution,6 the CTA Second Division denied the separate motions for partial
reconsideration filed by VGPC and the CIR. Thus, both VGPC and the CIR appealed to the CTA En Banc.
In the assailed February 7, 2011 Decision,7 the CTA En Banc reversed and set aside the decision and resolution
of the CTA Second Division, and dismissed the original petition for review for having been filed prematurely, to
wit:
WHEREFORE, premises considered:
i. As regards CTA EB Case No. 562, the Petition for Review is hereby DISMISSED; and
ii. As regards CTA EB Case No. 561, the Petition for Review is hereby GRANTED.
Accordingly, the Decision, dated April 17, 2009, and the Resolution, dated October 29, 2009, of the CTA
Former Second Division are hereby REVERSED and SET ASIDE, and another one is hereby entered DISMISSING
the Petition for Review filed in CTA Case No. 7559 for having been filed prematurely.
SO ORDERED.8
The CTA En Banc explained that although VGPC seasonably filed its administrative claim within the two-year
prescriptive period, its judicial claim filed with the CTA Second Division was prematurely filed under Section
112(D) of the National Internal Revenue Code (NIRC).Citing the case of CIR v. Aichi Forging Company of Asia,
Inc. (Aichi),9the CTA En Banc held that the judicial claim filed 28 days after the petitioner filed its administrative
claim, without waiting for the expiration of the 120-day period, was premature and, thus, the CTA acquired no
jurisdiction over the case.
The VGPC filed a motion for reconsideration, but the CTA En Banc denied it in the assailed June 27, 2011
Resolution for lack of merit. It stated that the case of Atlas Consolidated Mining v. CIR (Atlas) 10 relied upon by
the petitioner had long been abandoned.
Hence, this petition.
ASSIGNMENT OF ERRORS
The CTA En Banc erred in finding that the 120-day and 30-day periods prescribed under Section 112(D) of the
1997 Tax Code are jurisdictional and mandatory in the filing of the judicial claim for refund. The CTA-Division
should take cognizance of the judicial appeal as long as it is filed with the two-year prescriptive period under
Section 229 of the 1997 Tax Code.
II
The CTA En Banc erred in finding that Aichi prevails over and/or overturned the doctrine in Atlas, which upheld
the primacy of the two-year period under Section 229 of the Tax Code. The law and jurisprudence have long
established the doctrine that the taxpayer is duty-bound to observe the two-year period under Section 229 of
the Tax Code when filing its claim for refund of excess and unutilized VAT.
III
The CTA En Banc erred in finding that Respondent CIR is not estopped from questioning the jurisdiction of the
CTA. Respondent CIR, by her actions and pronouncements, should have been precluded from questioning the
jurisdiction of the CTA-Division.
IV
The CTA En Banc erred in applying Aichi to Petitioner VGPC’s claim for refund. The novel interpretation of the
law in Aichi should not be made to apply to the present case for being contrary to existing jurisprudence at the
time Petitioner VGPC filed its administrative and judicial claims for refund.11
Petitioner VGPC argues that (1) the law and jurisprudence have long established the rule regarding compliance
with the two-year prescriptive period under Section 112(D) in relation to Section 229 of the 1997 Tax Code; (2)
Aichi did not overturn the doctrine in Atlas, which upheld the primacy of the two-year period under Section
229; (3) respondent CIR is estopped from questioning the jurisdiction of the CTA and Aichi cannot be
indiscriminately applied to all VAT refund cases; (4) applying Aichi invariably to all VAT refund cases would
effectively grant respondent CIR unbridled discretion to deprive a taxpayer of the right to effectively seek
judicial recourse, which clearly violates the standards of fairness and equity; and (5) the novel interpretation of
the law in Aichi should not be made to apply to the present case for being contrary to existing jurisprudence at
the time VGPC filed its administrative and judicial claims for refund. Aichi should be applied prospectively.
Ruling of the Court
Judicial claim not premature
The assignment of errors is rooted in the core issue of whether the petitioner’s judicial claim for refund was
prematurely filed.
Two sections of the NIRC are pertinent to the issue at hand, namely Section 112 (A) and (D) and Section 229, to
wit:
SEC. 112. Refunds or Tax Credits of Input Tax. –
(A) Zero-rated or Effectively Zero-rated Sales.- Any VAT-registered person, whose sales are zero-rated
or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the
sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due
or paid attributable to such sales, except transitional input tax, to the extent that such input tax has
not been applied against output tax: Provided, however, That in the case of zero-rated sales under
Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign currency
exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations
of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in
zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods of properties or
services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed
to any one of the transactions, it shall be allocated proportionately on the basis of the volume of
sales.
xxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made.- In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within
one hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within
thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred
twenty day period, appeal the decision or the unacted claim with the Court of Tax Appeals.
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.
[Emphases supplied]
It has been definitively settled in the recent En Banc case of CIR v. San Roque Power Corporation (San
Roque),12that it is Section 112 of the NIRC which applies to claims for tax credit certificates and tax refunds
arising from sales of VAT-registered persons that are zero-rated or effectively zero-rated, which are, simply
put, claims for unutilized creditable input VAT.
Thus, under Section 112(A), the taxpayer may, within 2 years after the close of the taxable quarter when the
sales were made, via an administrative claim with the CIR, apply for the issuance of a tax credit certificate or
refund of creditable input tax due or paid attributable to such sales. Under Section 112(D), the CIR must then
act on the claim within 120 days from the submission of the taxpayer’s complete documents. In case of (a) a
full or partial denial by the CIR of the claim, or (b) the CIR’s failure to act on the claim within 120 days, the
taxpayer may file a judicial claim via an appeal with the CTA of the CIR decision or unacted claim, within 30
days (a) from receipt of the decision; or (b) after the expiration of the 120-day period.
The 2-year period under Section 229 does not apply to appeals before the CTA in relation to claims for a
refund or tax credit for unutilized creditable input VAT.Section 229 pertains to the recovery of taxes
erroneously, illegally, or excessively collected.13 San Roque stressed that "input VAT is not ‘excessively’
collected as understood under Section 229 because, at the time the input VAT is collected, the amount paid is
correct and proper."14 It is, therefore, Section 112 which applies specifically with regard to claiming a refund or
tax credit for unutilized creditable input VAT.15
Upholding the ruling in Aichi,16 San Roque held that the 120+30 day period prescribed under Section 112(D)
mandatory and jurisdictional.17 The jurisdiction of the CTA over decisions or inaction of the CIR is only
appellate in nature and, thus, necessarily requires the prior filing of an administrative case before the CIR
under Section 112.18The CTA can only acquire jurisdiction over a case after the CIR has rendered its decision, or
after the lapse of the period for the CIR to act, in which case such inaction is considered a denial.19 A petition
filed prior to the lapse of the 120-day period prescribed under said Section would be premature for violating
the doctrine on the exhaustion of administrative remedies. 20
There is, however, an exception to the mandatory and jurisdictional nature of the 120+30 day period. The
Court in San Roque noted that BIR Ruling No. DA-489-03, dated December 10, 2003, expressly stated that the
"taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with
the CTA by way of Petition for Review."21 This BIR Ruling was recognized as a general interpretative rule issued
by the CIR under Section 422 of the NIRC and, thus, applicable to all taxpayers. Since the CIR has exclusive and
original jurisdiction to interpret tax laws, it was held that taxpayers acting in good faith should not be made to
suffer for adhering to such interpretations. Section 24623 of the Tax Code, in consonance with equitable
estoppel, expressly provides that a reversal of a BIR regulation or ruling cannot adversely prejudice a taxpayer
who in good faith relied on the BIR regulation or ruling prior to its reversal. Hence, taxpayers can rely on BIR
Ruling No. DA-489-03 from the time of its issuance on December 10, 2003 up to its reversal by this Court in
Aichion October 6, 2010, where it was held that the 120+30 day period was mandatory and jurisdictional.
Accordingly, the general rule is that the 120+30 day period is mandatory and jurisdictional from the effectivity
of the 1997 NIRC on January 1, 1998, up to the present. As an exception, judicial claims filed from December
10, 2003 to October 6, 201024 need not wait for the exhaustion of the 120-day period.
A review of the facts of the present case reveals that petitioner VGPC timely filed its administrative claim with
the CIR on December 6, 2006, and later, its judicial claim with the CTA on January 3, 2007. The judicial claim
was clearly filed within the period of exception and was, therefore, not premature and should not have been
dismissed by the CTA En Banc.
In the present petition, VGPC prays that the Court grant its claim for refund or the issuance of a tax credit
certificate for its unutilized input VAT in the amount of ₱14,160,807.95. The CTA Second Division, however,
only awarded the amount of ₱7,699,366.37. The petitioner has failed to present any argument to support its
entitlement to the former amount.
In any case, the Court would have been precluded from considering the same as such would require a review
of the evidence, which would constitute a question of fact outside the Court’s purview under Rule 45 of the
Rules of Court. The Court, thus, finds that the petitioner is entitled to the refund awarded to it by the CTA
Second Division in the amount of ₱7,699,366.37.
Atlas doctrine has no relevance

to the 120+30 day period for
filing judicial claim
Although the core issue of prematurity of filing has already been resolved, the Court deems it proper to discuss
the petitioner’s argument that the doctrine in Atlas, which allegedly upheld the primacy of the 2-year
prescriptive period under Section 229,should prevail over the ruling in Aichi regarding the mandatory and
jurisdictional nature of the 120+30 day period in Section 112.
In this regard, it was thoroughly explained in San Roque that the Atlas doctrine only pertains to the reckoning
point of the 2-year prescriptive period from the date of payment of the output VAT under Section 229, and has
no relevance to the 120+30 day period under Section 112, to wit:
The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the two-year
prescriptive period under Section 229, should be effective only from its promulgation on 8 June 2007 until its
abandonment on 12 September 2008 in Mirant. The Atlas doctrine was limited to the reckoning of the two-
year prescriptive period from the date of payment of the output VAT. Prior to the Atlas doctrine, the two-year
prescriptive period for claiming refund or credit of input VAT should be governed by Section 112(A) following
the verba legis rule. The Mirant ruling, which abandoned the Atlas doctrine, adopted the verba legis rule, thus
applying Section 112(A) in computing the two year prescriptive period in claiming refund or credit of input
VAT.
The Atlas doctrine has no relevance to the 120+30 day periods under Section 112(C) because the application of
the 120+30 day periods was not in issue in Atlas. The application of the 120+30 day periods was first raised in
Aichi, which adopted the verba legis rule in holding that the 120+30 day periods are mandatory and
jurisdictional. The language of Section 112(C) is plain, clear, and unambiguous. When Section 112(C) states
that "the Commissioner shall grant a refund or issue the tax credit within one hundred twenty (120) days from
the date of submission of complete documents," the law clearly gives the Commissioner 120 days within which
to decide the taxpayer’s claim. Resort to the courts prior to the expiration of the 120-day period is a patent
violation of the doctrine of exhaustion of administrative remedies, a ground for dismissing the judicial suit due
to prematurity. Philippine jurisprudence is awash with cases affirming and reiterating the doctrine of
exhaustion of administrative remedies. Such doctrine is basic and elementary. 25
[Underscoring supplied]
Thus, Atlas is only relevant in determining when to file an administrative claim with the CIR for refund or credit
of unutilized creditable input VAT, and not for determining when to file a judicial claim with the CTA. From
June 8, 2007 to September 12, 2008, the 2-year prescriptive period to file administrative claims should be
counted from the date of payment of the output VAT tax. Before and after said period, the 2-year prescriptive
period is counted from the close of the taxable quarter when the sales were made, in accordance with Section
112(A). In either case, the mandatory and jurisdictional 120+30 day period must be complied with for the filing
of the judicial claim with the CTA, except for the period provided under BIR Ruling No. DA-489-03, as
previously discussed.
The Court further noted that Atlas was decided in relation to the 1977 Tax Code which had not yet provided
for the 30-day period for the taxpayer to appeal to the CTA from the decision or inaction of the CIR over claims
for unutilized input VAT. Clearly then, the Atlas doctrine cannot be invoked to disregard compliance with the
120+30 day mandatory and jurisdictional period.26 In San Roque, it was written:
The old rule that the taxpayer may file the judicial claim, without waiting for the Commissioner’s decision if the
two-year prescriptive period is about to expire, cannot apply because that rule was adopted before the
enactment of the 30-day period. The 30-day period was adopted precisely to do away with the old rule, so that
under the VAT System the taxpayer will always have 30 days to file the judicial claim even if the Commissioner
acts only on the 120th day, or does not act at all during the 120-day period. With the 30-day period always
available to the taxpayer, the taxpayer can no longer file a judicial claim for refund or credit of input VAT
without waiting for the Commissioner to decide until the expiration of the 120-day period.27
At any rate, even assuming that the Atlas doctrine was relevant to the present case, it could not be applied
since it was held to be effective only from its promulgation on June 8, 2007 until its abandonment on
September 12, 2008 when Mirant was promulgated. The petitioner in this case filed both its administrative
and judicial claims outside the said period of effectivity.
Aichi not applied prospectively
Petitioner VGPC also argues that Aichi should be applied prospectively and, therefore, should not be applied to
the present case. This position cannot be given consideration.
Article 8 of the Civil Code provides that judicial decisions applying or interpreting the law shall form part of the
legal system of the Philippines and shall have the force of law. The interpretation placed upon a law by a
competent court establishes the contemporaneous legislative intent of the law. Thus, such interpretation
constitutes a part of the law as of the date the statute is enacted. It is only when a prior ruling of the Court is
overruled, and a different view adopted, that the new doctrine may have to be applied prospectively in favor
of parties who have relied on the old doctrine and have acted in good faith. 28
Considering that the nature of the 120+30 day period was first settled in Aichi, the interpretation by the Court
of its being mandatory and jurisdictional in nature retro acts to the date the NIRC was enacted. It cannot be
applied prospectively as no old doctrine was overturned.
The petitioner cannot rely either on the alleged jurisprudence prevailing at the time it filed its judicial claim.
The Court notes that the jurisprudence relied upon by the petitioner consists of CTA cases. It is elementary
that CTA decisions do not constitute precedent and do not bind this Court or the public. Only decisions of this
Court constitute binding precedents, forming part of the Philippine legal system. 29
As regards the cases30 which were later decided allegedly in contravention of Aichi, it is of note that all of them
were decided by Divisions of this Court, and not by the Court En Banc.1âwphi1 Any doctrine or principle of law
laid down by the Court, either rendered En Bancor in Division, may be overturned or reversed only by the
Court sitting En Banc.31Thus, the cases cited by the petitioner could not have overturned the doctrine laid
down in Aichi.
CIR not estopped
The petitioner’s argument that the CIR should have been estopped from questioning the jurisdiction of the
CTA after actively participating in the proceedings before the CTA Second Division deserves scant
consideration.
It is a well-settled rule that the government cannot be estopped by the mistakes, errors or omissions of its
agents.32It has been specifically held that estoppel does not apply to the government, especially on matters of
taxation. Taxes are the nation’s lifeblood through which government agencies continue to operate and with
which the State discharges its functions for the welfare of its constituents. 33 Thus, the government cannot be
estopped from collecting taxes by the mistake, negligence, or omission of its agents. Upon taxation depends
the ability of the government to serve the people for whose benefit taxes are collected. To safeguard such
interest, neglect or omission of government officials entrusted with the collection of taxes should not be
allowed to bring harm or detriment to the people.34
Rules on claims for refund or tax credit of unutilized input VAT
For clarity and guidance, the Court deems it proper to outline the rules laid down in San Roque with regard to
claims for refund or tax credit of unutilized creditable input VAT. They are as follows:
1. When to file an administrative claim with the CIR:
a. General rule – Section 112(A) and Mirant Within 2 years from the close of the taxable quarter when
the sales were made.
b. Exception – Atlas
Within 2 years from the date of payment of the output VAT, if the administrative claim was filed from June 8,
2007 (promulgation of Atlas) to September 12, 2008 (promulgation of Mirant).
2. When to file a judicial claim with the CTA:
a. General rule – Section 112(D); not Section 229
i. Within 30 days from the full or partial denial of the administrative claim by the CIR; or
ii. Within 30 days from the expiration of the 120-day period provided to the CIR to decide on
the claim. This is mandatory and jurisdictional beginning January L 1998 ( effectivity of 1997
NI RC).
b. Exception - BIR Ruling No. DA-489-03
The judicial claim need not await the expiration of the 120-day period, if such was filed from December 10,
2003 (issuance of BIR Ruling No. DA-489-03) to October 6, 2010 (promulgation of Aichi).
WHEREFORE, the petition is PARTIALLY GRANTED. The February 7, 2011 Decision and the June 27, 2011
Resolution of the Court of Tax Appeals En Banc, in CT A EB Case Nos. 561 and 562 are REVERSED and SET
ASIDE. The April 17, 2009 Decision and the October 29, 2009 Resolution of the CTA Former Second Division in
CTA Case No. 7559 are REINSTATED.
Public respondent is hereby ORDERED TO REFUND or, in the alternative, TO ISSUE A TAX CREDIT CERTIFICATE,
in favor or the petitioner the amount of SEVEN MILLION SIX HUNDRED NINETY NINE THOUSAND THREE
HUNDRED SIXTY SIX PESOS AND 37/100 (₱7,699,366.37) representing unutilized input VAT paid on domestic
purchases of non-capital goods and services, services rendered by nonresidents, and importations of non-
capital goods for the first to fourth quarters of taxable year 2005.
SO ORDERED.
G.R. No. 183880, January 20, 2014
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. TOLEDO POWER, INC., Respondent.
DECISION
PERALTA, J.:
This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking the reversal of
the Court of Tax Appeals (CTA) En Banc Decision1 dated May 7, 2008, and Resolution2 dated July 18, 2008.
The pertinent facts, as narrated by the CTA First Division, are as follows:chanRoblesVirtualawlibrary
Petitioner (herein respondent Toledo Power, Inc.) is a general partnership duly organized and existing under
Philippine laws, with principal office at Sangi, Toledo City, Cebu. It is principally engaged in the business of
power generation and subsequent sale thereof to the National Power Corporation (NPC), Cebu Electric
Cooperative III (CEBECO), Atlas Consolidated Mining and Development Corporation, Atlas Fertilizer
Corporation and Cebu Industrial Park Development, Inc., and is registered with the Bureau of Internal Revenue
(BIR) as a Value Added Tax taxpayer in accordance with Section 236 of the National Internal Revenue Code
(NIRC) with Tax Identification No. 003-883-626-VAT and BIR Certificate of Registration bearing RDO Control No.
94-083-000300.
On June 20, 2002, petitioner filed an application with the Energy Regulatory Commission (ERC) for the issuance
of a Certificate of Compliance pursuant to the Implementing Rules and Regulations of R.A. 9136, otherwise
known as the “Electric Power Industry Reform Act of 2007” (EPIRA).
On October 25, 2001, petitioner filed with the BIR Revenue District Office (RDO) No. 83 at Toledo City, Province
of Cebu, its Quarterly VAT Return for the third quarter of 2001, declaring among others, the
following:chanRoblesVirtualawlibrary
Zero-rated Sales/Receipts P 143,000,032.37

Taxable Sales-Sale of
378,651.74
Scrap/Others
Output Tax 34,422.89
Less: Input Tax
On Domestic Purchases 4,765,458.58
On Importation of Goods 1,242,792.00
Total Available Input Tax 6,008,250.58
Excess Input Tax &
P 5,973,827.69
Overpayment
However, an amended Quarterly VAT Return for the same quarter of 2001 was filed on November 22, 2001.
The amended return shows unutilized input VAT credits of P5,909,588.96 arising from petitioner’s taxable
purchases for the third quarter of 2001 and the following other information:chanRoblesVirtualawlibrary
Zero-rated Sales/Receipts P 143,000,032.37

378,651.74
Scrap/Others
Less: Input Tax
Excess Input Tax &
P 5,909,588.96
Overpayment
Thus, for the third quarter of 2001, petitioner allegedly has unutilized input VAT in the total amount of
P5,909,588.96 on its domestic purchase of taxable goods and services and importation of goods, which
purchases and importations are all attributable to its zero-rated sale of power generation services to NPC,
CEBECO, Atlas Consolidated Mining and Development Corporation, Atlas Fertilizer Corporation and Cebu
Industrial Park Development, Inc. Said input VAT of P5,909,588.96 paid by petitioner on its domestic purchase
of goods and services for the third quarter of 2001 allegedly remained unutilized against output VAT liability in
said period or even in subsequent matters.
On January 25, 2002, petitioner filed with the BIR RDO No. 83 at Toledo City, Province of Cebu, its Quarterly
VAT Return for the fourth quarter of 2001 declaring, among others, the following:chanRoblesVirtualawlibrary
Zero-Rated Sales/Receipts P 127,259,720.44

309,697.50
Scrap/Others
Less: Input Tax
Excess Input Tax &
P 3,219,781.31
Overpayment
Thus, petitioner allegedly had an excess input VAT credits of P3,219,781.31 for the fourth quarter of 2001
which remained unutilized against output VAT liability in said period or even in the subsequent quarters.
For the third and fourth quarters of 2001, petitioner incurred and accumulated input VAT from its domestic
purchase of goods and services, which are all attributable to its zero-rated sales of power generation services
to NPC, CEBECO, Atlas Consolidated Mining and Development Corporation, Atlas Fertilizer Corporation and
Cebu Industrial Park Development Inc., in the total amount of P9,129,370.27. Said excess and unutilized input
VAT was allegedly not utilized against any output VAT liability in the subsequent quarters nor carried over to
the succeeding taxable quarters.
On September 30, 2003, pursuant to the procedure prescribed in Revenue Regulations No. 7-95, as amended,
petitioner filed with the BIR RDO No. 83, an administrative claim for refund or unutilized input VAT for the
third and fourth quarter of 2001 in the amounts of P5,909,588.96 and P3,219,781.31, respectively, or the
aggregate amount of P9,129,370.27.
Respondent (herein petitioner Commissioner of Internal Revenue) has not ruled upon petitioner’s
administrative claim and in order to preserve its right to file a judicial claim for the refund or issuance of a tax
credit certificate of its unutilized input VAT, petitioner filed a Petition for Review to suspend the running of the
two-year prescriptive period under Section 112(D) of the 1997 NIRC and Section 4.106-2(c) of Revenue
Regulations No. 7-95, as amended. On October 24, 2003, petitioner filed a Petition for Review for the refund or
issuance of a tax credit certificate in the amount of P5,909,588.96 for the third quarter of 2001, docketed as
CTA Case No. 6805 and, on January 22, 2004, filed another Petition for Review for the refund or issuance of tax
credit certificate in the amount of P3,219,781.31 for the fourth quarter of 2001, docketed as CTA Case No.
6851, both for its unutilized input VAT paid by petitioner on its domestic purchases of goods and services and
importation of goods attributable to zero-rated sales.
On January 30, 2004, petitioner filed a Motion for Consolidation CTA Case Nos. 6805 and 6851, since these
cases involve the same parties, same facts and issues. The said Motion was granted in open court on February
27, 2004 and confirmed in a Resolution dated March 8, 2004.
xxxx
After presenting its testimonial and documentary evidence, petitioner formally offered its evidence on
February 16, 2006. On March 24, 2006, this Court promulgated a Resolution admitting all the exhibits offered
by petitioner. Respondent, on the other hand, failed to adduce any evidence.
In a Resolution dated July 6, 2006, this consolidated case was ordered submitted for decision with only
petitioner’s Memorandum, as respondent failed to file one within the period given by the Court. 3
Acting on the petition, the CTA First Division issued a Decision dated May 17, 2007 partially granting Toledo
Power, Inc.’s (TPI) refund claim or issuance of tax credit certificate. Pertinent portions of the Decision
read:chanRoblesVirtualawlibrary
In sum, petitioner was able to show its entitlement to the refund or issuance of tax credit certificate in the
amount of P8,553,050.44 computed as follows:chanRoblesVirtualawlibrary
Total Available Input VAT P 9,191,947.49

Less: Disallowed Input VAT
(P20,696.34+P52,363.64+P277,207.50) 350,267.48
Substantiated available input VAT P 8,841,680.01
Less: Output VAT 62,577.22
Substantiated Unutilized Input VAT P 8,779,102.79
Multiply by the ratio of substantiated

zero-rated sales to the total zero-rated
sales
Substantiated zero-rated sales 263,300,858.02

Total zero-rated sales 270,259,752.81
Refundable Input VAT P 8,553,050.44
IN VIEW OF THE FOREGOING, the Petition for Review is PARTIALLY GRANTED. Respondent is
hereby ORDERED to refund or to issue a tax credit certificate in favor of petitioner in the reduced amount of
P8,553,050.44 representing the substantiated unutilized input VAT for the third and fourth quarters of 2001.
SO ORDERED.4
The Commissioner of Internal Revenue (CIR), thereafter, filed a Motion for Reconsideration against said
Decision. However, the same was denied in a Resolution dated October 15, 2007.
On appeal to the CTA En Banc, the CIR argued that TPI failed to comply with the invoicing requirements to
prove entitlement to the refund or issuance of tax credit certificate. In addition, he challenged the jurisdiction
of the CTA First Division to entertain respondent’s petition for review for failure on its part to comply with the
provisions of Section 112 (C) of the Tax Code.
In a Decision dated May 7, 2008, the CTA En Banc affirmed with modification the First Division’s assailed
decision. It held -
x x x after re-examination of the records of this case, out of the alleged Zero-rated sales amounting to
P270,259,752.81, only the amount of P248,989,191.87 is fully substantiated. Therefore, respondent is entitled
to the refund or issuance of tax credit certificate in the amount of P8,088,151.07 computed as
follows:chanRoblesVirtualawlibrary
Total Available Input VAT P 9,191,947.49

Less: Disallowed Input VAT
(P20,696.34+P52,363.64+P277,207.50) 350,267.48
Substantiated available input VAT P 8,841,680.01
Less: Output VAT 62,577.22
Substantiated Unutilized Input VAT P 8,779,102.79
Multiply by the ratio of substantiated
zero-rated sales to the total zero-rated
sales
Substantiated zero-rated sales 248,989,191.87

Total zero-rated sales 270,259,752.81
Refundable Input VAT P 8,088,151.07
WHEREFORE, premises considered, the Petition for Review En Banc is DENIED for lack of merit. Accordingly,
the Decision dated May 17, 2007 and Resolution dated October 15, 2007 are AFFIRMED with MODIFICATION.
Petitioner is hereby ORDERED TO REFUND to respondent the sum of EIGHT MILLION EIGHTY-EIGHT
THOUSAND ONE HUNDRED FIFTY-ONE PESOS AND SEVEN CENTAVOS (P8,088,151.07) only for the third and
fourth quarters of taxable year 2001.
SO ORDERED.5
In a Resolution dated July 18, 2008, the CTA En Banc denied the CIR’s motion for reconsideration.
Undaunted by the adverse ruling of the CTA, the CIR now seeks recourse to this Court on the following
ground:chanRoblesVirtualawlibrary
THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT THE GOVERNMENT IS LIABLE TO REFUND
PETITIONER FOR ALLEGED OVERPAYMENT OF VAT.6
In essence, two issues must be addressed to determine whether TPI is indeed entitled to its claim for refund or
issuance of tax credit certificate: (1) whether TPI complied with the 120+30 day rule under Section 112 (C) of
the Tax Code, and (2) whether TPI sufficiently complied with the invoicing requirements under the Tax Code.
Let us discuss the issues in seriatim.
First, it must be emphasized that to validly claim a refund or tax credit of input tax, compliance with the
120+30 day rule under Section 112 of the Tax Code is mandatory.
Pertinent portions of Section 112 of the Tax Code, as amended by Republic Act No.
9337,7 state:chanRoblesVirtualawlibrary
SEC. 112. Refunds or Tax Credits of Input Tax. -
(A) Zero-rated or Effectively Zero-Rated Sales. - Any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable
to such sales, except transitional input tax, to the extent that such input tax has not been applied against
output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (b)
and Section 108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly
accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided,
further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or
exempt sale of goods of properties or services, and the amount of creditable input tax due or paid cannot be
directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis
of the volume of sales: Provided, finally, That for a person making sales that are zero-rated under Section
108(B)(6), the input taxes shall be allocated ratably between his zero-rated and non-zero-rated sales.
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 part of the
Commissioner to act on the application within the period prescribed above, the taxpayer 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.
Section 112 decrees that a VAT-registered person, whose sales are zero-rated or effectively zero-rated, may
apply for the issuance of a tax credit or refund creditable input tax due or paid attributable to such sales within
two years after the close of the taxable quarter when the sales were made. From the date of submission of
complete documents in support of its application, the CIR has 120 days to decide whether or not to grant the
claim for refund or issuance of tax credit certificate. In case of full or partial denial of the claim for tax refund
or tax credit, or the failure on the part of the CIR to act on the application within the given period, the taxpayer
may, within 30 days from receipt of the decision denying the claim or after the expiration of the 120-day
period, appeal with the CTA the decision or inaction of the CIR.
Recently, in the consolidated cases of Commissioner of Internal Revenue v. San Roque Power
Corporation,8 (San Roque), the Court confirmed the mandatory and jurisdictional nature of the 120+30 day
rule. It ratiocinated as follows:chanRoblesVirtualawlibrary
At the time San Roque filed its petition for review with the CTA, the 120+30 day mandatory periods were
already in the law. Section 112 (C) expressly grants the Commissioner 120 days within which to decide the
taxpayer’s claim. The law is clear, plain and unequivocal: “x x x the Commissioner shall grant a refund or issue
the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of
submission of complete documents.” Following the verba legis doctrine, this law must be applied exactly as
worded since it is clear, plain and unequivocal. The taxpayer cannot simply file a petition with the CTA without
waiting for the Commissioner’s decision within the 120-day mandatory and jurisdictional period. The CTA will
have no jurisdiction because there will be no “decision” or “deemed a denial” decision of the Commissioner
for the CTA to review. In San Roque’s case, it filed its petition with the CTA a mere 13 days after it filed its
administrative claim with the Commissioner. Indisputably, San Roque knowingly violated the mandatory 120-
day period, and it cannot blame anyone but itself.
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction
of the Commissioner, thus:chanRoblesVirtualawlibrary
x x x the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or
after the expiration of the one-hundred twenty day-period, appeal the decision or the unacted claim with the
Court of Tax Appeals. (Emphasis supplied.)
This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law should be
applied exactly as worded since it is clear, plain and unequivocal. As this law states, the taxpayer may, if he
wishes, appeal the decision of the Commissioner to the CTA within 30 days from receipt of the Commissioner’s
decision, or if the Commissioner does not act on the taxpayer’s claim within the 120-day period, the taxpayer
may appeal to the CTA within 30 days from the expiration of the 120-day period.
xxxx
When Section 112 (C) states that “the taxpayer affected may, within thirty (30) days from receipt of the
decision denying the claim or after the expiration of the one hundred twenty-day period, appeal the decision
or the unacted claim with the Court of Tax Appeals,” the law does not make the 120+30 day periods optional
just because the law uses the word “may.” The word “may” simply means that the taxpayer may or may not
appeal the decision of the Commissioner within 30 days from receipt of the decision, or within 30 days from
the expiration of the 120-day period. Certainly by no stretch of the imagination can the word “may” be
construed as making the 120+30 day periods optional, allowing the taxpayer to file a judicial claim one day
after filing the administrative claim with the Commissioner.
The old rule that the taxpayer may file the judicial claim, without waiting for the Commissioner’s decision if the
two-year prescriptive period is about to expire, cannot apply because that rule was adopted before the
enactment of the 30-day period. The 30-day period was adopted precisely to do away with the old rule, so
that under the VAT System the taxpayer will always have 30 days to file the judicial claim even if the
Commissioner acts only on the 120th day, or does not act at all during the 120-day period. With the 30-day
period always available to the taxpayer, the taxpayer can no longer file a judicial claim for refund or credit of
input VAT without waiting for the Commissioner to decide until the expiration of the 120-day period.
To repeat, a claim for tax refund or credit, like a claim for tax exemption, is construed strictly against the
taxpayer. One of the conditions for a judicial claim of refund or credit under the VAT System is compliance
with the 120+30 day mandatory and jurisdictional periods. Thus, strict compliance with the 120+30 day
periods is necessary for such a claim to prosper, whether before, during, or after the effectivity of the Atlas
doctrine, except for the period from the issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6
October 2010 when the Aichi doctrine was adopted, which again reinstated the 120+30 day periods as
mandatory and jurisdictional.9
In a nutshell, the rules on the determination of the prescriptive period for filing a tax refund or credit of
unutilized input VAT, as provided in Section 112 of the Tax Code, are as follows:chanRoblesVirtualawlibrary
(1) An administrative claim must be filed with the CIR within two years after the close of the taxable quarter
when the zero-rated or effectively zero-rated sales were made.
(2) The CIR has 120 days from the date of submission of complete documents in support of the
administrative claim within which to decide whether to grant a refund or issue a tax credit certificate.
The 120-day period may extend beyond the two-year period from the filing of the administrative claim if
the claim is filed in the later part of the two-year period. If the 120-day period expires without any
decision from the CIR, then the administrative claim may be considered to be denied by inaction.
(3) A judicial claim must be filed with the CTA within 30 days from the receipt of the CIR’s decision denying
the administrative claim or from the expiration of the 120-day period without any action from the CIR.
(4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10
December 2003 up to its reversal by this Court in Aichi on 6 October 2010, as an exception to the
mandatory and jurisdictional 120+30 day periods.10
Here, TPI filed its third and fourth quarterly VAT returns for 2001 on October 25, 2001 and January 25, 2002,
respectively. It then filed an administrative claim for refund of its unutilized input VAT for the third and fourth
quarters of 2001 on September 30, 2003. Thus, the CIR had 120 days or until January 28, 2004, after the
submission of TPI’s administrative claim and complete documents in support of its application, within which to
decide on its claim. Then, it is only after the expiration of the 120-day period, if there is inaction on the part of
the CIR, where TPI may elevate its claim with the CTA within 30 days.
In the present case, however, it appears that TPI’s judicial claims for refund of its unutilized input VAT covering
the third and fourth quarters of 2001 were prematurely filed on October 24, 2003 and January 22, 2004,
respectively.
However, although TPI’s judicial claim for the fourth quarter of 2001 has been filed prematurely, the most
recent pronouncements of the Court provide for a window wherein the same may be entertained.
As held in the San Roque ponencia, strict compliance with the 120+30 day mandatory and jurisdictional
periods is not necessary when the judicial claims are filed between December 10, 2003 (issuance of BIR Ruling
No. DA-489-03 which states that the taxpayer need not wait for the 120-day period to expire before it could
seek judicial relief) to October 6, 2010 (promulgation of the Aichi doctrine).
Clearly, therefore, TPI’s refund claim of unutilized input VAT for the third quarter of 2001 was denied for being
prematurely filed with the CTA, while its refund claim of unutilized input VAT for the fourth quarter of 2001
may be entertained since it falls within the exception provided in the Court’s most recent rulings.
With that settled, we now resolve the issue of whether TPI sufficiently complied with the invoicing
requirements under the Tax Code with respect to the fourth quarter of 2001.
Section 113 (A), in relation to Section 237 of the Tax Code, provides:chanRoblesVirtualawlibrary
SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. -
(A) Invoicing Requirements. - A VAT-registered person shall, for every sale, issue an invoice or receipt. In
addition to the information shall be indicated in the invoice or receipt:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayer’s identification
number (TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication
that such amount includes value-added tax.
xxxx
SEC. 237. - Issuance of Receipts or Sales of Commercial Invoices. - All persons subject to an internal revenue tax
shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or
more, issue duly registered receipts or sales or commercial invoices, prepared at least in duplicate, showing
the date of transaction, quantity, unit cost and description of merchandise or nature of service: Provided,
however, That in the case of sales, receipts or transfers in the amount of One hundred pesos (P100.00) or
more, or regardless of the amount, where the sale or transfer is made by a person liable to value-added tax to
another person also liable to value-added tax; or where the receipt is issued to cover payment made as
rentals, commissions, compensations or fees, receipts or invoices shall be issued which shall show the name,
business style, if any, and address of the purchaser, customer or client: Provided, further,That where the
purchaser is a VAT-registered person, in addition to the information herein required, the invoice or receipts
shall further show the Taxpayer Identification Number (TIN) of the purchaser.
Section 4.108-1 of Revenue Regulations No. 7-95 states:chanRoblesVirtualawlibrary
Section 4.108-1. Invoicing Requirements - All VAT-registered persons shall, for every sale or lease of goods or
properties or services, issue duly registered receipts or sales or commercial invoices which must
show:chanRoblesVirtualawlibrary
1. the name, TIN and address of seller;

2. date of transaction;
3. quantity, unit cost and description of merchandise or nature of service;
4. the name, TIN, business style, if any, and address of the VAT-registered purchaser, customer
or client;
5. the word “zero-rated” imprinted on the invoice covering zero-rated sales; and
6. the invoice value or consideration.11
In the present case, we agree with the CTA’s findings that the words “zero-rated” appeared on the VAT
invoices/official receipts presented by the TPI in support of its refund claim. Although the same was merely
stamped and not pre-printed, the same is sufficient compliance with the law, since the imprinting of the word
“zero-rated” was required merely to distinguish sales subject to 10% VAT, those that are subject to 0% VAT
(zero-rated) and exempt sales, to enable the Bureau of Internal Revenue to properly implement and enforce
the other VAT provisions of the Tax Code.
Moreover, it is doctrinal that the Court will not lightly set aside the conclusions reached by the CTA which, by
the very nature of its function of being dedicated exclusively to the resolution of tax problems, has accordingly
developed an expertise on the subject, unless there has been an abuse or improvident exercise of
authority.12crallawlibrary
In Barcelon, Roxas Securities, Inc. v. Commissioner of Internal Revenue,13 the Court held that it accords the
findings of fact by the CTA with the highest respect. It ruled that factual findings made by the CTA can only be
disturbed on appeal if they are supported by substantial evidence or there is a showing of gross error or abuse
on the part of the Tax Court. In the absence of any clear and convincing proof to the contrary, this Court must
presume that the CTA rendered a decision which is valid in every respect. 14crallawlibrary
WHEREFORE, premises considered, the instant petition is PARTIALLY GRANTED. The Commissioner of Internal
Revenue is hereby ORDERED to refund or issue tax credit certificate in favor of Toledo Power, Inc. only for the
fourth quarter of 2001. This case is hereby REMANDED to the Court of Tax Appeals for the proper
computation of the refundable amount representing unutilized input VAT for the fourth quarter of 2001.
SO ORDERED.
[G.R. No. 182364 : August 03, 2010]
AT&T COMMUNICATIONS SERVICES PHILIPPINES, INC., PETITIONER, VS. COMMISSIONER OF INTERNAL

REVENUE, RESPONDENT.
DECISION
CARPIO MORALES, J.:
AT&T Communications Services Philippines, Inc. (petitioner) is a domestic corporation primarily engaged in the
business of providing information, promotional, supportive and liaison services to foreign corporations such as
AT&T Communications Services International Inc., AT&T Solutions, Inc., AT&T Singapore, Pte. Ltd.,, AT&T
Global Communications Services, Inc. and Acer, Inc., an enterprise registered with the Philippine Economic
Zone Authority (PEZA).
Under Service Agreements forged by petitioner with the above-named corporations, remuneration is paid in
U.S. Dollars and inwardly remitted in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP).
For the calendar year 2002, petitioner incurred input VAT when it generated and recorded zero-rated sales in
connection with its Service Agreements in the peso equivalent of P56,898,744.05. Petitioner also incurred
input VAT from purchases of capital goods and other taxable goods and services, and importation of capital
goods.
Despite the application of petitioner's input VAT against its output VAT, an excess of unutilized input VAT in
the amount of P2,050,736.69 remained. As petitioner's unutilized input VAT could not be directly and
exclusively attributed to either of its zero-rated sales or its domestic sales, an allocation of the input VAT was
made which resulted in the amount of P1,801,826.82 as petitioner's claim attributable to its zero-rated sales.
On March 26, 2004, petitioner filed with the Commissioner of Internal Revenue (respondent) an application for
tax refund and/or tax credit of its excess/unutilized input VAT from zero-rated sales in the said amount of
P1,801,826.82.[1]
To prevent the running of the prescriptive period, petitioner subsequently filed a petition for review with the
Court of Tax Appeals (CTA) which was docketed as CTA Case No. 6907 and lodged before its First Division.
In support of its claim, petitioner presented documents including its Summary of Zero-Rated Sales (Exhibit
"DD") with corresponding supporting documents; VAT invoices on which were stamped "zero-rated" and bank
credit advices (Exhibits "EE-1" to "EE-56"); copies of Service Agreements (Exhibits "N" to "Q"); and report of
the commissioned certified public accountant (Exhibit "AA" to "AA-22").
After petitioner presented its evidence, respondent did not, despite notice, proffer any opposition to it. He
was eventually declared to have waived his right to present evidence.
By Decision of February 23, 2007,[2] the CTA First Division, conceding that petitioner's transactions fall under
the classification of zero-rated sales, nevertheless denied petitioner's claim "for lack of substantiation,"
disposing as follows:
In reiteration, considering that the subject revenues pertain to gross receipts from services rendered by
petitioner, valid VAT official receipts and not mere sales invoices should have been submitted in support
thereof. Without proper VAT official receipts, the foreign currency payments received by petitioner from
services rendered for the four (4) quarters of taxable year 2002 in the sum of US$1,102,315.48 with the peso
equivalent of P56,898,744.05 cannot qualify for zero-rating for VAT purposes. Consequently, the claimed input
VAT payments allegedly attributable thereto in the amount of P1,801,826.82 cannot be granted. It is clear
from the provisions of Section 112 (A) of the NIRC of 1997 that there must be zero-rated or effectively zero-
rated sales in order that a refund of input VAT could prosper.
x x x x[3] (emphasis and underscoring supplied)
The CTA First Division, relying on Sections 106[4] and 108[5] of the Tax Code, held that since petitioner is
engaged in sale of services, VAT Official Receipts should have been presented in order to substantiate its claim
of zero-rated sales, not VAT invoices which pertain to sale of goods or properties.
On petition for review, the CTA En Banc, by Decision of February 18, 2008,[6] affirmed that of the CTA First
Division. Petitioner's motion for reconsideration having been denied by Resolution of April 2, 2008, the
present petition for review was filed.
The petition is impressed with merit.
A taxpayer engaged in zero-rated transactions may apply for tax refund or issuance of tax credit certificate for
unutilized input VAT, subject to the following requirements: (1) the taxpayer is engaged in sales which are
zero-rated (i.e., export sales) 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; (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; and (5) in case of zero-rated sales under Section
106 (A) (2) (a) (1) and (2), Section 106 (B) and Section 108 (B) (1) and (2), the acceptable foreign currency
exchange proceeds thereof have been duly accounted for in accordance with BSP rules and regulations. [7]
Commissioner of Internal Revenue v. Seagate Technology (Philippines) [8] teaches that petitioner, as zero-rated
seller, hence, directly and legally liable for VAT, can claim a refund or tax credit certificate.
Zero-rated transactions generally refer to the export sale of goods and supply of services. The tax rate is set at
zero. When applied to the tax base, such rate obviously results in no tax chargeable against the purchaser.
The seller of such transactions charges no output tax but can claim a refund or a tax credit certificate for the
VAT previously charged by suppliers. x x x
Applying the destination principle to the exportation of goods, automatic zero rating is primarily intended to
be enjoyed by the seller who is directly and legally liable for the VAT, making such seller internationally
competitive by allowing the refund or credit of input taxes that are attributable to export sales. (emphasis and
underscoring supplied)
Revenue Regulation No. 3-88 amending Revenue Regulation No. 5-87 provides the requirements in claiming
tax credits/refunds:
Sec. 2. Section 16 of Revenue Regulations 5-87 is hereby amended to read as follows: x x x
(c) Claims for tax credits/refunds - Application for Tax Credit/Refund of Value-Added Tax Paid (BIR Form No.
2552) shall be filed with the Revenue District Office of the city or municipality where the principal place of
business of the applicant is located or directly with the Commissioner, Attention: VAT Division.
A photocopy of the purchase invoice or receipt evidencing the value added tax paidshall be submitted
together with the application. The original copy of the said invoice/receipt, however shall be presented for
cancellation prior to the issuance of the Tax Credit Certificate or refund. x x x (emphasis and underscoring
supplied)
Section 113 of the Tax Code does not create a distinction between a sales invoice and an official receipt.
Sec. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. -
(A) Invoicing Requirements. - A VAT-registered person shall, for every sale, issue an invoice or receipt. In
addition to the information required under Section 237, the following information shall be indicated in the
invoice or receipt:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number
(TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such
amount includes the value-added tax. (emphasis, italics and underscoring supplied)
Section 110 of the 1997 Tax Code in fact provides:
Section 110. Tax Credits -
A. Creditable Input Tax. -
(1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof
on the following transactions shall be creditable against the output tax:
(b) Purchase of services on which a value-added tax has actually been paid. (emphasis, italics and underscoring
supplied)
Parenthetically, to determine the validity of petitioner's claim as to unutilized input VAT, an invoice would
suffice provided the requirements under Sections 113 and 237 of the Tax Code are met.
Sales invoices are recognized commercial documents to facilitate trade or credit transactions. They are proofs
that a business transaction has been concluded, hence, should not be considered bereft of probative
value.[9] Only the preponderance of evidence threshold as applied in ordinary civil cases is needed to
substantiate a claim for tax refund proper.[10]
IN FINE, the Court finds that petitioner has complied with the substantiation requirements to prove
entitlement to refund/tax credit. The Court is not a trier of facts, however, hence the need to remand the case
to the CTA for determination and computation of petitioner's refund/tax credit.
WHEREFORE, the petition is GRANTED. The Decision of February 18, 2008 of the Court of Tax Appeals En
Banc is REVERSED and SET ASIDE. Let the case be REMANDED to the Court of Tax Appeals First Division for the
determination of petitioner's tax credit/refund.
SO ORDERED.

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COMMISSIONER OF G.R. No.

or revoke the above requirements are ultra vires and invalid.

WHEREFORE, premises considered, the petition is hereby DISMISSED for lack of

Quoting the CTA, the CA narrated the undisputed facts as follows:

[Respondent] is a Philippine branch of American Express International, Inc., a

Exhibit Period Covered Date Filed

D 1997 1st Qtr. April 18, 1997

Taxable Output Zero-rated Domestic Input

I 1st qtr P59,597.20 P5,959.72 P17,513,801.11 P6,778,182.30 P677,818.23

Total P247,045.30 P24,704.53 P80,309,633.20 P37,630,604.30 P3,763,060.43

Section 110. Tax Credits. -

There being no immediate action on the part of the [petitioner], [respondents]

A. Export sales by a VAT-registered person, the consideration for

Section 102.(sic) Value-added tax on sale of

In addition, [respondent] relied on VAT Ruling No. 080-89, dated

In Reply, please be informed that, as a VAT

B. Input taxes on domestic purchases of taxable goods and services

Section 106. Refunds or tax credits of input tax.

(A) Zero-rated or effectively Zero-rated Sales.

Section 8. Zero-rating. - (a) In general. - A zero-

7. The claim for refund is subject to investigation by the Bureau of

8. Taxes paid and collected are presumed to have been made in

9. Moreover, [respondent] must prove that it has complied with the

Section 204. Authority of the Commissioner to

(C) Credit or refund taxes erroneously or illegally

Section 229. Recovery of tax erroneously or

In any case, no such suit or proceeding shall be

WHEREFORE, in view of all the foregoing, this Court finds the

Ruling of the Court of Appeals

respondents services be consumed abroad in order to be zero-rated, petitioner went

Ruling No. 080-89 for zero rating.

Hence, this Petition.[9]

Petitioner raises this sole issue for our consideration:

The Courts Ruling

The Petition is unmeritorious.

Section 102 of the Tax Code[11] provides:

(1) Processing, manufacturing or repacking goods for other persons

(2) Services other than those mentioned in the preceding

rules and regulations of the BSP, are zero-rated.

The Credit Card System

this system can certainly function as separate billable services.

send the drafts evidencing those receivables to the latter.

company sustains the loss.[25]

In the present case, respondents role in the consumer credit[26]

Branch and Home Office

the nature of export sales as

VAT Requirements for

Tax Code, other special laws, or any international agreement.[50]

with a reasonable degree of frequency; and not at random, fortuitous or attenuated.

conformity with law.

while imports are taxed.

as petitioner asserts, such service is subject to VAT at the rate of 10 percent.

Respondents Services Exempt

currency accounted for in accordance with BSP rules and regulations.

Performance of Service versus

to see to it that its mandate is obeyed.[68]

SECTION 8. Zero-rating. -- (a) In general. -- A zero-rated sale is a taxable transaction

(c) Zero-rated sales of services. -- The following services rendered by VAT-

(1) Services in connection with the processing,

RR 7-95 provides thus:

SECTION 4.102-2. Zero-Rating. -- (a) In general. -- A zero-rated sale by a VAT registered

(b) Transaction subject to zero-rate. -- The following services performed in the

(1) Processing, manufacturing or repacking goods for other persons

1.��Whether or not petitioner�s sales are subject to value-added taxes at effectively

3.��Whether or not petitioner�s importation and purchases of capital goods and

6.��Whether or not petitioner is entitled to a refund of VAT input taxes it paid

��SEC 106. Value-Added Tax on Sale of Goods or Properties.

(B)��Transactions Deemed Sale.�The following transactions shall be deemed sale:

��(1)�Transfer, use or consumption not in the course of business of

��(2)�Distribution or transfer to:

��(a) Shareholders or investors as share in the profits of

��(b) Creditors in payment of debt;

��(4) �Retirement from or cessation of business, with respect to

��Substantial justice, equity and fair play are on the side of

��Sec. 13.�Non-profit Character of the Corporation; Exemption from all Taxes,

��Section 1.�Declaration of Policy.�Congress hereby declares that (1) the